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32–403 PDF 2007

S. HRG. 109–780

INCREASING GENERIC DRUG USE:

SAVINGS FOR SENIORS AND MEDICARE

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC

SEPTEMBER 21, 2006

Serial No. 109–33

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

KEN SALAZAR, Colorado 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1

Opening Statement of Senator Gordon Smith ....................................................... 3

Opening Statement of Senator James Talent ....................................................... 4

PANEL I 

Mark McCllelan, M.D., Ph.D., administrator, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services, Washington, DC ............................................................................................................. 5

PANEL II 

William Vaughan, senior policy analyst, Consumers Union, Washington, DC .. 34

Timothy Antonelli, R.Ph., clinical program manager, Blue Cross Blue Shield 

of Michigan, Southfield, MI ................................................................................. 46

William H. Shrank, M.D., MSHS, Division of Pharmacoepidemiology and 

Pharmacoeconomics, Brigham and Women’s Hospital, Harvard Medical 

School, Boston, MA .............................................................................................. 55

APPENDIX 

Prepared Statement of Senator Susan Collins ...................................................... 77

Prepared Statement of Senator Ken Salazar ........................................................ 77

(III) 

(1)

INCREASING GENERIC DRUG USE: SAVINGS 

FOR SENIORS AND MEDICARE 

THURSDAY, SEPTEMBER 21, 2006 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:06 a.m., in room 

SD–562, Dirksen Senate Office Building, Hon. Herb Kohl presiding. 

Present: Senators Kohl, Smith, Collins, Talent, Nelson and Lincoln. 

OPENING STATEMENT OF SENATOR HERB KOHL 

Senator KOHL. We will call this hearing to order now and welcome our witnesses. As always, I thank Chairman Smith for allowing us to put together this hearing. 

Everywhere I go in my State of Wisconsin, I see how prescription 

drug costs are a drain on seniors, families and businesses, all of 

whom are struggling to pay their health care bills. They need help, 

and we can respond by expanding access to generic drugs. 

Generics, which on average cost 63 percent less than their brandname counterparts, are a big part of the solution to health care 

costs that we all know are spiraling out of control. 

Prescription drugs make up 11 percent of national health care 

spending, but are one of the largest and fastest growing health care 

expenditures. The U.S. spent over $250 billion on prescription 

drugs in 2005, with generics accounting for 56 percent of the prescriptions, but only less than 13 percent of the cost. One study estimates that every 1-percent increase in generic use can save up to 

$4 billion. That means that a modest 5-percent increase in generic 

use could save as much as $20 billion. 

The private and public sectors are looking for relief, and our 

Committee has heard some remarkable success stories from some 

who have turned to generic drugs. General Motors, for example, 

testified that in 2005 they spent $1.9 billion on prescription 

drugs—40 percent of their total health care spending—and their 

program to use generics first saves General Motors nearly $400 

million a year. 

We know generic drugs have the potential to save seniors thousands of dollars and curb health care spending for the Federal Government, States, employers and families. Every year, more blockbuster drugs are coming off patent, setting up the potential for billions of dollars in savings, and so the question is what are we going 

to do about it. 

2

Well, first, we need to get the word out to Medicare beneficiaries. This month, millions will exceed the initial $2,250 drug benefit and 

will fall into what is called the donut hole, where they must pay 

full price for their drugs. CMS needs to steer seniors more so toward generic drugs to help them survive the donut hole and publicize the 13 percent of drug plans that actually cover generic drugs 

during this gap so that seniors can seek out those plans during the 

open season. 

Second, we need to do a better job of educating seniors. Many are 

still reluctant to switch to generic drugs because they think that 

expensive or brand name means better. Many don’t know or don’t 

believe that generic drugs are just as safe and effective as the 

brand-name drug that they see advertised on television. Often, 

their own physicians compound the problem. With little information available to doctors comparing brand name to generics and patients demanding the newest drugs, doctors too often prescribe 

medications that are more expensive, but not necessarily more effective. 

CMS and HARQ are currently compiling some comparative information about different drugs that treat the same diseases, but we 

need more comprehensive studies. We need to get this information 

into the hands of doctors so that they can prescribe better, and we 

should get it to the Medicare drug plans, also, so they can consider 

it when designing their formularies. 

It is clear that generic drugs can be a big part of reining in 

health care costs. The first battle in this fight is to break through 

the roadblocks that stop generics from reaching patients. In the agricultural appropriations bills, we are boosting funding for the FDA 

to reduce their backlog in approving generics, and I and others are 

also sponsoring legislation to end back-room deals and frivolous citizen petitions used by the pharmaceutical industry to prevent 

generics from coming to market faster. It is also time to create a 

system to approve generic biologics which are increasingly used to 

treat disease, but currently have no generic equivalents at all. 

Once generics are on the market, it is just as important to win 

the next battle, which is to make sure that every senior, every family, every business and every government program knows the value 

of generics and uses them to bring costs down. So we look forward 

to hearing more from our panels. 

Now, we turn to our Chairman, Gordon Smith, for his opening 

comments.

3

OPENING STATEMENT OF SENATOR GORDON H. SMITH, 

CHAIRMAN 

The CHAIRMAN. Thank you, Senator Kohl, and my thanks to you 

for helping to organize this hearing and to your staff. We appreciate so much the working relationship we have with you. But, 

more, we thank you for all that you have done to help seniors reduce their prescription drug costs and what you continue to do. 

I also want to make note of what I have been told. This may be 

Dr. Mark McClellan’s last Senate hearing. I don’t know whether 

that makes you happy or sad, but we are honored that you would 

come here, Mark, to this Committee, it being one of your last hearings, if not the last. You have presided over this enormous program, this enormous agency, at a historic and important time, and 

I know you have had your full measure of challenges. But I just 

think heart-felt thanks are due on behalf of the Senate, on behalf 

of this Senator, and certainly on behalf of the seniors of this country, who I think in increasing numbers are recognizing that while 

we didn’t pass a perfect bill for you to administer, we have passed 

a bill that is proving already a real benefit to their lives and to 

their quality of living. 

Today, we turn our focus to the demand side of the equation by 

exploring ways generic drugs can be used more frequently when 

they are deemed medically appropriate. We are familiar with the 

skyrocketing costs of prescription drugs and the potential savings 

that could be achieved if generics were used more effectively in our 

Nation’s health care system. This is true both for individual consumers and the government, but neither can achieve those savings 

unless we continue working to break down the barriers that Senator Kohl just talked about. 

Medicare’s new prescription drug benefit is saving seniors a 

great deal of money on their health costs, but they could save even 

more by choosing to use generic alternatives their plans offer. Considering some reports show that drug prices and Medicare Part D 

are increasing at rates equal to or even faster than the rest of the 

market, the gains seniors have made with their new benefit may 

soon be lost. 

We cannot afford to allow out-of-control drug prices to erode seniors’ access to vital drug therapies. But simply getting more prescription alternatives to the market will not guarantee that they 

will be used by doctors or patients. The savings generics could provide our health care system can only be fully realized if we raise 

awareness about their effectiveness and their affordability. 

In order to accomplish this, there needs to be more information 

available to the public regarding generic drug benefits. Fortunately, interest from the government and other health care purchasers has sparked more research in this area. Programs like the 

Drug Effectiveness Review Project, spearheaded by the Oregon 

Health Sciences University, are providing policymakers and health 

care purchasers a wealth of evidence-based materials about the effectiveness and safety of prescription drugs, including generics. 

We are all aware of concerns that brand-name marketing efforts 

influence physicians’ prescribing behavior. Since generic drug companies typically do not engage in such activities, a doctor may not 

be aware of the availability of more affordable drug options. If we 

4

expect to realize all the benefits generics have to offer, both providers and patients need greater access to objective prescription 

drug information. 

The Internet is one source consumers are using to make comparisons between brand-name and generic drugs. Hopefully, as seniors 

learn more about their options, they will more readily talk to their 

doctors about finding the prescription drugs that are not only most 

effective, but most affordable. 

So I look forward to our discussion today and I expect it will provide us with more ideas on how we can further raise awareness 

about the value and safety of generic prescription drugs. Senator 

Kohl has assembled a fine group of witnesses and I know their 

input will be very useful. 

Senator KOHL. Thank you very much for your fine statement, 

Mr. Chairman. Now, we turn to Senator Talent. 

OPENING STATEMENT OF SENATOR JAMES TALENT 

Senator TALENT. I want to join Senator Kohl and the Chairman 

in welcoming Dr. McClellan. Thank you for your tireless efforts in 

implementing the Medicare prescription drug program which is 

benefiting over 700,000 seniors in Missouri. While there are certainly things about the bill that I want to improve—and you and 

I have talked about some of them—I am pleased about the benefit 

to Missourians and the fact that the model has succeeded in getting prescription drug costs discounted and then paying a part of 

the discounted price for our seniors around the country. 

I also join with you in the belief that in addition to just providing 

a benefit that people need, it is going to be very important in moving Medicare toward a system that focuses on helping people manage their health and manage any diseases they may have so they 

stay as healthy as possible, rather than just paying bills when they 

get sick. That is the key to the health of our seniors in the future. 

Certainly, increased reliance on generics is an important part of 

that and we need to keep emphasizing that, and I am glad you are 

here today to talk about what you think we can do. 

Thank you, Mr. Chairman. 

Senator KOHL. Thank you, Senator Talent. 

We will turn now to our first witness, Dr. Mark McClellan. Dr. 

McClellan has been the Administrator of the Centers for Medicare 

and Medicaid Services, known as CMS, since March 2004. Unfortunately, as we know, Dr. McClellan recently announced that he will 

be leaving his job. Of course, we wish you the very best. We certainly appreciate how accessible you have been to this Committee, 

and we thank you for agreeing to come here today. 

Dr. McClellan will discuss CMS’ efforts to encourage generic 

drug use under Medicare and their preparations for the upcoming 

open season, when beneficiaries can switch their drug plans. 

We welcome you here today and we look forward to your testimony. 

5

STATEMENT OF MARK MCCLELLAN, M.D., Ph.D., ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, 

WASHINGTON, DC 

Dr. MCCLELLAN. Thank you, Senator Kohl, and Mr. Chairman, 

Senator Talent. Thank you very much for your kind words, for your 

bipartisan leadership on the issue of generic drugs, and especially 

for your leadership on safe and effective ways to lower drug costs 

for Americans. 

Generic drugs are just as safe and effective as the brand name 

version, they are inexpensive in the United States as a result of 

our competitive pricing system, and they are a critical element to 

providing health care to Americans that is effective and affordable. 

As a result of the new Medicare prescription drug benefit, generic 

drug use is up significantly, leading to billions of dollars more in 

savings for people with Medicare and taxpayers. 

I am pleased to report that the Medicare drug benefit is proving 

less expensive than anticipated at any previous time and that we 

expect continued savings throughout 2007. These savings are in 

part being driven by promoting the use of generics, where appropriate, in the design and implementation of the drug benefit, and 

I am pleased to have the opportunity to discuss how we can do 

even more in this area. 

Based on updated figures from the 2006 mid-session budget review, the estimated cost of the drug benefit over 5 years is down 

by $35 billion compared to the estimates earlier this year, and is 

$110 billion lower than the estimates just a year ago. The average 

Part D premium for 2006, now estimated to be under $24 a month, 

is lower than estimates from last year which came in at over $37 

a month. Based in part on these strong competitive bids for 2007, 

average premiums next year will again be around $24 if beneficiaries stay in their current plan. 

Because the vast majority of beneficiaries will have access to 

Medicare drug plans that have lower premiums, actual premiums 

in 2007 are likely to be even lower if some beneficiaries decide to 

switch. With lower bids and smart choices by our beneficiaries, 

costs to taxpayers will be even lower in 2007 than the much lower 

than expected costs we are already seeing in 2006. 

Along with aggressive drug price negotiation and effective benefit 

design, the utilization of generics has played an important role in 

bringing down these Medicare drug benefit costs. As you pointed 

out, generic drugs typically cost 50 to 70 percent less than their 

brand-name counterparts, and prices for generic drugs in the 

United States, drugs that account for most of the prescriptions in 

this country, are much lower than in many other countries. For example, a study by the National Opinion Research Center at the 

University of Chicago reported that people living in Canada pay 37 

percent more for generic drugs than people living in the United 

States. 

Because of these low prices and strong competition, the Medicare 

drug plans are providing excellent low-cost coverage for generic 

drugs. Generics are widely available on planned formularies and 

co-pays for these drugs are typically low, often just a few dollars, 

6

and some Part D plans are even providing generic prescriptions for 

free. 

Because of the low prices and because of the personalized information that Medicare beneficiaries are getting about how they can 

save using generics, Medicare beneficiaries are using generics at a 

high rate. Nationwide, the proportion of generic usage stands at 

51.9 percent. Data that CMS is gathering on the drug benefit show 

that generic usage among all types of Part D plans was 60.1 percent in the first two quarters of 2006. 

In addition, many Part D plans report an increased growth rate 

of generic utilization that is faster than in the overall market. This 

is very good news for Medicare beneficiaries in the Medicare program because it translates into billions of dollars in savings, while 

still delivering the same high quality of health care. 

One of the most important tools in helping beneficiaries find out 

about how much they can save using generics is our Drug Plan 

Finder tool which is available online at Medicare.gov and on the 

phone at 1–800–MEDICARE. Millions of beneficiaries and the family members and counselors who work with them have seen how 

much they can save personally by switching to generic versions of 

their drugs. We are enhancing this tool for 2007 for the upcoming 

fall open enrollment period, and we will also highlight generic 

availability in the Medicare & You Handbook which is being sent 

out next month. 

Additionally, during our outreach events and through our extensive partner network, we are advising beneficiaries that asking 

their doctor or pharmacist about generics or lower-cost brand-name 

drugs that treat the same condition can help them delay reaching 

the coverage gap if they choose a plan that doesn’t fill in the coverage gap. Consumers Union has concluded that seniors can save 

hundreds, if not thousands of dollars by switching to generics, potentially enabling them to avoid any coverage gap altogether. Other 

studies have found similar savings of 60 to 75 percent by switching 

to generics, and next year I am pleased to report that even more 

plans will offer coverage of generics in the gap. 

CMS is also working with a broad range of stakeholders in the 

Pharmacy Quality Alliance to develop consensus measures of pharmacy quality that will be available starting later this year. Generic 

utilization is expected to be one of these key quality measures. 

Low-cost generic drugs are one of the reasons why a broad range 

of recent surveys, including J.D. Power and the Kaiser Foundation, 

are consistently showing high beneficiary satisfaction rates with 

the new drug benefit. Satisfaction rates are consistently over 80 

percent, with even higher rates for dual-eligible beneficiaries. 

We are continuing to work hard to build on these successes and 

improve the benefit further. For example, in 2007 more plans will 

be offering options with coverage in the gap, and as I have already 

mentioned, Part D costs will be lower for taxpayers. The cost savings are due in no small part to price negotiation on drugs, and 

also to effective use of generics that cost much less than drugs that 

seniors have used in the past. 

Mr. Chairman, Senator Kohl, Senator Talent, thank you again 

for inviting me to speak with you today about generic drugs and 

how we can work to continue providing a high-quality, low-cost preVerDate 0ct 09 2002 14:55 Jan 29, 2007 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 H:\DOCS\32403.TXT SAGING1 PsN: JOYCE
7

scription drug benefit for people with Medicare. The drug benefit 

provides much-needed coverage for our beneficiaries, and generic 

drugs serve as an important and safe way to save a lot of money 

for beneficiaries and the Medicare program. I look forward to any 

questions that you all may have. 

Senator KOHL. Thank you for your statement. You say that generic drug use rates under all Part D plans during the first two 

quarters were just a bit above 60 percent, which is very good. I assume that that is an average and that there are some plans which 

did a better job and others which did not do so well. 

What kind of range are we talking about here? In other words, 

what were the generic use rates of the plans with the lowest and 

the highest generic use? Do you have some information on that? 

Dr. MCCLELLAN. This is preliminary data, Senator. We have just 

gotten second quarter data recently. In the first quarter, I am not 

sure that is going to be real representative because that was the 

transition period for many people onto the benefit and many people 

continued their previous drugs for the first 3 months of 2006. 

We are going to keep analyzing these data and we do want to 

make them available by plan. We hope to do so by November, so 

we should have those numbers for you by plan soon. What I can 

tell you is that some of the Medicare Advantage plans, the HMO 

and PPO and private fee-for-service plans in Medicare, tend to 

have a somewhat rate of use of generic drugs, over 60 percent, but 

we don’t have any systematic numbers on that quite yet. We will 

have them soon. 

Senator KOHL. Will that information be available to seniors by 

the time the open season starts in November so that they and we 

and everyone can know which plans are doing a better job and 

which are not doing well? 

Dr. MCCLELLAN. That is exactly our goal. I know that is very important to you from our staff discussions and we intend to make 

that information available by mid-November. 

Senator KOHL. For those plans with well below the average generic use, what is CMS intending to do to encourage them to increase their use of generic drugs? 

Dr. MCCLELLAN. Well, I think that those plans are going to have 

a hard time doing well in this program in the longer term because 

we are seeing strong competition. The premiums are very low. The 

cost of the overall drug coverage is much lower than expected and 

if plans aren’t implementing effective ways of telling people about 

the savings with generics and helping people switch over, then they 

are not going to do well. 

That is why I think we are seeing such good coverage for generic 

drug use, with many plans having generic drugs available for no 

cost at all. We are going to highlight those plans this fall, and I 

think the most important message for the drug plans is because we 

are making available information on generic use, because we are 

telling people how much they personally can save on their drug 

needs by switching to safe and effective generic drugs, the plans 

that don’t do well with generics are not going to do well in this program. 

Senator KOHL. Dr. McClellan, a growing number of drugs that 

seniors take today, as you know, are biotechnology drugs, which 

8

have been a growing expense under Medicare Part B and are now 

also covered under Part D. Today, as you know, there are no generic versions of biotech drugs because the FDA has no system to 

approve them. 

Don’t you believe it is time that we do create a system to approve 

generic biotech drugs, and wouldn’t those generics produce additional real savings for Medicare and for seniors? 

Dr. MCCLELLAN. Senator, during my time at FDA, we spent a 

good deal of effort starting to look into what would be required for 

generic biologics to be available safely and effectively and I know 

FDA is continuing to work very hard on that issue. 

The challenge that biologics present is, as you know, they are 

much more complicated molecules. They are not a simple, smallmolecule drug. Many biologics are complex. They are part of complex formulations with complex manufacturing processes, and what 

that means is that they present some more challenging safety 

issues. 

The FDA is working hard to find ways to address those safety 

issues, but frankly I think we need to put some resources into developing methods that can assure the safety of generic versions of 

biologic drugs and maybe focus first on some of the relatively simple generic biologics. FDA has already got a process underway for 

a generic version of Omnitrope, which is a relatively small biologic 

molecule. There are several other biologics that were approved a 

long time ago under the FDA’s new drug authority, as opposed to 

the BLA, the biologics authorities, and that might be a good place 

to start. But I agree with you that it is time to look closely at the 

safety issues, and if we can address those safety issues, then this 

is an important policy to consider. 

Senator KOHL. Thank you. 

Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Kohl. 

I wonder, Mark, in your view, to the degree that there is resistance to generics, is it just perhaps a placebo belief that the brands 

are just better, because, in fact, aren’t the medicines darn near 

identical? 

Dr. MCCLELLAN. They are identical; the active ingredients are 

identical. They are regulated in the same way. They have to meet 

the same safety and effectiveness standards. According to the FDA, 

the oversight is tight. 

I think, Mr. Chairman, it is maybe a bit of a carryover from 

when people hear the term ‘‘generic,’’ they think about knock-off 

purses or watches that you might buy on the street that aren’t the 

same as the brand-name version. It is very important for the public 

to know that that is absolutely not the case when it comes to FDAapproved generic drugs in the United States. These drugs are just 

as safe and just as effective as the brand-name version. 

We have been making that information available every opportunity we get. It is on our website. It is in, as I mentioned, our outreach materials to beneficiaries, and I think as long as we have a 

concerted effort with all of us focusing on this very important education message about safe and effective and low-cost medicines, we 

can make sure that all Americans are aware of it. 

9

The CHAIRMAN. Ultimately, will the best educator be the price 

savings that people individually can enjoy? 

Dr. MCCLELLAN. What we have found is what seems to motivate 

a lot of seniors is being able to give them personalized information 

about the price savings, not just telling them, in general, that 

generics are 50 to 70 percent, or more, savings compared to the 

brand-name drug, but being able to give them a print-out when 

they call us 1–800–MEDICARE or when they go to Medicare.gov. 

If you tell us what drugs you are on, we will tell you if there is 

a generic version available and we will tell you how much you can 

save each month by switching to that drug. 

That is a print-out that you can take with you the next time you 

see your doctor or pharmacist. In many States, you don’t even need 

to go to the doctor to switch over to a generic version of your drug; 

you can just do it. So that has proved to be a strong motivator for 

many of our beneficiaries. 

The CHAIRMAN. It keeps them out of the donut hole for a lot 

longer, doesn’t it? 

Dr. MCCLELLAN. It sure does. That is what Consumers Union 

has said that you can save hundreds or thousands of dollars by 

switching over, and that can keep you out of the donut hole if you 

choose a plan that has a donut hole. 

The CHAIRMAN. If I hear any complaint at this point on Medicare 

Part D. it is the donut hole. I think that was foreseeable, but again 

I hope your Department is getting that message out. If you want 

to stay out of the donut hole for a lot longer, use generics. 

Dr. MCCLELLAN. It is very important. On our website and when 

people call us at 1–800–MEDICARE, we have a whole set of steps 

that people can take to lower their drug costs. Even if they are not 

in the donut hole, these are important things to look at anyway to 

keep your drug costs down. It includes getting this personalized information about generic drug availability and lower-cost brandname drugs for your medical needs, something you can talk about 

with your doctor and pharmacist. 

It includes using your Medicare card because you get discounts 

on the drug prices when you do that. It includes looking at a lot 

of programs that are out there to help you with costs in the donut 

hole. So we want people to get in touch with us about all of these 

opportunities for saving. 

The CHAIRMAN. I describe generics as nearly identical, and I 

want to emphasize your response was that they are identical. 

Dr. MCCLELLAN. Just as safe and effective. They have the same 

active ingredient, they work in the same way in the body as the 

brand-name drug. 

The CHAIRMAN. Mark, something that is not specifically to 

generics, but Medicaid, and a concern I have on Medicaid. I want 

to talk to you about some recent news reports that I am aware of 

that a couple of States, specifically Kentucky and Idaho, are offering Medicaid so-called benchmark plans without describing to the 

beneficiaries that that doesn’t disqualify them from Medicaid. 

Frankly, they need to be told what the differences are, and they 

shouldn’t be asked to make a choice between a benchmark plan 

and Medicaid. If they are going to make that choice, they need to 

be given the choice. 

10

I am wondering, has CMS authorized these two States to pursue 

these alternatives without making clear their choice? 

Dr. MCCLELLAN. Mr. Chairman, under the Deficit Reduction Act, 

as you know, because I know this is a provision very important to 

you, for certain populations the States must continue to offer a traditional Medicaid option as well as these new kinds of benefit 

plans. 

What we have heard from beneficiaries in the two States is that 

they are pleased by the new benefits coming along. In Idaho, there 

are some additional benefits to help people stay well that they 

didn’t get before. In Kentucky, there are new home and community-based services that are very important and very much supported by many advocates for people with a disability to help people get services that they need in their homes. 

But I want to be very clear that under the law and under our 

interpretation of the law, the States must offer the basic traditional 

Medicaid version, too, for people who want it. For beneficiaries that 

feel that they are not getting access to needed benefits, they have 

appeals rights and we intend to enforce that provision. 

The CHAIRMAN. As far as you know, are Kentucky and Idaho 

making clear——

Dr. MCCLELLAN. Well, Idaho has not yet even initiated their program. It is not even underway yet. In Kentucky, people do have the 

option of staying in the traditional Medicaid program, and we will 

be happy to provide you with additional information on this. 

The CHAIRMAN. You have provided no waiver from the statute? 

Dr. MCCLELLAN. No. I want to be very clear that the States must 

provide the basic traditional Medicaid approach as an alternative 

for beneficiaries. 

The CHAIRMAN. One other comment I have. My staff is working 

with your agency to try and work out a solution to the problems 

that have occurred with Part D premium withholding. I appreciate 

your willingness to develop solutions, but I want to make clear that 

CMS and SSA need to work with beneficiaries to develop options 

to repay past-due premiums over a period of time. This is a problem not of their making. 

Dr. MCCLELLAN. Absolutely. 

The CHAIRMAN. So I hope, come November, or whatever the 

deadline is for an individual, they won’t have their check confiscated in one lump sum. I think too many seniors would face a 

real financial burden. 

Dr. MCCLELLAN. If I can just say a word about that, this was our 

mistake and it is our responsibility to fix it and to make sure that 

the money that the seniors wanted to go to pay their drug plan premium does go to do that, but does it in a way that is not burdensome on the senior. 

The CHAIRMAN. So you are not proposing a—you are not just 

going to grab their money? 

Dr. MCCLELLAN. You know, some people do want to just get the 

money back and be done with it, and that is fine. For most people, 

the amount of money involved was under $200, and so many people 

just want to be done with it. None of our low-income beneficiaries 

were affected. But some people want to have the option of paying 

it out over time and we have made available an option of paying 

11

out for as much as 7 months, and we will talk to beneficiaries 

about even longer if they have concerns. 

We have a toll-free number set up for people to call in if they 

have any questions about this, and we definitely want to work with 

our beneficiaries to make sure the money goes where they intended 

it to go in the least burdensome way possible. 

The CHAIRMAN. Well, I thank you for your flexibility on that very 

much. 

Thanks, Mr. Chairman. 

Senator KOHL. Thank you, Mr. Chairman. 

Senator Nelson from Florida. 

Senator NELSON. Thank you, Mr. Chairman. 

Dr. McClellan, as you know, there have been 45 of us Senators 

that have introduced what is called the Medicare Late Enrollment 

Assistance Act, including several of the members of this Committee. It is headed up by Senator Grassley and Senator Baucus. 

We filed this bill the day after the deadline, the deadline having 

been May 15, in order to eliminate the 1-percent-a-month penalty 

which, in effect, for senior citizens that did not sign up, as they 

sign up at the end of the year for the Part D Medicare prescription 

drug benefit, they are going to be penalized with a 7-percent increase in their premium. It is estimated by one of the agencies—

I think it might be CBO—that this includes 3 million senior citizens in the country. 

So I would like to know if your outfit, CMS, supports waiving 

this late enrollment fee for these seniors at this particular time. 

Dr. MCCLELLAN. Senator, we have very strong interests in making sure that everyone takes advantage of this benefit, so we certainly share your goal of getting more people into the program. I 

think we did have some concerns about the way that this bill might 

be paid for by taking away money that is needed for providing 

other benefits to seniors, Medicare Advantage support and things 

like that that many seniors are counting on. 

What I can tell you, as well, is that we have been looking at 

these numbers closely and it is not, we don’t think, 3 million beneficiaries that would be subject to the penalty. Remember that because of our authority, we have been able to waive the penalty for 

any low-income beneficiaries that have not yet enrolled, and that 

is a very hard population to reach and they actually account for 

probably most of the people who have not yet signed up, most of 

the few million people who are not yet in good drug coverage. 

We also want to emphasize that everybody who is in drug coverage now can switch to a different plan with no penalty at all 

later this year if they are not happy with their current coverage. 

So it is a pretty small population that is subject to this penalty. 

It is actually fewer people, we think, than would be subject to the 

Part B penalty if they ended up enrolling in Part B. So we will try 

to continue to work with you on this. 

Senator NELSON. Well, I hope so because 3 million is not a trifling number of people. 

Dr. MCCLELLAN. It is less than that. I agree any population, even 

if it is a few hundred thousand, that is something that we are concerned about; we want to get them into the coverage. 

12

Senator NELSON. Particularly when you are dealing with senior 

citizens who sometimes have to make the tough choices of how they 

are going to make financial ends meet. If you wanted to hang that 

penalty over their head in order to get them into the system, OK, 

the system deadline came and went. Now, for whatever reason, a 

number of them, many of them confused, did not sign up. Now, 

they are going to sign up at the end of the year. Why have that 

penalty of 7 percent on these people forever? 

Oh, by the way, you can pay for it with an offset because there 

was a sinking fund, a set-aside fund that was to help the private 

companies enroll people. Because people went ahead and enrolled, 

there is money left there that can be used to offset this penalty, 

so you have got a net no additional money. If it is for the good of 

the seniors, we ought to do it. 

Dr. MCCLELLAN. We definitely agree with you that we should be 

doing what is for the good of the seniors. We are concerned about 

taking away funds for other programs that may be needed and 

make sure we continue to provide the best possible coverage to seniors. Again, we have been watching the numbers closely. Ninety 

percent of people already have drug coverage. Most of those who 

don’t, we have already said do not have to pay any penalty at all. 

If you are a low-income senior, there is no penalty. Please find 

out about this program and enroll in it right away. So it is only 

that smaller group, and again we do want to keep working with 

you on this to make sure we are using the dollars that we have 

as effectively as possible to help as many seniors as possible. 

Senator NELSON. Why can’t you just say yes? [Laughter.] 

Dr. MCCLELLAN. People ask me that a lot, but there is——

Senator NELSON. Well, I mean it is not funny. 

Dr. MCCLELLAN. I don’t think it is funny. I think that the issue 

is a very important one and that is why we have tried to get the 

word out and that is why we are very pleased that so many people 

did enroll in drug coverage, and that is why we have done all we 

can under the authority we have to eliminate the penalty for lowincome seniors. It is that remaining group, and again we want to 

continue to work with you. I just don’t want to take money away 

from one important priority and put it on this one unless we are 

sure that that is the best thing to do. 

Senator NELSON. Well, since I have an opportunity to give you 

a little advice here, I would suggest also, since we have had a discussion here about the donut hole and I think a good discussion 

has come out here about how you can avoid having seniors go into 

the donut hole with the generic drugs—and by the way, Wal-Mart 

is starting a pilot project in my State, in Tampa, FL, in which they 

are going to start promoting the generics giving people prescriptions at something like four bucks a prescription. So on the basis 

of this experiment, this pilot project, maybe it will work. 

But over and above that, I would, Mr. Chairman, like to take the 

privilege of suggesting that one way that we could pay for the 

donut hole is to let the free market private enterprise work by having Medicare be able to negotiate through bulk purchases the price 

of the drugs down and take those savings and start to plug the 

donut hole. 

Thank you, Mr. Chairman. 

13

Senator KOHL. Thank you, Senator Nelson. 

Senator TALENT. Senator TALENT. Dr. McClellan, in your testimony you gave some 

figures about savings on the Part D program, updated figures, and 

I was writing them down and I didn’t see them in your written testimony. Would you give me that again? 

Dr. MCCLELLAN. Sure, and we can give you a full report. This 

was included in the President’s mid-session budget review update 

for 2007, and then we also made some further announcements in 

August when we released information on the 2007 bids, the costs 

that the plans will have for the drug coverage in 2007. 

Based on the numbers that we saw through the budget in 2006, 

the costs for the drug benefit in the first 5 years, starting in 2006, 

are $110 billion lower than had been projected just a year ago. 

Senator TALENT. That is over 5 years? 

Dr. MCCLELLAN. That is over 5 years. The costs in 2006 are 25 

percent lower than had been projected just a year ago. That is billions of dollars in savings for beneficiaries through lower premiums 

and savings for taxpayers. 

Senator TALENT. So the taxpayers are spending less than we 

thought? 

Dr. MCCLELLAN. Taxpayers are spending a lot less. Now, those 

numbers don’t yet account for the fact that the cost of the prescription drug benefit is going to go down in 2007, and that is because 

the average bid, the average cost for providing a drug plan to beneficiaries—the average cost to taxpayers is going to go down by 10 

percent. It may go down even more if seniors do what they did this 

year, which is look into the program and take some effort. 

I know it wasn’t easy especially this first time for many of them, 

but they looked into it and they overwhelmingly chose low-cost 

plans. They are very satisfied with those plans, and so we could see 

even more savings. 

Senator TALENT. The cost to the taxpayers is $110 billion less 

over 5 years than we thought? 

Dr. MCCLELLAN. Yes, and again I think those numbers are going 

to be down——

Senator TALENT. The cost to the seniors, because the average 

premium is staying the same——

Dr. MCCLELLAN. It is 40 percent lower than had been projected. 

Senator TALENT. Yes, 40 percent lower. It sounds like there is 

some bargaining going on someplace, isn’t there? 

Dr. MCCLELLAN. There is a lot of bargaining going on and we are 

going to see even more savings. 

Senator TALENT. So it is costing the taxpayers less and it is costing the seniors less. 

Dr. MCCLELLAN. A lot less. 

Senator TALENT. The two objects of the bill were to force the prescription drug companies to discount their prices, which they have, 

and then pay a part of the discounted price for the seniors. It is 

an insurance feature. 

Dr. MCCLELLAN. If I could just add to that, we have an update. 

We have been tracking the cost of drugs in the program and tracking the prices that the plans are negotiating over time. We are 

going to have an update on those numbers released this afternoon. 

14

What we are seeing is large and stable savings of typically 50 to 

70 percent for commonly used combinations of drugs by seniors. In 

the drug plans, the average price of the drugs for the first 8 

months of the program has increased by less than one percent. So 

it is not only below medical inflation, it is below general inflation. 

Senator TALENT. Of the folks who haven’t signed up—and I support waiving the penalty, too, in part because the cost of that will 

be so much less than we think since there are just not that many 

people that we haven’t already waived it for anyway. 

Dr. MCCLELLAN. Yes. 

Senator TALENT. But in any event, most of the folks who did not 

sign up are eligible for the more generous benefit that lower-income Americans can get. Isn’t that right? 

Dr. MCCLELLAN. That is correct. 

Senator TALENT. My experience in Missouri was that part of the 

problem was there were so many allegations about the plan being 

thrown out there that a lot of people, I think, were afraid. They 

just didn’t get the information adequately, and now that they have 

got it, I am hopeful that they will sign up because those are exactly 

the folks who need it. 

Now, you mentioned in your testimony on page 7 that the Pharmaceutical Care Management Association released a study earlier 

this year indicating that Medicare drug plans offer significant price 

discounts compared to what beneficiaries would pay without coverage. Now, you are talking about just the discounts off the original 

prescription drug price. Is that what study——

Dr. MCCLELLAN. That study was looking just at the discounts off 

the price. 

Senator TALENT. Not the insurance feature that the government 

pays? 

Dr. MCCLELLAN. Not the insurance, not the payments. 

Senator TALENT. Did that study give an average discount? I 

mean, can I get some figures on that? 

Dr. MCCLELLAN. They did, and I am sure PCMA would be happy 

to talk about it. I think they have actually testified before this 

Committee, too, and I think the numbers are in the range of 30 to 

50 percent. 

Senator TALENT. OK, that would be good. Now, one other thing 

you mentioned—and it was kind of you to talk about the strong 

support that Members of Congress gave. I know that you are testifying before members of the Senate, and so I understand why you 

said that. But I want to just point out—and I am sure you will 

agree with this—that we had tremendous help on the ground, and 

continue to have it, from our community pharmacists and from our 

senior centers and those who implement the Older Americans Act. 

Dr. MCCLELLAN. Yes. 

Senator TALENT. We found in Missouri that those two groups absolutely were priceless and indispensable in getting information 

about the Medicare benefit, and I hope you feel the same way. 

Dr. MCCLELLAN. They have been phenomenal, and I think they 

are going to be so. The No. 1 source for beneficiaries was pharmacists and these local counselors. Senator, we are continuing that 

same grass-roots approach for the open enrollment period for 2007. 

We have launched a new initiative called My Health, My Medicare. 

15

We looked at what happened this past year and we found that this 

personalized support really helps people get better care. It is, as 

you were saying earlier, turning Medicare from a program that just 

pays the bills when people get sick to a program that is a partner 

to help them stay well. 

In addition to the information about lower-cost drug coverage options for next year and generics, they will also be helping us get 

the word out about our new preventive benefits. Medicare has 

closed the preventive benefits gap, but we still have a prevention 

gap among our seniors where many seniors aren’t taking advantage of it. I know you know about the fact that we have got free 

screening for heart disease and diabetes and many types of cancers. 

Senator TALENT. One more comment and then I am done. Thank 

you for your patience, Senator Kohl. 

I have been talking a lot with pharmacists about the medicine 

management program, the pilot program that we put in the Medicare Modernization Act, and I want to encourage you to continue 

moving in this direction and I am going to do this with your successor. Also, you are talking about wellness and it is very important to move Medicare in that direction. 

It is very important that we have people who have regular contact with their patients, helping them to understand wellness programming and move in that direction. Well, who is that if not the 

pharmacists? As we begin to implement electronic medical records 

more and more, we can network in all these health care professionals. I just want to urge you to think in these terms. Getting 

these pharmacists more involved and expanding that pilot program 

so they get compensation for how they work with seniors is not 

going to cost us money. It is going to save us money because they 

are part of the group of people who will show these seniors how to 

do these wellness aspects. So think in those terms about it because 

we have had some resistance on that. 

Dr. MCCLELLAN. I agree completely with you, and because of 

your interest in this issue, we helped support a new Pharmacy 

Quality Alliance that is being led by pharmacy groups that includes all the health care stakeholders to help make these better 

medication therapy management and other quality pharmacy services available not just to Medicare beneficiaries, but we need this 

throughout our health care system, Senator. 

Senator TALENT. I completely agree, and one of the things I regret about the bill is that the pharmacists have borne such a burden under it and, as you know, they are economically squeezed and 

this would be a great way to help them, but also to help move this 

progress toward a wellness system. 

Dr. MCCLELLAN. We will follow up on this. 

Senator TALENT. Thank you and your staff. 

Thank you, Senator. 

Senator KOHL. Thank you, Senator Talent. 

Senator Susan Collins from Maine. 

Senator COLLINS. Thank you. 

Dr. McClellan, the debate over the use of generic drugs versus 

brand-name drugs becomes largely an academic debate if patients 

don’t have access to physicians that can diagnose them and write 

16

the appropriate prescription. So though I am extremely interested 

in this issue and very concerned about it, I am going to use my 

time this morning to question you about policies that the Department is pursuing that threaten a number of small medical residency programs in the State of Maine that provide absolutely critical family physicians for the most rural areas of my State. 

I also have to express some frustration to you because I have 

called your office every single day for a week to talk to you about 

this issue and have been unable to get a return call. So with the 

Chairman’s indulgence, I am going to use my time here today to 

pursue this issue and then I will submit my questions for the 

record on the generic drug issue, which is an extraordinarily important issue. 

As I have said, we have five small medical residency programs 

in Maine. They have been the subject of audits by the fiscal intermediary focusing on their graduate medical education programs, 

specifically their use of non-hospital teaching sites. Over the past 

4 years, they have been asked to repay millions of dollars and have 

had the cap on their overall FTE reduced. 

Most recently, the fiscal intermediary has told two of the pro- grams that they may have to pay $5.4 million. I have to tell you, 

Doctor, if that stands, these programs will close; they will be forced 

to close their doors. I am not crying wolf about that; that is the financial reality. These hospitals and teaching programs have dedicated themselves to training primary care physicians and placing 

their graduates in rural Maine communities. They are non-profit 

institutions that provide health care to Maine’s most vulnerable 

populations. With all due respect to your fiscal intermediaries, they 

are doing their best to comply with a set of regulations that are inconsistent, vague and contradictory. 

If we lose the two teaching programs that are at issue right now, 

we will lose approximately one-third of our graduate medical education population and our major pipeline for future primary care 

physicians. The result of that is that citizens in my State are going 

to have reduced access to health care. I understand that CMS has 

a fiduciary responsibility, but I just plead with you to take a look 

at the implications of the decisions that are being made. I think 

your agency is not seeing the forest for the trees. 

Over the past 4 years, I have written letters to you. I have talked 

to you personally about this, I have talked to Secretary Leavitt, I 

have talked to your predecessor, and I believe that CMS’ actions 

are in direct conflict with congressional intent, as expressed in the 

1997 and 1999 Balanced Budget Act which were designed to encouraged rural and out-of-hospital experiences in these residency 

programs. 

Congress put in place a 1-year moratorium on the kinds of payment denials as part of the Medicare Modernization Act. Yet, the 

recent audits threaten to deny payments for rotations that occurred 

during the moratorium. I don’t even think you can legally do that. 

It is extremely frustrating. I don’t want to take the time of this 

Committee to go into it in more detail, but this has to be resolved. 

These are small residency programs. They are not large teaching 

hospitals, and we have reached a level of technicality here that 

none of them, even with the best of intentions, can meet. When my 

17

staff looks at the regulations, we can’t figure out why the denials 

are being issued. 

Let me just give you one example. The most recent audit of the 

Maine-Dartmouth Family Residency programs denies the reimbursement for time if the written agreement between the teaching 

program and the supervising physician is not dated prior to the 

time training was begun even though everything else was fine. Yet, 

we can’t find any regulation that stipulates that requirement. So 

this is extremely serious. 

I would ask that you at least consider delaying the issuance of 

the notice of program reimbursement by the fiscal intermediary for 

Maine General Medical Center and Southern Maine Medical Center so we can continue to work to resolve these issues. I have to 

tell you the situation is dire. These programs will close if we can’t 

get this to be resolved, and that means that senior citizens in our 

State and disabled individuals are not going to be able to get the 

care they need. It is not going to be a choice for them between a 

brand-name and a generic drug; they are not going to be able to 

see a physician in their community to get any kind of prescription. 

So I plead with you to give this your personal attention before you 

leave, and I hope we can talk further about it. 

Thank you, Mr. Chairman, for your indulgence on this issue. 

Dr. MCCLELLAN. If you don’t mind, could I have a couple of minutes? 

Senator KOHL. Yes. 

Dr. MCCLELLAN. This is a very important issue and, Senator, one 

of the things I have come to appreciate in this job is that no matter 

how hard my staff works, how well-meaning they are out of Baltimore and our offices around the country to get the program right 

and make sure it works for people, unless we listen to those who 

are on the ground actually delivering services, we aren’t going to 

do an effective job in running this program and we aren’t going to 

serve all of our beneficiaries as well as we should. 

One of the things that I have truly appreciated in my time working with you here at CMS is your input to us on those issues in 

Maine. Maine, like many States, has very distinctive kinds of provider arrangements that involve serving a lot of beneficiaries who 

don’t have great access to health care to begin with and need all 

the help they can get to maintain and improve quality of care. 

I remember one of our first meetings when I came into this job. 

You brought up this issue of the need for residency training programs that work and the need for getting primary care doctors out 

into parts of rural Maine that otherwise would have no access to 

medical services at all and how important the programs that 

Southern Maine Medical Center and Maine General Medical Center are to achieving that critical public health goal for the State of 

Maine. 

You have been with us every step of the way over the last couple 

of years that we have tried to work through this issue. No one has 

put as much time and effort into identifying this problem and trying to find constructive ways to address it as you have. While we 

haven’t connected over the past week, that doesn’t mean my staff 

hasn’t been working on this. 

18

What I would like to tell you right now is that as a result of your 

actions and your involvement in this issue, we are going to suspend 

the notice of program reimbursement. It is not going to end up 

being many millions of dollars. We are going to have to address 

this a little bit further and I intend to do that over the next few 

weeks while I am still at the agency. So you will hear from me 

about this first as we take further steps to resolve this issue. I am 

not sure we are going to be able to do every single thing that the 

medical centers would like, but you have raised some valid and important and critical issues all along in this process, and as a result 

of that we are suspending the NPR while we work this out over 

the next few weeks, and I will be giving that my personal attention 

before I leave the agency. 

Senator COLLINS. Thank you very much. I really appreciate that 

answer. Thank you, Mr. Chairman. 

Senator KOHL. Thank you, Senator Collins. 

Senator Blanche Lincoln from Arkansas. 

Senator LINCOLN. Well, thank you, Senator Kohl and Chairman 

Smith. Thank you both for the incredible work you all do in this 

Committee. We appreciate so much Co-Chairman Kohl bringing up 

such a great issue here on generic drugs. It is so vitally important 

to getting it right in this program of providing the kind of needed 

prescription needs that our seniors need. 

Just a couple of quick comments, if I may, and I do want to compliment my colleague from Maine, Senator Collins. I work with her 

on many things and am proud to do so, and she does bring up very 

critical issues for Maine and for those specific residency programs 

she has. But I would like to also broaden that issue, Dr. McClellan, 

to simply say she is exactly right; without the physicians out there, 

there are no prescriptions that are going to be written that will 

help our seniors get either a brand name or a generic. 

A couple of issues that I think we could certainly address there 

are the physician reimbursements, which we time and time again 

here have tried to address in terms of the cuts that they are going 

to see in January 2007. I was doing a seniors meeting in northwest 

Arkansas and visited with several constituents who said, you know, 

we have just now hit 65, but we can’t find doctors that are taking 

new Medicare patients. Physicians are waiting to see what it is we 

are going to do in terms of the priorities and the values we place 

on this program and the importance of seniors getting that kind of 

health care and being able to see the medical professionals they 

need to see. 

One of the other things that we have written to you about, or we 

actually wrote the President about and many of us are concerned 

about was that the funding for the geriatric education centers was 

eliminated in the budget. Just bringing it back to 2005 levels would 

provide the medical professionals, the physicians and others the 

ability to access training and to get those services out to the seniors particularly in rural areas, but all across the country. 

So I hope that we will take a very serious look at the whole package of health care delivery to our seniors, not just, as Senator Collins mentioned, in the major medical areas and teaching hospitals, 

but also how we get that information out. I know your group saw 

it firsthand because they traveled across the State of Arkansas 

19

with me last fall as we had those seniors meetings and talked to 

seniors out there. 

Being able to access information over the Internet about what 

drugs are available in a generic form is just not sufficient; it is not 

enough. I have way too many seniors that don’t access the Internet, 

don’t have a way to access the Internet. So I hope is that we can 

certainly look at some of these delivery programs that have been 

successful that are being cut out of the budget that could be very 

helpful in that education. 

I know my colleague from Florida mentioned what one of our 

constituents in Arkansas is doing. Wal-Mart has piloted a program 

in Florida, in the Tampa Bay area, making generics available to 

the insured and the uninsured for a co-pay, which I think is a wonderful start to test and see how it is that we can get delivery and 

confidence among consumers about generics. I think that is great, 

so we are looking forward to seeing how that gets expanded. 

I would like to also just follow up a meeting we had with you in 

the Finance Committee about the premium refunds. I know you 

have been working extra hard with Kentucky. When we were in 

that meeting, we knew we had some constituent problems; we 

didn’t know how many. I would like to see if I can’t get the same 

kind of attention Kentucky is getting on those premium refunds. 

Dr. MCCLELLAN. Absolutely. We will follow up with you. 

Senator LINCOLN. We are starting to hear an awful lot about that 

from our constituency, so we appreciate that. 

I guess the last thing I would just like to add is I know you are 

not representing FDA here today, but I would like to know the 

steps you are taking at CMS in the encouragement of moving the 

generics through FDA. There was a front-page story, I guess, on 

Monday in USA Today talking about some of the issues of FDA, 

not necessarily with generics, but just getting through those processes and a lot of drugs that have not been approved that are out 

there on the market and being used. 

What are we doing to encourage FDA to step up to the plate and 

deal with the backlog that they have in terms of generics and really get the process going of making sure that our drug industry is 

being properly regulated and put out into the marketplace? 

Dr. MCCLELLAN. Well, on this last issue I know that the FDA is 

very concerned about that. When I was there, faster access to generic drugs was an important priority. We were able to increase 

the budget for the staff that reviewed the generic drug applications, and we also took some steps to help the generic manufacturers get their applications right the first time so you could reduce 

the time it takes to determine that a generic is equivalent to the 

brand-name drug and it is just as safe and effective, which is the 

FDA standard. 

Senator LINCOLN. Did they stop doing that when you left? 

Dr. MCCLELLAN. Well, I know the agency is very concerned about 

continuing this priority. I think one thing that they really need, 

frankly, is confirmation of their commissioner. Andy von 

Eschenbach is very passionate about these issues of affordable access to innovative medicines, and getting him as a fully confirmed 

commissioner would definitely help the FDA move on in important——

20

Senator LINCOLN. He is acting now, correct? 

Dr. MCCLELLAN. Right, and as a fully confirmed commissioner it 

would definitely help him undertake initiatives like that this that 

I know are very important to him and to the agency. 

There are a couple of constraints. One is how good the applications are coming in. If they are not acceptable, if they don’t meet 

the safety standards, they are not going to get approved and it is 

going to take another round of going back and filling in the additional safety data and evidence that is needed to approve the generic drug. 

Second is just the resources that FDA has available to deal with 

the applications. With tight resources, that is a challenge, and I 

know that, frankly, additional resources for reviewing the generic 

drugs could help with that, too. 

Senator LINCOLN. So resources is something we should be pushing for. Will you help us do that? It certainly benefits your program. 

Dr. MCCLELLAN. It certainly does, and I mean working with the 

generic industry on getting those applications right the first time 

is another step that could really help. 

Senator LINCOLN. What is the difference between being acting 

and confirmed? Can’t he still do the same job? 

Dr. MCCLELLAN. Well, he is still acting in the job, but, you know, 

speaking as someone who had the privilege of being a confirmed 

FDA Commissioner, it is just different. I mean, people look to you 

to lead the agency in new directions and to undertake major new 

initiatives. When you are acting without the support, the endorsement of the Senate, it is a little bit harder to do that. 

Senator LINCOLN. Thank you. 

Senator KOHL. Thank you, Senator Lincoln. 

We thank you again, Dr. McClellan. You have been great this 

morning, you have been wonderful to work with, and we wish you 

well. 

Dr. MCCLELLAN. Thank you so much, Senator. 

[The prepared statement of Dr. McClellan follows:]

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Senator KOHL. On our second panel, the first witness will be Bill 

Vaughan, who is a senior policy analyst in the Health Sector for 

Consumers Union. Consumers Union is the non-profit, independent 

publisher of Consumer Reports. Since 1965, Bill has worked for 

various members of the House of Representatives on the Ways and 

Means Committee and has served as director of Government Relations for Families USA. He is here today to describe Consumers 

Union’s national drug project to help consumers and doctors use 

the most effective, safest and lowest-cost drugs. 

The second witness will be Tim Antonelli. Mr. Antonelli serves 

as Pharmacy Services Clinical program manager at Blue Cross 

Blue Shield of Michigan. He is responsible for developing programs 

to encourage efficient prescription drug utilization. He will explain 

the success of the Blue Cross Blue Shield of Michigan program; the 

Unadvertised Brand, it is called, which is a program to promote generic drug use. 

Our third witness will be Dr. William Shrank. Dr. Shrank is an 

internal medicine physician at the Brigham and Women’s Hospital 

and an instructor at the Harvard Medical School. His research focuses on improving the efficiency and effectiveness of drug coverage 

policies. Dr. Shrank will discuss physician prescribing behaviors 

and a project that he is working on with the State of Pennsylvania 

to educate physicians on low-cost drug alternatives, including generic drugs. 

We thank you, gentlemen, for being here. Mr. Vaughan, we will 

take your testimony. 

STATEMENT OF WILLIAM VAUGHAN, SENIOR POLICY 

ANALYST, CONSUMERS UNION, WASHINGTON, DC 

Mr. VAUGHAN. Thank you all very much for inviting us to testify. 

Consumers Union do publish Consumer Reports, and we don’t just 

test cars and toasters; we try to help people with better drugs and 

with good health insurance policies. I would like to take just a second and say we at Consumers Union’s Washington office strongly 

second your very kind comments about Dr. McClellan’s very excellent public service. 

We strongly encourage the use of generics as a way for consumers to save money, while obtaining quality health care. We also 

try to help consumers use the most effective drugs through our 

Best Buy Drugs program, a free service to everyone. I have attached in the testimony several examples of these projects by class 

of drugs. Basically what it comes down to is, don’t believe all the 

hype you hear in the TV ads. There is a lot more to what is a good 

drug than what you see on television. 

Briefly, we take the scientific work that the Chairman mentioned, the work of the Oregon Health and Science University’s 

Drug Effectiveness Review Project, DERP, and translate their very 

technical reports into plain English. Then we match the findings of 

drug safety and effectiveness with recent average prices for the 

various drugs to come up with recommended best buy drugs. This 

is not cookbook medicine. We really stress you have got to talk to 

your doctor, one-by-one. But this best buy drugs list is a starting 

point to have the discussion. We clearly recognize that different 

people may need different drugs, and that is why we strongly supVerDate 0ct 09 2002 14:55 Jan 29, 2007 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 H:\DOCS\32403.TXT SAGING1 PsN: JOYCE
35

port effective exceptions and appeals processes in private insurance 

and public insurance programs. 

But where safety and effectiveness is similar, usually the best 

buy drug is a generic. As you see, Dr. McClellan often cites the 

studies we have done. I would just say they also apply to folks 

under age 65. But if a senior switched from brands to generics, 

they could save so much that in many cases they would not fall 

into the donut hole. 

In my testimony there is an attached press release. We have 

done these in December and in March and just yesterday, showing 

that on five drugs that a senior often uses, switching to a generic 

you could save somewhere between $2,300 and over $5,000. I might 

say we are also doing some of the academic detailing work that Dr. 

Shrank will describe in his testimony. 

But having said all that, I want to make it clear we would like 

to see the donut hole eliminated. But until such legislation is enacted, using the free tools of the Best Buy Drug program can help 

many seniors safely and effectively avoid the gap. 

We hope Congress can do more to help consumers and doctors increase the use of generics. 

As for this autumn, there is great news today that CMS will 

make Part D plan specific generic dispense rates public so that enrollees can pick the plans that are really good for the pocketbook. 

We all need to publicize that list. I suspect that that decision was 

speeded up by the scheduling of this hearing, so congratulations to 

you all. 

Second, this fall when Congress deals with the physician payment problem or considers pay for performance, we hope you could 

put in as one of the performance items how much a doctor cares 

about finding the generic drug to help his patients so they can actually fill the prescription and take it. 

In the 110th Congress, we hope that Congress will do more to 

promote generics in the FDA. As Senator Lincoln has mentioned 

clearly next year there has to be major FDA legislation that will 

involve, we hope, increased resources to that agency that could end 

this huge backlog they have in generics. As Senator Kohl said, that 

legislation could begin to get us to deal with the biogeneric issue 

that the Europeans are dealing with—we are just not dealing with 

it and close the loopholes, the bill that you are sponsoring, sir, S. 

2306, that lets the PhRMA big drug companies delay the entry of 

generics into the market. 

We also hope that people might take a look at all the drugs out 

there and say, gee, could some of these move to over-the-counter, 

where they would be a lot cheaper, if they are safe. Claritin moved 

a few years ago and the price came way down. I am not sure what 

the difference is with, say, Allegra. It would be a good review. 

As for the long run, someone has said that the whole Medicare 

prescription drug debate is silly. The real debate should be why the 

cost of drugs is so high. We believe that the high cost of drugs 

could be moderated by better funding and aggressive use of the 

MMA’s. Section 1013 where the AHRQ agency does comparative 

studies on what works and doesn’t work, and we need to quit paying for things that don’t work well. 

36

We also hope that you might consider a hearing on whether 

there are more effective ways than patent monopoly and high consumer prices to encourage the research on really breakthrough, 

life-saving drugs. For example, there is the prize idea that is out 

there, or using Medicare’s buying power—I describe this in our 

statement—to encourage research. 

Thank you very much for your time. I would like permission to 

enter the full statement in the record, if I may. Thank you, sir. 

[The prepared statement of Mr. Vaughan follows:]

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Senator KOHL. Thank you, Mr. Vaughan. 

Mr. Antonelli. 

STATEMENT OF TIMOTHY ANTONELLI, R.Ph., CLINICAL PROGRAM MANAGER, BLUE CROSS BLUE SHIELD OF MICHIGAN, 

SOUTHFIELD, MI 

Mr. ANTONELLI. Good morning, Chairman Smith, Ranking Member Kohl, members of the Committee. I am Tim Antonelli, a pharmacist and clinical program manager at Blue Cross Blue Shield of 

Michigan. We are a non-profit health care corporation that provides 

or administers pharmacy benefits to more than 2.7 million members, including 183,000 Medicare Part D beneficiaries. I am pleased 

to be here to share our efforts to educate our members, professional 

providers and the public about the safety, effectiveness and value 

of generic drugs. 

Generic drugs provide considerable value to consumers, especially those over age 65 who have the highest average per capita 

prescription use compared to all other age groups. In 2001, we 

began the Unadvertised Brand Campaign, a comprehensive effort 

to provide useful, authoritative information on generic drugs and to 

encourage their use. Since that time, our members’ use of generic 

prescriptions has increased from 37.7 percent of total prescriptions 

to over 52 percent. 

Of course, we do recognize that various market forces, including 

access to first-time generics, are important pieces of the puzzle 

here. Nonetheless, what we have learned through our experience is 

that it takes concerted, ongoing efforts to provide practical information and to ensure that effective incentives are in place to promote 

the use of generic drugs when appropriate. 

Today, our campaign continues to evolve and to date has included a pharmacy competition, a consumer awareness campaign, 

a health care professional conference, a website dedicated just to 

generic drugs, a shift in benefit design and a move to value partnerships with physicians, all of which I will talk about briefly in 

the next few minutes. 

In the fourth quarter of 2001, we launched our campaign with 

a pharmacy competition. It was designed to enlist pharmacists as 

contacts to educate consumers about generics and increase their 

use. As a result, we saw the first uptick in generic use in 4 years. 

Following our competition, we launched a $1 million, five-part series of consumer awareness ads. The ads appeared in many Michigan newspapers and business journals, and helped to promote 

generics as safe, effective, low-cost alternatives to expensive brandname drugs. We then used our brand marketing survey to measure 

the impact and found that after the advertising, 6 percent more respondents agreed that generic drugs produced the same effects as 

their brand-name counterparts. 

Also, in response to our marketing efforts, we garnered early interest from many within the managed care industry which resulted 

in our hosting a full-day generic drug marketing conference for 

health care professionals. This conference was attended by more 

than 100 representatives of 50 different organizations, including 

representatives from the U.S. Department of Defense. 

47

We also created a consumer generic drug website, 

www.theunadvertisedbrand.com, which provides consumers with 

generic drug facts, cost comparisons, and more. As well, because 

member cost-sharing can play such a vital role in engaging members in the choice between brand and generic medications, there 

has also been a shift in benefit design offerings from flat co-payment designs into benefit offerings that encourage the use of 

generics, such as dual-tier, triple-tier and percentage co-payment 

options. Our Medicare Part D program is included in this segment 

of tiered benefits and currently has a generic dispensing rate 

around 60 percent. 

In addition, we also work closely with 4,500 Michigan physicians 

through our Value Partnerships program. This program focuses on 

generic drug opportunities, as well as a wide range of health care 

quality, safety and cost initiatives, and rewards performance and 

best practices. Through the efforts of these physicians, in 2005 

alone they have helped save $7 million through increased generic 

use. 

Last, in addition to all the efforts previously mentioned, we also 

continue to explore and use new opportunities to encourage generic 

use with co-pay waiver programs, e-prescribing initiatives and 

other clinical programs. 

In summary, we have found that it takes concerted, ongoing efforts to educate and create incentives that encourage generic drug 

use and we remain committed to this effort because generic drugs 

provide considerable value to consumers, especially those over age 

65. Furthermore, we applaud Congress for its continuing efforts to 

address issues affecting timely availability of generic drugs. Chief 

among those efforts is ensuring adequate FDA funding and addressing loopholes in the law that can delay the entry of generic 

drugs into the market. 

We are pleased to have had the opportunity to testify here today 

and I would be happy to answer any questions for the Committee. 

[The prepared statement of Mr. Antonelli follows:]

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Senator KOHL. Thank you very much, Mr. Antonelli. 

Dr. Shrank. 

STATEMENT OF WILLIAM H. SHRANK, M.D., MSHS, DIVISION OF 

PHARMACOEPIDEMIOLOGY AND PHARMACOECONOMICS, 

BRIGHAM AND WOMEN’S HOSPITAL, HARVARD MEDICAL 

SCHOOL, BOSTON, MA 

Dr. SHRANK. Good morning, Chairman Smith, Ranking Member 

Kohl, members of the Committee. My name is William Shrank. I 

am an internal medicine physician at the Brigham and Women’s 

Hospital and a drug policy researcher at Harvard Medical School. 

I spend most of my time researching how to improve efficiency and 

effectiveness of drug coverage policies. It is an honor to testify before you today. 

There is a tension at the heart of all prescription drug policies 

in this country. On the one hand, we need to stem the rising costs 

of prescription drugs. We spend well over $200 billion annually on 

prescription drugs, the fastest growing sector of our health care 

economy. On the other hand, we have a quality problem. There is 

substantial under-use of effective medications, especially for chronic diseases, and we need to make sure that more patients with 

chronic diseases get the drugs they need. 

So how do we reconcile this tension? By steering patients toward 

less expensive, equally effective medications. Greater use of generic 

drugs can do just that. A number of studies have shown that greater use of generic drugs can lead to a substantial savings, frequently 

estimated at over $20 billion annually in this country, as noted by 

Senator Kohl. 

In my research, I have also looked at how greater use of generic 

drugs may improve the under-use problem. Most patients who have 

drug coverage are enrolled in tiered plans that charge them greater 

co-payments when they receive branded drugs and smaller co-payments when they receive generic drugs. Virtually all patients in 

Part D are enrolled in such plans. The idea is that cost-conscious 

doctors and patients would make thoughtful cost/benefit decisions 

about drugs and that market forces would lead to efficiency. 

I surveyed patients and physicians to explore their knowledge 

and communication about patients’ costs for drugs. I found that 

doctors are rarely aware of patients’ formularies and costs, and 

they don’t think it is their job to be aware. Patients also are frequently unaware of their costs until they reach the pharmacy and 

rarely communicate with their doctors about medication costs. 

Overall, the basic market assumptions are not being met. 

My next study evaluated how the decision to prescribe a generic 

versus a branded drug affects patients’ adherence to chronic medications. I studied patients in a large health plan—all were enrolled 

in tiered drug coverage—and found that when patients were started on generic drugs, they were substantially more likely to adhere 

to chronic therapy, to take the medications that they were prescribed. Patients had over 60-percent greater odds of adequate adherence when they received generic drugs as compared to the most 

expensive branded drugs. So steering patients toward more generic 

drugs not only saves money for the system and for patients, it increases the chances that patients will take important medication. 

56

That is not to say that generics are appropriate for everyone. 

Branded drugs that do not have a generic equivalent may offer 

clinical benefits not possible with generics, and for some patients 

effectively treated with a branded medication it may not be appropriate to switch to a generic. The best opportunity to stimulate generic use occurs when new medications are prescribed. For most 

conditions, patients should be started on a generic and, if ineffective, can be switched to a more expensive branded drug. 

This leads to the first of three suggestions I would propose to the 

Committee. First, we need better prescribing systems that provide 

doctors and patients with information about drug costs and 

formularies at the point of prescribing to steer patients toward generic drugs when they are available. Broader use of electronic prescribing could greatly assist in providing this information. 

Second, we must simplify coverage. In Part D alone, doctors and 

patients are overwhelmed with the complexity of the dozens of 

formularies they must navigate. Now that the Government is the 

biggest purchaser of drugs in this country, the Government should 

take steps to simplify prescribing decisions by reducing the number 

of formularies that doctors must prescribe from. Additionally, Medicare should develop and require coverage standards for Part D 

plans, requiring all participating plans to include highly cost-effective drugs for very low co-payments or no co-payments at all. 

Third, we need to educate doctors and patients about generic 

drugs and drug costs. Branded manufacturers are winning the education war, spending tens of billions of dollars to provide free samples to physicians, to detail doctors, and to educate patients 

through direct consumer advertising. Consumer Reports’ Best Buy 

Drugs and Blue Cross in Michigan should be commended for providing information to patients, offering objective resources about 

costs and benefits for drugs. But many patients are not engaged 

enough or are incapable of participating in these decisions. 

Our division has developed a counter-detailing strategy known as 

academic detailing to educate physicians. We train nurses and 

pharmacists to visit doctors in their offices and educate them about 

evidence-based, cost-effective prescribing. The PACE program in 

the State of Pennsylvania has contracted with our group to implement a statewide academic detailing program. Such programs have 

been shown to reduce costs and improve the quality of prescribing. 

Considering that Medicare alone now spends well over $40 billion a year on prescription drugs, if they were to spend just onetenth of a percent of that budget to create academic detailing programs to educate doctors, they would likely find they could save resources for the Government, reduce health care costs in general, 

and help create a culture of cost-effective prescribing. 

Thank you very much, and I would be happy to answer any questions. 

[The prepared statement of Dr. Shrank follows:]

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Senator KOHL. Thank you, Dr. Shrank. How much has been invested in the academic detailing program that you have been working on in Pennsylvania? 

Dr. SHRANK. It is about $1 million a year. 

Senator KOHL. What is the potential of it in terms of dollars? 

Dr. SHRANK. The potential is great. Previous studies have demonstrated that there is generally about a two-to-one benefit-to-cost 

ratio, that these plans tend to save money. 

Senator KOHL. When you surveyed physicians in California, you 

found that most are not only unaware of patients’ out-of-pocket 

drug costs, but they also don’t believe it is their responsibility to 

consider that when writing prescriptions. So what can we do to 

change this and change the conversation and make them more 

aware of it and more concerned about it? 

Dr. SHRANK. Well, I don’t think it is a lack of concern. I think 

it is a lack of time and easily accessible resources. We have done 

some other studies that have shown that doctors do really care 

about helping patients manage their out-of-pocket costs, and they 

know that it is critically important to helping patients access appropriate medications. 

But it is not really feasible on a very busy schedule to go look 

on the Internet or find a handbook or try to figure out what any 

particular patient’s costs are going to be for any particular drug. 

Better systems can answer this, and there is a lot of attention that 

has been given here in this Committee about improving electronic 

prescribing. Electronic prescribing with very specific standards that 

require that with electronic prescribing comes some sort of information about the patient’s formulary and the comparative costs of 

medications that are within the class that the patient could be prescribed could be very, very useful for doctors. 

Senator KOHL. For the panel—and, Mr. Vaughan, maybe you 

want to respond first—Dr. McClellan made it clear that in most 

every case the generic drug is just as effective and, without any 

question, just as safe as the brand-name drug. That being the case, 

if we don’t want to challenge his statement, which I think is for 

the most part accurate and true, what is the responsibility of those 

of us who work here in the public sector to see to it that every physician understands this and knows what the alternative is to the 

high-cost brand-name drug when or he she prescribes to the patient? Mr. Vaughan? 

Mr. VAUGHAN. Well, again, I think we are moving toward pay for 

performance. We hope so, and once the e-prescribing is in place and 

the kinks are worked out on these hand-held devices—doctors are 

busy and the formularies and all the complexity is overwhelming 

for an individual doctor to just keep thinking, gee, what generic 

will this person be covered for and is it on their formulary. But 

once the electronics are there, let’s have that as a rating that people can either see or it is part of, P4P, we will pay you extra for 

doing it or we will pay you less if you don’t. But Congress, as it 

amends Medicare and Medicaid, in the future can reward the doctors who really say, gee, I am going to be aggressive in helping my 

patients meet these costs. It is not there today, but it will be there 

soon, and we ought to plan for it and lay the groundwork. 

Senator KOHL. Mr. Antonelli. 

74

Mr. ANTONELLI. I would have to agree with the statements of 

both my colleagues here. At Blue Cross Blue Shield of Michigan, 

we have been involved in programs such as academic detailing. In 

fact, that is what I started doing at Blue Cross Blue Shield of 

Michigan in 1999 when I hired on board, and we continue to do 

that today. It has been rolled into our Value Partnerships program 

and we have found that it has been very, very motivating for physicians because they now have a pay-for-performance program which 

will allow them to get services from pharmacists which provide information on their prescribing, as well as new information about 

what drugs might be available as generics, as well as cost information. 

In addition, we also are pursuing e-prescribing efforts. We have 

secured some work with the Southeastern Michigan E-Prescribing 

Initiative and it is very exciting. We have about 600 physicians 

that have signed on to the program and we are currently awaiting 

some study results from them; we expect it this fall. It was actually 

a grant study by CMS which will provide the answers to our questions of how much did e-prescribing affect generic dispensing rates. 

So at Blue Cross Blue Shield, we see this, too, as being very important, both e-prescribing, academic detailing, as well as all the 

other things I talked about because it is a very comprehensive 

package that we have to think about. There is no silver bullet to 

this. 

Senator KOHL. To what extent are the pharmaceutical companies 

involved in this whole thing? I don’t want to call them a villain because they are not, but they are the opposition, in a sense, at least 

at this hearing. What is their influence and what do you perceive 

their influence to be here in Washington at the political levels as 

we try to move from what it is now? 

You know, 60 percent of all the prescriptions that are sold are 

generic prescriptions, which is not at all bad, but we understand 

for every one percent, you can save as much as $4 billion. So if you 

get from 60 to 80, well, you know, that is a fortune; that is $80 

billion in savings if you can get from 60 to 80. 

How are the brand-name pharmaceutical companies involved in 

this, and what do you perceive their influence to be here in Washington and what do you think we should and can do about it? 

Mr. Vaughan. 

Mr. VAUGHAN. I think it is an enormous influence. If you look at 

these Best Buy Drug examples, for example, the purple pill that 

you see all the time is a tiny bit better for heavy upper esophagal 

bleeders. But the difference in price is like $171 a month compared 

to an over-the-counter that does just as good for $24. Yet, Americans see it on TV and they say, my gosh, I saw it on TV, I want 

the thing I saw on TV. There are good peer-reviewed journals, 

studies showing where patients come in to the doctor and the doctor wants to keep the patient happy, so he writes a script for something he knows is way over-priced and not particularly better. 

When it comes to all the pressure on our social programs, advertising is driving costs and you ought to consider a user fee. Let’s 

just say your advertising works; that is why they do it. You are 

driving Medicare and Medicaid expenses up. Therefore excuse us, 

we are going to have a user fee and we will use it to make sure 

75

we check every ad for accuracy. Many of the ads admit relevant adverse effects, but some fail to. This user fee will help fund Medicare 

and Medicaid because you are making the cost higher because of 

your ads. 

We are the only country in the world that allows this kind of direct-to-consumer advertising. I think the New Zealanders still do it, 

but they are getting out of that business; they are saying no 

thanks, this is crazy. The rest of the industrialized world says no. 

I am sorry. I get excited on this one. 

Senator KOHL. Dr. Shrank. 

Dr. SHRANK. We have a very lopsided competition for how we get 

information out about medications, and the drug companies do this 

very, very well. They give $15 billion a year in free samples to doctors, and that is incredibly effective at stimulating that first prescription to be filled for the branded drug. Certainly, in many cases 

that is not the right drug or not the most cost-effective drug for 

that patient, but that works. Once the patient is started on that 

free sample and it worked and they feel comfortable with it, it is 

pretty hard to switch. 

The effect of direct-to-consumer advertising may be waning a little bit in the setting of a lot of recent Vioxx problems and things 

like that, but it is still very, very popular and it is very common 

and it is very powerful. As a practicing physician, many of my patients come into my office and say I saw a commercial for the purple pill. There is nothing wrong with the purple pill; it works just 

fine, but it is a lot more expensive than an identical medication 

that would be able to provide an equal amount of results. 

So from the payer side, there are some very innovative, smallerscale programs that are happening, but there is nothing that can 

compete with the massive educational approach that the pharmaceutical manufacturers have undertaken. The great opportunity 

here is that Medicare is a huge player in purchasing prescription 

drugs. It is very hard for a single insurer in a fragmented health 

care system to do much because a big investment from a single insurer actually helps all of their competitors as much as it helps the 

single insurer. 

Medicare now is the big gorilla. It is a huge player and it has 

an opportunity to really influence this debate. If Medicare wanted 

to educate doctors or educate patients, they would have the ability 

to do that. 

Senator KOHL. A very good point. 

Mr. Antonelli. 

Mr. ANTONELLI. I would just like to add that when you see products like Lunesta and Nexium having advertising campaigns that 

are over $200 million direct to consumer and we have a $1 million 

advertising campaign for generics, it is quite lopsided. 

One thing that we have learned over time is that this direct-toconsumer advertising is new and can be improved. The FDA has 

been holding hearings over the last few years to collect information 

from different resources to find out what are the best means for 

making changes to this. One researcher in particular from Duke 

University—her name is Ruth Day, a very bright woman—has 

done some research on the advertising and looked at these ads and 

76

found that most of the risk information is functionally absent from 

these ads. 

People watching these ads very easily understand what the benefits are, but cannot figure out what the risks are. So they are going 

to their physicians asking for the purple pill and the physician 

feels obliged to actually take the purple pill and write for it. It is 

kind of a conflict of interest and I think the FDA does need to take 

a look at these guidelines and really update what they have done 

in 1999 so that we do have better quality advertising. 

Senator KOHL. As you know—and I think you referenced it, Mr. 

Vaughan—we have legislation here that we are trying to move now 

that would it illegal for the pharmaceutical companies to pay off 

generic companies when it comes to introducing new products, either to delay or to go away entirely. I assume you all would support this legislation. 

Mr. Vaughan. 

Mr. VAUGHAN. Absolutely, and congratulations. A bill that has 

Senator Lott and yourself and Senator Stabenow on it should have 

some legs. 

Senator KOHL. Senator Grassley, too. 

Mr. VAUGHAN. Grassley. That is great. 

Senator KOHL. Hopefully Senator Smith. I get the sense here 

that it really is important for an opposing force to confront the 

pharmaceutical companies, and that takes a lot of money, as we 

have all indicated. To the extent that it is legal and possible, the 

Government ought to be doing this, ought to be doing a better job 

on behalf of the people we represent all across this country in seeing to it that the pharmaceutical companies, with all of the financial resources they have, do not succeed in overwhelming the system and getting their way with consumers all across the country 

when it comes to prescription drugs. 

Would you agree with that, Dr. Shrank? 

Dr. SHRANK. I would certainly agree with that. 

Senator KOHL. Any other comments you guys wish to make before we conclude? 

Mr. VAUGHAN. I think it is news today that Medicare will be 

making those generic-specific data available on the plans. I don’t 

know if the Committee does prints or something on plan quality, 

but this is something we will all want to publicize, because it is a 

great advance for consumers to get that kind of data. 

Senator KOHL. To know which plan is doing a better job or a 

worse job in getting generics in front of the people who are with 

that plan. 

Mr. VAUGHAN. Yes, sir. 

Senator KOHL. That is very important. 

Well, we thank you fellows for coming. You have been very useful. I think this has been a really good hearing and we will adjourn 

at this time. 

[Whereupon, at 11:38 a.m., the Committee was adjourned.] 

(77)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR SUSAN COLLINS

Mr. Chairman, thank you for calling this hearing to examine current efforts to 

encourage broader use of generic drugs as a means of keeping drug costs down for 

our nation’s seniors. 

The United States currently spends a staggering amount—over $200 billion a 

year—on prescription drugs. Rising drug costs are a particularly heavy burden for 

Americans who don’t have drug coverage. They are also putting the squeeze on our 

nation’s employers who are struggling in the face of double-digit premium increases 

to provide health care coverage for their workers. And they are putting increasing 

pressure on public programs like Medicare, which will spend over $40 billion a year 

on the new Part D prescription drug benefit. Today the average cost of a brand-name drug is $96, while the average cost of a generic is less than $30. Generic drugs therefore have the potential to greatly reduce the health care cost burden for all consumers, but particularly for our nation’s 

seniors. 

Earlier this year, the Consumers Union did a study the found that Medicare bene- ficiaries who take five common drugs could save between $2,300 and $5,000 a year 

by switching to equally-effective, but lower-cost alternatives. Lower-cost generics 

therefore have the potential to help seniors significantly stretch their drug coverage 

under Medicare, and can even help them to avoid falling into the coverage gap 

known as the ‘‘doughnut hole.’’

There do, however, appear to be barriers that have prevented more widespread 

use of generics. Physicians may not be attuned to limitations in their patients’ drug 

coverage and they also may not feel it is their responsibility to help steer them to 

lower-cost medications. The patients themselves may not be aware of these limitations, and they may also be hesitant to talk to their doctor about costs. Generic 

manufacturers also don’t tend to employ fleets of salespeople marketing their products directly to physicians, and there also is far less ‘‘direct-to-consumer’’ advertising 

for generics. Many consumers may simply not be aware that there is a lower-cost 

alternative to ‘‘that little purple pill.’’

I do want to make it clear that I do not believe that generic drugs are always 

the right choice for everyone. Many patients are better served by the newer, branded drugs, and efforts to increase the use of generics should not come at the price 

of diminished patient care. Programs should be flexible enough to enable the physician to prescribe the drug that he or she thinks is most appropriate for the patient. 

That said, I do think that we can do a better job of making sure that consumers, 

pharmacists and physicians have all of the information and incentives that they 

need to choose the safest, most effective and lowest cost prescription drugs available. This morning’s hearing will give us an opportunity to learn about some innovative programs that are working to do just that, and once again, I want to thank 

the Chairman. 

PREPARED STATEMENT OF SENATOR KEN SALAZAR

Thank you, Chairman Smith and Ranking Member Kohl for organizing this hearing and for inviting this panel of experts to discuss the importance of improving seniors’ access to generic prescription drugs. I also want to thank the Centers for Medicare and Medicaid Administrator, Dr. Mark McClellan, for joining the Committee 

today to discuss this important issue. And thank you to the entire panel for your 

time, as well as your work. 

I look forward to hearing expert testimony on how the federal government, the 

states, drug providers, drug representatives, pharmacists and physicians can help 

our seniors in gaining access to information on lower-cost and generic drugs. I believe increased information for beneficiaries about their drug choices is necessary to 

78

lower their personal costs, and serves to educate them to become better advocates 

for their own health care. 

Medicare provides the majority of our seniors their health care services. Colorado 

has an estimated 515,000 Medicare beneficiaries. Over 38 percent of these beneficiaries are low-income. Today America’s seniors are living on tighter budgets and 

paying the increased costs of living in this country. It costs more today to heat 

homes, get transportation, purchase food, and as we are discussing here today—pay 

for health care. 

The costs of prescription drugs have increased dramatically over the past two decades. According to the Kaiser Family Foundation, U.S. spending for prescription 

drugs has more than quadrupled since 1990. And prices continue to rise. Even the 

cost of drugs being covered by the Medicare Prescription Drug Plan have risen in 

the short time since it was implemented. According to a report done by Families 

USA, ‘‘virtually all Part D plans raised their prices for most of the top 20 [medications] prescribed to seniors.’’ The report estimates the prices have increased by 4% 

since the program’s implementation in January. 

Meanwhile, as our graying population grows, the need for prescription drugs 

grows. We need to talk about solutions that actually help in lowering the costs of 

drugs for Americans. One such solution to lowering costs for Americans is the use 

of more generic drugs. 

This hearings casts light on the fact that there are drug options other than brand 

names for our seniors. But seniors need to know about these options. The major 

challenge to this is the lack of information available to individuals about their drug 

options. The providers of this information are not doing enough. They include physicians, pharmacists, and government agencies. However, there are groups and states 

that have started to take action on this. 

The state of Pennsylvania, with the assistance of Harvard researchers, has created an innovative program to reach out to physicians to help them in becoming a 

conduit of this information for their patients. The Pennsylvania ‘‘Unsales Team’’ 

program hires staff to reach out to physicians—educating them about generic and 

alternate drug options to brand-name drugs. This program is unique because these 

‘‘drug’’ representatives are working on behalf of patients, rather than the bottomline of a pharmaceutical company. They want to help doctors in providing better advice on how seniors can get the best prices for their drugs. This program deserves 

our attention. 

I also look forward to hearing more about the relationship between physicians and 

pharmacists. According to a survey of physicians done by the American Journal of 

Managed Care, physicians said they receive phone calls from pharmacists concerning formulary issues after 18.6 percent of the prescriptions they write. More 

communication between these health care professionals could make a difference for 

patients. Physicians should be utilizing pharmacists’ information on the costs of 

drugs as part of the care-management of a patient. In turn, pharmacists should be 

providing this information to physicians. I hope to hear more from these groups on 

how we can provide better drug management assistance to seniors in dealing with 

their drug costs. 

I appreciate the work of the Chairman and Ranking Member, who are responsible 

for this discussion of the increased costs of prescription drugs for seniors and the 

options seniors have in controlling these costs through increased use of generic or 

low-cost drugs. I will use the comments and ideas presented here today in my discussions with the health care community, as well as with my fellow legislators. I 

believe we can come up with solutions to help our seniors in accessing information 

on their health care needs and lowering their health care costs.

Æ