hi the chairman has asked me to inform you all that there is a nother motion to recommit so it's going to be another twenty minutes so i just want to let you know that thank you hi i'm sorry to have to announce the chairman wanted me to let you know i think it could be another about twenty minutes or so more procedural those undertaken in the house for other reasons than the flow of legislative business so we are expecting that there may be some interruptions in the hearing what i'd like to do is is to not have that affect your appearance here on the value of your testimony so what we'll try to do is if there are any disruptions we'll we'll try to ask members to go and vote and come back while we continue the hearing that's that's the theory anyway but let me first call this subcommittee hearing to water today's hearing will examine the federal employees health benefits program drug drug benefit and the impact that the lack of pricing transparency has on the office of personnel management civility to evaluate the overall value of those benefits the hearing allows so discuss alternative pricing and contracting methods for the f d a prescription drug benefit the chair the ranking member and subcommittee members will each have five minutes to make opening statements and all members will have three days to submit statements for the record at this time i'd like to ask unanimous consent that the testimonies from change to win and the national community pharmacist association be submitted for the record hearing no objection it is so ordered again because of the irregularities on the on the floor we're going to proceed with as many members as we have available first of all i'd like to welcome all of our witnesses and the fellow members who will attend eventually as we examine this prescription drug benefit in the federal employee health benefit program and i also like to thank all of today's witnesses for sharing their inside and expertise on this complex issue i understand the several of you have come from quite a distance to be here with us today and i deeply appreciate your willingness to help the subcommittee gain a better understanding of how the f d a b p the federal employees health benefits program prescription drug benefit is structured and priced the federal government is commonly facing one of the largest policy issues to date healthcare reform this issue affects everyone and many challenges must be addressed in the upcoming months to find the right solutions many policymakers look to the federal employee health benefits program as a model for providing health care that's why it's important to ensure that the program is providing the best quality in benefits at the best price entitled federal employees health benefit programs prescription drug benefits deal or no deal we've called for this afternoon's hearing to examine the contracting method used to deliver prescription drugs to the eight million federal employees their dependents and what ins and members of congress and their families that are cowards covered under this program considering that prescription drug costs make up close to thirty percent of the federal employees health in our program premiums we need to do all we can to ensure that federal employees and the tax perry getting the best value for their dollars astonishingly limited reviews are analyses have been performed on this increasingly expensive benefit but that will change starting today for the most part the federal employee health benefit program health plan contract with pharmacy benefit managers to price and provide the pharmacy benefit to federal employee health benefit plan members in contrast with other federal health programs the federal employee health benefit plan does not regulate or negotiate drug pricing for its members instead it relies on the competition among various carriers and pharmacy benefit manages to keep prices low however as we will here today prices are not low in fact when comparing the federal employee health benefit program drug prices to that of other federal programs such as the v a and the department of defense medicare medicaid in the public health service three forty b program we will hear that along with the medicare age b p is paying substantially more for its drugs than the other federal programs some research even shows that cosco and drugstore dot com offer better prices for drugs than the federal employee health benefit program that's in spite of the fact that the federal employee health benefit program has the buying power of eight million members with us especially troubling in these economically challenging times we shouldn't be asking federal employees in the american taxpayer to accept this if the federal employee health benefit plan wants to remain a model for providing health benefits legislative changes that allow for alternative prescription drug benefit contracting and pricing are in order the cui the key question we hope to explore today is why are the federal government and therefore the taxpayers paying such different amounts for the same drug and i'm not an expert on pharmaceutical pricing but i have a hunch that the pharmaceutical industry charges what they can to make the largest profits for the first six months of two thousand and six the ten largest drug manufacturers enjoy enjoyed profits of close to forty billion dollars so do i think that the pharmaceutical industry could afford to charge lower prices for our federal employees i certainly do as chairman of the subcommittee i'm committed to providing the best benefits to our federal employees at the best price and we in congress have asked a lot of taxpayers in the last few months to help us out with that very function but that we have a responsibility to make sure every dollar is spent that is spent is necessary and is providing the greatest benefit again i thank all of those attend in attendance and i look forward to hearing from today's witnesses normally i would yield to mister chase it's i will of course afford every courtesy to members as they arrive so even though we may have to skip forward in the proceedings i will certainly recognize the ranking member and and my other colleagues as they do arrive  testimony you'll be giving before the subcommittee is the truth the whole truth and nothing but the truth but the record indicate that the witnesses of answered in the affirmative your entire written statement will be entered into the record you don't have to worry about that however during oral testimony and what you will summarize that the green light before you in that little box indicates you have five minutes to summarize your statement the yellow light means that you have one minute remaining to complete your statement and the red light indicates your time for remarks has ended so i will proceed with with the testimony let me first to pack patrick mcfarlin was nominated in the specter general of the office of personnel management in one nine hundred ninety as inspector general mr mcfarland is responsible for prior to providing leadership that is independent nonpartisan and objective and is dedicated to identifying fraud and mismanagement in programs administered by the office of personnel management mr mcfarlane is also a member of the council of inspectors general on integrity and efficiency susan hayes is the founder of pharmacy outcome specialists t o s with twenty eight years of experience in the health consulting and management industry before founding pharmacy outcome specialist she was a vice president of marketing for us just a system ed pharmacy inc and vice president of marketing for walgreens healthcare plus ms hayes was the national practice leader full william m mercer incorporated specializing in prescription drug auditing and did procurement amounted to over one million dollars annually in revenue and as was mr james sheehan has served as new york state medicaid inspector general he has the been the associate us attorney for civil programs sheehan led the federal government's investigation in a case against medco health solutions which resulted in the recovery of over one hundred fifty five million dollars as well as substantial business changes to protect patients and pharmacist already i'm being asked to vote having no other members here that might be able to do this while i vote i'm going to have to ask you to just hang in there and relax i'll b thank you or in a brief recess german lanch ranking member j fits and members of the subcommittee good afternoon my name is patrick mcfarland i am the inspector general of the united states office of personnel management i want to thank you for inviting me to testify to today's hearing and especially for recognizing the significance of pharmacy benefits manager contracts and their lack of price transparency in the context of the federal employees health benefits program i am pleased to be appearing with my fellow panelists mr shand is particularly well known to my office as we had the privilege of participating in a number of health benefit fraud cases some of which addressed instances of wrongdoing by p b s that he conducted during his tenure associate united states attorney in the eastern district of pennsylvania we found both physics expertise on these matters and his leadership in complex high value cases to be unparalleled similarly  of my staff who are responsible for auditing the federal employees health benefits plans and their p v m's have attended training programs conducted by ms hays is firm they speak very highly of the tra is the largest employer sponsored health insurance program in the united states during calendar year two thousand and eight the two hundred sixty six insurance plans under contract to the f e h p p provided health insurance coverage to approximately seven point seven million persons representing federal employees annuitants and dependents the federal employee benefits program paid a total of thirty five point nine billion in premiums to these carriers as reported to a o p m by f e a p p carriers pharmacy costs reflected more than twenty five percent of health care costs paid by the fee for service plans according to data furnished by o p s contracting office twelve different p b s provided services to one or more if the h p p plans during two thousand and eight my office has been addressing p b m issues from both an audit investigative perspective since two thousand and three we were initially concerned that the health and safety of persons covered by the f d a b p may have been placed at risk by certain practices of p b s as a result of our timely law enforcement efforts we addressed and resolved these concerns without direct harm to a fee h p p covered persons at this time we have no information which suggest ems under contract with the efi h p p are operating in a manner that would compromise the well being of covered persons however the prior violations are a strong reminder that the potential for safety risks to subscribers exists through poorly written contracts lack of adequate industry oversight and the need for additional internal controls currently in my offices estimation the single most important issue involving the p b s is that the contracts with the f d a to b p carry carriers are not transparent and do not reflect the actual cost of drugs to the p b m my office is committed to providing i want to thank you for the opportunity to satisfy in front of you and answer your questions this afternoon my name is susan hayes and i'm a principal with pharmacy all comes back to life in preparing my testimony today i examine the problems encountered by  state governments when when contracting for pharmacy benefits i see three major issues let's take these issues one of the top the pricing of prescription drugs is overly complex and hidden to purchasers designed to confuse plan sponsors and insurance advantage plan sponsors in the negotiation process prices of prescription brand drugs are based on discounts off average wholesale price or any w p the source of a w p pricing is primarily two pricing gu which made charge as much as twenty five thousand dollars per year to subscribe to to obtain a w p prices hit a few papers as may change on a daily basis and are complicated by the fact that a single drug may have over fifty prices due to different strengths package sizes and manufacturers as a result plan sponsors such as o p m have to pay exorbitant amounts or why are auditors such as pos to determine if they have been charged correctly in accordance with the discount arrangements m prices for generic drugs are even more secrets of each p b m such a mac less maximum allowable cost which is closely guarded which is not routinely given to clients and for which auditors must sign sturgeon nondisclosure agreements to obtain mac prices may vary by the day the pharmacy of a swing science of the same t v s in fact each p p m may have over fifty different macs less auditing that these prices are complicated even for the most experienced auditors and impossible for plan sponsored contracts between p p m simply and sponsors even the largest plan sponsors such as o p m to not adequately disclose when p b s realize revenue and as a result is advantaged plans sponsors and then negotiation process in a recent decision the first circuit court of appeals observed quote the health benefit provider often has no idea that a p p m may not be working in its interests this lack of awareness as a result of the fact that there is little transparency in the p b s dealings with manufacturers and pharmacies so essentially these contracts do not disclose the following there are just dish no money is our margin perhaps as much as five percent of the drugs that are retained by p b s too often as much as fifty percent of drug manufacture rebate payments are never plowed passed back to plan sponsors but i retained by the  come up with different names for these rebates such as cost effectiveness rebates formulary rebates and market share rebates and then the p b m determines how to divide up the pie everybody and retain what they want and pass back to plan sponsors  the client expects without the client knowing that there are more three patients or history isn't for just a position prescribing patterns are routinely sold to drug companies for profits by p b s without position patients or plan sponsor knowledge or approval and without compensation by the plant sponsor or our patient well i guess transparencies m p v i'm contracting is aspirated by p b s resistance to disclose its information just disclosure of public information even when the disclosure is required by state sunshine laws for example one p p m has brought at least eleven suffer lawsuits seeking as a block the release of his contract covering public employees and taxes even if after the attacks such as attorney general is your legal opinions in each instance stating that the p b m contract at issue should be release of a public document contracts between p m s and plan sponsors limits plan sponsors ability audit these contracts and to disadvantage plan sponsors from verifying a contract terms are met among the most insidious of these terms as mutually acceptable auditor for caremark medco and express scripts who together control  majority of the market i mutually acceptable auditor may be one that is not experience with rebate contracts they give you peace or scissor p b m policies and procedures or ones that are too expensive for most plans to afford representative lynch german ones i was surprised to see that your invitation letter to me stated that federal costs for pharmacy benefits are thirty percent of total healthcare spending normally i would see pharmacy cost as twenty percent of sellable healthcare and i would conclude that your program is really no deal i am hopeful of the government will reform is contracting processes and the upcoming rebuilding of several h p d plans and i'm asking for the following measures for all transparent contracting for p p m services pricing terms that are clear a w p brand pricing information becoming readily available to plan sponsors m p b i'm forced to publish max pricing  rebate payment sources and types of rebate payments received by p b m fully disclosed data selling of any kind associated with health care products pending or pharmacy data should require the explicit approval plan sponsors physicians and patients and  the plan sponsors selection of a qualified auditor should not be routinely thwarted by p b s and all plans sponsors they have the ability to fully audit all aspects of a p b m contract once again i thank you for the opportunity and will entertain any questions you may miss a s i mr c n n you know i have five minutes for an opening statement thank you chairman lynch and members of the subcommittee for the opportunity to speak to you here today i also want to join in i really appreciate the opportunity speak with inspector general mcfarland who have dealt with a lot of them over a number of years and is a leader in the inspector general community both on professional standards on these prescription drug issues what i'd like to talk about today is my two experiences one is in doing health care fraud cases with the inspector general of o p m where we were looking historically what had happened within the o p m program and ended up recovering close to three hundred billion dollars from the companies and requiring major changes in their business practices and the second set of experiences in new york state working with the unitary system where we have one payer for prescription drugs and one database that allows us to look at what's going on with patients across the board and i guess like a lot of our witnesses have a forty five point plan which are going to do in four minutes the first part is that c m e o p m needs access to a plan for use of integrated patient claims data which includes drug data we're going to talk today about costs and pricing but the most important information about prescription drugs in addition to their costs is what happens with patients who take them they experience better outcomes they suffer adverse events what's the cost of the patient and system of those adverse events if you have these things parceled out through your  whatever number planted is several over a hundred plants you're not going to the data available to do the kind of analysis to see what the benefit is to the patient what the potential harms are and what kind of costs you're incurring for the drugs themselves and for the adverse events in new york state a national leader in medicaid data management and in fact most the state attorney general who worked on the drug cases have used new york's data as their gold standard to see what's actually happening the same opportunity exists with the with o p m could be the go standard terms of data o p m has a lot more experience with drugs and drug payments than any other agency in the federal governments with the possible exception of vo d the second issue is to take a look at identify drug risks and there's there is data available to do that that's laid out in my my my written comments the third issue is focusing on drug pricing drug pricing within o p s health plans was based on the time i was working on reviewing it upon percentage discounts off of average wholesale price known in the trade as a what's paid and negotiated by the experience rated plans with relatively little o p m oversight the net prices that we saw o p m paintings of santa significantly see the net prices paid by state medicaid programs by d and in certain cases the programs which are run by private companies like h m o s and it didn't appear to be reason for that the federal supply schedule as you'll hear later works very well with cod and could be used in the o p m context as well the fourth issue that i'd like to focus on is coordination of benefits between o p m plans and medicare part d plans at the moment so there's one of the issues that we've seen in new york is you have to go very carefully to look at what since medicaid is the pair of last resort in certain circumstances o p m may be who was first responsibility for these charges and what kind of prices should they be charged and the we be last year to obtain access to billion pain information from those p p m so i know the d o d is doing the same thing and hope the o p m is the same potential that's we've seen it's a it's a significant dollar potential to recover and also what happens to the patients is they end up they may end up missing out on the donut hole that's properly treated the fifth issue that i would focus on is one ms has raised which is the choice of auditor and access to subcontractor p b m says when you have one hundred twenty two hundred plus plans very hard to audit all of them and when i was working with o p m on the contract side it's very hard to figure out who the specific plans were what specific sub contractor was used in each case and each contract was different so you needed a different auditor with a different set of information and they were very aggressive at attempting to block certain authors who were knowledgeable from looking at the program when i look at these programs with o p m i believe there are significant opportunities for cost savings on prescription drugs through improvements in o p m operations and a consolidation of the people of the p b m contracts that exist and as important there are opportunities for better patient outcomes more appropriate prescribing and reduced adverse events through integration medical claim and diagnostic data with pharmacy data maintained by the p b m subcontractors thank you very much mr chairman the opportunity to speak today thank you mr g m and now you have myself five minutes let me let me ask have we have certain proposals that we that we offer one one would be of course probably the the fastest and that is far short far short term at least would be to  small pharmacy as a as a provider and in in fact they are multi billion dollar corporations that are that are operating you know a manner that we think would would be certainly reasonable to have them considered a subcontractor and by virtue of doing that then we we have the transparency that we need and we have the detail we get as close as jim the difficulty that we encountered was that it was a requirement for a statutory change and that would did not appear to be likely to happen in the near future in the last the last five years ok so you still have a minute and a half left  n trying to dig down and understand this whole process it is just it's unbelievable the complexity and needless complexity of this whole system it's it's built to thwart oversight it is built to introduce is much complexity into the system as a possibly possibly can it's a scam of major major proportions there's no reason that this health plan should have to operate like  it's a disgrace and in this day and age we're trying to save billions of dollars for you know if to fund this health care reform this is an area that absolutely has to be cleaned out this is this is a mess it's shameful what's going on and going to take a while but we're going to get to the bottom of this we're going to want to change the system i promise you so you know that's about all i have a time for on this  we're just trying to understand i'm trying to understand just as you are how we could have taken this route let me try to cut to the chase is i'm at fault if you are looking at this system when you have to conclude that opium simply patterned its own drug program for federal employees on what the federal government was doing in the private sector isn't this how that program was structured to recreate the private sector the program for non federal employees the bill that we passed with the two thousand and four for i'm asking whether this is not simply an imitation of or does not this program simply is not this program if you look at it and in large outlines modeled on that program passed it was very very clear very concise as to what was expected of o p m basically zero pm has as stuck very close to do that and not tr is or let me ask you whether or not this program is modeled on similar programs already in the federal sector like the program of stablish for decades now for veterans and i wasn't there clear precedents as to how to go about doing this that what the veterans administration is doing  seems to be a very expeditious way of doing it and that is one of our suggestions that we might want to look at at operating from the i'm challenging you must follow when you said all they did was try to follow what they've been doing  it seems to me what the veterans administration is doing is is war closely related to what one would have expected of the federal government here we had a brand new mongoose program we look for the first thing you look for is do i have something to guide me here you have a federal agency that's been the one it's whatever you put that aside and proceed i don't understand why that president was not relevant yes ma'am do you believe that president i had anything to do should have anything to do with what was was was was happening here or was was there no was there no analogy between the veterans program and this program need that we explored the veterans program and the the medicare part d program and the o p m program i think that thank you john mcfarlane is correct that what has happened is that the model that was used was the private sector model but even if you know the private sector model that is you know the four major companies was what it was in one thousand nine hundred eighty nine many major companies are doing a better job now in you know identifying these costs and controlling them and and dealing with them and then we are in the federal government recognizes if you look at the our the deals with individual plans that they do the negotiation i don't remember people coming back saying they would more in getting a good deal is the reason that they don't come back and say they're not getting a good  is the model for this program well we are office exercise our audit and our criminal investigative efforts in this regard all the time this is what we do the most of  the in the health care that services the side of government so i'm not i'm not quite sure the best way to to answer your question because our all of our efforts are going towards resolving these conditions and we have our options and suggestions that we're providing to o p m for consideration well i think we all appreciate your work and the chairman will bear with me for just one more question i'm trying to understand we're trying to get to the see what is appropriate for oversight here for the agency to do for i don't recall hearing of complaints about people who were pressured to moved from one insurer to another now they have been complaints that large nationwide pharmacies whom we appreciate normally because of the economies of scale that go back to the consumer but yet in this situation there have been complaints of quite unusual at least in the federal sector actions such as pressure  to move one's prescription from a pharmacy to the larger pharmacy i don't recall that in f d a to b p we've had that kind of situation to occur and i wonder if you have seen that what you think of that and what can be done about it well certainly when the health carriers negotiate their contracts with m's that is in in fact what they're attempting to do is to get the best price for the for the prescription drugs and they are reports are that in some cases  the cost to consumers have has risen significantly and there wouldn't be any complaints or if the same kind of economies of scale you get from mega stores were available here well there have been complaints and i'm trying to find out why since we've not had that you say this is a pattern no what we've done the f d a to b p i'm trying to find out what wen right here and what we can do about because this is new in that system as far as i can tell well first of all what it would take would be a congress to amend the efi h b act so that certain things such as you're patterned after private industry and a lot of my clients are private industry one of the things that private industry would never do is divide up their negotiation with our over one hundred different contracts p m s advice up their negotiation power over hundreds g p has operated by not going outside of bounds they have a certain prescription of not prescription that i want to use that word right here but they have a certain clarity that they're trying to stay within those bounds as far as dealing with with providers they basically don't do that they they have contracts o p m has contracts with the two hundred six six health carriers at present time and and the health carriers then devote their time negotiating contracts with p b s p b m's in turn to go shoot their time with him and i won't take up more time  do want to say your testimony then is you do not believe they had the power to do that and i can understand are you saying what they do not have a heart i don't have the power to do what the that or and administration does use the leverage of the federal government to reduce the cost to federal employees and that if we want that to happen we should change the law judges in the law are o p m can do the federal regulation change that is a very important or that is a very important or mr chairman or if o p m was interested in looking at the system brand new system for us in terms of getting the best deal they do have the regulatory power yes to do so yes thank you jim thank you all right  let me ask sort of following up on missiles nortons question we have a plan that represents seven point seven million people a lot of buying power there in your own experience do you feel like we're using that leverage to demand the best deal sort of the the title of this hearing deal  deal we getting a good deal mr macfarlane do you feel based on the leverage that we should have with seven point seven million participants and the position that we have we are concerned mr chairman that we probably are not getting a good deal is a good chance that we are not getting a good deal because of the lack of transparency and when i say lack of transparency i want to be more specific we we can't find out information such as the incentive pay rebate pay volume discount pay administrative fees we can't find that information out because we can't audit that it's not  now we can do that that we can carve out something from from the f e s b p specifically the prescription drugs we can carve that out and go after that and we have then a tremendous amount of enrollees to make a difference you're correct and you want to comment on that a little it's very difficult to conduct an audit on the system i'm talking about professional auditors going in there because all this stuff is so opaque and it's been made so complex that there's been a deliberate attempt to build a system that is not auditable and they basically created that as a frustrating very frustrating situation here so i guess in this hearing process what i'm trying to do is to figure out whether we can introduce transparency on the existing system  simply blow it up blow up the system put them on the federal acquisition regulations a whole new ballgame because i'm tired of this this going on where our auditors can't go in there i can't even figure out i can't get information on what these drugs are being made if the costs of manufacturing it what their markup is where the rebates are going they're not you know you would think that the the the end user the entity that actually generates the usage and the volume of these pharmaceuticals would earn the rebates themselves i think based on we've had in so far about fifty percent of the rebates go somewhere else maybe they go to the p b m czar or to some other girls but they're not coming back to these federal employees and that's that's totally unacceptable so i'm trying to figure out whether it's better to try to fix this system and i'm not so sure it is because it's just you know the complexities there and it may just take too long to to do some of these things it may be better to just simplify things get into an existing system and let you know let it all shake out there and that system requires the transparency you know your own thoughts mr mcclellan when i answered before this is exactly what i was getting at when i said it will take a change by the congress and we can we can carve out something that could be done but it would it would take   the one of the other frustrating parts of this is this you know the average wholesale wholesale price saw the mac the the average cost maximum average cost allowable cost maximum allowable cost it's tough to dig down and figure out what the hard numbers are in terms of what we're being charged seven point seven million  members beneficiaries but i do have the ability to compare system to system and when i look at the v a system that i'm involved with it looks like they're getting a discount from the average wholesale price of about on average maybe somewhere between fifty five and sixty five percent that's the discount i'm seeing at the v a now i've got seven point seven million employees who are federal employees and i'd say the average discount they're getting is around twelve percent maybe twelve to fifteen percent somewhere in that range now i could understand if there were comparable discounts here if one was at forty five the other ones at fifty five but going from you know from sixty percent to twelve percent it's just it just it amplifies i think the sense that the federal employees are getting a raw deal on this on this plan i've explained exhausted my my time if i could allow you to answer those only a few members here so i'm sure everybody will be given ample time this hazed you have anything you'd like to you know in terms of that whole issue comparing system to system you've got a lot of experience in this i thought your testimony your written testimony was very powerful and i thought it was you know you spoke very plainly and yeah you know you may have one contract that has one different list for generic drugs and then another contract contracting with the same they may have another less for money passes back between drug companies back to plan sponsors and that whole process needs to be one hundred percent transparent in my mind right and as a taxpayer that has to be one hundred percent transparent  shand same question oh i look at the system and i compare with new york system and i do believe when you when you first there is the the breaking down into the two hundred separate plans but the second piece s and the federal system there's yet another set of players and that's the health plans and in the absence of o p m saying this is what we expect is what we want this how we're going to pay they have their own interests as an organization so  when we did our investigation of medco we found there were significant dollars changing hands from the from the drug companies to the health plans and from the p b s to the health plans in ways that didn't show up in the reporting m so there's a financial interest in these plans which is their own which is separate from running experience write a plan where you just pass the cost through and so it seems to me that they have to take they should take control of the process whether it's going to be a federal supply schedule process or contracting across the board that's an issue for the congress to decide not for us but i think by letting it just happen you're missing out on the opportunities at two separate levels well it might have been a day when we could afford that that day has long since passed and we've got to we've got to try to maximize our savings here at this point mr cummings would you like five minutes ok holmes norton five minutes ok all right well i've got my i'm going to lot more questions in my own mind let me let me the problem the problem that the the the pharmacy benefit manager level is so complex with the the markup on the drugs themselves the handling of rebates whether they keep them whether they give them to the end user the employees it seems to be a very mixed bag and and again the level of complexity ghost not only to the drug manufacturer but also very much to the p b m off pharmacy benefit manager do you think it would be now i haven't tried to really grapple with those entities on a one to one hand a hand sort  bases but do you think there may be a p b m accountability act or some type of penance you know pharmaceutical benefit manager accountability act where you require transparency require those entities to operate in a in a an open and understandable manner with their what their clients and so and open themselves up to a an auditing process so that we can understand what the heck is going on at that level chairman lynch if i could take a crack at that i've investigated i think all the major p b m's over the last ten years and to some degree the problem is that th will like larry the cable guy that you may get a great offer on today but when you think by the time they get the box in your house and you have to sit and wait for them switching is very difficult and there aren't that many places to switch to so the question is how do you make sure that the p what you need them to do after the contractual relationship exists and it seems to me that's a classic situation for regulation by by congress and by by outside entities because you're not going to be able to negotiate their actual process because club wants the contract starts and you've got x million patients or x that hundred thousand patients in the system is very little you're saying and i'm just trying to test your answer there you're saying let's use the rebate situation  if we mandated that t v m's pass on the the rebates to the end user are you know eighty percent or ninety percent or something like that that they have to pass those back is that the type of when you say you got to tell him how to operate it gets more complicated than that and there are contracts like that the difficulty was about ten years ago the the company started to do that and what happened  everything that used to be a rebate got called something else it was a data feed right with a you know it was a thank you very much revisiting our of our facility fee so part of it is making sure that in the contractual process that there's a regulation that says here here's what the expectations are and here's the minimum for you have to meet because otherwise if you're a p p m the trick is to offer like you larry the cable guide offer stuff on the front end and then you're in the relationship it's very hard to find out whether you got it which is why the regulatory process is important five six inches you know and so for us to copy that time contract that they have with drug manufacturers not being able to take those to our offices and being able to audit them in a normal manner one would expect an  many of the the contracts are structured in a way that by virtue of their density and length they defend themselves against the risk of being read by anyone let alone an auditor i almost like and you know i think that the auditing piece is problematic as well and just reviewing what has gone on and the the idea of the audit and people understanding the value in that there's also been a very i think concerted effort to to either compromise the auditors or mystify them and bring in folks who really aren't equipped or able to conduct a valuable audit and so they're they're often frustrated in their own efforts and they end up giving a rather favorable review probably with the hope of getting more auditing work so it is almost as if we need to clean that system up as well and have certain parameters to make sure we're getting we're getting a lucid and and thorough audits on on these these audits that we do requests and i know there's been again played years where the parties can agree on an auditor because you know the drug companies are the p b s taking advantage of that language but  r panelists do you agree with the o p m inspector general suggestion that the lack of transparency is a fundamental problem with p b m zach was ition of prescription drugs and did you encounter similar problems one of those that i think we have addressed which is the issue of switching prescriptions both medco and caremark through its advanced p c s of sirius signed agreements in two thousand and four and again in two thousand two thousand and five agreeing to limit the switching activity that they would engage in and i would defer to my colleagues o p m as to the compliance with that but i think it's been that has been pretty good that's not universal throughout the industry  so that that piece i think has been at least addressed in the short term through through through litigation the second piece there which is the transparency on pricing i think is still a huge problem and as we talked that the transparency on pricing issue is still a huge problem in ms has talked about the audit side of that but it's it's a problem just across the board because it's very hard to figure out whether it's the retailer or the mail order transparency or lack thereof in this industry as it is a huge issue as to why costs are increasing we've talked about the fact that rebates from pharmaceutical manufacturers through the p b m to the plan sponsor are not fully important point you're trying to make there where now that we're not realizing fifty percent of the savings because of why because rebates between drug pharmaceutical companies to the p b s to the plan sponsors are not being passed back one hundred percent and that's the reason so i would agree that transparency is a large issue i would also say that drug pricing and how complex are praising is as i said in my opening testimony  a single drug single brand wrong may have over fifty different prices depending on the manufacturer strengths and package size of that drug generics are even more mysterious as far as pricing the the generic price say under these mac or maximum allowable costs and those macalester they consider proprietary not only our plan sponsors never given those last even auditors under non reality agreements have a hard time getting those to audit against those less those lists change daily the prices change change daily and so it's very hard to hold anybody accountable to drug pricing well i think the the best way to describe it is let me give you the scenario that i have in front of me as very simplistic but it goes to the heart of the of the problem of where where is the money and who's got it the drug manufacturer the pharmaceutical company sells a drug to a wholesaler for one dollar is using that as an example that's the whole wholesale price at one dollar the wholesaler wholesaler sells the drug to a dispenser either p b m or a pharmacy but in this case let's say it's  for seventy cents and charges back to the drug manufacturer the pharmaceutical company thirty cents so now they're made whole the pricing in the p b m contract with the carrier the wholesale price minus a fifteen percent discount yeah ph b p pays eighty five cents for the drug but the p b m cost was only seventy cents and apparently it's all pharmacies as subcontractors subject to the federal acquisition regulations i'm trying to think that through what would that in your opinion  solve the the transparency and cost issue in itself all would that would there be other downstream problems that i need to deal with just trying to think this through  it would be it would be very beneficial if if that were the case that it could become a subcontractor that would simply be that the federal acquisition regulations w impose strict oversight by virtue of being there but also the truth in the goshi ations act the law which protects federal government and the taxpayer from unscrupulous contractors that would be in play also so that would be very helpful and no law change would be needed this this would be something that o p m could do by by changing the regulation very good very good scuse me can i ask your absolutely has to my phone what i forgot to mention was that that would not necessarily guarantee that it would be a cost type contract  we would have to work with that aspect of it but in the federal acquisition regulations it gives you that that possibility of approaching that as a means of conducting your business so that's that's what would be needed ok ok that's very good i'm very helpful i appreciate that let me ask i've been sort of i guess i was assuming in my mind that in a simplistic way that the people who actually were the end users of these programs are the ones that are entitled to to the rebates that was an assumption i made and i'm not sure that's the case does the federal employee health benefit plan have a right v m and the and the health carrier ok but even even in that situation the great majority of rebates we believe are are maintained by pharmaceutical manufacturers and get lots of money back for selling data that money is typically never passed back to the plant sponsors those aren't considered so again you need to have a broader definition of rebates and one other piece of this to focus on though there are two kinds of plans there is the experience created plans where the money does if it's if it's paid by the p b m the plan in theory comes back to the federal government on that program but the community really related plans my understanding is c plans at the broad base don't come back or negotiated by the plan and that the that is he gets to keep the benefit of the population ok mr colley would you like to g is the use of p m s more trouble than it's worth anyone who wants to have i think he feels like pulling that microphone real close to them and yes ok i feel that p b s provide a very valuable service and they do  provide a very valuable service by going out and contracting with fifty five thousand pharmacies across the united states by operating mail order pharmacy use them providing plans are needed mechanism to process and and pay prescription drug claims in a very efficient manner but there's been a lot to run rampant they have been allowed to take that very good a national idea that was formed back in the seventy's and eight and they've been allowed to have a run without control and i think that's why you get at the issues of a w p prices going out of control mac prices being their own invention for generic drugs rebates not being passed back auditors routinely not being able to audit contracts so initially they were a great idea and they're just not allowed to kind of run on their own and if i understood your previous answer misses from the previous round of question they're actually withholding some of the savings from the prescription negotiations the negotiated price of prescriptions for federal employees is that correct that is correct and then secondly they're not only doing that they're cloaking themselves in secrecy with non disclosure agreements that is correct even even requiring if i understood you correctly government auditors not being able to sort of penetrate that shield of secrecy by making them also agree to such no disclosure agreements is that correct i'm not sure about government auditors but i know private auditors are routinely not allowed to audit these contracts and i would just say to the chairman and i thank him so much for having us here and i think this is a very significant point if one of the most important things this congress has to do in the context of government health care reform is to get our arms around the cost of health care it's you know it's one of the fastest growing costs for the american consumer and family for small businesses for large businesses for the federal government itself our deficits our quality of life our g d p was spending eighteen percent of health care today of g d p if we do nothing by twenty twenty five it's going to be thirty four percent unsustainable and yet we've got mecca this is a place that frankly significantly a p r ability to get at those costs if we can't penetrate that secrecy shield and and sure that we have access to the savings where effects waiting to the system we created a number of years ago so i really take your point it was an efficient mechanism of delivering certain services but it's gotten out of control would you care to comment on that i think that this is an issue that pat and i have worked on for the last ten years and we think you're exactly right that i do agree with ms hayes that the the the system of processing pharmacy claims is  a major advance and the p b s have done very well for a number of years and you think about going to pharmacy and getting your prescription filled and bill within three seconds that's a pretty amazing system but the issue is how much secrecy exists and what kind of shand is that an area where you believe this congress legislatively could perhaps help absolutely absolutely because it's regulation of relationship after the relationship exists that's since we're looking at conference of health care reform correctly and honestly it would be a tremendous program so it's not going to take a whole lot other than making everybody honest and that's that's a big deal of course and we're we're certainly working towards that and we are in the process in our office of doing a new study we believe it's going to be new in the federal sector we think we will be able by virtue of of this analytical review we will be able to come awfully close to understanding maybe not the exact cost of the of the prescription but we will be able to make comparisons with  veterans public public health service coast guard we will be able to find out what the comparisons are there so that that will be a start for us but i'm in total concert with with what said and that is that it's it's very good but we have we have some real real ground work to do yeah it's hard for me of just as hard for me the federal government to know what i'm saving money or not if i can't if i don't have access to the information well that's exactly correct and just you know going in doing an average audit by our auditors in our office is a very difficult task but it's almost insurmountable to go in and try and do an audit of p b m insurmountable i think another example part of the deal was that the p b m would get some additional money if the enrollment increased well guess what the time came in rome and did not increase so what did they do the health care in the p b m sat down and renegotiated the contract got the money turned o p m and o p m paid mr chairman i just end with this to hear the inspector general of the office of personnel management say to this committee that it is almost insurmountable for his auditor's to be able to access this information and doing a lot of the p astounding statement and one i would hope this committee in this congress would find not a reflection of you an unacceptable situation that has to be addressed i thank the chair for his indulgence thank you mr connelly at this point d like to give you least two minutes just to focus on the areas where you think if you think we've covered it all then that's fine but there you think there's an area where you could amplify or just single out as being very important this process please mr shand for two minutes ok thank you mr chairman the focus that i would leave you with in addition to the very good points have been raised so far is to be conscious not just of the price of drugs but what the effects are of the drugs that are given t patients and o p m really does not have the ability to do that now because these contracts are so broken up into small pieces so you see any one of the issues that o p m to be looking at is what is the effect on patients of the drugs we're buying and how can we integrate that with other data that we have so what we're doing is being a prudent purchaser across the board and when you're talking about close to thirty percent of your total spend on health care is drugs in this program that really becomes a critical area  going with talked about rebates we've talked about awb pricing the ability to have any auditor that has experience being able to audit these contracts i think is something that is needed and i would also say that  benefit o p m to get federal pricing and federal employees program i worry that that may increase for private industry the cost of prescription drugs that it would be  federal pricing the federal supply schedule yes supply schedule being applicable to opium i hope that that does not increase for private industry the cost of prescription drugs that's not made up and again i feel that that would well just just to wrap up i think the important thing to concentrate on for us other than getting to the bottom line price is is realizing sometimes that the what we have to do from the criminal investigative perspective and on its looking at some of the corporations that have gone astray such as what is happening in the past with some of the when when there has to be a a caution given given to the corporation that they have to agree to ethical standards and that they have to provide their employees with appropriate training i think that that leaves you with a very clear impression of how easy and how fast company can go astray and that's exactly what happened and couple of the cases that jim shannon and our office has worked together it's it's just mind boggling the things that have taken place when you consider that that prescription and that prescription goes in the waste can because our get shredded because a they have a certain accountability for how many how many they're going to do that day or that week that that kind stuff is unbelievable but it but it's here it's in front of us and we have to we have to deal with it it's just dispensing prescriptions with it without talking to the doctor and getting permission and the cost to these people so there's there's an awful lot to the overview and the oversight of this of this concern and i know this isn't that unusual from maybe other corporations but  it is a big problem the just the ethics it alone thank you must follow and i want to thank you i would just for the record that i know that we've got several hearings going on right now because we've got issues on the  floor i'm going to allow any member of the committee to ask you engine writing and i would just ask you to respond to them as well as inform the committee of your answers but with that i want to thank you for coming before the committee today i want to thank you for your willingness to help us work on this problem it's an ongoing process so we hope that you'll continue to work with our offices as we try to devise some legislat regulatory solutions to the problems that we've described here today thank you very much and have a good day  welcome it is the custom of this committee to swear all witnesses who are to provide testimony please ask you to rise and raise your right hand and i swear that the testimony that you're about to get to the subcommittee is the truth the whole truth and nothing but the truth i do let the record indicate that all the witnesses of answered in the affirmative i'll offer brief introductions of our next panel and then we'll have five minutes of testimony for each from each of the witnesses this nancy key check is the associate director for the human resources policy division for the office of personnel management and this position this key check lead to design development and implementation of innovative flexible merit based human resource policies previously served as the director of the office of actuaries at the office of personnel management rear admiral thomas mcginnis can he serves as chief pharmaceutical operations directorate responsible for pharmacy operations of the tri care management activity he is a member of the board of advisors a member of the border advisory associates of rutgers college of pharmacy navy mutual aid association nonresident director and the american society on health systems pharmacists mr john dickens is a director for health care issues at the u s government accountability office where he directs the g a o has evaluations of private health insurance longterm hair care quality and financing and prescription drug pricing issues he previously held analyst and assistant director positions with health care team welcome to you all if you check you know how five minutes for an opening statement thank you chairman lynch thank you for holding the hearing to discuss the oversight of prescription drug benefits within the federal employees health benefits program the f d a the law provides o p m with authority to contract with private sector health plans that cover specified areas of health care including prescription drugs we currently contract with one hundred eleven health plans which provide two hundred sixty nine plan options nationwide from which retirees and employees may select the option that best meets their needs the program is a thirty five billion dollars program and drugs represent about ninety twenty nine percent of claims like many private sector employers the  h b plans to use pharmacy benefit management arrangements to improve the administration of the drug benefits o p m issued regulations in august two thousand and three that allowed the o p m office of inspector general to have full access to experience rated carriers agreements with their former see benefit managers in two thousand and five zero zero pm issued new contract requirements that included standards for f d a to be carriers to use and contracts with vendors for retail and mail order pharmacy the carriers are required to use these standards which provide for p b m transparency integrity and performance each year we negotiate individual carriers to design a prescription drug package that provides access to f d a approved drugs placed in tears based on clinical effectiveness and cost carriers also use pre authorization to determine medical necessity for certain drugs and drug utilization reviews to check for excessive use duplications and frequency many carriers promote generic generic drug awareness and dispense generic equivalents if available next i would like to address the specific questions raised in your invitation to this hearing you inquired about lack of transparency in the pricing of prescription drugs first and foremost p m is providing information so that enrollees understand the benefits they are purchasing and the options they have there for many carriers provide drugs transparency tools on their secure member websites through our regulations our office of the inspector general has full access to the agreements our carriers have with p b m whether increasing transparency alone will lead to lower pharmacy costs is unclear in june two thousand and eight the congressional budget office found that more transparency did not necessarily lead to lower health care spending you ask how prescription drug benefits provided in other government agencies such as defense v a and h h s each of these federal agencies operates under its own statutory framework tri care and directly deliver health care as a significant part of their service to their constituencies and have access to drug prices based on statutory authorities you ask how prescription drug benefits are priced and delivered in the private sector private sector employers operate and competitive environments and many directly contract with p b s to manage their drug programs and to process them pay prescription drug claims p b m falso develop drug formularies contract with pharmacies and negotiate discounts and rebates with drug manufacturers efi h b carriers rely on p b s to manage drug costs and utilization for their enrolled population o p m and turned negotiates with carriers on benefit design and program administration to encourage the efficient use of prescription drugs you ask if o p m should consider alternative pricing and contracting methods for the f d a to be programs drug benefits the cost of drugs is of great concern to o p m as it is to private companies and other government purchasers is committed to studying all options that may improve the delivery of these benefits we want the best and most affordable product and we are looking for procedures that could be of assistance we are exploring a broad range of options from improving our current contractual procedures to completely read redesigning how drug services can be delivered if our legislative framework is modified appreciate the opportunity to testify today and i'd be happy to answer any question you recognize five mr chairman and distinguished members of the committee thank you for the opportunity to discuss the evolution i'm not sure if your microphone or song can hear me no not really can you hear me yeah i guess you'll just have to keep the mike very close which makes it ok this is better all much better yeah ok good please hold it close to you though silver mr chairman and distinguished members of the committee thank you for the opportunity to discuss the evolution of the department of defense tri care pharmacy program over the last ten years d o d has learned many lessons in the area  pharmacy benefit management prior to two thousand and four d o d s purchase care pharmacy benefit that's the retail and mail order portion benefit was carved into the five regional tri care managed care support contracts which provide it the tri care medical benefit d o d determined that this type of carbon decentralized pharmacy benefit management structure created significant challenges to the partment and it was clear the d o d needed to make some major changes for a number of reasons first a fragmented market share gave d less leverage with pharmaceutical manufacturers to negotiate favorable pricing in exchange for formulary placement second the pharmacy benefit lacked portability across the regions and the lack of standardization led to a non uniformity of the benefit and most importantly actual expenditures and rebates received by its contractors for pharmaceuticals were not transparent to try care this structure also lead to duplicate of administrative services and fees along with the inability to effectively plan and develop cost saving measures moreover federal discounts in the retail pharmacy venue were inaccessible because management of the benefit was not under direct the odi control d o d like many large us employers took action to carve out the pharmacy benefit from the managed care contracts and place it under d o d management using a single p b m deity now had the leverage it needed for very favorable pricing with the pharmaceutical industry for formulary management d o d has implemented formulary decisions in thirty eight drug classes since two thousand and five representing over fifty percent of the fiscal year two thousand and eight total d o d drug expenditures mr dechen of the g a o report last year in april of two thousand and eight that d avoided over four hundred forty seven million dollars in drug costs in fiscal year two thousand and six due to the formulary process and nine hundred and sixteen million in fiscal year two thousand and seven care also received an additional sixty million dollars in rebates from the pharmaceutical industry in fiscal year two thousand and seven making the savings to the u s taxpayer nearly one billion dollars the fiscal year two thousand and seven drug costs of six point five billion dollars accounted for eighteen percent of d o d s total health care costs legislation passed in two thousand and eight authorized d access to federal discounts for all covered drugs dispense and its retail pharmacy network bringing prices in the retail network more in line with what d o d pays for pharmaceutical suspense and its military treatment facilities in the tri care mail order pharmacy program which are some of the lowest prices available on country today tri care has virtually every community pharmacy in the country as a member of its retail network and experiences outstanding customer service based on the d o d quarterly survey of its beneficiaries i want to thank the committee for giving me the opportunity to speak today about the tr care pharmacy program and how we continue to provide a world class pharmacy benefit to active duty uniform service members retirees and dependents around the world chicken and now recognize the five minutes great thank you mr chairman and members of the subcommittee i'm pleased to be here today as you examine approaches to control rising drug spending within the federal employees health benefits program which i will refer to as f e h b p prescription drug spending has been one of the fastest growing segments of health care spending in both the public and private sectors notably prescription drug spending has been a significant contributor to after each b p cost and premium growth projected increases in the cost of prescription drugs alone would have accounted for about a three to five percent annual increase in f h p p premiums from two thousand two to two thousand and seven the office of personnel management predicts that prescription drugs will continue to be a primary driver of program costs other fredrik programs also continue to face unsustainable increases in prescription drugs pending and use veering approaches in an effort to control the spending my remarks today based on prior g a o work and updates from other congressional and federal sources will describe the approach used by efi to b p to control prescription drugs bending i will also broadly summarize approaches used under medicare the department of veterans affairs the department of fence and medicaid as you've already heard today from other expert witnesses representing several of these federal programs my comments will step back to describe the higher level the general approaches these programs use in controlling drug spending in short the primary difference among these programs is that if he age b p and medicare part d rely on competition between health plans to control prescription drug spending while v a deal d and medicaid use other methods such as statutorily mandated prices or direct negotiations with drug suppliers for refuge p p competition aims to give plants an incentive to rein in prescription drug costs and to leverage their market share to obtain favorable prices like most private employer sponsored health plans p plans contract with p b s to help administer the prescription drug benefit we have outlined key approaches that p b s use in an effort to achieve savings for the health plans these include one negotiating rebates with drug manufacturers and passing some of the savings to plans to obtaining discounts from retail pharmacies and dispensing drugs at lower costs through their own mail order pharmacy s three using such techniques as prior authorization and generic substitution to reduce you lies ation of certain drugs or substitute other less costly drugs and for developing in many managing formularies to encourage use preferred drugs and to influence price negotiations with math facts or what opium itself does not denote goshi drug prices or discounts for if each b p it attempts to limit spending through annual premium and benefit benefit negotiations with plans including the encouragement of spending controls such as benefit designs that provide incentives for increased use of generic drug medicare part d uses a model similar to the f by relying on competing health plans and their p b s to control drugs bingeing and part plan sponsors compete on their ability to negotiate prices and price concessions with drug manufacturers and with pharmacies even though the centers for statutorily mandated discounts as well as direct negotiations with drug suppliers to limit drug spending they have access to a number of prices to consider when purchasing drugs paying the lowest these include the federal supply schedule prices that v a negotiates with drug manufacturers these prices are intended to be no more than those math factors charge their most favored nonfederal customers under comparable terms and conditions finally medicaid is to aggregate payment limits and drug payment guidelines set by c m s medicaid does not negotiate drug prices with math facts for but reimburses retail pharmacies for drugs dispensed beneficiaries at set prices an important element of controlling medicaid drug spending is a medicaid drug rebate program under which drug manufacturers are required by law to provide rebates for certain drugs covered by medicaid under the rebate program states take advantage of prices math fact receive for drugs in the commercial market that reflect discounts and rebates negotiated by private payers and titian medicaid like each of the other programs i discussed uses techniques such as prior substance authorization generic substitution you lazy sin review and cost sharing requirements to limit drug spending mr chairman this concludes my statement i'll be happy to answer any questions that you or other members of the subcommittee may have thank you mistaken and i recognize myself a five minutes check in in your testimony admittedly you said that transparency doesn't always result in lower prices however for the oversight committee for us it's not an option you know oversight cannot go forward without transparency so if we don't have a choice of not having transparency even if we didn't think the value of transparency congressional mandate is to have transparency we support transparency which is why with every suggestion or every time our inspector general makes suggestions to us we consider them very carefully and we have done two significant things which i had in my opening statement that we got from work when the inspector general came back to us and raised problem one was what we called the large provider contract regulations which gives the inspector general full access to the full p b m contract i understand that's now not digging down as far as they would like to go what what's was given full access to the contracts that are available to our inspector general plan in new zealand you know understood but the the the pharmacy benefit managers have made these made this system so opaque and so complex that even when i sit an auditor right on there as i'm going to work these are professionals now they can figure out what things cost and whether i'm getting a good deal or not and we would and i would you i mean right think right ok so so that's a problem that's a huge problem we cannot operate that way we have been up to now we can operate that way anymore is looking for savings and we're trying to help the administration and we think this is an area that is very fertile ground for savings when we compare what dry care is paying what others are paying and we look at the discount tri care up around fifty percent up around sixty somewhere in that range and then we look at o p m getting about twelve to one of the well part of one solution would be to classify p m s as as subcontractors subject to the federal acquisition regulations now that is not a simple system either as someone who has spent far too many trips to iraq and afghanistan trying to figure out how we manage those contracts those are not simple either but they are a walk in the park compared to trying to figure out the system that we have now with the federal employees health benefit plan this is really a hooted it's actually structured in a way and operated in a way that is meant to block oversight and block automating we cannot have that anymore and you know even the the the procedural limitations on the auditor's that there not be not allowed to copy information that whole system is built on there's no competitive model in a competitive model the system that's set up at the federal employees health benefit plan is is basically increased complexity to the degree that is it is not understandable hide information from the consumer and from the auditors and from the united states congress committee on oversight basically deny information that would allow people to make that competitive decision on pricing and basically charges much as you possibly can in that atmosphere and in that framework of of concealing information and making it so complex that's the system we have right now and we can continue to operate that way so can figure out whether they're giving us a raw deal or not and as i understand it we can do that by executive order we can do that by regulation right now o p m not as something that you're open to if  we we believe that there's definitely more information that should be available but we do not believe that we have the regulatory authority to do that we think that what we've done through regulation  o p m contracts with the health plans and those with the health plans the health plans contract with the p b m we're not direct contractors for the drug services so we don't have the same authority we would if we were a direct contractor in order to become a direct contractor with the p b s it would require a step a statute change in our opinion not a regulation change we believe but we will continue to explore it because we explor everything our inspector general suggests to us but we believe the regulation we change changed gave it giving the inspector general full access to the large provider contracts meaning the p b m contracts was the extent of the authority that we could do through regulation so this is a question of law that needs further exploration because we certainly believe in transparency and we would like to further that to the extent that we can i have to say that in trying to figure this whole system out there is nothing more complex than what you've got over there at the federal employee health benefit program this is really a very convoluted you know i'm an attorney i've done contract law but you've got a system over there that is meant to deceive and and to keep the truth information from getting to the public and to the beneficiaries we don't even know what stuff costs and so you may say you're for transparency but take a good hard look at that system and that doesn't even have the beginnings of any transparency and i you know we're supposed to be trying to save money here well we win and you know i i'm very disappointed to hear you say that because you know we we think you do have the regulatory power i will i will file legislation you know to to have these folks classified as as subcontractors i'm going to do that i think you're making me work harder than i need to i think you have that power already but maybe my filing this legislation will you know light a fire under somebody's we would be glad to get back to you with an explanation of what we think our because if we have that authority then we will not make you work harder than you have to we will see what we can do to exercise that i bless you ok thank you  question beyond your own experience but do you have any idea why we might have two hundred fifty six contractors that we deal with because we have h m o s and in most of the states in the nation we only have about thirteen government wide plans that that service everybody and even out of those thirteen a certain segment of them a very important segment of them are to just limited groups of people like foreign service officers or rural letter carriers but we have h m o s in the big numbers come from the regional plans and again the national plan open to everybody i think it might be about seven and then another another five to special groups ok now you have seven point seven million i gather that are within your group there right let me turn to rear admiral mcginnis now i think you have nine million but you have seven million that are actually participating in your  pharmacy plan and those us folks are spread out all over as well as that's correct sir they're all over the world we have about nine point five million beneficiaries today and now about seven million use a pharmacy benefit now in your testimony you also describe you have a limited number of contractors exactly right or did i mishear you know that you're correct we have one contractor currently that provides the retail pharmacy benefit for us one can track the providers the mail order pharmacy benefit for us it happens to be the same contractor express scripts we saw duplications yet in that beginning november fourth there will only be one contractor providing both the retail and pharmacy benefit how did you do the competition for that for that for that one contract we use the federal acquisition regulations so we put out a requirements request for proposals there submit it we review them internally and award that contract on many different aspects past performance we go out to commercial clients who use this p b m and asking how they do it for you and we take that into consideration when we award this contract it's a one year contract with four option years it's interesting you know you know you have a situation where you using one contractor you know you sort of i think perhaps putting all you chips on one bet but you're getting a fifty percent discount or something of that magnitude and when we dice it up we're getting twelve percent discount  i'm just wondering if there's a a proximate cause there a direct relationship on that point mr dick and you you addressed that a little bit in your opening statement about the fact that there's there's two models maybe it's maybe it's not multiple plans those are individual contractual relationships where the plans and their p b s will negotiate on the behalf of each plan and there's no guarantee in the way that there would be for tri care of a ceiling price   and my understanding is that you try to do a pilot program that will allow the special agents and their families this few thousand beneficiaries to purchase their drugs off of the federal supply schedule that's correct through that program i can't attest to the exact but that is what happened it was a concern of the drug industry we were we were trying to try a new approach and get better discounts it was a concern of the drug industry that if that was the nose under the tent and we were going to move eight million people onto those federal supply schedules with those major discounts the pharmaceutical companies would not be able to sustain the discounts they had promised to a big group but more limited than ours and they opposed it and said that they would not honor their contract on the federal supply schedule if we went forward and we were forced to withdraw that proposal wow  man the man you are the i guess the formulary the formulary that would have been available to the special agents was that a full formulary of proprietary drugs as well as generics that was that was the full spectrum of drugs on the supply schedule yes i'm just wondering why we didn't call their bluff in terms of  their refusal to supply those drugs it seems like a sort of a brash and confrontational way to deal with the panel is definitely a very stressful situation because of course our responsibility is to make sure and we take this very seriously the federal employees have access to health care and every year they re re they have the option to select new but we wanted to have that plan in place and coverage continuing and the manager of the federal supply schedule at that time v a was very concerned that this pilot was jeopardizing care to other members of the v a or other federal  purchasers from that schedule and really ask us to withdraw the pilot i think that we pushed it very very hard it delayed our getting ready for open season and negotiating rates and benefits because we had to get somebody else to i mean we had open season on time but we at some point had a point at which we had to enter into a contract with to go forward with these coverages or they would not have been in the program in the following my readings it was three big ones three larger pharmaceutical companies now i'm just wondering if you remember what percentage of the drugs on the formulary would have been and i'm just wondering if trying to replay that in my mind i know it was it was pfizer park davis and merck that's the information i have i'm just wondering if a similar pilot program would work if we just use generics that way if something is generic it's out there is not subject to to patent control and you get a lot  of if you have real competition and you get a lot of people that can produce that drug at a reasonable last do you think a pilot program just focusing on generics where three big players can come in and say you know and so i'm uncomfortable but i'm going to take a stab at it anyway ok where you really need to save your money and drugs is on the non generic the generic are really in my opinion  my experience a pretty low price anyway all right and to make it worthwhile i think you'd have to go for the brands that's a great point is a great point thank you admiral mcginnis the  the success that you've had over there at tri care has there been any attempt to expand beyond your existing population  no you know we've only covered members of the seven uniformed services so we've not been asked to look any further than that we've expanded the benefit to virtually every pharmacy in the country  in the testimony earlier today this key check we heard from mr macfarlane that the transparency and the data for them to make determination was was not available  use inspector general in terms of the access to the information the transparency of the organizations themselves do you know what might cause that difference of opinion i think what's happening here is what we're at one point when one of our plants subcontracted with a p b m the sub contract with lot of ailill for audit so now that that is the actual sub contract  that's definitely improvement what i believe that our office of inspector general would like and find very helpful and what all the previous panels asked for was more basic how much profit where's the money going the whole under workings within the drug companies that doesn't become a part of the contract or the sub contract and that is not yet available and as i was saying before i'm not sure and i promised to get you an answer that we have the authority through our regulatory process to demand that kind of them from a shine but but i will find out but i think it's a difference between one point the contract wasn't even available now the contract is fully available but the underlying workings are still not have not been opened up in the same manner that all the previous witnesses said the drug companies do not make this the stem from ation available  ok let me jump back we talked about well my idea originally was to look at the generics because i saw that probably had the sample program and is there any appetite and i know the earlier incident was in two thousand is there any appetite at p m to look at another pilot program where we might expand the the access to the federal supply schedule for four others well as you know it opium we have we have a new director who is taking a top down look at everything we have a new focus on data driven analysis which is also looking at that stuff and we are looking at every health plan with a fresh look administration got here by the time they got here we were already engaged in negotiations for two thousand and ten because the process starts early but that is certainly something we have an appetite right now for looking at everything we are our bottom up delving into whether these schedules are the right way to go whether we should carve out drugs everything is on the table how much data we can get from our carriers is also on the table so we are taking a fresh look and i would say therefore there is an app we're definitely going to consider that one with many other options ok you know one of the other things plans the way it's supposed to work now why do you think we have such opposition from the carriers when we try to introduce if there's no financial benefit why all the where wellness programs that's the wrong word but case management programs for example diabetes where you're trying to track prescription drug the usage of the right drugs with health care outcomes and we're pushing our plans to do things like that i think that that is an incentive or one of the reasons why the plants want to be able to have access to that data i think the other thing they're trying to do is in the competitive environment they think  come up with the best design and we do have different designs we have people today that are are waiving the co pays on generic drugs to try to get people to switch we have other people other plans that get you in generic drugs by a a plan manager who looks at that we have plans that are trying to be more cost effective through being and getting getting you to generic that way or trying to get you to the most effective drug that way so i think the plans are trying  and we were able to look at particular contracts or financial reports that were specific to those effete b p plans and their p b m's i'd like to make a distinction though that while we were able to look at that i think that was much of the issue that miscue check with time about for the what's being made available to the inspectors general there's a much larger book of business that the p b s have where if each b p is a significant  part but not the entire part and that affects their contracts more broadly with matt factors and with pharmacies and so while we were able to look at the information specific to f each b information for that broader book of business that could affect things like the prices they're acquiring for mail order drugs or the total rebates they're getting on their entire book of business not just those allocated to have huge b p let me drill down a little bit on that what information and you had a chance to review the you know promised the benefit managers in your analysis are attempted analysis what information was there that  you did not have access to that you think might have been helpful in judging their their effectiveness i think i think the distinction really is we were able to look at was specific to the f e g v put the business but not not information that was broader across their entire book of business that would then affect rebates they may be getting that would include for example there if each b p live as well as all their commercial lives the p b m would be negotiating with mad factures on their behalf so that was can proprietary the relationships they had with in other words rebates that they are you know call them what you may these other financial incentives that they were getting those may also be getting rebates that are much broader for their entire book of business and that's the part that we do not obtain business is dedicated but it would be nice to get that information to find out the full the full menu of revenue sources and find out whether or not whether or not the employees the members of the f d a getting the benefit of some of those some of those rebates as i did earlier with the previous panel i'm going to ask you you know obviously i didn't i didn't exhaust the entire landscape of issues that we could have addressed but and again i'm going to allow other members who are not in attendance to ask you questions in writing and i'd appreciate your cooperation in answering those if they do they do come  we like to hear about them but i think the hearing has as well addressed some of the challenges that that oversight face as within the context of b p and the plans contracts with with s i guess i would just note that this is not an issue that's unique to refuge b p i can speak to geos experience also for example with medicare part d that's an area where we've been working since two thousand and seven created medicare part d is not allowing to disclose that to g a o g a o has been working with committees including this committee for legislative clarification the g a o and you would have access to that information for medicare part d in  i think that's why i want to highlight thank you ok thank you that was helpful rear admiral mcginnis mr chairman i think a transparency is probably the most important thing on both sides are p b m must pass through all rebates benefits they're not able to even negotiate rebates everything's a pass through to the government we negotiate the rebates with the pharmaceutical company everything on our side also has to be transparent we put our formulary on the open web everybody can see our formulary our formulary committee minutes are put up on the web we have a beneficiary advisory panel advising yes on that formulary bringing things to our attention to consider before we make changes to that formulary we have good feedback from that beneficially organization we incentivize our p b m properly so that they come back consistently with a ninety five percent or better beneficiary satisfaction rating to get the monetary  incentives that we put in our contract and we feel that these type of things work very well for us the formulary placement of medications has brought us great results with the pharmaceutical industry they have been willing to give us a much better pric and we want to know everything we can about drug costs so that we can find the best way to to the liver them and the most cost efficient way to serve the federal employees and retirees we are working with our federal partners we're working with care to understand their system works boring all options including options we've tried before and didn't fail we're willing to look again and we are responding as quickly as we can to suggestions to make more information available to our inspector general so we're going to keep working on this problem and till we make it better in some fashion or another thank you must keep track i want to thank you all for you willingness to come before the comm and help us with our work and you can tell inspector i'm sorry you can tell director barry that we appreciate the participation and cooperation of o p m as well thank you all and have a good welcome thank you for your patience i know it's been a in a long day it is the custom of this committee that all witnesses to testify are to be sworn and i ask you to please going to offer a brief introductions of each of the witnesses and then you'll be allowed five minutes for an opening statement dr jack needleman is currently an associate professor in the department of health services at the u c l a school of public health in two thousand and seven he was inducted as an honorary fellow of the american nursing academy before beginning his tenure at u c l a dr needleman was a member of the faculty of the harvard school of public health dr  resound cardiac surgeon an innovative health care businessman dr ralph dilatory became the president and c e o of cowardice christie health care three facilities in my district a matter of  disclosure and april of two thousand and eight with twelve thousand employees keris christie is the eleventh largest employer in massachusetts as c e o dr dilatory mission is to revolutionize the delivery of health care in the region by moving integrated clinical services out into the communities where patients live in addition to his clinical endeavors dr dilatory has served as a health care consultant mr mark merritt is a president and c e o of the pharmaceutical care management association the national associate rep association representing america's pharmacy benefit manages lower prescription drug costs for more than two hundred million americans and manage about seventy percent of the more than three billion prescriptions dispensed in the united states each year mr merritt has served as a senior strategist with america's health insurance plans and the pharmaceutical research and manufacturers of america welcome gentleman mr needham dr needleman scuse me you know i have five minutes for an opening statement chairman lynch members of the subcommittee thank you for inviting me to testify let me just one item to the have my written testimony so i simply want to highlight a few key points from it some of which have been made today but perhaps deserve one more hammer hitting the nail on the first point is simply that the federal employee health benefit plans by and large are using the current standard practice of contracting with p b s for their for their drug benefits and measured against a standard of what you would pay if you were strictly retail there are substantial savings the industry sponsored a study and published in two thousand and eight or put out in two thousand and eight that estimate about twenty eight percent discount from retail which i would say given its industry sponsored should be treated as an upper bound you know that's a considerable savings but it is not appropriate to be measuring the benefits of the p d s structure in efi h p p against retail that is the wrong standard we've seen some discussion today about other more appropriate standards and i think it is very clear that compared to other large federal purchasers there is considerable evidence to date that the at the age b p plans are getting smaller discounts than other federal purchasers we can't tell how substantial those discounts are or what p b s are being paid for their services because of the lack of transparency in p b m billing plans to put it very simply the p b m is by on one schedule they billed to the federal government and other health plans on a different schedule as has been discussed by prior participants pyre panel members for generic drugs the purchasing is built on a an m a c on patent branded sole source drugs they're being they're paying a negotiated price and that negotiated price has a whole variety of discounts that potential and rebates are potentially associated with them  the size of those discounts are a function of the bargaining power of the the p b m and in part that includes the threat of whether or not to include the drug in the formulary or how how much  band how well tiered it will be within the formulary of a plan that's where the bargaining power to negotiate the discount comes from the historic practice of the p b s for actually billing the folks who have contracted with them to conduct these services is either an aggregate amount or a percentage of wholesale or some other measure which may or may not make clear what was paid typically doesn't make clear what was paid as costs for the drugs themselves and what is being charged for administrative services that lack of transparency has been heavily criticized by purchasers and consumer groups and there have been some efforts to address it the human resources policy association the group of human resource managers for the law for large businesses develop standards for transparency in pharmaceutical purchasing which include charging the after acquisition costs both at retail and natl water for drugs passing through all rebates from manufacturers and other pharmaceutical manufacturers have been is that the p b s are receiving and the right to audit that those practices have been fully implemented these represent minimum standards and many of the largest p b m is including the key p b s in the efi h p p program have actually signed on to that however the s offer the plan's the option of traditional pricing or transparent pricing and the pricing they have offered under transparent pricing according to miss hayes who was here earlier has been substantially higher clearly as many industry observers have noted there should be some skepticism about the industry's willingness to commit to meet the commitment it has formally signed on to for transparency if you asked for my recommendations on directions to go in i would say that a bare minimum the sh b p plans should demand and enforce contract billing provisions for costs separated from the administrative charges and profits that are being made so separate billing that provides for a clear accounting of the cost of the drugs the administrative costs and fees being paid to pharmacies and other third parties and the administrative profits and c s associated with p b m services the f h b p plans either collectively or individually need to negotiate hard for appropriate administrative  and consider either make versus buy decisions or going to a single vendor as tri care has in order to get a good deal for the fed the government they should also consider whether to use scheduled determination claims paying checks for drug drug interactions patients education facilitating therapeutic interchange and use of appropriate use of generics with more transparent pricing it would be we would be for in a far better position to assess the cost and value of these services rather than simply including them as the full package at a price that is not clear thank you for your app the opportunity to testify and i would be happy to answer any chairman i want to thank you for an abiding need to participate in this hearing the rising cost of health care as we all know is dealing a crippling blow to employers across united states escalating premiums suffocating not only the employees but employers who struggle to provide a benefit to their employees at the firm at the forefront of this escalation is the cost of prescription drugs controlling prescription drug costs is essential to containing health care costs and like many other contributors to that to the cost of health care prescription drugs serve not only in the treatment of illness but as a preventative measure this is especially true in the treatment of chronic illness many recent reports document how escalating co pays on the pharmaceuticals lead to noncompliance on behalf of patients this is not a new it was a sham can lead to the escalation of chronic illness and the subsequent grave implications to patient and employer as a specific example patients who failed to comply with medications that control blood sugar or hypertension or are likely to develop after sclerosis which can lead to heart attack and stroke for all these reasons to describe but if you it is imperative that an employer through the benefits operated employees control prescription drug costs within the context of my comments the federal government is the largest employer in the united states of america i call large employers the federal government should capitalize on its purchasing power to lower its cost of goods and services in fact this concept that at the very heart essence of our capital secada me health care should be no different when the largest employer in the united states addresses the cost providing prescription drugs to its employees the first step seems obvious they're going to use its purchasing power to secure preferential pricing for its insurance plans and for its employees the next question is how what method what means a thorough going to have to secure such pricing without a time consuming overhaul of health care delivery in review of our current practice i will propose one but not but obviously not the only solution to stimulate some discussion in one thousand nine hundred two section three forty b of the public health service act was enacted this act requires drug manufacturers to provide outpatient drugs to certain covered entities at a reduced price this process will set was further simplified to the creation of a prime vendor this process routinely yields pharmacy savings of twenty five to fifty percent for the covered entities beyond that of b p p p m's or g p s rather than create a second parallel process for group purchasing we should look to expand participation in this program to benefit or all federal employees and the united states government one relatively simple solution would be to modify section three four to be of the public health service act and the subsequent pharmacy affairs branch definition of what constitutes a patient at a disproportionate share hospital to simply include federal employees within a geographic region a qualifying entity to then establish an outpatient pharmacy complete with mail order and internet capabilities to provide prescribe drugs market we discounted prices in fact many three forty b hospitals already do the same thing since you don't these are not allowed to resell or mark up three forty prices in minimal processing and handling fee would be the only incremental cost added to the below wholesale prices this would not only provide markedly reduced prices but a highly transparent pricing mechanism this decrease pharmaceutical costs would be incorporated into the various health plans available to federal employees without limiting their choice of insurance but the savings could then pass through the employer in the to the employer in the form of decreased premiums into the patient maximizing quality and minimizing cost of health care thank you doctor mr merrett you're now recognized for five minutes and good afternoon distilled the afternoon good afternoon chairman lunch and thank you for your time employers unions government agencies medicare part d course and so forth and our clients aren't small players or big sophisticated savvy people we negotiate very hard against folks like the drug manufacturers so it's kind of odd for everybody else to seem like the victim we often feel that way ourselves as we're negotiating for lower prices pushing for more generics pushing for bio generics and so forth but we use a number of tools and strategies which i don't need to get into to increase generic utilization it's a lot more than just the unit cost of the drug that we're involved in it's all of pharmacy costs and we would view ourselves not as the cause of the complexity of the system but a result of it and attempt to help payers sort through it sort through everything from manufacturers retailers wholesalers everything that's involved to using technology e prescribing different forms of delivery like mail service delivery and so forth all of which in different forms  but we're hired to create these benefit packages for different reasons i'd say for instance and v a or medicaid because we're hired by clients who want us to create good benefit packages  particularly f e h p p which competes against the private sector all the time so to use and i know this is kind of a maybe a marginal example but to use tools like like a use is limited formularies of pharmacies which they can be dozens of miles away is not the kind of thing that effie h p p would want to use even though it may well save them money against a client's choice and clients use all kinds of different ways to save money but for the record the g a o and others have looked at what we do the jails look at what we've done it p as we've heard earlier we do save money to the tune of hundreds of millions of dollars a year the o p m is noted how much we save for them and that we do it in a consumer friendly way these are the old h m o s a ten or fifteen years ago to save money by keeping you from doing things and getting what you need we provide broad formulary broad access generous packages lots of retail pharmacy sixty thousand retail pharmacies and so forth i should note that p b s are custom to a great degree of accountability we expect that we get it on the front end and the back end and during the process the sophisticated purchasers who work with us not only are working through their h r departments they very expensive lawyers and very savvy consultants look over all these contracts before they sign anything with us and the federal trade commission has noted it's a very competitive process there are lots of different p v m's i know all these guys are not very fond of each other they will steal business in a moment from each other for any any little extra bit of fat is left on there so the competition drives prices down more than you might think it's important on the transparency issue that it's something to be careful with intuitively it seems like the more you see the better would be but we went through this during medicare part d where there is a provision to make everything transparent and medicare drug pricing and the reason it was considered and used by senator grassley and others is because we need to save money and pay for the drug benefit much like the discussions are having now they were surprised when i went to the congressional budget office and they found not only didn't didn't it save money but actually increased cost by ten percent about forty billion dollars and people wondered why and it was because ironically with transparency especially when it's public when the information can be made public through any means the beneficiaries are the consumers but it's all the people we negotiate against all the people we play off against each other the drug makers drug stores and so forth they're all competing with each other and if they know what their what their competitors pricing is basic economics it's not really basic it's a lot more complex than that but the basic practices economists agree happen is that it reduces any interest to underbid their opponents because they know exactly how well they can go and if they knew how low we got some of their opponents or some of their competitors a be surprised and they priced accordingly so transparency we were for it there is no uniform definition of it different clients want to different degrees some clients don't care at all as long as you hit your numbers quote unquote others really want to pore through the books and see all kinds of different information that's a client's decision they can decide on the front end but in conclusion i'd say that not only do we look forward to working with you and being helpful we know this is complicated we know it's not easy that's why we're in existence but we hope that any future discussions of transparency in f e a g p or elsewhere focused not just on p b s but all the providers and  e hospitals physicians nursing homes independent drug stores drug manufacturers wholesalers and so forth because we're about ten percent of the spend we're happy to be looked at but if you're looking at a holistic view of this everybody should be looked at  and i also hope that any related legislative proposals that you do consider that you consider maybe getting them scored from c b l on the front end to see maybe how they can even be made better and also to make sure that the costs are fully understood if there are costs and thank you very much for your time there i believe in trying to do an assessment on the on the federal employee health benefit savings from contracting with p b s the two thousand and three g a o report estimated eighteen percent and then there was another report called the p c m a report that had estimated savings at twenty eight percent that's like a thirty three percent difference what do you think might attribute to that o was just looking at drug pricing not taking into account the other services but was looking at wholesale prices as their benchmark i see now the suggestion that you made that that folks break out the the costs and the profit administratively and have you seen other plans to break it out that way and has it been helpful in those instances well one of the questions i would have asked  rear admiral if i had a chance to ask him was exactly what the pricing looks like under the tri care contract and i would hope you do that since they in fact have straight f s s other negotiated prices for the drug components the must be explicit pricing for the other components of the contract as well ok dr dilatory thank you as well for coming down to at my request basically  was i have to ask you i was reading the boston globe this morning and i saw that the unfortunate story on the severe budget cuts for commonwealth care this is something that we're all dealing with and it really has a situation that puts pressure on us here to try to find savings in these different programs but this action at you know in massachusetts will no doubt have implications on the national health care debate i think we're observations that might be instructive to us during our debate here what went wrong and and what perils we might avoid sure thank you i think that the fundamental problem is that there's really three components to health care reform or health care delivery which is really access cost and quality and you can't deal with one eye access without really intertwining the other two cost and quality you can't without addressing the structure of health care delivery say ok we're going to open the doors to everybody in not expect the cost to choke everybody or the quality to become a dismal so i think the very discussion that is happening in this room looking at other methods other structures of providing health care is a structure that is the discussion that needs to be ad across all the components of health care so i applaud you in the committee for looking at this this very thing but i think that's what needs to happen is we have to look at health care entire structure not just demand increases access and expected to not show cars i fortunately we really we have a tendency to look at the fastest mover and what we're seeing is  you know the price of pharmaceuticals rising a much faster rate than say you know hospital based care and i know i know some of that at least some of that is due to higher utilization rates these new products new pharmaceuticals actually substituting for what was previously you know in house care let me ask you that you were on one of those financial shells the other day c n b c or something like that you look at the actual pay per episode health care delivery there's not a lot of profit in most nonprofit hospitals have margins of one percent two percent last year i think in massachusetts the average community hospital net margin was less than one percent so i mean those are not margins to drive the exxon's of the world obviously so what is driving this what what's going on it's you know a lot of us think it's utilization it's we're using too much health care it's not that the price of every unit let's put prescription drugs aside is too high and what drives that well you know there's three basic components of driving those ation one is which we've heard a lot about as preventative is its defensive medicine it's physicians a great article in new york not long ago the cost in under him which you know i encourage all to read which addresses this which is in somehow in some locations a group of health care providers physicians or soft medicine stop being a vocation a became a business and if it's a business and obviously increase utilization makes the business more profitable and that becomes a driver in and of itself it becomes the culture of the location and then the third component is is society driven utilization we as a society and this is where we're drugs really come into play we as a society are convinced that if it's new and more expensive it's got to be better we have society spend twenty five i've heard estimates up to thirty percent of all health care costs in last six months of life because as a society we want to live forever and we as a society are very proactive and high end surgery high in medicines are got to be better than just basic care and preventative care so i think those three components really drive utilization are really driving the cost of health care across the united states including pharmaceutical benefits through the roof let me ask you then as an employer i mean you're i think in your introduction i said that character seven the right size employer how did how do you how do you mention this before in our our meeting a few weeks ago how do you address the needs as an employer you know fought for your your well the things that we're doing is we're going heavily into primary care trying to really emphasize the preventative medicine try to emphasize a contact with a primary care physician rather than being tertiary driven we have our own insurance plan  and interestingly enough we run we run three forty b pharmacies through it which is a market reduction and cost explain explain how that works because i you know just so someone was listening and not not terribly familiar with the process so  that's a separate discussion and it's what we do is since we our employees become our patients in a limited network product then they become patients of the hospital they buy pharmaceuticals and we give them from schools through our hospital pharmacies which get three forty b pricing and that's a market reduction blow anything that we can get through p b s in g p o is for a whole hospital and we have a fair amount of purchasing clout as you know you know we do between two hundred  fifty and three hundred thousand emergency room visits in our system we do about a million outpatient visits we do eighty to one hundred thousand discharges a ballpark figure so we have a fair sized fair amount of market clout but three four to be pricing really allows us to take it to the next level down how do you have a gatekeeper type feature on your own health benefit plan are even pharmaceutical we don't really establish gatekeeper philosophy i mean we're starting to we're in the process of really incorporating i t we're spending it as you probably know seventy million dollars over three years and i t to go completely paperless not only the hospitals but all twelve hundred of our of charisse crissy network physicians are going to be an electronic health record within the next within the next year eighteen months and all that is going to be tied to our pharmacies also we're also bringing in we've just signed a partnership deal with microsoft that's going to provide health benefits to all of our patients so they can manage and be part of their own health care a lot of this is in health care overall is pushing it out to the home pushing it out to the patients out to the communities where  is can be centered be more preventative and also be more cost effective you know how much it cost to provide health care in boston not because anybody is ripping anybody off but because you know maybe a parking space recently sold in boston for three hundred thousand dollars so know pharmacy benefit managers however in practice at least from from where i sit there's so much complexity there that it's difficult to see how how folks could compete on price when you can't even figure out what the price is and i specially difficult for some of these plans that might not have the dubious of just acacia and that's necessary i mean when my auditors can't figure out what the price is and then they're professionals in that specific area i mean how to how do you know and i'm not saying we're relying on lay people when we do assessment sure but  how does that how does that competitive model i we work if you've got such complexity there and lack of transparency well first of all not many people do what you're doing right now and i applaud you for really taking the time to try to learn it it is very complex it's just complexity that we're dealing with not creating but the savings are real because it's not just about the drug unit costs it's about relationships with drugstores and wholesalers and manufacturers it's about using technology like we champion a bill last year on electronic prescribing and medicare which the president added more funding to in the stimulus package which we really appreciate  it's a people don't know what their drugs are they don't know what drugs off they're taking they don't know the car share and they don't know the alternatives the doctors don't know so there's a big lack of knowledge there i'm in the position community in terms of how drugs you're right going up against the pharmaceutical industry isn't easy but it is a competitive system and i always say this people don't have to use a p b m and i don't say that in a kind of a snide way it's just that we add real value and people pay us to do things and they wouldn't do that unless the savings were really big and again these are unions and automakers these are not pushovers and the medicare part d program which is rigorous transparency rigorous accountability lots and lots of regulations so we can deal with that because we do add value but the only thing i can say is specific answer your question is our job is always remain on the cutting edge and finding out where any fat is or kind of like the shark in the eco spear nobody really wants us there but we play a vital role  farm or others and then honest people who just sincerely are trying to figure it out but when folks like g a o or the federal trade commission or others look into us and really do a thorough exhaustive study the results are usually pretty good and usually validate what we do and that it has real value yeah that has never been in question i believe you were here for the testimony of the inspector general for the office of personnel management and despite his description of the difficulties that he was having in  in wading through the complexity of it he said that you know the the pharmacy benefit managers were a good deal you know a good good models to use in were of high value but he did say you know we we have a lot of work to do and a lot of the you know make it more transparent so that we can be assured of that so can i give you one more example i don't mean to belabor this but there are a lot of tools that don't get used because of special interest for instance home delivery seniors love it a medicare ninety day supply saves a ton of money increases inherence people love it medicare could save probably thirty billion dollars over ten years o the use that more aggressively i'm sure f e a p p and other programs could too but because of pressure from various special interest groups who don't want that to happen like the independent drugstore lobby or others it's always held back and so our challenge to clients are using it now in these economic times because it saves money and they realize or people like it but sometimes policymakers have a tough time addressing that because of other concerns and so we would say that on issues like issues like bio generics which we strongly strongly support there are policies can help move this along and we want to do our part as p b s but we also want to offer any counsel we can of ways that we think can help finance health reform or earlier these folks have that same sort of occasion the short answer is yes a large number of them do there's actually on their website which is cited in my testimony there's a list of which p b s had been certified by the program includes a number of the large ones that are currently operating within b p and if they if they agree to meet those standards are they required to do so across business lines  pricing and the net prices that are coming out for some reason that i cannot explain by any can omics i've been trained in the transparent pricing is coming out higher now i can implies that there's some sort of conspiracy to avoid transparency which he's got to admit doesn't look good when you got to pay extra for transparency i know i know but the reality is all of our companies would say they have transparent products that are better than their others  better than their competing companies they're transparent different ways but we do know this the marketplace is very agnostic on transparency most of this one has their numbers i mean there is a sea transparency is a subset of a cost issue when they want to say why are the costs going up where's the fat in the system i want to know what's going on if there's transparency that doesn't reduce costs in this gets back to what c b l and others have said that's a problem if there were more transparent products to save money our companies would be all over it they know what folks like you are looking at and regulators and policy makers they they want to be as transparent as possible they want to position themselves as a transparent cheaper company so to the degree they're able to do that they will where there where they're not willing to go is a situation that will open up all the pricing strategies with the drug companies and the drug stores to the drug companies and the drug stores you to through consultants or others which completely put us in a position where we're negotiating playing poker against these guys with all of our cards facing up and we can negotiate any savings so just from pure market pure selfishness pure market forces any of our companies would love to offer a transparent product that was much cheaper if one existed and to the degree there are there are those they're going to offer them ok you know earlier today we're talking about the possibility of  classifying the the p b m as a sub contract requiring them to you know i am actually going to introduce legislation to do just this get them into that federal acquisition  regulation because i can understand the system using now so you know i was actually trying to translate what you're doing into an understandable format so that we can figure out what which what we're paying  here seems like a lot to do to just get some clarity on this but i'm willing to do it that i don't think there's many more options what's your response to that how do you think p b m to respond to that being put all of them not just some but all of the all of the p m s competing in that and that you know federal acquisition regulatory format well we do a lot of different subcontracting work i'd have to brush up on what exactly the details were here and i also want to see again that it really saves money in the transparency involved with their words transparency provisions were things that actually helped you get we're going to generate real savings etc we want to take a look at we would mention however and i was an obvious point i don't mean to go back to a but f d a p p despite everything we've heard it is a very popular program including the drug benefit people like it you don't hear a lot of people that maybe you do i'm not a paying for it so sure it's a good deal you know it's a good deal but then the f d a g p is always competing for employees and doing it on their benefits so they don't want to skimp too much either so will give skimpy benefits or generous benefits depending on much people want to pay and what they want needleman first i want to just reiterate the point that has been made by me mr merrett others the potential for that real value added from the p p b m's they have real expertise in claims in this trade and drug drug interaction working with the pharmacies working with patients all of which should be acknowledged and is a service is probably worth paying for having said that everything that mr merritt said about the role of the p b s in dealing with clients and providers and negotiation could also be said about health insurance and managed care providers well operating well operating under administrative service only contracts with far more transparency and we see in the p p m contracts if we're looking at transparency there are models i would encourage the committee to take a closer look and get more information about exactly how tri care is paying for the administrative services under the p b m contract given that it is paying clearly schedule prices for the drugs themselves those are my specific comments about the the nuts and bolts i think one of the issues that the committee needs think about is the nature of the program it has been run as a centrally private sector program with the federal government operating as a private sector employer in terms of the way contracts with health plans some of the changes that i've heard discussed today some of which i would prob possibly endorse this with additional study involve changing that relationship to the d o d relationship the v a relationship is all very different than an  employer relationship with health plans so you need to think about whether you're really prepared to walk down that road in order to achieve cost savings and finally in that regard part of the way in which the plans get cost savings d unusual to see formularies in federal plans but whether you're prepared to go to but in order to achieve some of the kinds of negotiated price savings that potentially you're talking about here you will have to if you're going with a single point of entry for the federal employees you'll have to be prepared to negotiate a well constructed well thought through formulary that will apply to all the federal employees rather than the individual formulas that you're seeing in the f h b p plant you need think power of the federal government to its benefit i think as we look as we sit where we are now in health care when the mental change needs to happen it can't be small incremental change we need to do something big and drastic we have to get used to the fact that citizens that we can't everything all the time in the most convenient location it's just too expensive i think it comes down to something very simple i mean what is the cost it's a cost of the drug you pay the pharmacy and the markup and everything else is a benefit to a potential services i just found the first five to ten billion for the only got seventy more to find on the road so i would take him up on it that's a great point thank you doctor first i should mention this earlier but i did use live in norwood there anyway it's too late now but i thought i'd throw it in there i would just say in conclusion thanks for your time thanks for all your focus on the spending hours on the sound they are seeing a member of congress spend this much time on this i really appreciate that we feel like the more people learn about us the better we don't we're not hiding from that it's just difficult to explain this sometimes i would just suggest that whatever solutions you offer in regards to transparency that you don't make the mistake of the rest of the medicare program has made with doctors  hospitals where you move to kind of a cost plus basis where you say well i don't care what you're doing i'm just going to pay a little percentage on top i just want to see everything you do the danger in that and again we've seen this with doctors and hospitals but in the drug space the danger is you want to make sure we have incentives to generate even more savings and for computer and for p b s to compete against each other to generate more savings you don't want to situation we get paid the same amount of we dispense a generic or brand or that if we don't care if it's delivered by mail or decide a drug store if we're going to pay it anyway why do we care that's the one reason why the only part of medicare we're saving money is the one that we had mr medicare part d which is coming thirty percent under it which is unheard of for a federal program now mit is interesting is it's the biggest probably the most successful federal initiative that neither party wants to take credit for but for whatever reason it's working and we're part of it and it's counterintuitive but i would just make sure that the incentives are really strong because we can save a lot more money than we are right now and hopefully if there's a silver lining to this whole era of all the deficits and so forth illa people to it will be the people and policymakers take a second look at other ways we can save money so i'd be happy to work with you on on ways to do that so i'm thank you for your time and i thank you and on that note we do appreciate your willingness to come here and help us and this is an ongoing process in the bottom line for us is the bottom line we want we want to save money is not we don't have  you know there are no good guys and bad guys in this thing we just want to we've got an obligation here to try to provide the these products and health care at the lowest possible price that we can for federal employees