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20–044 PDF 2005

S. HRG. 109–23

INTERNET PHARMACY AND DRUG IMPORTATION:

EXPLORING RISKS AND BENEFITS

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC

JANUARY 26, 2005

Serial No. 109–1

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, Ranking Member 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon Smith ....................................................... 1

Opening Statement of Senator Herb Kohl ............................................................. 3

Opening Statement of Senator Larry Craig .......................................................... 4

Opening Statement of Senator Ron Wyden ........................................................... 5

Opening Statement of Senator Bill Nelson ........................................................... 6

Statement of Senator Hillary Rodham Clinton ..................................................... 25

Prepared Statement of Senator Russ Feingold ..................................................... 73

Prepared Statement of Senator Susan Collins ...................................................... 74

PANEL I 

Richard H. Carmona, M.D., M.P.H., F.A.C.S., Surgeon General, U.S. Department of Health and Human Services, Washington, DC ................................... 8

PANEL II 

Jeffrey Kimmell, R.Ph., vice president, Healthcare Services and Chief Pharmacy Officer, drugstore.com, Inc., Bellevue, WA ............................................... 33

Gary A. Schnabel, R.Ph., R.N., executive director, Oregon State Board of 

Pharmacy, Portland, OR ...................................................................................... 46

Mary Jorgensen, prescription drug information coordinator, Coalition of Wisconsin Aging Groups, Madison, WI .................................................................... 55

Rogert Pilon, vice president for Legal Affairs, CATO Institute, Washington, 

DC .......................................................................................................................... 62

(III) 

(1)

INTERNET PHARMACY AND IMPORTATION: 

EXPLORING RISKS AND BENEFITS 

WEDNESDAY, JANUARY 26, 2005 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee convened, pursuant to notice, at 10:02 a.m., in 

room 628, Dirksen Senate Office Building, Hon. Gordon H. Smith 

(chairman of the committee) presiding. 

Present: Senators Smith, Craig, Kohl, Wyden, Nelson, and Clinton. 

OPENING STATEMENT OF SENATOR GORDON SMITH, 

CHAIRMAN 

The CHAIRMAN. Good morning. I would like to welcome everyone 

to the Senate Special Committee on Aging’s first hearing for the 

109th Congress. 

We have an outstanding hearing planned for today with testimony from Surgeon General Richard Carmona—we welcome you, 

sir—and other witnesses who can speak to the topic of ‘‘Internet 

Pharmacies and Prescription Drug Importation: Exploring the 

Risks and the Benefits.’’

At this first hearing, I would like to inform everyone that we will 

continue with the committee’s practice of allowing all members of 

the committee to make a 5-minute opening statement, if they wish. 

Following their remarks, we will turn to the Surgeon General for 

his testimony and then allow everyone to ask their questions. To 

ensure everyone has an opportunity to ask questions, I will request 

that on the first round, we limit them to 5 minutes. 

The Aging Committee has a storied history. For over four decades, this committee has given voice to millions of Americans over 

the age of 65 by researching, publicizing, and legislating on issues 

of importance to them. It has shined a light on unspeakable 

abuses, brought justice to those who would defraud America’s seniors, and helped shape public policy. It has done so in a very bipartisan spirit, a spirit which I eagerly embrace and which I intend 

to carry forward in this committee. 

I am honored to be the 13th chairman of this committee and to 

have an opportunity to continue to lead in issues of importance to 

our seniors. For the coming year, I am eager to work with all of 

my colleagues on this committee from both parties to impact key 

legislative priorities. I also plan to continue the committee’s tradition of performing oversight activities of the appropriate agencies 

2

and will rigorously investigate allegations of wrongdoing against 

seniors. 

The President has challenged the Congress to devote time and 

resources to reviewing the Social Security program and to determine the best means to ensure its long-term solvency. Over the 

next 6 months, this committee will be holding a series of hearings 

focused on this issue, as well. We will be looking at Social Security’s long-term solvency and also discussing the larger picture of 

financial security for retirees. You see, Social Security is one of the 

important components in a bigger picture that we as a nation must 

understand if we are to preserve Social Security, maintain its importance as it relates to the broader issue of retirement security. 

Along with Social Security, the Medicare program has been a key 

component to ensuring seniors’ independence and health. It delivers access to health care for all. In 2003, as a member of the Senate Finance Committee, I was a part, with my colleagues, of drafting legislation that modernized the Medicare program and added 

a prescription drug benefit. This benefit alone is the largest enhancement of Medicare in its history. It was an important modernization, and as the Centers for Medicare and Medicaid begin implementation, it is the committee’s responsibility to oversee this 

process and to ensure that the new benefit meets the needs of 

Medicare’s beneficiaries. To do so, the drug program must be simple, easy to navigate, and provide real savings to seniors. 

We also must ensure that as we transition the so-called dual eligibles into the Medicare drug program that they receive comparable assistance to the benefit provided by Medicaid. Often, these 

are the oldest and the poorest and the sickest of our fellow citizens 

and we must ensure that they are taken care of. 

Given that it is the health care safety net for over 50 million people and provides the only coverage for long-term care, the committee will also spend time reviewing the future of the Medicaid 

program. Many challenges have faced this program over the past 

few years, and during that time it has become apparent to me that 

Congress must take an extensive review of that program and chart 

its course for the next generation. Medicaid has served our country’s low-income and disabled populations well. But to ensure that 

it continue, we must revisit its mandate and determine how to 

make improvements. 

In preparation for reauthorization, we will also review the Older 

American Act. This Act, which funds seniors’ programs under both 

the Department of Health and Human Services and the Department of Labor is the cornerstone of seniors’ service programs. Significant changes were made in 2000 and it is the responsibility of 

this committee to review those changes, assess their effectiveness, 

and determine if other enhancements are necessary. 

As you can see, this first session of the 109th Congress promises 

to be exciting and busy. I pledge to do my best as chairman to lead 

the committee fairly and in a bipartisan fashion. I am especially 

pleased to have the opportunity to work closely with Senator Herb 

Kohl of Wisconsin, who is our ranking member. Herb, whatever 

you want, we are going to make sure your side is accommodated. 

We have already discussed various panels. We will do more of that 

3

in the future to make sure that both sides get to present their perspective on issues of importance to our seniors. 

I want to thank Chairman Craig for his service as chairman of 

this committee, and his continued interest in these issues is certainly appreciated. I will look forward, Larry, to leaning on you for 

advice and I thank you in advance. 

I especially want to note my colleague, Ron Wyden, whose entire 

career, if it has a polar star to it, is a concern for seniors, he having 

been critical in the founding of the Gray Panthers. His presence 

here this morning is evidence of his commitment to that, so Ron, 

thank you for being here and your continued interest in this committee. 

With that, I will turn the mike to Senator Kohl for his opening 

statement. 

OPENING STATEMENT OF SENATOR HERB KOHL 

Senator KOHL. I thank you, Mr. Chairman, and I want to congratulate you on your role as chairman of this committee. You have 

been a leader on issues that affect our nation’s senior citizens. We 

have worked together in the past and you have always brought a 

thoughtful, practical approach to your work that will serve you well 

as you steer this committee. The committee is clearly in good hands 

and I am most happy to have the opportunity to work with you. 

The CHAIRMAN. Thank you. 

Senator KOHL. This first hearing is on a topic that is critical for 

many of our nation’s senior citizens. Prescription drugs have become so expensive here in America that many seniors cannot afford 

to buy the medicines they need. This is a system in dire need of 

reform. 

Today, American taxpayers foot the bill for most all of the research on the drugs we are talking about today. At the same time, 

Americans are charged the highest prices in the world for those 

drugs, which are sold in other countries for a fraction of the price. 

Faced with the choice of buying the medicines they need to keep 

them healthy or paying for food and rent, many seniors are turning 

to Canada and the Internet to find drugs at more reasonable 

prices. Last August, I met with seniors from Wisconsin who are 

getting their medicines from Canada. Mary Ellen Hayes from De 

Pere, WI, told me how she was able to cut her $582 drug bill to 

$370, and Carol Johnson of Eau Claire saves 30 to 50 percent on 

most of her prescriptions by going through Canada. 

Many States and local communities are doing the same thing. 

The State of Wisconsin launched a website last February that connects Wisconsin consumers with three approved Canadian pharmacies. So far, the website has already had nearly 1.4 million hits. 

Today, we will hear from Mary Jorgensen from the Coalition of 

Wisconsin Aging Groups about their efforts to help their members 

find low-cost drugs, often through Canadian mail order and Internet pharmacies. 

The programs in operation today are based on Canadian and 

Internet pharmacies that have been inspected and certified to be 

legitimate, but there are also many unregulated sites in operation 

today. As long as the Federal Government refuses to put a sound 

regulatory system in place for drug importation, then we are leavVerDate 0ct 09 2002 09:27 May 13, 2005 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 H:\DOCS\20044.TXT SAGING1 PsN: JOYCE
4

ing Americans at risk of falling prey to unscrupulous people who 

might well try to taint the drug supply. 

This is a legitimate safety issue and I believe that we can and 

must address it. Several bills have already been introduced to create stronger safety standards, but as Congress continues to debate 

this issue, the reality is that drug importation is already happening, so it is time for the administration to stop defending the 

status quo, issuing reports and setting up new roadblocks, and 

start working with Congress to give Americans the price relief and 

safety assurances they need and deserve. 

Again, I want to thank you, Mr. Chairman, for holding this hearing. I know we share some of the same views on this topic and I 

look forward to working with you to move this important issue forward. 

The CHAIRMAN. Thank you, Senator Kohl. 

Senator Craig. 

OPENING STATEMENT OF SENATOR LARRY CRAIG 

Senator CRAIG. Mr. Chairman, thank you. Let me say at the outset of my comments that I appreciate those kind words that you 

have just offered on my behalf. I leave the chairmanship of this 

committee with some concern, not that it is in good hands, I know 

that, but because I tremendously enjoyed my tenure here. I spent 

many hours behind that microphone, chairing hearings of the nature that you are continuing. You are so right. This is a forum that 

speaks on behalf of America’s seniors. It can be very probative. It 

can be illustrative. Most importantly, it can build a record for all 

of us here in the Senate. 

Your dual service on Finance is so important because much of 

what we ultimately do ends up in Finance, and yet Finance, because of its workload, oftentimes doesn’t hold the kind of hearings 

that should be held, that can be held, that we have held and that 

you are going to hold at this committee, so thank you. 

I come today not to hand you the gavel, because I know you will 

handle it well, but to support you in that effort and to continue my 

work on behalf of seniors. As you know, this year, in October, is 

the White House Conference on Aging. I am continuing to chair the 

Subcommittee on Economic Security for Seniors and want to work 

very closely with you and this committee to make sure that the 

voices are effectively amplified at that forum. It is a forum that occurs every 10 years. It is a very important one. 

When people think, gee, what does something like a White House 

Conference do, it came up with an idea called Medicare. It came 

up with an idea that was the basic product for the Older Americans 

Act. It really has been a most effective gathering of America’s seniors to put forth concepts and ideas that have ultimately resulted 

in public policy. So let us stay close and work on that issue. 

What we are about today and the hearing that you have assembled and the witnesses that you have in front of us are critically 

important, from the Surgeon General who is before us to many others who will speak to us. 

I must tell you that in my new life as chairman of the Veterans’ 

Affairs Committee that this past week, I visited a pharmacy at a 

veterans’ hospital in Spokane, WA. The line was long, but fast, and 

5

it was interesting to me that a very small pharmacy was handling 

a large volume of people. I asked, how is that being done? Here is 

how it is being done, and quite effectively and with great efficiency. 

There are six regional robotic centers of large warehouses of 

pharmaceuticals, prescription drugs that the government buys in 

volume effectively. So if I am standing at the pharmacy window of 

a veterans’ facility, I may get a two- or three-day supply, but in my 

mail will arrive the balance in 24 hours, filled by a machine with 

a 99.9 percent accuracy at one of these regional centers, the Spokane Center, the Spokane Hospital and Spokane patient being 

served by a very effective center in California that serves regionally. 

I am going to be visiting those. It is certainly an approach that 

the Veterans’ Administration has proved very efficient and serves 

its clientele well. Always, the question is access, and there it is not 

so much the cost as it is actually gaining access to the system because of the ultimate costs involved. 

So what we do here is important. Pharmaceuticals, prescription 

drugs are the new medicine of this century, the new health care 

of this century. We know that. For all of us who are seniors-inwaiting, this committee’s role is certainly important for our future. 

For those of us who think we are seniors-in-waiting, I am quite 

confident we have already been found by the AARP, so I guess we 

are now one. 

But thank you again for being willing to accept the leadership of 

this committee. I ask unanimous consent that my full statement 

become a part of the record and I look forward to working with you 

on the continuation of all of these valuable issues that you are pursuing, that we have pursued, and I know that this committee will 

want to continue doing into the future. Thank you. 

The CHAIRMAN. Without objection, your statement will be included in the record. 

The CHAIRMAN. Senator Wyden. 

OPENING STATEMENT OF SENATOR RON WYDEN 

Senator WYDEN. Thank you, Mr. Chairman. I just want to say it 

is a thrill to see you, a personal friend and an Oregonian, with the 

gavel in your hand. Back when I was director of the Gray Panthers, as you noted, we couldn’t even contemplate the day when an 

Oregonian would have this kind of clout on issues important to 

seniors, so we are really thrilled that this day has come about. 

The CHAIRMAN. Thank you, Ron. 

Senator WYDEN. Mr. Chairman and colleagues, I think Senator 

Smith has chosen an important topic because in my view, current 

Federal policies for regulating Internet pharmacies and prescription drug imports virtually ensure that many vulnerable elderly 

people get ripped off today. Specifically, I believe that because the 

policies for overseeing Internet sales do not have the muscle to ensure that our country stays in front of the rip-off artists who constantly get more inventive in trying to come up with ideas to exploit the elderly. 

Second, our policy with respect to the importation of pharmaceuticals that can be certified as safe has become so frustrating 

that many, particularly our States, have gone off on their own to 

6

try to address this issue. It seems to me, our inability to come up 

with a coherent national policy again ensures that many older people aren’t given the opportunity to purchase medicines that are affordable. 

The other reason that this is such an important hearing is the 

Wall Street Journal reported yesterday that just in the last few 

weeks, pharmaceuticals have spiked again very significantly. They 

report, for example, Lipitor, the very popular cholesterol drug, just 

in the last few weeks has gone up about 5 percent. They note that 

of the 50 biggest selling medicines 31 had price increases since November. 

So I think this question of how we look at the matter of containing pharmaceutical prices is important. Senator Smith always 

works in a bipartisan way, and I think he knows that is my interest. Toward that end, Senator Snowe and I will be introducing legislation next week so that Medicare would be in a position to start 

using the kind of cost containment tools that the private sector 

uses in our country to hold down the cost of medicine. 

It is incredible that everybody in the United States who purchases medicine in the private sector, when they purchase a significant volume and then they look at buying more, they ask, what 

kind of a discount will you give me? What can I get when I negotiate with you? The Medicare program is, as far as I can tell, one 

of the few, if not the only, program that isn’t using marketplace 

forces, isn’t using what is available in the private sector to hold 

down the cost of medicine. Senator Snowe and I will be going after 

that in a bipartisan way next week. 

Mr. Chairman, again, I look forward to many of these kinds of 

sessions and particularly the opportunity to work in a bipartisan 

fashion on issues that are so important to millions of seniors and 

their families. 

The CHAIRMAN. Thank you, Ron. 

We are joined by the Senator from Florida, Senator Nelson, for 

your opening statement. 

OPENING STATEMENT OF SENATOR BILL NELSON 

Senator NELSON. Thank you, Mr. Chairman. Mr. Chairman, each 

of us are vitally concerned because of our own States. As you all 

know, I have the privilege of representing a State that has a greater percentage of the population that is elderly, and as a result, this 

discussion that we will have today is of enormous consequence to 

our State. 

Now, we have gone through all of the trauma of having storefront pharmacies that are either by mail order or telephone, now 

Internet. They have been closed down. Senior citizens, I am sad to 

say, in the year 2005 in my State, some of our senior citizens are 

still having to choose between food or their prescription medicines 

and that just simply should not be in America in the year 2005. 

Indeed, we have had a situation where people have ordered 

drugs by the Internet or by telephone and all of those packages 

have been confiscated, confiscated by Customs, not just the particular senior citizen ordering it at that moment, but a whole load 

of these prescriptions as an attempt to crack down. So what you 

are hitting here today specifically with regard to the Internet porVerDate 0ct 09 2002 09:27 May 13, 2005 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 H:\DOCS\20044.TXT SAGING1 PsN: JOYCE
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tends a discussion of a whole wider range of issues and that is how 

do we prevent disruption of getting available and affordable prescriptions to seniors whose lives and quality of life those prescriptions are absolutely necessary. 

So I am looking forward to it, Mr. Chairman. It is a pleasure as 

a new member of this committee to be a part of it. 

The CHAIRMAN. Thank you very much, Senator. 

Obviously, you are all here to talk about reimportation. I think 

it goes without saying, while it is illegal, importation is happening 

and it is happening on a very large scale. It does seem to me that 

if we can import cars and other farm products and even regulate 

beef from Canada that of late has had some concern, we have to 

find a regimen for allowing this to happen legally. 

Last year, to that end, Senator Judd Gregg and I introduced a 

bill called the Safe Import Act, which would have both regulated 

Internet pharmacies and legalized importation. We are reintroducing that bill today because we continue to believe that importation should be legalized. However, this bill is just a marker. We are 

reaching out to colleagues on both sides of the aisle to fine-tune the 

policy and plan to reintroduce a new version in March. 

Since 1990, the amount of money American consumers spend on prescription drugs has quadrupled to over $160 billion. At the same 

time, the growth in importation has exploded. According to IMS 

Health, U.S.-Canadian cross-border sales of drugs totaled $695 million in 2003. Of this spending, almost two-thirds was done via the 

Internet. So I guess they didn’t catch it all, Senator Nelson. But 

this is what is happening. 

I decided to call this hearing today to look into the relationship 

between Internet pharmacies and importation. I know that many 

of the Internet pharmacies are unsafe. There are some unsafe ones. 

But clearly, there are some very safe ones. 

I have read the report and spoken with the FDA experts. However, I continue to feel that we have become so focused on debating 

whether importation should be legalized that we have lost track of 

the reality that importation happens. 

So at today’s hearing, we are privileged to have as our first witness the Surgeon General of the United States, Richard Carmona. 

We thank you, General, for your presence here. I promised you that 

we would go easy on you, but clearly, there are some strong feelings in the room. But given your diverse experience in health, I am 

certain you will add a very valuable perspective to our discussions. 

Welcome, sir, and thank you.

8

STATEMENT OF RICHARD H. CARMONA, M.D., M.P.H., F.A.C.S, 

SURGEON GENERAL, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES, WASHINGTON, DC 

Dr. CARMONA. Thank you, Mr. Chairman. Good morning. Mr. 

Chairman, distinguished members of the committee, thank you for 

asking me to join you today. My name is Richard Carmona and I 

am the United States Surgeon General. 

I was also the Chairman of the HHS Task Force on Drug Importation, which was comprised of 13 senior executives with diverse 

experience from across the Federal Government. Secretary Thompson created the task force in February 2004 to advise him on the 

questions posed by Congress in the Medicare Modernization Act 

about the safety issues surrounding the importation of prescription 

drugs. 

As you know, the role of the Surgeon General is to protect and 

promote the health and well-being of the American people. Everything I do as Surgeon General is based in science and that was my 

guiding principle in leading this task force. We went there where 

the facts and the science led us. In doing so, we also ensured an 

open and transparent process. 

The task force held six listening sessions, heard from more than 

100 presenters, and received information from over 100 individuals 

and organizations via an online docket. 

In addition, I led a site visit to the John F. Kennedy International Airport in New York City to see how imported drugs are 

processed by the United States Customs and Border Protection and 

by officials of the Food and Drug Administration. This visit demonstrated to us the huge challenge of ensuring the safety of imported drugs. 

The report has eight key findings and they are: Our current system of drug regulation has been very effective in protecting the 

public safety, but it is facing new threats and new challenges. Any 

change to our current regulatory system must be done with great 

care to ensure the continued safety and efficacy of our nation’s 

drug supply. 

There are significant risks associated with the current illegal importation of drugs for personal use. To just name a few, there are 

355 points of entry for access into the United States. This includes 

14 international mail branches, 29 express consignment facilities, 

and 312 ports. FDA inspectors are already stretched thin reviewing 

the millions of prescription drug packages that currently pass 

through these points of entry each year. 

We all know that illegally purchasing prescription drugs over the 

Internet without a prescription is relatively easy to do. The reality 

is that this lack of a relationship between the doctor and the patient is extremely dangerous and potentially fatal. Although some 

licensed Internet pharmacies provide a legitimate way for people to 

buy medicines, many Internet pharmacies are not licensed. They 

are rogue operations. They pretend to be legitimate and are actually providing dangerous products. Now, by dangerous, I mean 

these drugs are often grossly mislabeled, expired, sub-potent, 

super-potent, or placebos, and have usually been transported improperly with a complete disregard for safety precautions. 

9

The task force found that it would be extraordinarily difficult 

and costly for personal importation to be implemented in a way 

that would ensure the safety and effectiveness of all prescription 

drugs. 

Looking at commercial prescription drug importation, the overall 

national savings would likely be small. Building the infrastructure 

to support commercial importation would cost a tremendous 

amount of money and require significant changes in the law. Consequently, the savings to consumers would be less than one percent 

of total spending, while intermediaries would probably capture any 

other savings. 

The public expectation that imported drugs are less expensive 

than American drugs is generally not true. For example, the prices 

of generic drugs in other countries are, on average, 50 percent more 

than the prices that Americans pay for the same generic drugs. 

Legalized importation most likely would reduce the future development of new drugs for American consumers. It is no secret that 

pharmaceutical research and development spending would drop. 

This would result in fewer new drugs at a high cost to Americans’ 

health and well-being. 

The effect of importation on intellectual property rights are also 

likely to be significant. 

Finally, the task force concluded that importation raises new liability concerns for consumers, manufacturers, distributors, pharmacies, and other entities. 

In closing, I want to state to you that, like you, I truly appreciate 

the critical role of prescription drugs in our public health system. 

Science has brought us medications that can reduce the risk of 

heart attack and stroke, lower blood pressure, cure infection, and 

save and enhance life. We must find more ways to provide these 

life-saving medicines to those who need them. This is being addressed through the Medicare Modernization Act and the new 

Medicare Drug Discount Card. Today, millions more seniors have 

access to the drugs they need, and when the Medicare Modernization Act is fully implemented less than a year from now, even more 

seniors will have even more access to benefits through this new 

law. 

We are also seeing pharmaceutical companies working with the 

government to ensure greater access to medications. For example, 

the Prescription Access Card allows uninsured Americans to save 

money on more than 275 brand-name prescription medicines with 

even greater savings on generic drugs. On the average, card holders will save between 25 and 40 percent on their prescriptions. 

In addition to the new drug discount cards, there are other ways 

for consumers to save money on prescription drugs. Over the past 

few years, the FDA has worked hard to speed generic drug approval and availability and consumers are encouraged to comparison shop and to ask their doctor or pharmacist for prescription generic alternatives when possible. 

Mr. Chairman, this concludes my oral statement. I would ask 

that you accept my full written statement for the record. Thank 

you for the opportunity to be here with you and I would be happy 

to answer any questions. 

10

The CHAIRMAN. Thank you, General. We will include your full 

statement, if there is no objection. 

[The prepared statement of Dr. Carmona follows:]


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The CHAIRMAN. You talk about many of the drugs that are being 

imported as unsafe, that they are placebos, that they are sub or 

super potent. What percentage would you think? I mean, clearly, 

a lot of drugs are being imported that are safe. Do you have a 

sense of that? 

Dr. CARMONA. Mr. Chairman, we asked those questions, but 

since we don’t know the universe, it is very difficult to tell. What 

I can tell you, which is exemplified in some of the handouts that 

we provided you, when we visited the JFK mail facility, there was 

literally a warehouse full of packages from all over the world, from 

developing countries, from industrialized nations, many of them 

packaged in very unsafe ways, and if you look through any of those 

handouts, you will see sub-potent, super-potent drugs, knock-offs, 

blatant copies of what we have here in America but really not containing what was purported to be contained. 

So I can’t give you an absolute number, but based on the volume 

we saw in that warehouse, which the Federal investigators told us 

represented only a very small amount because that is all they had 

the resources to deal with now, it was really very concerning to us. 

The CHAIRMAN. Given that importation is happening, if the U.S. 

Government set about, irrespective of the cost, and we have to consider that, obviously, but say that were not the obstacle, what 

would be the impact upon the national purchasing agencies of Canada and Europe if all of a sudden America started getting a tremendous amount of its drugs from these countries? Wouldn’t it 

have a downward pressure on the price of our drugs? 

Dr. CARMONA. Well, sir, not being an economist, having some 

general knowledge of the area, that is why in our hearings we 

brought in economists, some who specialize in this area, some from 

overseas asking about the issues of the global impact as well as 

some on the United States. Generally, what they told us was what 

we end up doing is reimporting or importing price controls and that 

there were consequences of that. Yes, to the individual, there may 

be an appreciated discount on one medication or another. But in 

aggregate, as a matter of policy as to what are the intended and 

unintended consequences of that policy, they would be significant 

and may, in fact, eventually erode our robust research and development as it relates to innovation and new drugs, more people less 

likely to invest in that. It really changes the dynamics of an open 

market and creates one of a fixed market or one that is being controlled, as other countries do. 

So there were some very complicated and difficult issues that we 

asked truly world experts about to give us input on this issue. So 

as is stated in the report, if Congress thinks about this and they 

decide that they want to embark on some form of importation, 

what we wanted to make sure in the report is that you have all 

the scientific information to do that risk-benefit, cost-benefit analysis. 

The CHAIRMAN. This is purely anecdotal, but in the five town 

halls Ron Wyden and I did together around the State of Oregon, 

the comments you hear from seniors, and I am not here to tell the 

pharmacy companies how to run their business, but they readily 

say, ‘‘You know, if pharmaceutical profits are just for research,’’ 

fine. But if they are just for advertising Levitra, then they are not 

19

interested. A lot of people are, frankly, quite irritated by the 

amount of advertising that goes on. That is their business decision, 

but there is a lot of money that goes into advertising prescription 

drugs that, frankly, many seniors do not like and would rather that 

companies reduce their prices. But they have to run their business. 

But it seems to me your task force found that legalized importation raises liability concerns for consumers, manufacturers, distributors, pharmacies, and other entities. Yet liability, to me, is not 

a reason to ban it. It is a reason to work on safety. 

Dr. CARMONA. Yes. 

The CHAIRMAN. So the lack of liability or the prospect of liability 

to me means that there needs to be more attention. Right now, 

there is a big dispute in agriculture on beef from Canada. If we can 

import beef and do it safely, if this issue is of this kind of focus 

and concern to seniors, it seems to me we ought to be able to come 

up with some kind of Federal safety standard, not a State standard 

but a Federal standard to allow this to be done safely. 

I, for one, having been in the commodity business myself, I think 

importation would put tremendous pressure on these other countries, not that it would import price controls to us, but it frankly 

would change the behavior of some of these countries. It wouldn’t 

if you just did one country, but if you included Europe in the market basket of what is available to seniors, it would have a tremendous market force to the benefit of seniors in this country without 

necessarily sacrificing research and development, which I think 

seniors do value. 

Do you have a comment on that? 

Dr. CARMONA. Yes, sir. Well, I appreciate your comments and 

generally am in agreement with them, as was our task force. The 

information we presented, including liability concerns, was not 

meant to preclude or suggest that importation could not be done, 

but simply to allow Congress to consider that during their deliberations, that there may be liability implications as well as economic 

implications, both globally and within the United States. 

The CHAIRMAN. Without a standard, liability is very elusive. It 

seems to me if we had a safety standard or some way to regulate 

it, liability would be able to be pinned more readily on some of 

these rogue actors. 

My time is up. If there is no objection, we will go back and forth, 

so Senator Wyden? 

Senator WYDEN. Doctor, thank you, and let me start by seeing 

if I can give a fairly simple example. I find it compelling with respect to the case for importation from Canada, because in Canada, 

they have a lengthy review process for their pharmaceuticals and 

many on-line pharmacies there can get certified. They have an actual program for it. 

What would be wrong, then, with having a U.S. policy that would 

allow for U.S. citizens to be directed to those on-line pharmacies? 

Dr. CARMONA. Senator, from our standpoint, it is not a right or 

wrong issue. We were looking at the science to provide information 

to you. From our perspective, we have stated that commercial importation could be a viable option. We wanted to make sure that 

you all in your deliberations had all of the information as you move 

forward to decide it. 

20

Senator WYDEN. Would you support that policy, you personally? 

I think what is so striking about this is, and again, it comes back 

to the town meetings that Senator Smith and I have had, and I 

have had this in other sessions with other colleagues because this 

is the area I have tried to specialize in. It seems like every time 

we bring this issue up, those of us who have worked in a bipartisan 

way—I was one of those Democrats who voted for the prescription 

drug bill. I have got the welts on my back to show for it. [Laughter.] 

Every time we work with the administration on this issue, the 

goal posts keep moving and we just never seem to have an opportunity to get it across. 

So would you be supportive personally of a policy related to Canada, that when the drugs went through a lengthy review process 

and a pharmacy was certified, it ought to be possible to direct our 

citizens to those on-line pharmacies should that be U.S. policy? 

Dr. CARMONA. Let me say, Senator, that as it relates to any specific policy, before I commit, I would certainly have to look at it. 

Second of all, the goal posts for us are pretty fixed. They are all 

stated in this report quite emphatically based on the questions that 

Congress posed and we answered those. My job as Surgeon General 

is to ensure the health and safety of the citizens of the United 

States, as I know all of you are working in that direction, also. So 

any policy that you look at that you would like to move forward, 

the magnifying glass I will hold to it is, is it safe? Can we certify 

this policy that every American will be guaranteed safe medications? In that case, if that is your will, I would be happy to support 

such a policy. 

Senator WYDEN. Why don’t we do it this way. I would like you, 

if you would, within 30 days, to get back to me and tell me what, 

if any, problems you see with respect to the proposal I have made. 

I have given you a concrete example as it relates to an area where 

I think there is lengthy documentation attesting to the safety, that 

could work and could provide a tangible opportunity to address this 

issue. If you would, within the next 30 days, simply tell me what, 

if any, problems you see with that and——

Dr. CARMONA. Yes, sir, I would be happy to. 

Senator WYDEN. Very good. The second area that I want to talk 

to you about is rip-off artists with respect to Internet sales of pharmaceuticals and other products to seniors. Who at the Federal level 

is responsible for being the watchdog against these rip-off sales in 

the health care area? I think one of the reasons we have problems 

and that the bad guys always seem to be out in front is I can’t find 

who is responsible for making sure that the Internet is not a safe 

haven for rip-off artists. In your view, who is responsible? 

Dr. CARMONA. As it relates to the——

Senator WYDEN. Health care. 

Dr. CARMONA. Well, I am saying, as it relates to the health care 

of the public and the commerce involving drugs and devices, it 

would be our Federal Drug Administration who is looking at that. 

But I think one of the problems—you have hit the nail on the head, 

that there are many that take advantage of the Internet. We have 

found hundreds of websites that purport to be Canadian websites, 

some with a stamp of approval saying, ‘‘sanctioned by the FDA,’’ 

21

who really are nothing more than somebody in a foreign country 

placing that in Canada, drugs being shipped from another country, 

billings going to someplace in the Caribbean, and so people do take 

advantage of it. 

I agree with you. I think there are multiple jurisdictions there 

because if you were marketing a product that was not, say, a pharmaceutical, the FDA would have no responsibility. I think then it 

becomes a trade issue and there are a lot of people who are stakeholders in that endeavor. 

Senator WYDEN. Do you have the sense that it would increase 

the measure of safety if we let the pharmacists rather than the individuals drive these retail sales over the Internet? Oregon, for example, has a proposal Senator Smith and I have been interested 

in that essentially uses the pharmacist as the hub of the effort to 

both ensure safety and have oversight. Would that make for a more 

compelling case for Internet sales, if you used the pharmacist as 

the focus rather than the individual simply going online and 

searching for what is out there? 

Dr. CARMONA. Senator, if you are saying American licensed pharmacists working in regulated pharmacies in the United States who 

would partner with Internet companies who were FDA-regulated 

and sanctioned and we had a pedigree on the drugs that could 

guarantee the safety, I think that would be a viable option. 

Senator WYDEN. I hope if the administration takes that position 

that the goal posts won’t move again and that we will have to find 

yet another way to get over the bar, because I think what our constituents are frustrated about, Oregon has a proposal right in front 

of the Federal Government. We haven’t been able to even get a 

meeting with the Federal agencies to talk about it. Every time we 

get right up to the football, kind of like the cartoon figure, the football gets snatched away. We would like to find a way to do this in 

a bipartisan way. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator Craig? 

Senator CRAIG. Doctor, thank you for being with us. As I began 

in a small way to examine this issue a year ago and looked at the 

briefings of your visit to JFK, I visited with Rudy Giuliani, who 

was involved in reviewing this, I began to recognize a near impossible task. Let me say this because we are expressing a great deal 

of concern about safety. The positive-negative here is that the 

American consumer, when it comes to drugs, has been taught since 

childhood that drugs are safe——

Dr. CARMONA. Yes. 

Senator CRAIG [continuing]. Because they go through a very rigid 

protocol. We have a phenomenally rigid system for the Food and 

Drug Administration certification of drugs, the testing. We are not 

always perfect. We have just seen a few pulled from the market. 

But we are very, very good and it is very expensive, what we do, 

that time line and all of that. 

Dr. CARMONA. Yes. 

Senator CRAIG. So if it is a prescription drug, it has got to be 

safe. I believe that is the mindset of the average consumer in our 

country today. 

22

Now they enter into a pure free market environment, the Internet. You have just stated where those websites may send them. 

They have no idea where it sends them. Websites are phenomenally misleading. It takes a near expert to detect a truly legitimate 

website versus one that is illegitimate, and my guess is we don’t 

have enough money to hire enough people to build the expertise inside government today to control it and regulate it effectively. 

These pictures alone of what you saw are a perfect example of a 

phenomenal problem. How do we deal with it? 

Well, I believe safety is the issue. I think that is clearly what the 

chairman is concerned about, what I am concerned about. As my 

seniors enter into a free market environment, they put their hands 

on the keyboard, they go to the Internet. Is it safe? Are they getting a legitimate product? Can we possibly control it? We have 

been very careful not to step into the business of controlling and 

shaping the Internet. We have done it very apprehensively as a 

Congress. 

I guess my question to you would be, you testified that to maintain the levels of safety, current U.S. standards would need to be 

applied to all foreign drug suppliers. First of all, is this possible? 

What would it take to accomplish this level of standardization 

internationally? 

Dr. CARMONA. Senator, it is possible if you are considering commercial importation. If you are thinking about personal, we believe 

that would be impossible because there are just far too many points 

of entry and you would have an open system. 

Right now, the system that we have that is the gold standard for 

the world is a gold system. We know where every medication is 

manufactured, how it is distributed, how it is packaged. There is 

a pedigree from the lab right to the patient——

Senator CRAIG. Yes. 

Dr. CARMONA [continuing]. That we can assure the safety. Once 

you open it from a closed system to an open system, we could not 

sustain that degree of safety. 

So if we are speaking strictly on commercial importation, an option would be to consider that, but on a limited fashion, that it 

wouldn’t be open to everybody. It wouldn’t be an open system. But 

you all would define how many portals of entry, who should be involved, what are the standards, but if you do that, then the FDA 

needs new authorities. The FDA needs new inspectors commensurate with the program that you would build, because right now, 

they cannot keep up with the volume that is coming in. There is 

no way that they can ensure safety now, even with a commercial 

system. 

Senator CRAIG. Well, my brief view of it would suggest that your 

answer is very accurate. There just isn’t any way today, unless we 

gear up in a phenomenal fashion, to deal with this issue, looking 

at the activity that’s going on out there. 

I have a son-in-law who his business is in the Internet and shaping websites and working to control product quality and monitoring. He is involved in a company of nearly 1,000 employees now 

who do nothing but monitor the legitimate use of a label and notifying a website if it is an illegitimate use, and companies are paying big money to secure their trademarks today and he is involved 

23

in it. So I can sit with him at the Internet and move across it and 

he will say, no, this one is a phony one, Dad. Look at this. You look 

at this, you look at this, you look at this. He is an expert in the 

field now. Yet in viewing that, I see this phenomenal volume going 

on out there that just grows by the hour, not by the day, and therein lies our greatest problem. 

Having said that, is there any specific indication that manufacturers will impose quantity restrictions if prescription drugs are eligible for importation? In other words, product A moving out of the 

United States into Canada to move back into the United States, if 

that becomes a standardized process, then what is to stop a U.S. 

company, or any company, for that matter, from reshaping their 

market if we have caused a market to move in a different direction 

by actions of this Congress? 

Dr. CARMONA. Senator, your point is well taken. We had testimony from various stakeholders who came before us that that 

could be a problem when dealing with reimportation, that in looking at Canada, for instance, that they have a very small amount 

of pharmaceuticals globally that supply their country. 

Senator CRAIG. Yes. 

Dr. CARMONA. If all of a sudden they become the pharmacy for 

the United States or some part of the United States, or the world, 

for that matter, we have heard from their health ministry that 

they could not do that, that they could not sustain the support of 

their own people. In fact, during our task force meetings, we had 

information from the Canadian health minister that they were running into shortages, where some of their people in certain provinces 

had to be sent to adjacent provinces to get medication because U.S. 

citizens had already depleted the supplies of the Canadian medications. 

Senator CRAIG. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Nelson. 

Senator NELSON. Thank you, Mr. Chairman. Mr. Chairman, I am 

going to have to get a cushion to sit up in these chairs. [Laughter.] 

You have got me sitting on the floor here. [Laughter.] 

Senator CRAIG. Just a moment—— [Laughter.] 

Full-service committee here. 

Senator NELSON. That is great. I am curious. Under the existing 

law, there can be reimportation of drugs from Canada if certified 

that they are safe by the Secretary of HHS. What role do you play 

in the certification of the safety? 

Dr. CARMONA. Senator, I really play no specific role. My role was 

as the chair of the task force. As it relates to the regulation of the 

movement of pharmaceuticals, the Surgeon General has a peripheral role as he would in any issue that affects the health and safety 

of the United States. But I have no authority in that area. 

Senator NELSON. Why do you think that the Secretary would be 

withholding his approval of the safety of these drugs that would be 

coming from licensed pharmacies or distribution centers, as Senator Wyden has suggested? 

Dr. CARMONA. I don’t know that I can answer on behalf of the 

Secretary, not having asked him that question specifically, but 

from my standpoint, the issue may be broader than that. As during 

President Clinton’s administration when Secretary Shalala was 

24

challenged with this and now when Secretary Thompson was, both 

of the Secretaries felt they could not certify safety for the same reasons, that the universe was far too large and we didn’t have 

enough inspectors to be at every portal 24 hours a day and every 

individual to guarantee safety. 

Now, we have stated pretty clearly within our report that if Congress chose to consider some form of limited commercial importation from those sites who are well known, FDA regulated, pedigree 

of the medication known, then that certainly is an option, but we 

also provided information to suggest if you do that, here are the 

cost implications, the economic implications of such a program. 

Senator NELSON. Would that meet with your approval from the 

safety standpoint? 

Dr. CARMONA. Sir, any program that you all would support that 

takes into account the issues that we pointed out in the report, 

that is safety first, yes, sir, I would have no problem with looking 

at that. But again, I would reserve my final opinion for when I saw 

what the proposal was and when and if Congress asked me to 

render that opinion. 

Senator NELSON. What about the program in the State of Illinois? 

Dr. CARMONA. I have met previously with the Governor in the 

State of Illinois. I don’t remember the specifics. If you want me to 

address any of the specifics, please let me know, but I don’t remember any of the specifics of that program, because as you well know, 

across the border and through many States, there are many, many 

programs, all of which have some particular nuances. So before 

going on record, I would like to see specifically, and then I would 

be happy to address those issues. 

Senator NELSON. Mr. Chairman, is this a new way of telling me 

my time is up? [Laughter.] 

The CHAIRMAN. It is another way, I guess, but you do have more 

time. I don’t know if anybody is hitting the lights, but—oh, thank 

you. They are back. 

Senator NELSON. Well, in the Illinois case, it is my understanding that participants are saving upwards of 25 to 50 percent 

of the cost. How do you explain that success? 

Dr. CARMONA. Sir, again, I would have to look at the specifics of 

the program, but generally when we see programs like this, there 

are individual successes that can be reported. The confounding factors, variables that haven’t been looked at, though, are sometimes 

there is a comparison between patented medications where 

generics could be substituted, is one example. So the public is not 

always well informed of the options before them, to use generics, 

to ask a physician for a generic prescription, that may be in their 

own backyard. Through comparison shopping, drug discount cards, 

they may get the same or better benefits. 

So often, it is difficult to compare the programs, because as I 

said, there are such nuances in each of them and the populations 

are uncontrolled. From my standpoint, I am looking at it from the 

safety issue and then the cost effectiveness to follow. 

Senator NELSON. I want to give you some unsolicited advice. 

Dr. CARMONA. Yes, sir. 

25

Senator NELSON. This is kind of like prohibition. We thought the 

evils of this drink that drive men out of their homes into deprivation, that split up families and so forth and so on, and so a constitutional amendment was passed. The fact was is that the people 

weren’t going to agree with this constitutional amendment, in this 

particular case the law, and so it was ultimately repealed. 

What you have is a situation that you have an unequal force out 

there and that is drugs across the border that are much cheaper 

than here, and you have an extraordinary need by senior citizens. 

Sooner or later, the equalization—it is almost the law of physics is 

going to occur unless we realize and update the law. 

Dr. CARMONA. Yes, sir. 

Senator NELSON. Instead of the fiction of just saying that they 

are unsafe, there has got to be a way that people can come together 

instead of just for protection of a particular interest, economic interest, and say that there is a greater good here, and that is to find 

the common denominator whereby we can lower the cost of drugs 

so that people who depend on them for their livelihood and do not 

have the financial means, that we can get them. 

Dr. CARMONA. Yes, sir. 

Senator NELSON. I think that this is just one manifestation of the 

problem, is the differential between Canada and the United States. 

I think the overall way to look at this is, particularly with regard 

to prescription drugs for Medicare, is to allow competition in the 

marketplace, free market enterprise——

Dr. CARMONA. Yes. 

Senator NELSON [continuing]. Whereby there can be a negotiation on the price of those drugs through bulk buying. But that is 

against the law, too, in the law that was passed here a couple of 

years ago. 

So my advice to you is, we had better start finding a way or ultimately you are going to have just a tremendous reaction in the 

body politic and it is not going to inure to anyone’s benefit unless 

we do it in an intelligent, methodical fashion. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator Clinton, Senator Kohl had 

just stepped out when you came in. You are OK? Senator Clinton, 

we would also welcome your opening statement if you want to 

make it. 

STATEMENT OF SENATOR HILLARY CLINTON, 

Senator CLINTON. Thank you so much, Chairman Smith, but I 

would just ask unanimous consent to submit my opening statement. 

The CHAIRMAN. Without objection. 

[The prepared statement of Senator Clinton follows:] 

PREPARED STATEMENT OF SENATOR HILLARY RODHAM CLINTON

I’d like to thank Senator Smith and Senator Kohl for convening this hearing on 

the important topic of prescription drug reimportation, and allowing us to begin discussing this issue for the 109th Congress. I’d also like to thank the panelists for 

providing testimony to us today. 

Today’s hearing is my first as a member of the Senate Special Committee on 

Aging. I’m extremely pleased to have the opportunity to serve on this committee 

with Senators Smith and Kohl, both of whom have provided great leadership on 

26

aging and senior issues. I look forward to working with all the committee’s members 

to help our nation’s seniors. 

I know that many of my colleagues on the Aging Committee share my deep concern with skyrocketing prescription drug costs, and are eager to pass legislation to 

facilitate their safe reimportation as quickly as possible. We had a good bipartisan 

bill the—Pharmaceutical Market Access and Drug Safety Act—which I was proud 

to cosponsor last session. I look forward to continuing to work with Senator Dorgan 

and Senator Snowe on this issue. 

I would urge Leadership to help move this legislation as quickly as possible, because as my colleagues on the Aging Committee are certainly aware, our senior citizens need cheaper drugs. 

Older Americans pay higher prices for the exact same prescription drugs being 

taken by their counterparts in other industrialized countries. The Congressional 

Budget Office has found that prices for brand name prescription drugs are 35%–55% 

higher in the United States. 

Seniors, many of whom are on fixed incomes, are finding that their prescription 

drug costs just keep increasing. The price of medications is rising faster than inflation, and our seniors end up spending larger portions of their income on drugs. 

In a recent American Association of Retired Persons (AARP) survey, 71% of seniors said that paying for prescription drugs posed a financial problem for them. 

The increasing cost of these drugs means that many of our seniors face tough 

choices about their health, choices that no one should have to make. We’ve all heard 

stories about seniors who try to stretch their dosages by splitting one pill over two 

days, or seniors who have to choose between buying food and getting a prescription 

filled. I think it’s unconscionable that our health care system forces seniors to make 

these choices. 

Because of these high prices, many seniors are willing to take any measures to 

access cheaper drugs. For seniors in border states like New York, a logical choice 

is to purchase drugs from places like Canada, where safe, high-quality drugs are 

available at cheaper prices—prices about 1/3 less than what they could find at the 

local drugstore. 

I have constituents like Jeanne Brennan, a 73-year old retired nurse from Manhattan, who has a monthly drug bill of $450. She needs her medications to help control her high blood pressure, arthritis, and ulcers. She buys drugs in Canada because it makes economic sense—a three-month supply of her arthritis drug costs 

$163 in Montreal, as opposed to the $654 it would cost her in the United States. 

A senior on a fixed income with multiple health needs should have access to this 

kind of savings without having to go to Canada. 

I believe we need to help our seniors get the lowest possible prices for their medically necessary treatments. We need to make drug reimportation safe, we need to 

make drug reimportation safe, we need to make drug reimportation unambiguously 

legal, and we need to so do as quickly as possible. 

We also need to make sure that the many seniors who do go online to purchase 

drugs can do so safely, and the legislation that Senators Dorgan and Snowe will introduce in the 109th Congress will help create a safe environment through which 

seniors can purchase drugs over the internet, and I look forward to supporting these 

efforts. 

Indeed, the Dorgan-Snowe legislation contains many provisions that will ensure 

safety while giving seniors access to cheaper drugs. This bipartisan bill will allow 

seniors to safely access drugs from Canada starting 90 days after enactment. It will 

provide the needed authority and funding to the FDA to regulate foreign pharmacies 

and wholesalers, so that we can be sure that any drugs that enter the United States 

are safe for our seniors. It will increase the consumer protections involved with 

internet pharmacies, so that seniors who don’t live near the border can access imported drugs without being defrauded. 

Senator Smith and Senator Kohl, thank you again for convening a hearing on this 

important topic. I look forward to learning more about this issue from our panelists 

today.

Senator CLINTON. I have to express my delight on joining this 

committee and serving with you and Senator Kohl and I look forward to the work of this committee. I must confess that with the 

low height of the chair and the lights going off, I thought maybe 

I was in a test about how quickly I am aging, you know, whether 

I can get up out of a low chair and see what is going on—— 

[Laughter.] 

27

Which is something that, I guess if that goes with committee 

membership, I will do my best. 

Senator CRAIG. It does. [Laughter.] 

Senator CLINTON. I guess I would also ask unanimous consent 

that I, too, have a chair pillow next time, too, Senator Craig. I 

changed chairs, so I am fine. 

The CHAIRMAN. We will add some pillows. [Laughter.] 

Senator CLINTON. I want to thank both Senators Smith and Kohl 

for convening this hearing because it is such an important topic. 

The issues it raises really do go to the heart of the expectation, as 

Senator Craig eloquently stated, that Americans will be able to 

trust their prescription drugs. 

On the other hand, it also goes to the point that Senator Nelson 

was making, which I think Secretary Thompson in a sense conceded last year when he said that legislation for drug reimportation 

was inevitable and it will happen either under our control or out 

of our control after a lot of damage has been done because of the 

breakdown in the system, because of Internet purchases and the 

like. 

So I really commend you for holding this hearing because we 

need to shed a lot more light on this matter and try to come to a 

consensus about how we intend to proceed. 

I appreciate the Surgeon General being here and also for your 

leadership on the HHS task force. As I read the task force report, 

I think that it clearly states the issue, and the conclusion of the 

task force members is that the task force believes that access to 

drugs that are safe and effective, as well as affordable, is a critical 

policy goal and that all approaches to achieving this challenging 

goal should be explored thoroughly. I very much agree with that. 

I have worked with several of my colleagues in introducing a 

framework for implementing safe importation of prescription drugs. 

Senators Dorgan and Snowe have taken the lead on this. Does the 

task force or does HHS have a position on the Dorgan-Snowe reimportation bill? 

Dr. CARMONA. Senator, from the standpoint of our task force, we 

took no position on any bills. Our goal was to answer the questions 

and provide you the best information for you to make your decisions. But I think the statement that you read truly reflects the 

task force in a unanimous way, that we really understand the dynamics here and the complexity of this issue, but every and all opportunities need to be explored. 

Senator CLINTON. General, I would appreciate your reviewing the 

Dorgan-Snowe legislation because what we attempted to do, and 

really Senators Dorgan and Snowe deserve the credit for this, was 

to deal with the concerns outlined in Secretary Shalala’s letter that 

you referenced earlier, because when the Congress did pass legislation asking that importation, reimportation take place, President 

Clinton tasked Secretary Shalala with responding to that. Her 

December 26, 2000, letter reflects some of the difficulties that tied 

up the negotiations. There were a lot of concerns on the part of different Members of Congress with different stakeholders at the 

table. 

What the Dorgan-Snowe legislation tries to do is to deal with the 

labeling issue by requiring that commercial shipments of drugs to 

28

importers be labeled with FDA-approved labeling, dealing with the 

discrimination issue by making discrimination against foreign distributors and pharmacies illegal and imposing treble damages, 

dealing with the timing issue without having a sunset, because one 

of Secretary Shalala’s biggest problems with the legislation that 

was being proposed back in 2000 is that it was sunsetted. So that 

doesn’t provide certainty to anyone. 

I mean, part of our job legally, legislatively, regulatorily, is to 

look at legislation, figure out how it is working, and make improvements or solve problems, if necessary. But if you put a sunset on 

it from the very beginning, that doesn’t provide much of an incentive. 

Finally, providing sufficient funding, an issue that is a critical 

one as to how we would police such a system, and in the DorganSnowe legislation, there is a requirement that each importer and 

exporter pay a one-time registration fee of $10,000 and semi-annual inspection fees capped at one percent of the total price of 

drugs so that we can use those dollars to enhance the inspection 

process, hire the necessary people. 

We are going to spend the money one of two ways. We are going 

to spend the money going after counterfeiters trying to deal with 

Internet problems, as Senator Wyden pointed out, or we are going 

to spend the money trying to get a system in place that we then 

can regulate. 

So I would appreciate very much, General, that you provide a response with respect to the Dorgan-Snowe bill. I look forward to the 

new Secretary of Health and Human Services also working on this 

issue because the inevitability of it is clear to all of us. The problems are clear to all of us. I think that there are enough people of 

good faith and intelligence to figure out how to deal with this. 

So I thank you for taking on this task force, but we need now 

to move beyond the inevitability and the belief of the task force 

members to actually find some solutions. 

Dr. CARMONA. Thank you, ma’am. 

Senator CLINTON. Thank you. 

The CHAIRMAN. Thank you, Senator Clinton. 

Senator Kohl. 

Senator KOHL. Thank you. I will just make one observation and 

ask for your reaction. 

Dr. CARMONA. Yes, sir. 

Senator KOHL. I think the American people are rather perplexed 

with this whole issue for many reasons, but the thing that comes 

to mind with me is that we are importing and ingesting food stuffs 

all over the country and have been for many decades, whether it 

is fruits and vegetables, poultry, beef. Enormous amounts of things 

that are brought into this country under standards of inspection 

and as much safety as we can impose on the system are bought 

and put into our systems every day and we have managed to set 

up a process that, for the most part, works. 

Why would pharmaceuticals fall totally outside of that ability 

that we have to control other imports? 

Dr. CARMONA. Well, sir, I don’t know that they fall totally outside. It is a slightly different market if you are deciding to eat a 

29

certain food that may be imported from another country versus a 

medication that is going to be life-saving or prevent a disease. 

However, philosophically, I think the approach is the same, and 

as we pointed out in the task force report, there can be systems set 

up for commercial importation that would allow that to occur. We 

believe that they would have to be much more stringent than just 

usual food products that are coming in and out that we are mostly 

looking at for the purpose of safety and were they refrigerated and 

processed appropriately so that the American public is safe of any 

disease. We have the added threat today of the new threats upon 

us of terrorism and the fact that that presents a new challenge to 

us. 

But notwithstanding that, we do agree that there are options to 

set up systems that can be well-defined and considered a closed 

system to ensure the safety of the American public. We also add, 

and we had recommended to Congress that if you consider such a 

system of importation that is well defined, prospectively determined, and regulated by FDA guidelines, that you consider the economic implications both short-term and long-term, and we had very 

robust discussions about that with world economic leaders to find 

out just what would be the implications of such. 

But I am in agreement with you. It can be done. 

Senator KOHL. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. To Senator Kohl’s point, General, I have one follow-up. As I read your report, you estimated the cost of setting up 

a system was $3 billion. But that was using, as I understand it, 

existing authorities. What I took from that is that estimate did not 

take into account the cost savings of setting up additional authorities or new approaches specifically to regulate Internet pharmacies. 

Was there an inclusion of such new authorities in that cost or is 

it limited to traditional types of border inspections that——

Dr. CARMONA. This was for personal importation and encompassing a great deal of factors, but this was a number that was 

generated in some of the discussions with our stakeholders as more 

or less a best guess. 

We recognize that the cost variables and the incremental variables leading up to a total cost will be entirely dependent upon 

what Congress determines is an appropriate system. I think once 

you all, if you embark on that path, decide on a certain system, we 

can work back with you to give you cost estimates at that point. 

But right now, without a true definition of what a system would 

look like, it is very difficult to put a price tag on that, although we 

recognize it would be very expensive. 

The CHAIRMAN. Well, to Senator Clinton’s point, we are going to 

pay for it one way or the other——

Dr. CARMONA. Yes. 

The CHAIRMAN [continuing]. We are going to pay for it in poor 

health, bad medicine. We are going to pay for it in criminal interdiction. So it seems to me that an Internet registry where people 

wanting to be legitimate players could qualify, and seniors could be 

alerted to the availability of a safe place to do importation, that 

that should, frankly, with technology, greatly reduce the cost from 

$3 billion. 

Senator Wyden. 

30

Senator WYDEN. Thank you, Mr. Chairman. I just wanted to ask 

one additional question. 

I think you heard me, Doctor, go through this problem of the significant price spike we have seen in prescription medicine just in 

the last few weeks. Lipitor is up 5 percent, for example. Lipitor is 

a blockbuster drug. Now since you in your testimony talked about 

the prescription drug bill and its impact on cost containment specifically, I would be interested in your thoughts as to why prescription drugs have spiked up so dramatically in the last few weeks. 

I wouldn’t have asked you this question unless you put the topic 

in play in your testimony, but I came concerned about the price 

spike. I noted your comments in your testimony. I would be curious, your thoughts about why prescription drugs have soared yet 

again in the last few weeks. 

Dr. CARMONA. The spike that you are speaking of, I am aware 

of only through the media. We haven’t studied that spike. The 

question of cost of prescription drugs and why there was a perception of the American public bearing an unfair share of that cost is 

one that we did discuss during the task force and received a great 

deal of testimony from economists as well as from the drug industry and many stakeholders who had expertise in the area. A lot of 

it was fueled by the issue of the cost of research and development, 

the time it takes from bench to the market for a drug being 15 to 

20 years at $800 million per drug and maybe only 20 percent of the 

drugs make it, so there is a huge overhead even for your failures. 

That was one component. 

Senator WYDEN. But that is year in and year out, Doctor. 

Dr. CARMONA. Yes. 

Senator WYDEN. I don’t want to belabor this, but I know the Wall 

Street Journal, has said that possibly one of the factors in the price 

spike in the last few weeks has been that companies are maneuvering given the fact that the bill is about to kick in. Do you see 

that as a factor? 

Dr. CARMONA. Sir, it very well could be, but I have no knowledge. 

I would be guessing right now since I have not studied that. The 

only factual information I could give you is what we have studied 

within the task force report, which is why I reverted my answer 

back to what we had found. 

Senator WYDEN. Your testimony said that the law contains provisions to hold down costs. So you obviously have been looking at the 

cost containment issue. What provisions in the law contain costs? 

I ask you that as somebody who voted for the bill. I would be interested in your thoughts as to what provisions in the law contain 

costs. 

Dr. CARMONA. Well, the open market, first of all, is maybe one 

of the best ways to contain costs and foster competition. So any 

provisions that we have that would allow for open market competition, I always think would be in the best interest of the American 

public. When we begin to manipulate markets or have price controls in one sector and not another, it becomes very difficult then 

to start comparing. You are comparing apples and oranges. 

I mean, it is deceivingly simple to say that let us bring in a drug 

from Canada because it is cheaper. That is OK, but again, not 

being the expert but asking the questions at the task force with my 

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task force was, well, what are the implications of not just one but 

millions of drugs flowing across the border, not just today, but next 

year and in 10 years? What will happen to our markets? Is this 

going to hurt us in the long run even though it may help those in 

need today? 

That is the information that we solicited and have in this report. 

Outside of that, I was not asked to look at or study those issues, 

and specifically the spike in the last couple of weeks. I don’t have 

that information, sir. 

Senator WYDEN. You have got six United States Senators here 

who are not exactly a price controls caucus. I mean, we are, all of 

us, Democrats and Republicans, talking about marketplace approaches, and yet we just don’t seem to be able to get anywhere 

with the administration in terms of advancing ideas that will allow 

us to do it. But Senator Snowe and I will be taking another crack 

at it next week. 

Dr. CARMONA. Yes, sir. 

Senator WYDEN. The Medicare program is not even doing what 

smart private sector buyers are doing when it buys medicine. Every 

private sector buyer who buys in volume says, ‘‘Look, here is an opportunity to get a better deal if I am buying in volume.’’ This is 

not a government program. This is what Weyerhauser does or an 

auto company does or a hardware store or anybody else. So when 

you said in your testimony that the law contains provisions to contain that cost, there has been a price spike in the last few weeks 

with respect to medicine. I would like to see what we are going to 

do with it on a bipartisan basis and I hope we can continue to work 

with you in that regard. 

Thank you, Mr. Chairman. 

Dr. CARMONA. Thank you, sir. 

The CHAIRMAN. Senator Nelson has an additional question. 

Senator NELSON. Dr. Carmona, is it the policy of the administration to allow a 90-day supply of prescription drugs to be imported 

from Canada for a senior citizen? 

Dr. CARMONA. There is an FDA discretionary policy that was put 

into effect some years ago that would allow certain medications 

that are maybe produced in another country and known to be safe 

to the FDA and are needed, for instance, for a cancer therapy or 

such by a citizen to do so, but small amounts for their personal use 

only. It was always thought of as a courtesy to certain people who 

may be traveling overseas. 

Historically, as we looked at it, I guess in the 1990’s or so as 

Internet pharmacies popped up and the trade in pharmaceuticals 

cross-border really started to become quite robust, it became a 

problem and questions were posed regarding that discretionary policy because people were taking advantage of it. 

Senator NELSON. So, in fact, via the Internet or by mail or by 

telephone, you are saying that it is or is not the policy now that 

is allowed for a 90-day supply of prescription drugs to be imported 

from Canada for personal use? 

Dr. CARMONA. As I said and I think is reflected in the report, 

there is a discretionary part of the law which allows for certain 

products that people would need, and I think, as I said, historically, when we looked at this, certain products that were available 

32

overseas that were approved that might not be available in the 

U.S. but that we knew were safe could be bought in a limited fashion for personal use, and I think that is the 90-day exception you 

are speaking of. I just want to make sure that I am addressing 

your question specifically. 

Senator NELSON. Well, the FDA has issued a statement that says 

that they are going to allow a 90-day supply for personal use to 

come in from Canada, and I want to make sure that this is squaring with your position as the Surgeon General. 

Dr. CARMONA. My understanding, sir, is that those were products 

that were available out of the U.S. that were deemed to be safe and 

necessary for the health of that individual. From my standpoint as 

Surgeon General, whether it is Congress considering a new program or an existing program, the first question I would ask is, is 

this safe? How do we know the pedigree of the medication? Where 

was it made? Who packaged it? Who is selling it, and so on? 

Senator NELSON. All right. When these drugs are seized, is it the 

policy of the administration that a notice must be given to the receiver of the drugs that they have been seized? 

Dr. CARMONA. My understanding is that a notice is given to the 

sender, and if there is any question as to the authenticity or the 

legality of the shipment that they are given a window of opportunity to respond and provide evidence that this is indeed a legal 

shipment of a medication. If not, those medications remain confiscated and are sent back to the sender. 

Senator NELSON. Well, I want to give you an example of the 

trauma that one of my constituents from Florida went through. Ms. 

Jean Eads of Mount Dora, FL, had ordered by the Internet, had 

used her Master Card, was charged $276 through a Canadian 

pharmacy called Avcare. Her drugs were seized along with a big 

shipment, so she is out $276. She doesn’t receive the notice, which, 

by the way, is required under law, under U.S. code. She needs her 

medication. For her to purchase the same medication in the United 

States, it is going to cost her twice as much and, of course, she is 

a senior citizen on a fixed income. 

Now, this is the kind of personal experience that is happening 

day in and day out and we have got to get it corrected. But for the 

fact that she wrote her handy-dandy Senator and that I got into 

it and jumped on it with all fours and finally shook enough of the 

bureaucracy loose so that we found the drugs, otherwise, she would 

have been out drugs, she would have been out $276, and she 

couldn’t afford any of that. What is hanging in the balance is her 

health and that is what we have got to correct. 

Dr. CARMONA. Senator, I couldn’t agree with you more and I 

think that your statement really bespeaks the fact that if Congress 

decides that we want to have a legalized system of importation, 

that it has to be closely regulated, because as we found when I visited the JFK center, these packages, hundreds and hundreds of 

them, come from all over the world. The Federal investigators confiscate them because often they don’t have labels. They are not 

what they are purported to be. So sometimes we look and there 

may be a question. They are not sure. Is this good or not? They 

are going to err on the side of public safety. 

33

But with a well-regulated system that you all would empower 

the FDA to oversee for commercial importation, that goal, which is 

desirable to us all, is achievable. 

Senator NELSON. Let me just conclude, I guess, Doctor, and 

thank you for your public service. 

Dr. CARMONA. Thank you, sir. 

Senator NELSON. When all of this was occurring a year ago or 

so, did you hear in the administration there was an attempt to get 

the credit card companies to back-check on who is charging for prescription drugs in Canada and to stop it? Did you ever hear of that? 

Dr. CARMONA. No, sir, I am not aware of that. 

Senator NELSON. Well, it did happen and the FDA finally rescinded that, as well as—well, the FDA has backed off of that 

warning. But they did. They, in fact, put out that kind of warning. 

As a matter of fact, one of our colleagues from Minnesota, if he 

hadn’t gotten into it, Senator Dayton, there were a group of senior 

citizens that had gone across the Canadian border to buy drugs 

coming back into Minnesota. Customs boarded their bus and started confiscating their prescription drugs. Only because, again, the 

intervention of a United States Senator did that get worked out. 

But this is the kind of nonsense that is going on for poor people 

that need help. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

General Carmona, thank you. You have been very forthcoming 

and answered our questions. We thank you for your service, for 

your report and your presence here today. 

Dr. CARMONA. Thank you, sir. 

The CHAIRMAN. With that, we will call up our next panel, a very 

distinguished panel. First is Jeffrey Kimmell of drugstore.com; 

Gary Schnabel, my constituent, from the Oregon Board of Pharmacy; Mary Jorgensen—I believe Senator Kohl will introduce Ms. 

Jorgensen; and Roger Pilon of the CATO Institute. 

I would indicate for members there is scheduled to be a vote at 

11:30. We would briefly recess and reconvene here if, in fact, we 

don’t conclude. But that vote may be pushed back, as well. 

We will proceed starting first with Jeffrey Kimmell. 

STATEMENT OF JEFFREY KIMMELL, R.PH., VICE PRESIDENT, 

HEALTHCARE SERVICES AND CHIEF PHARMACY OFFICER, 

DRUGSTORE.COM, INC., BELLEVUE, WA 

Mr. KIMMELL. Mr. Chairman, my name is Jeff Kimmell. I am the 

Vice President of Healthcare Services and Chief Pharmacy Officer 

at drugstore.com. I am a licensed pharmacist and I have been involved in the pharmacy business for more than 30 years. 

I want to thank you, Chairman Smith and Ranking Member 

Kohl, for your leadership and for holding this hearing today. We 

share your concerns about the safety of millions of consumers who 

purchase prescription drugs over the Internet. 

Congress needs to regulate appropriately, establish clear rules 

that protect consumers, and prevent Internet shopping for prescription drugs from becoming an uncontrolled free-for-all. Since its inception, my company, drugstore.com, has taken the high road, imVerDate 0ct 09 2002 09:27 May 13, 2005 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 H:\DOCS\20044.TXT SAGING1 PsN: JOYCE
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posed high standards and submitted to voluntary third-party review. But too many others have not. 

There are three sections to my remarks today and I encourage 

you to review the written testimony for more detail. First, I will 

tell you about the general benefits of online pharmacies. Second, I 

will provide additional detail about VIPPS, a voluntary certification 

standard, and how that can serve as the basis for a single national 

standard for online pharmacies. Finally, I will offer some insight 

into how Congress might provide appropriate enforcement authority to any legislation designed to protect consumers. 

Before going into the details of these remarks, I would like to 

note that many of these ideas reflect provisions in bills previously 

introduced in the 108th Congress by Senators Judd Gregg and Gordon Smith and Representatives Greg Walden and Jim Davis. The 

drugstore.com web store is a leading online retailer. Our pharmacy 

is licensed to dispense medications in all 50 States. 

Licensed online pharmacies, such as drugstore.com, do provide a 

safe, efficient, and cost-effective alternative to more expensive 

brick-and-mortar pharmacies. The Internet business model operates with less overhead than a typical retail chain, allowing us to 

offer prescription drugs up to an average of 20–30 percent off the 

prices typically offered by U.S.-based bricks-and-mortars. 

It is also a little known fact that our generic drug prices are significantly better—often 50 percent less—than those of most foreignbased competitors. 

In addition, we offer our customers online e-mail drug recall 

alerts, an extensive drug price index that allows for easy comparison shopping, a detailed drug information data base, and a variety 

of other specialized customer care features that are detailed in the 

written comments. 

But drugstore.com does more than provide good service at affordable prices. We practice good pharmacy. We are fully compliant 

with the Health Insurance Portability and Accountability Act of 

1996. 

We respect and honor the sanctity of the patient-physician relationship and adhere to American Medical Association policy by requiring patients to see a physician before doing business with our 

pharmacy. 

We accept prescriptions only from licensed health care providers. 

We do not prescribe medications or otherwise practice medicine. 

Like traditional retail and mail service pharmacies, we accept, 

verify, and cross-check all prescriptions. Consumers can identify 

whether an Internet pharmacy adheres to a variety of standards 

associated with good pharmacy practice by looking for the Verified 

Internet Pharmacy Practice Sites, or VIPPS, seal. VIPPS is a voluntary program developed by the National Association of Boards of 

Pharmacy, or NABP, in conjunction with a coalition of State and 

Federal regulatory associations, professional associations, and consumer advocacy groups. A list of detailed verification procedures is 

included in the written testimony. 

To ensure reliability and safety, drugstore.com strongly supports 

a single, national standard for online pharmacies and advocate 

that, in order to legally sell pharmaceuticals online, all Internet 

pharmacies should be required to meet such a uniform certification 

35

standard. Based on our experience in complying with the stringent 

requirements of the VIPPS certification process, drugstore.com believes that VIPPS can and should be the basis for a federally mandated program. We encourage Congress to move in this direction as 

soon as possible. 

Certification, however, isn’t enough to effectively stem the tide of 

rogue online pharmacies and ensure the integrity of our drug delivery system. Any certification standard must be backed up with 

clear lines of enforcement authority. The following outlines one approach that, we are convinced, would discourage illegal Internet 

pharmacies before consumers are put at risk: 

First, make it illegal for online pharmacies to advertise on Internet search engines unless they meet the approved certification 

standard. 

Second, stop credit card payment to pharmacies that do not meet 

the certification standard criteria, to stop funding at the source. 

Third, motivate third-party shippers to refuse shipments from 

pharmacies who do not meet the certification standard. 

As a final point, there are multiple layers of jurisdiction regarding oversight and enforcement of our nation’s drug delivery system. 

We suggest consolidation or coordination of efforts, and encourage 

you to carefully examine the existing legal and regulatory structure 

and its adequacy to address the rogue Internet pharmacy problem. 

As the U.S. Congress looks for ways to keep the Internet a safe, 

drugstore.com stands ready to act as a resource. U.S. consumers 

should feel confident that the online marketplace is safe and secure, especially for purchases that are as important to public 

health as prescription drugs. We are confident that a uniform certification process and the three-tiered approach to enforcement outlined above would most effectively address this growing public 

health problem. Thank you for providing us with the opportunity 

to offer this testimony. I look forward to answering any questions 

you might have. 

The CHAIRMAN. Thank you very much, Jeff, for your testimony 

and for your work. 

[The prepared statement of Mr. Kimmell follows:]

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The CHAIRMAN. Gary Schnabel, welcome. It is nice to have you 

here. I appreciate your traveling this long way. 

STATEMENT OF GARY A. SCHNABEL, R.PH., R.N., EXECUTIVE 

DIRECTOR, OREGON BOARD OF PHARMACY, PORTLAND, OR 

Mr. SCHNABEL. Thank you. Thank you, Mr. Chair and Senator 

Kohl. My name is Gary Schnabel. I am executive director for the 

Oregon State Board of Pharmacy, located in Portland, OR. I want 

to thank you and Senator Kohl for the opportunity to appear before 

the Special Committee on Aging to take part in this discussion of 

Internet pharmacies and prescription drug importation. 

I am delighted and honored to be here on behalf of the Oregon 

Board of Pharmacy to describe the Board’s recent experience in 

that regard. I am also currently serving as a member of the Executive Committee of the National Association of Boards of Pharmacy, 

the NABP. My appearance here today is in no way connected with 

or related to my position or responsibilities with the NABP. I am 

appearing here solely on behalf of the Oregon Board of Pharmacy 

and in my capacity as its executive director. 

I have submitted a written statement generally describing the 

Oregon Board of Pharmacy’s activities over the past several years 

in relation to foreign drug importation and Internet drug distribution. With the exception of the Board’s work with Governor 

Kulongoski and his staff on the Pioneer Prescription Drug Project, 

the Board’s experience in Oregon is similar to what State Boards 

of Pharmacy all across the country have experienced. 

I understand the focus of this committee is directed more toward 

drugs purchased over the Internet than the general subject of drug 

importation. To that end, I will focus my comments on the Board’s 

experience with the Internet. 

The topic of prescription drug distribution via the Internet is a 

broad and complex topic and a tendency exists to confuse the related public policy issues in the absence of a fairly strong understanding of the terms used in the professional jargon and in the details of drug distribution. To most effectively identify and analyze 

policy issues that exist, this broad context can be dissected into distinct manageable components. 

Those who sell drugs over the Internet fall into one of three categories. They are either pharmacists dispensing drugs through legitimate licensed pharmacies regulated by the State Boards of 

Pharmacy, they are licensed physicians or other legitimate prescribing practitioners regulated by their State regulatory boards, 

the Boards of Medical Examiners, Boards of Dentistry, et cetera, or 

they are neither authorized dispensers nor authorized prescribers. 

These individuals in the third category are most deserving of the 

committee’s focus. These are operating fraudulent, rogue websites, 

deceiving consumers into believing they have some authority to 

prescribe, dispense, or distribute prescription drugs. These are the 

sites advertising prescription drugs without a prescription. They 

may be pharmacists or doctors who are not licensed or who are licensed and operating in violation of the State and/or Federal drug 

distribution laws. They may not be pharmacists or doctors at all. 

They may be prescribing real, approved drugs, unapproved imported drugs, counterfeit drugs, or outdated, contaminated, or inapVerDate 0ct 09 2002 09:27 May 13, 2005 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 H:\DOCS\20044.TXT SAGING1 PsN: JOYCE
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propriately manufactured drugs. They may be operating from locations anywhere in the world. 

These are the criminal elements that evade the individual 

Boards of Pharmacy, not only because of the Board’s limited resources and authority, but because of the invisibility and anonymity afforded by the Internet. These sites have become pervasive and 

they can be very professional and convincing in appearance. 

The regulation of legitimate pharmacy and medical practice 

websites currently falls under the jurisdiction of the State professional regulatory boards. The Board of Pharmacy, using the Internet and intending to operate in compliance with the laws of States 

in which it does business, is no different from any mail-order pharmacy currently licensed by the States that use more traditional 

forms of communication, such as a telephone, fax, and e-mail. The 

Internet site is simply a means of communication. 

To put it another way, any pharmacy licensed by the Oregon 

Board of Pharmacy to do business in the State, regardless of its location, can use the Internet as long as it maintains compliance 

with the prescription recordkeeping, licensing, and professional 

practice requirements of the Board. The key is not the method of 

communication. The key is compliance with licensure, recordkeeping, and other professional practice requirements. The Internet 

has simply made life easier for those who want to violate the law 

and avoid detection. 

If I walked down the street here in Washington or in any city 

in the U.S., I can tell if the shop I am entering is a pharmacy because of the existing pharmacy regulations. If I go onto the Internet, I cannot tell if the website I see is a pharmacy or not. I think 

that is the simplest statement of the problem. 

The solution would be to create a method by which a person 

could identify positively whether a website representing itself as a 

pharmacy was actually a legitimate licensed pharmacy, just as if 

the person were seeing the sign on the street. The NABP’s Verified 

Internet Pharmacy Practice Site, or VIPPS program, provides one 

such solution. Only a pharmacy operating in full compliance with 

State and Federal laws can display the secure VIPPS website seal. 

Consumers who understand the importance of confirming the legitimacy of a pharmacy website can do so by looking for that seal. 

Public education is very important in providing this understanding. 

Other possible solutions could include mechanisms to require 

that the credentials of the pharmacy be confirmed before being allowed to display a pharmacy webpage or before credit card payment could be authorized. This is where the Board believes the resources and authority of the Federal Government and Congress is 

sorely needed. The State Boards of Pharmacy and Medicine can 

handle the regulation of pharmacies and doctors in the U.S. However, foreign drug sources, legitimate or not, fall outside the States’ 

jurisdiction and the States’ regulatory efforts are disabled in the 

face of the invisibility, anonymity, and covert mobility enjoyed by 

the operators of rogue Internet sites. 

The Oregon Board of Pharmacy has stated that it does not believe Federal licensure or regulation of pharmacies is necessary. 

The Board believes that if the legitimacy of a pharmacy must be 

documented or confirmed, it can be done so by or through the State 

48

Boards, where pharmacies and pharmacists are currently licensed 

and a traditional regulatory mechanism already exists. 

The CHAIRMAN. Do I understand, Gary, you are saying that that 

already exists so that we don’t need to reduplicate that cost at the 

Federal level? What we need to do is have a Good Housekeeping 

Seal of Approval at the Federal level so seniors know on the Internet they have entered a pharmacy that is safe? 

Mr. SCHNABEL. Yes, Senator. If something like that, that would 

be absolutely correct. I think that information to confirm the legitimacy of those pharmacies does exist in the States currently. 

The CHAIRMAN. Is that expensive to do? Would that cost $3 billion to do, as was proposed in the report? 

Mr. SCHNABEL. I don’t know. I really haven’t looked at that. I do 

know that the process the NABP uses is very effective, but it is a 

voluntary program. Only those sites who want to display the seal 

to prove themselves have to do it. It costs, I don’t know, what, 

$3,000 to $5,000 is a guess. 

The CHAIRMAN. Wouldn’t legitimate players readily want to sign 

up for a legitimate site and wouldn’t there be a presumption for 

those that didn’t sign up that they were not legitimate, that they 

were selling bad medicine? 

Mr. SCHNABEL. Yes, Senator, and that is one of the problems. Because of the costs of becoming certified, the larger legitimate pharmacies that want to be certified and prove they are willing to do 

that. They are doing business in a number of States or all the 

States. A pharmacy in Portland who just wanted to put up a 

website for his or her patients in Portland to reorder their refills, 

they could do that, too, but they probably wouldn’t be able to afford 

to go through the—they may be a legitimate pharmacy, but for a 

small pharmacy, that is problematic. 

The CHAIRMAN. Have you concluded? 

Mr. SCHNABEL. I have just one final comment. 

The CHAIRMAN. OK. 

Mr. SCHNABEL. The Board of Pharmacy believes that to allow 

consumers to freely import prescription drugs from foreign sources 

via the Internet without a massive public education effort would 

subject consumers individually and the population generally to an 

unprecedented risk of the introduction of contaminated, counterfeit, 

or otherwise unconfirmed drug products and provide unprecedented 

opportunities for the unscrupulous individuals to take advantage of 

unsuspecting U.S. consumers. 

Legislation providing tools to assist in the prevention, detection, 

and prosecution of the unlicensed, illegitimate prescription drug 

traffickers over the Internet would be strongly supported and encouraged. 

I thank you and I am happy to respond to questions. 

The CHAIRMAN. Thank you very much, Gary. 

[The prepared statement of Mr. Schnabel follows:]

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The CHAIRMAN. Senator Kohl, would you like to introduce your 

constituent? 

Senator KOHL. Thank you, Mr. Chairman. I am pleased to introduce today Mary Jorgensen, who is here from Madison, WI. 

For the past 16 years, Mary has worked for the Coalition of Wisconsin Aging Groups, a nonpartisan grassroots organization serving 

Wisconsin’s senior citizens. She has a long history of working with 

seniors to improve their quality of life, most recently as Coordinator of the Coalition’s Prescription Drug Information Center. 

So Mary, we welcome you here today and we look forward to 

your testimony. 

STATEMENT OF MARY JORGENSEN, PRESCRIPTION DRUG 

INFORMATION COORDINATOR, COALITION OF WISCONSIN 

AGING GROUPS, MADISON, WI 

Ms. JORGENSEN. Thank you, Senator. Good morning. My name is 

Mary Jorgensen and I am the Coordinator of the Prescription Drug 

Information Center of the Coalition of Wisconsin Aging Groups, as 

Senator Kohl has stated. 

As early as 1998, CWAG’s members have been concerned about 

the high cost of prescription drugs in the United States. As an elderly advocacy organization, we began to look for affordable options 

for seniors other than ones available in Wisconsin. We also wanted 

to be able to counsel folks on the various cost-saving options available to seniors in Wisconsin. 

Several of our 600 member groups were able to organize bus 

trips to Canada to purchase their drugs, where they saved substantially. This led to collaboration with our counterparts in other 

States to pursue additional options for seniors to save on their 

costs of prescription drugs. 

After actual visits to Canada by CWAG staff and our counterparts, the decision was made to enter into an agreement with 

CanadaRX out of Ontario, Canada, where we would be able to 

assist seniors in purchasing their drugs. Our decision to work with 

CanadaRX was predicated, No. 1, on cost, since this is the main 

concern of our members. Our considerations were that CanadaRX 

has been in existence for over five years providing drug reimportation to the United States with a good reputation, and they are a 

licensed Canadian pharmacy. 

In August 2002, CWAG began its Prescription Drug Information 

Center, where seniors could call for assistance. This provided an 

opportunity for seniors who have high prescription drug costs and 

were afraid to check into purchasing drugs from Canada on their 

own. CWAG provides all the tools necessary to purchase drugs 

from a reputable Canadian pharmacy and save on their prescription drug costs. Within the past year, we have added another licensed Canadian pharmacy, the Canadian Drug Service, to our list 

of options. 

Many of our inquiries are from low-income seniors who do not 

qualify for other programs. Some have told me they could not continue to eat and buy their prescription drugs. Others told me they 

take their medications only every other day so their supplies last 

longer. This is a travesty. 

56

We believe that unaffordable drugs are neither safe nor effective. 

People are being forced to choose between drugs and nutrition. 

Through prescription drug reimportation, they are able to afford 

both. Many of the seniors I speak with have cardiovascular disease, 

have suffered stroke or heart attack, or they have diabetes that requires several expensive drugs they simply cannot afford any 

longer from their local pharmacy. 

Safety seems to be the No. 1 concern of the FDA regarding reimportation. These reimported drugs are shipped in the manufacturer’s sealed packaging. Drugs sold in our U.S. pharmacies are 

being manually counted out by pharmacy technicians. The chance 

of the wrong drugs being dispensed is much greater than if the 

drugs were shipped in their original packaging. Purchasing drugs 

in the United States does not make it any safer than purchasing 

drugs from another country where the drugs are carefully manufactured and regulated. 

As a grassroots organization of seniors, CWAG is more concerned 

about affordability than reimportation. CWAG continues to believe 

that unaffordable drugs are neither safe nor effective. We realize 

that reimportation is not for everyone. Not all drugs are available 

through reimportation, and some drugs are not cheaper, either. 

The main purpose of my being here today is to support the legalization of prescription drug reimportation so that people have a 

choice to obtain cheaper drugs through this process if this is the 

best way of saving prescription drug costs on an individual basis. 

With the implementation of the Medicare Modernization Act in 

2006, seniors will be experiencing huge cost increases on their prescription drugs due to the doughnut hole in the prescription drug 

benefits. Why are seniors being asked to participate in such a confusing program when life should become simpler in their old age? 

A simple solution, CWAG believes, would be for the Federal Government to be able to negotiate prices with the drug companies just 

as they do in Canada and other countries. Wisconsin is experiencing great success in reducing prescription drug costs for Medicaid enrollees and State employees. If States can successfully negotiate prices with drug companies, it seems that the Federal Government would have more clout in negotiating prices. If drugs were 

affordable here, we wouldn’t need to go elsewhere. 

In summary, CWAG will continue to advocate for Wisconsin’s 

seniors. We again want to emphasize we do not believe drug reimportation is for everyone, but we will continue to fight for legislation to ensure safe reimportation of prescription drugs as an option. 

Thank you for the privilege of being able to speak to you today 

on behalf of Wisconsin’s seniors. 

The CHAIRMAN. Thank you very much, Mary. We appreciate your 

traveling here to share your story. We wish you and all the people 

in your organization very well. 

Ms. JORGENSEN. Thank you. 

[The prepared statement of Ms. Jorgensen follows:]

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The CHAIRMAN. Roger Pilon, thank you, from the CATO 

Institute. I am informed there is a vote that has just started, but 

I think we have time to complete your testimony first. 

STATEMENT OF ROGER PILON, VICE PRESIDENT FOR LEGAL 

AFFAIRS, CATO INSTITUTE, WASHINGTON, DC 

Mr. PILON. All right. Then I will try to hurry right through it, 

Mr. Chairman. 

The CHAIRMAN. Thank you. 

Mr. PILON. Let me thank you and Senator Kohl for your invitation to be here this morning. I am going to summarize the written 

testimony I provided the committee, which itself is a summary of 

a much larger study that I made available to the committee, which 

is available at the CATO Institute website. 

Let me begin by making very clear what I am here to urge and 

what I am not here to urge. I am not urging the committee and 

the Senate generally to enact a drug reimportation program or to 

set one up. I think that reimportation is the wrong answer to the 

problem that is before us. Lifting the ban on reimportation, however, is the right answer because it will allow market principles to 

surface, and they alone can sort out the competing interests in this 

matter. 

Indeed, let me say that I was delighted to hear on the minority 

side so much talk of market principles. I only wish that the Bush 

administration, which speaks often of market principles, would adhere to them more often. But I digress. 

The reimportation debate is before us, of course, as we have 

heard, because of the high cost of drugs in this country, and more 

particularly because of the disparity, the international disparity, 

between prices for drugs. So we want to know, why are there such 

high prices and why is there such an international price disparity? 

The reason drugs cost so much to begin with, of course, is be- cause it takes, as we have heard, some $800 million, on average, 

and 12 to 15 years before the FDA efficacy and safety standards 

are met; and, that means of course, that a drug company is in a 

large hole right off the bat. They have to recover those costs before 

they can make their first dime, and that means that they are going 

to have to charge whatever the market will bear to do that. 

That doesn’t answer, however, why there is such a price disparity internationally. For that, you have to look at a much more 

complex picture. When a drug company looks out at the world, it 

sees essentially one free market, in America, and here it charges 

whatever the market will bear. When it looks out at the rest of the 

world, however, it sees socialized medical systems abroad and price 

controls. Essentially, the companies tell us they have to take what 

the foreign governments offer them. They can afford to do that, 

however, only because they can fall back on the relatively free 

American market, which is about half the world market, to make 

up the amount that they need in order to cover their R&D costs 

and the profit that is necessary to attract capital for future 

R&D—which, of course, we all want to see done. 

There is another explanation, however, that puts the companies 

more in the driver’s seat, and it draws from economic theory. It is 

that the companies see different levels of demand in different counVerDate 0ct 09 2002 09:27 May 13, 2005 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 H:\DOCS\20044.TXT SAGING1 PsN: JOYCE
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tries, and what they try to do is segment markets and price differentially. If you charge too high, you are going to attract too few 

buyers. If you charge too low, you will exclude buyers who are willing to pay more. So they are trying to find the optimal price in 

each market. 

The only problem with that is when you segment markets and 

discriminate with prices, you have to guard against parallel trading—that is to say, buyers in low-price markets reselling to highprice markets—because if that is the case, what you will have is 

all the drugs flowing to the low-price markets and not to the highprice markets and it will undercut the profit margin that you have 

to have to sustain your business. 

There are two legitimate ways to go about that—to prevent the 

kind of parallel trading that I have just spoken of. The first is 

through no resale contracts; and the second, if those should fail, is 

through supply limits. 

What companies did in 1987 however, was take the illegitimate 

route and imposed a statutory ban. They sought, in effect, a public 

law solution to a private law problem, and the problem with that 

is this. First of all, if you don’t have no resale contracts in place, 

it is preventing willing sellers from getting together with willing 

buyers. If you do have no resale contracts in place, you are going 

after the wrong person, the American buyer. The person who is 

breaching the contract is the person that the company should go 

after. 

So if the company wants to try to have market segmentation and 

price discrimination, the way to do it is to go to these countries and 

say, look, we will give you a lower price, but you police your exports. It is not up to the American government to police imports. 

Now, it is my view that if that strategy were to be followed, you 

would probably have a good test as to whether it can be sustained, 

and my sense is it cannot. That is to say, the greater the disparity 

between the prices, the greater the incentive to breach the walls 

separating the markets, and we are seeing this already when we 

have got a statutory ban. We have already heard testimony this 

morning about how people are simply ignoring the law. Indeed, 

State officials are ignoring the law. 

So it strikes me that even with no resale contracts and with supply limits, eventually, you are going to have to have the third remedy, namely companies are going to have to readjust their prices, 

raising them sufficiently abroad and/or lowering them here, to stall 

reimportation; and that means, in effect, that you will not have reimportation. That is why I have urged in my testimony that you 

really don’t need these complex kinds of bills that have been introduced that are all aimed at safety because reimportation is not the 

answer to this issue. If you allow market principles to surface, you 

simply won’t have reimportation. You will have the threat of reimportation—and that will do the job. 

It seems to me that what you do have to do, then, is look at these 

bills, like the Dorgan-Snowe bill that was discussed earlier this 

morning. Look at the ‘‘anti-gaming’’ provisions that have been put 

in that bill. Those are absolute killers. That is not a market approach. Those are anathema to markets. They would prohibit companies from raising prices abroad or limiting supplies abroad. In 

64

other words, they are tantamount to importing foreign price controls, exactly what the drug companies fear, and rightly so, because 

they would mark the end of the money for research for the future 

miracle drugs that we all want to see produced. So it seems to me 

that if you are going that route, you need to seriously think about 

it. 

Let me say finally that I have listened to you beating up on the 

administration here this morning. With all due respect, the problem is not in the administration. The executive branch doesn’t 

write the laws. The legislative branch writes the laws. The problem 

with this ban is right here in Congress. 

So I submit that the answer is very simple. Lift this ban and let 

the market work. 

The CHAIRMAN. Thank you very much, Roger. That was very insightful. 

[The prepared statement of Mr. Pilon follows:]

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The CHAIRMAN. We appreciate your attendance, all of you. Out 

of respect for your time, rather than reconvene after a recess, I will 

leave the record open and any Senators wishing to ask you questions in writing may do so. 

At this point, I would like to insert into the record a statement 

from Senator Russ Feingold. 


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[The prepared statement of Senator Feingold follows along with 

prepared statement of Senator Collins:] 

PREPARED STATEMENT OF SENATOR RUSS FEINGOLD

I first want to take a moment to congratulate the new leadership of this Committee. Mr. Chairman, I look forward to working with you to address the many 

pressing issues facing our aging population. 

I especially wish to acknowledge the new Ranking Member of this Committee, my 

fellow Senator from Wisconsin, Senator Kohl. The Committee will be well served by 

his leadership. He has long been a strong advocate for seniors in our state, and will 

continue to be a champion for seniors across the country in this new role. 

I am pleased that Mary Jorgenson of the Coalition of Wisconsin Aging Groups is 

here before the Committee today to offer her insight into an issue of great importance to the people of Wisconsin. The Coalition of Wisconsin Aging Groups is the 

gold standard for advocacy—they have helped to put seniors’ issues at the forefront 

of public debate. One of the many issues they have tirelessly worked to address is 

the skyrocketing cost of prescription drugs. The Coalition has fought to help seniors 

have access to affordable and safe prescription drugs from Canada, and I know that 

Ms. Jorgenson has a lot to say about this issue from her experiences working with 

the Coalition. 

Mr. Chairman, I also want to thank you for making this issue a priority by addressing it during your first hearing as Chairman of the Committee. The skyrocketing costs of prescription drugs is one of the most important issues this Committee should examine this year. While I pleased that seniors will soon have some 

help with these costs through the new prescription drug benefit under Medicare, we 

must do more to make prescription drugs truly accessible for all seniors. While we 

need to ensure that prescription drugs purchased from other countries, especially 

over the internet, are safe and effective, we also need to also keep in mind that if 

it is neither safe nor effective to have seniors who cannot afford prescription drugs. 

Each year, I travel to all 72 counties in Wisconsin and hold a listening session 

in each one. And for the past twelve years, the high cost of health care, and specifically the skyrocketing prices of prescription drugs, has been one of the top issues 

raised at these meetings by my constituents all across Wisconsin. 

I am a strong supporter of the bipartisan bill introduced last Congress by Senators Dorgan and Snowe that will help Americans purchase prescription drugs at 

reduced prices, through the internet and through their local pharmacy. Without it, 

Americans are at the mercy of the pharmaceutical companies, which are raising the 

prices of the most commonly prescribed brand name drugs at twice the rate of inflation. It is our duty in the Senate to provide some relief. People in the United States 

pay substantially more for prescription drugs than people in any other industrialized country. 

I have long supported efforts to create a competitive marketplace for prescription 

drugs. Drug manufacturers are free to move their factories to countries that have 

cheaper labor or greater tax incentives and to buy supplies from countries with the 

lowest costs, but Americans cannot purchase the drugs they need that are offered 

at lower prices in other countries. That doesn’t make sense. 

A growing number of American seniors, including a growing number of Wisconsinites, are obtaining their prescription drugs from Canada, whether they cross the 

border in person, order their prescriptions online, or go to one of the Canadian-company storefronts that have opened in this country. 

Seniors are forced to go to Canada because the price of prescription drugs in this 

country is out of control. The Congressional Budget Office estimates that brandname drugs cost, on average, 35 to 55 percent less in other industrialized countries 

than they do in this country. 

Drug companies say that they need to charge high prices to recover the enormous 

research costs involved in bringing new medicines to market. Yet that argument 

overlooks the fact that Americans already fund much of the research and development of prescription drugs through taxpayer-funded research conducted at the National Institutes of Health and through tax breaks to the drug industry. 

It is simply unfair that some Americans cannot afford the prescription drugs that 

their tax dollars help develop. It is far past time for Congress to allow Americans 

access to safe prescription drugs at the prices that the rest of the industrialized 

world enjoys. 

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PREPARED STATEMENT OF SENATOR SUSAN M. COLLINS

Mr. Chairman, I want to commend you for holding this important hearing to examine the risks and benefits associated with prescription drug importation and the 

purchase of prescription drug over the Internet. 

One of the greatest challenges facing American consumers is the high cost of prescription drugs. Soaring prescription drug costs have placed a tremendous strain on 

family budgets. They have also imposed a heavy burden on employers—both public 

and private—who are struggling to provide affordable health insurance coverage to 

their workers. It is therefore no wonder that American consumers everywhere are 

looking across the border and into their computer screens in search of more affordable prescription drugs. 

It is well-documented that the average price of prescription drugs is much lower 

in Canada and Western Europe than in the United States, with the price of some 

drugs in my home state of Maine being twice that of the same drugs that are available only a few miles away in a Canadian drug store. 

It simply does not seem fair that American consumers are footing the bill for the 

remarkable, yet costly, advancements in pharmaceutical research and development, 

while our neighbors just across the border receive those same medications at substantially lower prices. That is why I have long supported legislation to allow American consumers to benefit from international price competition on prescription drugs 

by permitting FDA-approved medicines made in FDA-approved facilities to be re-imported into this county. But I am also concerned that we make certain that this is 

done safely and responsibly. 

I am pleased that this morning’s hearing will also focus on a slightly different but 

closely related issued—the safety challenges posed by the sale of prescription drugs 

over the Internet. 

The growth of the Internet in recent years has created many new opportunities 

for consumers to shop on-line for health-related products, information and services. 

The Internet offers many advantages for on-line shoppers—convenience, competitive 

prices, privacy, and easy access to health and medical information. Moreover, 

through the Internet, individuals with disabilities, the elderly, and patients living 

in remote areas can easily obtain information, products and services that they previously acquired only with great difficulty. As a consequence, the sale of consumer 

products over the Internet has grown rapidly, including the sale of prescription 

drugs. 

The number of on-line pharmacies has increased dramatically from the 190 identified by the Government Accountability Office (GAO) in October of 2000 to an estimated 1,400 sites in April of 2004. While online drugs sales by reputable pharmacies can have many advantages for patients, they also present new and unique 

challenges for regulators, law enforcement and policymakers. And rogue online 

pharmacies can be a prescription for disaster for unwary consumers. 

Last June, I participated in a hearing held by the Senate Permanent Subcommittee on Investigations (PSI) which revealed disturbing evidence about the 

ease with which U.S. consumers can purchase dangerous and often addictive controlled substances from Internet pharmacy websites. I was particularly alarmed to 

learn that more than 90 percent of on-line sites do not require a prescription or validate that there is a legitimate patient-physician relationship. 

I believe that we need legislation to protect consumers from these rogue internet 

pharmacies. This is one of the primary reasons that I have joined Chairman Smith 

in cosponsoring Senator Gregg’s Safe IMPORT Act, which establishes federal licensing requirements and penalties for all Internet pharmacies that conduct or solicit 

business in the United States. The legislation also requires verification of a legitimate patient-prescriber relationship, and establishes verification procedures for all 

prescriptions. 

Mr. Chairman, while I believe that we must do all that we can to make prescription drugs more affordable, we must also do all that we can to ensure patient safety. 

This hearing is an important part of that process, and I commend the Chairman 

for raising these important issues. 

The CHAIRMAN. With that, we thank you again and we are adjourned. 

[Whereupon, at 11:53 a.m., the committee was adjourned.]

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