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36–110 PDF 2007

FULL COMMITTEE HEARING ON

MEDICAID DRUG REIMBURSEMENTS:

ARE CMS CUTS BAD MEDICINE FOR SMALL

BUSINESSES AND BENEFICIARIES?

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 18, 2007

Serial Number 110-36

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

PANEL I 

Smith, Dennis, U.S. Department of Health and Human Services ...................... 5

PANEL II 

Osterhaus, Matthew, Owner, Osterhaus Pharmacy ............................................. 23

Civello, Anthony N., National Association of Chain Drug Stores ........................ 25

Sewell, Charlie, National Community Pharmacists Association ......................... 27

Hagan, Ed, Food Marketing Institute .................................................................... 30

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 38

Chabot, Hon. Steve .................................................................................................. 40

Altmire, Hon. Jason ................................................................................................. 42

Braley, Hon. Bruce .................................................................................................. 43

Smith, Dennis G., U.S. Department of Health and Human Services ................. 45

Osterhaus, Matthew, Owner, Osterhaus Pharmacy ............................................. 49

Civello, Anthony N., National Association of Chain Drug Stores ........................ 55

Sewell, Charlie, National Community Pharmacists Association ......................... 61

Hagan, Ed, Food Marketing Institute .................................................................... 69

Statements for the Record: 

National Grocers Association .................................................................................. 76

(V) 

(1)

FULL COMMITTEE HEARING ON MEDICAID 

DRUG REIMBURSEMENTS: ARE CMS CUTS 

BAD MEDICINE FOR SMALL BUSINESSES 

AND BENEFICIARIES? 

Wednesday, July 18, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., inRoom 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Shuler, Gonza ́lez, Cuellar, 

Braley, Clarke, Chabot, Davis, Fallin, and Buchanan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order to address Medicaid Drug Reimbursement: Are CMS Cuts 

Bad Medicine for Small Businesses and Beneficiaries? 

The matter we discuss today stems from the legacy of the last 

Congress. In February 2006, President Bush signed the Deficit Reduction Act, which directed the Centers for Medicare and Medicaid 

Services to recalculate the way it reimburses pharmacies for providing generic prescription drugs to Medicaid beneficiaries. 

While evidence indicates that the old formula used by CMS resulted in some level of overpayment, the new formula clearly cuts 

too far. On July 6, the Centers for Medicare and Medicaid Services 

released a final rule which radically changed the old formula and 

could prove devastating to pharmacies and Medicaid recipients. 

The new formula significantly reduces the reimbursements to the 

point where the General Accounting Office has determined pharmacies will be paid back for only 64 percent of their costs of acquiring generic prescription drugs. That represents a 36 percent shortfall. 

I have many concerns that the impact of this rule could have on 

small businesses offering prescription drug coverage. These pharmacies have low profit margins and small retailers will be hit particularly hard. They tend to serve a higher proportion of Medicaid 

beneficiaries and get more of the revenue from prescription drugs. 

As a result of this change, many could be forced to close their 

doors. 

This will not only hurt pharmacies, but it will affect overall access to care for Medicaid recipients. If these businesses close or 

drop out of the program, drug coverage will be reduced. Medicaid 

2

is a critical component of our national health care system serving 

over 50 million. Without it, the vast majority of these people would 

join the ranks of the 46 million uninsured Americans. 

What doesn’t make sense to me is that while the intent of this 

new formula is to save money it, in fact, encourages the use of 

more expensive brand name drugs. The average Medicaid generic 

prescription is $20, while the average brand prescription is $120. 

While this may be good for the pharmaceutical companies, costs 

will be increased for the Federal Government and the states. 

I believe the HHS Inspector General’s report is a good starting 

point for us when we examine possible solutions to this problem. 

The IG recommends that CMS should find a better way to reflect 

the actual costs of these drugs. The IG’s recommendation will remove outliers in drug prices that do not reflect the realities of the 

marketplace. It also provides an opportunity for pharmacies to 

alert the states and CMS when they can demonstrate their inability to acquire drugs at prices at or below reimbursement levels. 

Tellingly, the IG says new federal reimbursement limits should 

be monitored closely. Their report noted that such costs could lead 

to access problems for Medicaid beneficiaries. These findings are 

also supported by the General Accounting Office. As the rule is 

written, it threatens the ability of thousands of small pharmacies 

to keep operating. 

While the previous reimbursement formula may have overpaid 

pharmacies for generic drugs, the new one will make the issue 

worse. Our government should not be eliminating one problem only 

to create another. The General Accounting Office and HHS have 

shown there are better ways to ensure pharmacies are adequately 

paid for these generic drugs. 

Unfortunately, CMS is prepared to move forward despite these 

objections. Today’s hearing will hopefully shine some light on why 

the CMS should reconsider the rule. 

I look forward to today’s testimony and thank the witnesses for 

their participation. And now I yield to Mr. Chabot for his opening 

statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Chairwoman Vela ́zquez, both for yielding and for holding this hearing on the Centers for Medicare and 

Medicaid Services, the CMS, rule implementing the Deficit Reduction Act’s modification of the reimbursement limits for certain prescription drugs in the Medicaid program. 

This hearing continues a long-standing effort by this Committee 

to convince CMS that good regulatory practice requires the agencies to promulgate rules that do not adversely affect the thousands 

of small business providers of necessary health care in the United 

States. Drug prices represent a rapidly increasing portion of monies devoted to health care in the United States. It is not surprising 

to find, then, that the Medicaid program also faces rapidly rising 

costs for drug reimbursement. 

Under the Medicaid program, states are authorized to provide for 

reimbursement of prescription at levels established by CMS under 

authority delegated from Congress. According to the Government 

Accountability Office, the GAO, the cost of such reimbursement in 

3

the Medicaid program rose by 870 percent in the 15-year period 

from 1990 through 2004. 

Congress recognized that such growth was not sustainable, and 

in the Deficit Reduction Act of 2005—an act which I supported—

it modified the payment from 150 percent of the list price to 250 

percent of the average manufacturer’s wholesale price, referred to 

by its acronym AMP. Savings are enhanced by calculating the 250, 

not on average of all drugs in therapeutic class, but, rather, on the 

lowest AMP in a therapeutic class. 

The Congressional Budget Office, the CBO, estimated that the modification will represent about $1 billion in savings for the first 

few years of implementation, and then about $300 million thereafter. Congress directed CMS to promulgate regulations to implement the modifications in reimbursement rates. 

A perusal of the rulemaking record, including comments from 

witnesses before us today, revealed substantial concern that the 

new methodology will not provide dispensers of pharmaceuticals 

with sufficient revenue to cover the costs of dispensing drugs under 

the Medicaid program, nor are these concerns simply the cry of the 

economically self-interested. 

The Office of Advocacy of the United States Small Business Administration, the Inspector General of the Department of Health 

and Human Services, and the GAO also have noted that the formula will not allow them to recoup their drug acquisition costs, 

much less cover all of the costs associated with filling Medicaid prescription. 

The result of the final rule will have unusually perverse results—results that could not have been intended by Congress in 

legislation entitled ‘‘Deficit Reduction.’’ Pharmacies could reject 

Medicaid patients, leaving such individuals without access to 

drugs. Doctors, recognizing this, will then begin to require that specific brand-name drugs will be used, thereby raising the costs of 

drugs under Medicaid, the opposite result from what Congress intended. 

Entitlement spending needs to be controlled, but it also must be 

controlled in a sensible manner that actually achieves limits on 

spending. Instead, we have a policy that provides rational economic 

actors, the necessity of finding ways around these limits, that will 

ultimately not lead to reductions in entitlement spending. 

I am sure that CMS will testify that they are just implementing 

the law that Congress wrote, and they have no discretion to modify 

the policy to reduce adverse consequences on small business. That 

is an argument that CMS has made to Congress one too many 

times in the past six years, including this Committee. 

For one, I am tired of hearing that. Even a quick perusal of the 

rather dense verbiage of the Medicare and Medicaid statutes will 

show that CMS is replete with discretion. But unlike other federal 

agencies, the Medicare and Medicaid statutes are ripe with exemptions from judicial review. It is about time that CMS rulemaking 

is subjected to the same scrutiny applicable to all federal agencies. 

I look forward to working with the Chairwoman and other members of this Committee on ensuring that the provisions of the Administrative Procedures Act apply with full force and vigor to CMS. 

Otherwise, CMS will be back before this Committee on some other 

4

rule blaming Congress while Congress argues that CMS has discretion to avoid any potential adverse consequences to health care providers. 

I want to thank the witnesses, including Dennis Smith of CMS, 

for agreeing to testify on such short notice. While I understand 

that the preparation may be a hardship, I think the efforts of the 

witnesses will be very helpful to this Committee’s understanding of 

the final rule and its effects on small business. 

Again, I want to thank you for holding this hearing, Chairman 

Vela ́zquez, and I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. And now I recognize Mr. Braley for an opening statement. 

Mr.BRALEY. Thank you, Madam Chairwoman, and thank you for 

holding this important hearing. I would like to recognize and thank 

one of my constituents, Matt Osterhaus, for taking time from his 

busy pharmacy practice to join us today, and I am looking forward 

to his testimony, along with the testimony of all of our witnesses. 

I am deeply concerned by the Center for Medicare and Medicaid 

Services’ proposed changes in the reimbursement formula for prescription drugs in the Medicaid program. CMS claims that this new 

definition of the average manufacturer price is meant to approximate the prices at which retail pharmacies purchase generic medications from manufacturers and wholesalers. 

Unfortunately, however, the final rule is flawed and will result 

in an AMP that does not reflect the true prices. In fact, a December 

22, 2006, GAO report shows that the proposed rule on the AMP 

would reimburse pharmacies as an average of 36 percent below 

their cost for generic drugs, which account for 63 percent of all prescriptions dispensed in the United States. 

I have repeatedly urged CMS to reject this proposal to classify 

reimbursements based on the AMP, which would lower reimbursements paid to pharmacies for generic drug purchases. In my State 

of Iowa, it is estimated that pharmacists will receive an $11.8 million cut in reimbursements in the first year of implementation 

alone. This could force many pharmacies out the Medicaid business, which would reduce access to care for Medicaid beneficiaries. 

In many underserved areas, it could force pharmacies out of business altogether. Also, by making generic drugs unprofitable, Medicaid has created an incentive to dispense more expensive brandnew drugs which are not subject to the new formula. So, ironically, 

this new formula which was established to save money could actually end up increasing costs to both the state and the Federal Government for prescription drugs. 

I have specifically fought for Iowa pharmacies on this issue, urging CMS to approve a measure that was passed in the Iowa General Assembly to offset reductions for reimbursements for generic 

medications. This plan would increase the pharmacy-dispensing fee 

to compensate for any reduction in the drug product cost reimbursement. However, this provision needs approval by CMS before 

taking effect. 

Although I am pleased that the State of Iowa has stepped up to 

the plate to make sure pharmacies receive appropriate reimbursements for generic drugs, I think it is extremely unfortunate that 

CMS has put my state in this position. I am concerned that Iowa’s 

5

increasing its payment to pharmacists could place budgetary pressure on other important Medicaid services provided by the State. 

I look forward to hearing from our witnesses today, and I am 

hopeful we can shed some light on this proposed change to reimbursements for pharmacies. 

Thank you, Madam Chairwoman, and thank you to everyone who 

is participating in the hearing today. 

ChairwomanVELA ́ ZQUEZ. Thank you. Our first witness is Mr. 

Dennis Smith. He is the Director for the Center for Medicaid and 

State Operation, or CMSO. Mr. Smith has been the Director since 

July 29, 2001. He is involved in the development and implementation of national policies governing Medicaid, the State Children’s 

Health Insurance Program certification, and the Clinical Laboratories Improvement Act. Previously, he served as the Director of 

the Department of Medical Assistance Services for the Commonwealth of Virginia. 

Welcome, sir. 

STATEMENT OF MR. DENNIS SMITH, DIRECTOR, CENTER FOR 

MEDICAID AND STATE OPERATIONS 

Mr.SMITH. Thank you, Madam Chairwoman, and other members 

of the panel, and I appreciate very much the opportunity to be with 

you today, and to talk about the AMP rule, which was—the final 

rule was published earlier this month. The regulation actually 

takes effect until October 1. But what we also did was leave open 

to comment some of the very issues that you have highlighted this 

morning about the definition of AMP itself. 

One of the issues that we struggled with, frankly, was the ability 

to do the type of data analysis that everyone would want us to do 

in reference to the GAO study and the IG. And you will find that 

many of our responses hinge around the lack of data that we are 

able to—that we have to be able to analyze the full impact of the 

final rule. 

So what we did in using our discretion really was to continue the 

comment period which allows them to—allows everyone then to be 

able to start having access to the data to get a firm handle on the 

impact of the rule. 

As Madam Chairwoman referenced, this rule really sort of originated with the study of the Office of the Inspector General, that 

in December of 2004 testified in front of the House Energy and 

Commerce Oversight Investigation Committee. 

The IG found that what the states used to establish their Medicaid drug reimbursements generally bear little resemblance to the 

prices incurred by the retail pharmacies to purchase drugs, and, in 

fact, that the OIG had found in audit reports that it had estimated 

that the pharmacists’ actual acquisition costs for brand-name drugs 

was an average of 21 percent below average wholesale price, and 

for generic drugs an average of 65 percent below AWP. 

The effect of the difference between the pharmacy invoice costs 

and the amount that Medicaid would have paid for those drugs was 

about $1.5 billion. For drugs specifically under the federal upper 

limit, which is really the focus of the new rule, the Inspector General estimated that the invoice price for multiple source drugs with 

the FULs was 72 percent below AWP. 

6

In another report on the variation between what state drug 

prices were being paid, the OIG found that the difference between 

the highest and lowest paying states ranged by drug from 12 percent to 4,073 percent for the 28 drugs that they had sampled. That 

really is the backdrop of the report. 

The OIG, in helping to inform us about moving from a FULs that 

is based on the average wholesale price to the average manufacturer price compared the 25 most commonly prescribed drugs that 

the old FUL, the lowest pharmacy acquisition cost, compared to 

that—the old FUL for that drug was as high as 5,232 percent from 

the lowest acquisition. On the average acquisition, they were still 

finding drugs that were 1,400 percent higher than the average acquisition cost. 

So I think everyone did come to a reasonable conclusion that the 

old federal upper limit truly was flawed as it was based on the 

AWP, which was commonly referred to as ‘‘Ain’t What’s Paid.’’ I 

think many folks came together to recognize that a system that is 

built on more exact pricing would be better for everyone. 

In terms of want to assure the Subcommittee—I am sorry, assure 

the Committee on small business that we carefully reviewed the 

comments from—assigned by Madam Chairwoman on December—

on February 23 of this year, on the comments that were provided. 

I want to assure you also that the administration very much cares 

about the impact on small businesses. 

Throughout this process, we have met with the national representatives of retail pharmacists, we have met with state representatives of the retail pharmacists, we have met with pharmacists themselves. We are trying to get the rule to accurately reflect what was passed by Congress, with also the recognition that 

Medicaid in fact was paying a higher price than other payers were. 

And being a program for poor people, that generally Medicaid is 

getting the best price for the services that they have purchased on 

their behalf. 

So we have been meeting with the representatives and the pharmacists themselves. There are a number of things I think that 

clearly the GAO report did raise a great deal of concerns about the 

rule, and our response was, ‘‘Wait until you actually see the rule 

itself.’’

We did change—we did propose an outlier policy to in effect disregard the lowest drugs that perhaps would not be available to the 

majority of the purchasers. We had proposed an outlier policy in 

the proposed rule. We increased that outlier proposal in the final 

rule, so we think that in fact does deal effectively with the outlier 

effect, that no one wants to count the FULs based on those costs 

that really pharmacists do not have access to. 

We also had—again, on the definition of AMP itself, there is a 

balancing between the use of the definition of AMP for which there 

has been a definition of AMP that has been used in the program 

for many years. And that definition has been used on the rebate 

side of the proposal. 

I think folks commonly accepted the sort of common sense approach to use the same definition on both the payment side as well 

as the rebate side, which is what we have done. So if you artificially take more things out of the definition of AMP, then you are 

7

also giving up rebates that are then paid by the manufacturers 

back to the Medicaid program. So these are not—these are tradeoffs that everyone knew that we would have to take account of. 

In terms of the response on the effect of the small businesses, 

again, we are very concerned about the 18,000 small business pharmacies in the United States. In our economic impact, we estimated—and I believe that it continues to be the case—that the rule 

itself would reduce overall pharmacy revenues by about $800 million in the first year, and that does reflect about 1 percent of the 

sales by independent pharmacies for their prescription sales itself. 

The National Community Pharmacist Association indicates their prescription sales to be $85 billion. That figure I think is from 

2004, so it is more than that today. But, again, their prescription 

sales are about $85 billion, so the savings does represent about 1 

percent of prescription drug sales. 

Other small businesses are impacted in the rule as well. We have 

hospitals that fit the definition of small businesses, physicians who 

would fit the definition of small businesses, so our rule—we did, 

again, with some acknowledgement that the data is not complete 

for us to give as specific impact as what we would all have liked. 

The Committee also asked us in the comments to consider alternatives to the rule itself. And I did want to share with the Committee, I think the—again, to bring perhaps a little bit more clarity 

to how the federal upper limits are actually used in the Medicaid 

program. The federal upper limits, those are limits in the aggregate to all drugs that are covered by the FULs, which are about 

roughly 700 drugs out of the entirety of all the drugs that are 

available on the market. So we are talking about roughly 700 

drugs. 

The FULs is calculated on all of those drugs together, so while 

there might be differences in lower drugs, and there could be also 

payments—higher payments, that they in effect cancel each other 

out, what we are looking at is the aggregate amount. The aggregate amount that we—

ChairwomanVELA ́ ZQUEZ. Mr. Smith, would you try to summarize? 

Mr.SMITH. Certainly, Mr. Chair. 

ChairwomanVELA ́ ZQUEZ. It has been close to more than seven 

minutes already, so—

Mr.SMITH. I apologize. The aggregate in the amount is then what 

the states themselves, we would pay to reimburse the states up to 

that amount. The federal upper limit does not include expenditures 

for dispensing fees. The federal upper—so the states themselves, 

the federal upper limit rule does not impact the overall approach 

to Medicaid reimbursement, which rules on the states to set their 

costs for reimbursement. 

So the states themselves—and, again, in particular the states 

have the authority under current law, and some states do this already, and they will have it in the future even when the rule is 

in effect. So the states can pay independent pharmacists more than 

other types of pharmacists. They could pay their rural pharmacists 

more than their urban pharmacists. 

So there are many different ways that the states are likely to 

react, and, in fact, some already have started to adjust to the rule 

8

to assure that their community pharmacists continue to participate 

in the Medicaid program and to continue to assure that our Medicaid beneficiaries have access to the needed prescription drugs 

that they need. 

Thank you very much. 

[The prepared statement of Mr. Smith may be found in the Appendix on page 45.]

ChairwomanVELA ́ ZQUEZ. Thank you. Mr. Smith, in the regulatory flexibility analysis contained in both the proposed and interim final rule, CMS analyzed the retail pharmacy industry as a 

whole and did not quantify the impact on small independent retail 

pharmacies. However, the Regulatory Flexibility Act requires agencies to consider the impact of the rules on small entities. As such, 

CMS failed to meet the obligations under the law by refusing to examine how small businesses will be affected. 

So I ask you why you didn’t assess the impact to independent retail pharmacies separately as required by the law. 

Mr.SMITH. Madam Chairwoman, I believe that we did meet the 

requirements of the law, and we specifically referred to the savings 

that would be attributed to the 18,000 pharmacies that are considered to be small businesses. So I think we did address what the 

law required us to do. 

As I also indicated, the data analysis—we can never get enough 

data. We always want more data, which again is why we have provided for additional comment on the rule. 

ChairwomanVELA ́ ZQUEZ. That is what the General Inspector’s Office and the General Accounting Office and Inspector General of 

HHS concluded, that you did in fact conduct the impact analysis 

on small businesses? You know, sir, you come here, and let me tell 

you, people love to talk about standards and accountability. But the 

law is clear in terms of the Regulatory Flexibility Act. The size 

standard is very clear, and we do not find that you conducted the 

type of analysis that is required by the Regulatory Flexibility Act. 

So let me just say this to you: I will encourage you to go back 

and do the analysis that it is required by law, because this Committee is going to be on top of this issue, and we are going to have 

you come back to this Committee over and over again. 

Mr.SMITH. I am not an expert on the requirements of the regulatory act itself. I believe in our—

ChairwomanVELA ́ ZQUEZ. Well, you should have legal counsel, because it is very clear. 

Mr.SMITH. I appreciate that very much, Madam Chairwoman. 

We did in the final rule specifically refer to the small retail pharmacies—approximately 18,000—and we specifically addressed the 

financial impacts on those pharmacies. 

ChairwomanVELA ́ ZQUEZ. Mr. Smith, recent studies have shown 

that the average dispensing fee is less than half of the national average of actual dispensing costs. Given that pharmacies may soon 

be no longer adequately reimbursed for their acquisition costs, 

what is the CMS doing to ensure that states’ dispensing fee structures are actually covering costs? 

Mr.SMITH. I think that this is an area that, again, many in the 

industry have—and the states, as well as us, have sort of recogVerDate 0ct 09 2002 09:18 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36110.TXT LEANN
9

nized, that over time when you look at the—how prescription drugs 

are paid for, acquisition costs that—the payment based on acquisition costs continue to go higher and higher and higher while dispensing fees actually have been pretty flat over time. 

So the high reimbursement on the acquisition side to some extent was masking what—the true costs and dispensing fees were 

held very level. I think what will happen—and in discussing with 

the states from my own experience as Medicaid Director in a state, 

from my own experience dealing with our state legislature in how 

they react, I think there will be a reassessment, again, as I said, 

to assure that there is access and to make certain that our small 

business pharmacists continue to participate in the program. 

ChairwomanVELA ́ ZQUEZ. You are not going—

Mr.SMITH. I am sorry. 

ChairwomanVELA ́ ZQUEZ. —that this will—

Mr.SMITH. In our own materials, we have pointed out to the 

states, again, that the FULs do not include dispensing fees, and 

have encouraged them to adjust dispensing fees where they believe 

is appropriate. 

ChairwomanVELA ́ ZQUEZ. So you don’t feel that this is a way for 

the Federal Government to dump costs on the states? 

Mr.SMITH. I think it is a way of balancing what the true costs 

are on the acquisition side. And, as I said, I think states will adjust 

on the dispensing side. 

ChairwomanVELA ́ ZQUEZ. Okay. So let me—I hope that you can 

help me understand the intent of the Deficit Reduction Act. That 

was to cut costs of the Medicaid program, and the law gave CMS 

a significant amount of discretion to create the formula for reimbursement rates for these generic drugs. 

However, the final rule creates an incentive to move toward 

brand-name drugs. As the average brand-name drugs costs the government six times of a generic drug, why was the rule created in 

such a way that more pharmacies would likely dispense these expensive drugs? 

Mr.SMITH. I have had that discussion personally with representatives of the retail, and I have heard that theory. I have just really 

never quite understood it from an economic standpoint. So I have 

just—I have just said we would have to politely disagree. 

ChairwomanVELA ́ ZQUEZ. So are you telling me you are right, but 

the General Accounting Office is wrong? The Inspector General of 

HHS is wrong? The only one that is right here is you. 

Mr.SMITH. I am giving you my opinion, Madam Chairman, of—

ChairwomanVELA ́ ZQUEZ. Well, this is not a matter of opinion. 

This is a matter of analysis. 

Mr.SMITH. And for our—

ChairwomanVELA ́ ZQUEZ. Facts. 

Mr.SMITH. In our analysis, the Office of the Inspector General 

said on the acquisition side Medicaid was spending $1.5 billion too 

much. The rule itself saves about half of that amount, so there was 

an adjustment based on what the Inspector General—they said we 

were overpaying by 1.5. 

ChairwomanVELA ́ ZQUEZ. Sir, let me ask you—

Mr.SMITH. The rule—

10

ChairwomanVELA ́ ZQUEZ. —explain to me how a pharmacy is 

going to sell drugs when they know that they are going to lose 

money on that drug. 

Mr.SMITH. I think, Madam Chairwoman—

ChairwomanVELA ́ ZQUEZ. What is the incentive? 

Mr.SMITH. —they wouldn’t do that, by laws of economics. But I 

don’t think that the final rule—that it will in fact be the impact. 

The FULs is not a drug-by-drug limitation. It is a limitation in the 

aggregate to what we pay the states. 

ChairwomanVELA ́ ZQUEZ. So will you agree that this may drive up 

costs to the Medicaid program for certain use of drugs? 

Mr.SMITH. I don’t agree with that. 

ChairwomanVELA ́ ZQUEZ. You don’t agree with that. So the whole 

world is wrong. 

Mr.SMITH. As I said, I have had those discussions, and I think 

that it would be a—states also, again—states have mandatory dispensing—mandatory generic dispensing laws themselves, etcetera. 

So I think there is a balance that, again, I think—what the future 

lies, no one has perfect clarity of that. But I think through experience we think that the final rule will do what it was set out to accomplish. 

ChairwomanVELA ́ ZQUEZ. Let us talk about the cost to the states. 

It seems to me that the new rules put a burden on the states to 

figure out how to cover acquisition costs by pharmacists. Does the 

new rule set any kind of guidance for the states? What are the 

states doing to make up for the shortfall? 

Mr.SMITH. Well, the states themselves, of course, will want to assure that there is no shortfall. And in terms of the states, we will 

be providing the data to the states about what the AMPs are, not 

only for the drugs on the FULs but for all drugs, which in—again, 

we talk about transparency in health care. This is transparency in 

health care. 

So I don’t think the impact on the states—they want this data. 

States have been asking for AMP data, which by law we were required to maintain in confidence and were not allowed—

ChairwomanVELA ́ ZQUEZ. Since you are talking here about transparency, are you giving clear guidance to the states under this 

rule? 

Mr.SMITH. That certainly is my intent, Madam Chairwoman. 

And we have had briefings with the states, and, as I said, they 

want this AMP data. 

ChairwomanVELA ́ ZQUEZ. Can you talk to us under the Regulatory Flexibility Act, if you have given or examined any alternatives to the proposed rule? 

Mr.SMITH. We did. We talked a great deal about what the 

AMP—the definition of AMP, for example, what fits in there. And 

as I said earlier, the definition of AMP has been long-standing in 

the Medicaid program on the rebate side of the program. So if—

ChairwomanVELA ́ ZQUEZ. Okay. Can you mention to me at least 

one alternative that will minimize the impact of the rule on small 

businesses and small pharmacies? 

Mr.SMITH. Certainly, our outlier policy that, again, we use 

through our discretion, we think is very much a mitigating effect 

on the FULs. 

11

ChairwomanVELA ́ ZQUEZ. In the report, the Inspector General of 

HHS concluded that was inadequate. 

Mr.SMITH. What we also said with the Inspector General was 

they also didn’t have the benefit of the final rule itself when they 

did their analysis, again, which is why we have extended the comment period so that sort of analysis will be available before the 

final rules go into—before the first new FUL goes into effect. 

ChairwomanVELA ́ ZQUEZ. How would you respond to those who 

will be testifying in the second panel that will say that this rule 

could cause many small pharmacies to close their doors? 

Mr.SMITH. I respectfully disagree with that assessment. As I 

said, this rule, in the aggregate, represents about 1 percent of all 

sales that they make. I also am from a small town. I very much 

understand small businesses, and that they are the backbone of the 

American economy. 

I don’t think the states will jeopardize the access of the Medicaid 

beneficiaries, and I think that they will continue to pay overall reimbursement to the pharmacists to make sure they continue to 

participate. 

ChairwomanVELA ́ ZQUEZ. I really appreciate you coming here and 

saying you understand small businesses, but this is not about that. 

This is about impact analysis under the law. 

And now I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. And let me just note for 

the record, as I think everybody knows, members of Congress are 

on various committees, and I am also on the Judiciary Committee 

and the Foreign Affairs Committee. And we are marking up the 

Patent Reform Bill, and we have several important amendments to 

the bill, so I am going to, unfortunately, have to leave here shortly, 

and some of my colleagues will be filling in as the ranking member 

for different parts of the morning. So I want to thank them for 

that. I greatly appreciate it. So I just have a couple of questions. 

Mr. Smith, do you concur with the findings of the GAO and the 

Office of Advocacy of the United States Small Business Administration that the reimbursement rate does not recoup the costs of acquisition of covered pharmaceuticals, much less the cost of the 

pharmacies to dispense the drugs? 

Mr.SMITH. We have disagreed with what GAO—their analysis in 

the studies that they have published, again, on the basis that they 

didn’t—they didn’t know what was in the final rule, and, again, 

didn’t have the—no one has the data, including GAO, to make their 

final analysis, again, which is an important reason as to why we 

have delayed the effectiveness of the first new federal upper limit. 

Mr.CHABOT. Okay. Thank you. So just to be clear, so you do not 

concur with that, is that correct? 

Mr.SMITH. That is correct, yes, sir. 

Mr.CHABOT. Thank you. Now, next, do you know how Congress 

arrived at the 250 percent of average manufacturers’ price for the 

reimbursement? 

Mr.SMITH. In the Deficit Reduction Act, the Senate and the 

House passed very different types of proposals. What came out of 

conference differed between both approaches. Both approaches 

were designed to create savings for the Medicaid program. The 

final amount, I couldn’t speak to how precisely they arrived at 250 

12

percent, but I think that is an important consideration to bear in 

mind. 

We are talking about two and a half times of what the lowest acquisition cost is. So that leaves I think a very significant cushion 

between the lowest and the upper limit now, which is two and a 

half times that. 

Mr.CHABOT. Thank you. Next, in failing to quantify the economic 

impact on small retail pharmacies, what efforts did CMS undertake 

to determine what economic data was available? 

Mr.SMITH. We did look at—again, I assure you we looked at the 

data that we have, and we certainly did understand the impact to 

be on the pharmacists’ side, and the 18,000 small pharmacists. We, 

again, consulted with our Office of the Actuary. We looked hither 

and yon for as much data as we could get. 

As I said, we did talk with the pharmacy organizations themselves. I do believe we went looking for as much data as we possibly could get. 

Mr.CHABOT. Has CMS considered amending its final regulatory 

flexibility to address any inadequacies in the statutory reimbursement rate? 

Mr.SMITH. We left some very important parts continued to be 

open for comment that, again, the data that everyone would want 

to have. With their AMP reporting, under the new rules, then we 

will start having that data. So that is why we left it open to comment between now and the first new federal upper limit. 

ChairwomanVELA ́ ZQUEZ. Mr. Chabot? 

Mr.SMITH. Certainly, our intent was to be able to have that sort 

of data analysis to then determine whether or not we should make 

any further changes. 

Mr.CHABOT. Yes, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. I just would like, before my blood pressure goes up—

Mr.CHABOT. I would yield to the—

ChairwomanVELA ́ ZQUEZ. —for the record to reflect what you, in 

your statement on the final rule, said about the data. We are on—

although it is clear the effects will be small on the great majority 

of pharmacies, whether chain or independent, we are unable to estimate the effects on small pharmacies, particularly those in low 

income areas where there are high concentrations of Medicaid 

beneficiaries. This is your own rule. 

Mr.SMITH. And, Madam Chairman, I think I also said we realize 

that we all want more data than what we had at our disposal. 

Mr.CHABOT. Madam Chair, I am being called down to the Judiciary Committee, so I am going to yield back my time. 

Mr.SMITH. And now I recognize Mr. Shuler. 

Mr.SHULER. Madam Chair, thank you. Back to the data, if you 

recognize that the backbone and the success of our, you know, 

economy depends upon the small businesses, then why didn’t you 

request and ask for more data? 

Mr.SMITH. The data has to relate to what the final definition is. 

If it doesn’t reflect what the final definition is, then the data continues to be flawed, which is why when a number of groups and 

individuals, including the pharmacies themselves, asked us not to 

publish data as the law required, going back to January of this 

13

year, their rationale was the data will be flawed because you don’t 

have a final definition. 

We agreed with that, which is why we have not released the 

AMPs under the old definition. But we won’t have the data until 

we have—

Mr.SHULER. Until after the rule? 

Mr.SMITH. Which is why we have delayed the comment period, 

which is why we have delayed the effectiveness. 

Mr.SHULER. So will there be a rule on—a judgment on the final 

rule after the fact? 

Mr.SMITH. Yes, sir. That is what an interim final with comment 

is, that it allows, then, to make further adjustments without going 

through the entire APA process all over again. 

Mr.SHULER. So why can’t you submit the data from the AMP to 

the states? Is it HIPAA, because of HIPAA compliance? 

Mr.SMITH. We can. But, again, folks have not wanted us to submit AMP data under the old definition of AMP. The pharmacy community itself didn’t want us to allow that, I believe. 

Mr.SHULER. So it is more important to—hey, I mean, there is nobody that supports the pharmacists more than I—I mean, both the 

chains and the small communities. But, I mean, don’t you think it 

is more important to make sure that we have the proper data for 

them, and for the patients as well? 

Mr.SMITH. Absolutely. And—

Mr.SHULER. So which is more important? 

Mr.SMITH. I think that what is important is to have accurate 

data to balance any other decision makers on the final rule. I 

would be very surprised, though—and you can ask the next panel—

I would be very surprised if they told you that they wanted us to 

release the old AMPs. 

Mr.SHULER. We will ask that. 

Madam Chair, I would request that if—

Mr.SMITH. We realize that we all want more data on—

Mr.SHULER. Yes, don’t you think we should delay the rule until 

we have the final data? 

Mr.SMITH. The rule, in fact, has been delayed to some extent. 

And we have delayed different parts of it. As I said, the law said—

had given us a January date to start releasing publicly data. We 

believed it was—our concern was that data would be inaccurate, 

and that could have a negative impact as payers start looking at 

data that would be inaccurate, and then start making decisions 

about their own pricing. 

We did delay that. We have also delayed the publication of the 

new first federal upper limit—would have, could have, should have 

gone into effect July 1. That really is now the end of the year. In 

between time, now everyone—manufacturers will then start reporting their data based on the new AMP definition. Then, that data 

will be available for analysis to make a final determination. 

Mr.SHULER. Madam Chair, I would request that you would submit the information on the impact on small business to the Committee. I know there is—you said there is not a lot, but the quantifiable evidence and effects on small business, we would like to receive that information. 

14

Mr.SMITH. We did—as I said, we responded to—in the final 

rule—

Mr.SHULER. Not just the information from what is in the final 

rule, but the entire information that actually impacts small business. 

ChairwomanVELA ́ ZQUEZ. Without objection. 

Mr.SMITH. I will do the very best I can to provide whatever data 

that we are going to be able to have. 

Mr.SHULER. Madam Chair, I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. Mr. Buchanan. 

Mr.BUCHANAN. Yes, thank you, Madam Chair. I think the concern with all of us is I know I have a pharmacist in our community 

that is out of business. There is so much pressure already on a lot 

of these small retail pharmacists because of whatever reason—national chains, other issues. 

That is why it is concerning all of us up here, because sometimes 

it is just that tipping point that one more something like this put 

on them puts a lot of them out of business. And I know right down 

the street from me we just had one close in the last six months. 

I am not saying it is because of this. It might be part of this, but 

I am concerned that we are going to—we are not going to see a lot 

of retail pharmacists. 

I would be interested to see 18,000 retail pharmacists, how many 

have—how many there were five years ago and what it is today. 

So I think—I don’t even know, but I have got to imagine that trend 

is coming down. 

I guess the big thing is getting back to this when you looked at 

the final rule. Did you spend much time working with the states 

or anybody—any other entities to get a sense of the impact on the 

analysis? Or was this something that you did yourself or—

Mr.SMITH. We did, Mr. Buchanan. We asked data from the states 

themselves. We asked manufacturers to verify their data. We had 

the benefit of hearing from the community pharmacists themselves 

as they came in. States themselves—some states have said very—

may have very little impact on us, because we already have our 

own what are called maximum acquisition cost lists that are below 

the old FULs. 

So the impact will vary by state, comparing their acquisition cost 

limitations that they already had in place versus the new FUL. So 

we did go looking—we—

Mr.BUCHANAN. Yes. When you said you had the community pharmacists come in, how did that work out? I mean, how many did you 

have come in over what period of time, and in terms of doing an 

analysis? 

Mr.SMITH. I don’t recall how many meetings I have had, but I—

Mr.BUCHANAN. Well, what is the reaction? 

Mr.SMITH. —had several—

Mr.BUCHANAN. What was the reaction, the feedback you had 

from the community? 

Mr.SMITH. Certainly, the reaction was of concern. Certainly, the 

rule was, and the law was, designed to generate savings. We understand that and know that would be a concern. 

15

Mr.BUCHANAN. The other question I had, why are brand-name 

drugs not part of the modified reimbursement plan? What is the 

rationale there? 

Mr.SMITH. Because to be on the federal upper limit you have to 

have a competitor. So the FULs is only to those roughly 700 drugs, 

not the entire 55,000 drugs. So you have to have a competitor to 

be on the FULs in the first place. 

Mr.BUCHANAN. How did they decide on the 700 drugs? Why was 

it not 700, 800, what was the—

Mr.SMITH. They come on as a generic manufacturer to—as a—

you have a brand-name drug all by itself, and then you have a generic manufacturer that comes in and is doing the generic equivalent of that. They go to the FDA, and then FDA says now there 

is a generic equivalent, so that is how you get on the FUL is by 

having a generic competitor. 

Mr.BUCHANAN. And you touched on this, but what is your view 

of the discretion that CMS has in developing the average manufactured price? 

Mr.SMITH. I think we—I think the—again, what we did was to 

introduce an outlier, a policy in the first place, in the proposed 

rule, which we increased in the final rule. We went from 30 percent 

to 40 percent. That was in our discretion. 

In terms of who is in within the definition of AMP, we disregarded sales to nursing homes. We disregarded certain sales that 

would have had an impact on the AMP. However, if you swing too 

much to the other side, and start taking more and more transactions out of the list, then Medicaid will start losing rebates from 

the manufacturers. 

Mr.BUCHANAN. Thank you, Mr. Smith. And I yield back, Madam 

Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you. Mr. Braley. 

Mr.BRALEY. Thank you, Madam Chairwoman. Mr. Smith, I was 

pleased to hear that you looked hither and yon for as much data 

as you could get. Frankly, I have not heard that word used since 

the last time I watched the movie Robin Hood. 

But I think that one of the things that you are not getting from 

this bipartisan panel is that all of us are concerned about the AMP 

formula, the criteria you use to define the formula, and its adverse 

impact upon the community pharmacists that we represent. 

And I think that attitude on the part of the agency you are here 

to represent is reflected in the fact that on May 18, 2007, over 100 

of my colleagues, including Ms. Fallin, Mr. Shuler, myself, in a bipartisan spirit, probably one of the most bipartisan outreach efforts 

I have seen since coming to Congress in January, asked a simple 

request of Leslie Norwalk, and that was to recognize the practical 

reality of the implementation of this rule when it is going to be applied by many states whose legislatures are no longer in session. 

Your rule comes out on July 1, 2007. My legislature adjourned 

in May and won’t reconvene until January. And I think that is the 

case in many smaller states, and in probably some of the larger 

states of this country. And one of the reasons why we made this 

outreach effort in a bipartisan fashion was to address the simple, 

practical realities of giving states an adequate opportunity to proVerDate 0ct 09 2002 09:18 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36110.TXT LEANN
16

vide the input and feedback to your rule after final publication, before implementation. 

And from my understanding, rather than acceding to our request 

to delay that until December 31, 2007, your agency has decided to 

begin the implementation in October. Is that true? 

Mr.SMITH. If I can take a minute to explain, and the impact on 

the states and how, again, this is enforced with the states, because 

I think you raise a very important point. The data that we all want 

we can’t get until you get to a final definition. 

We have delayed the effectiveness of the new federal upper limit. 

The new federal upper limit itself, in terms of our relationships 

with the states, is a calculation that we do—that we would do in 

terms of enforcement with the states once a year. So while the new 

FUL—the first new FUL will come out roughly December, we 

would not be taking any action against a state roughly for a year 

after that. 

So I think legislatures will come back in time to make any modifications that they deem to be necessary, before we take any adverse action against a state. 

Mr.BRALEY. In fact, several of these states, including my State 

of Iowa, the State of Kansas, which the original co-authors of this 

letter—Jerry Moran and Nancy Boyda—represent, and the State of 

Louisiana have plans to revise their dispensing fee requirements in 

anticipation of just what we are talking about. Can you describe 

how these states are going to be able to try to bridge a gap that 

nobody here seems to be able to understand or define? 

Mr.SMITH. I think between now and the end of the year we will 

start having—we will get the data that everyone is looking for in 

time for them to make any adjustments. As you indicate, states are 

already, in anticipation of savings on the acquisition side, re-balancing that to—at least to some extent with increase in dispensing 

fees, which I said in my earlier remarks have really been flat for 

several years now. 

So states have the—all of the authority they need to make those 

changes in dispensing fees, and by the time they come in next year 

they will have the data before CMS has taken any enforcement action against them. 

Mr.BRALEY. Have you had the opportunity to review any of the 

proposals from the states that are submitting requests? 

Mr.SMITH. We have, yes, sir. 

Mr.BRALEY. And have you seen anything in any of the components of those state programs that you believe will be particularly 

effective in addressing some of the issues we have been discussing 

here today? 

Mr.SMITH. Well, the states have the authority to set their reimbursement rates, which generally includes acquisition costs and 

dispensing fees. The dispensing fees do need to be reasonable and 

are supported by data. The extent to which Iowa or any other state 

that comes in and says, ‘‘Look, we need to increase our dispensing 

fee, we believe we need to increase our dispensing fee to our rural 

pharmacists to assure access,’’ then they would have the right to 

do so. They would submit a state plan amendment, and we would 

approve that state plan amendment. 

ChairwomanVELA ́ ZQUEZ. Ms. Fallin. 

17

Ms.FALLIN. Thank you, Madam Chair. Thank you for coming 

today to visit with us about a very important issue. We appreciate 

you being here. I have a question about legal authority and about 

CMS. And what legal authority does CMS have to delay the statutory deadlines on this rulemaking? 

Mr.SMITH. The statutory deadlines we take very seriously, and 

do our very best to meet them. The statutory definition was to have 

an AMP rule by July 1. We were a couple of days late, but I think 

any significant delay beyond that then calls into question whether 

or not we met our statutory obligation. 

Ms.FALLIN. Well, if CMS missed that deadline, which you did—

I think it was July 7 by the time it was—received July 6 to register 

the rule, and then publication in the Federal Register on July 17—

and if we missed those deadlines, I guess would that mean that we 

could also play with other statutory deadlines, too, in other areas? 

Mr.SMITH. The risk of missing the statutory deadline I think is 

an issue for lawyers to kind of debate and that I am not really the 

expert to do that. 

Ms.FALLIN. Okay. 

Mr.SMITH. Sorry. 

Ms.FALLIN. That is all right. Thank you. 

Thank you, Ms. Chairman. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chair. And welcome, Director Smith. Quickly, you know, this is all a result of the 

Deficit Reduction Act. When we were debating that—I still remember that well, because I serve on Energy and Commerce, and the 

way I figure it really happened like this, and this is where we find 

ourselves today. 

The White House said, ‘‘We are going to reduce spending X 

amount of dollars.’’ Then, it filters down to Congress. And you look 

at each Committee that has certain jurisdiction, and they say, ‘‘You 

have jurisdiction over these departments or agencies, and we are 

going to cut X amount of dollars.’’ Whether it is realistic or not, it 

does not matter. These are arbitrary, mandatory figures pulled out 

somewhere, and that is the genesis of this thing. 

And what you are dealing with, of course, is the end product. So 

Energy and Commerce comes out, we have got jurisdiction on Medicaid, and they say, ‘‘We are going to cut $10 billion.’’ We are trying 

to figure out, how did you get to that figure? Well, we are not real 

sure, but we think we need to cut $10 billion, because in the big 

picture that is how much you have to save from your particular 

program under that particular agency that comes under the purview of your Committee. 

We debated and debated. The Chairman at that time, Chairman 

Barton, a fellow Texan, promised me that less is more when it 

comes to Medicaid. So on the Committee we have Mr. Ross from 

Arkansas, who has—I think his wife is a pharmacist, and they own 

a small community pharmacy. And I wish he was here today, because he could explain this in a way that no one else can, because 

he is intimately acquainted with all of the details of what it takes 

to be a pharmacist in today’s economy. 

So that is where we are today. Now, I hope Mr. Barton is right 

that less is more. He promised he would come to my district to exVerDate 0ct 09 2002 09:18 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36110.TXT LEANN
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plain this when the impact of the rulemaking—and I told him that 

it—you know, I really don’t want to be the second Alamo in San 

Antonio, Texas. 

But, nevertheless, this is where I am getting at. I know what you 

have to do with deadlines and such. You are just going to find 

these savings, because we mandated that when we passed that act. 

And the $10 billion was going to come out of Medicaid no matter 

what, at someone’s cost. 

Now, I am going to tell you, we will hit the physician, the caregiver, we will hit the pharmacist, but the one that really suffers, 

of course, is going to be the patient. But that is where we are 

today. 

Now, let us just figure out how we can soften this, and this is 

all about damage control. My concern is this, and I do appreciate 

your testimony—but based on some of the questions that we have 

here, the consequences of what we are doing here, findings of the 

GAO, which you have to respect—I mean, you can disagree to a 

certain extent, but somewhere along the way you have to figure 

there has got to be some legitimacy to what they are finding here. 

But the consequences of where you are pushing the pharmacists, 

and what is the role of the pharmacist? That is the other thing. I 

am going to tell you something, I don’t think there is going to be 

a member here, Republican or Democrat, that doesn’t appreciate 

the role of the pharmacist in our communities. It is a lot easier for 

the patient to get a lot of the information from the pharmacist than 

it is usually to get it from the doctor—in making the appointment, 

keeping the appointment, being seen, and spending any quality 

time with the physician. 

There is more quality time being spent today by the patient with 

the pharmacist. And at our town hall meetings, I can tell you the 

stories that are recounted. And we are going to impact that relationship, I believe, to the neediest patient out there. 

But this is what I am getting at. You have indicated that I guess 

there is two parts to this formula—the cost of the drug itself, but 

then this dispensing fee, and I am not sure if you hinted at or you 

spoke directly to the fact that, are you going to be able to pass on 

some of the costs that may be suffered to reimburse the pharmacist 

for the cuts they are going to have on the acquisition as opposed 

to the dispensing fees? 

That really doesn’t help any as far as any real savings, and I 

want your opinion on, to what extent is that going to happen? Is 

it going to be allowed? We have had this experience in the past 

with the oncologists in the payment of the drug, compensating for 

administering the drugs, and we are in a huge mess over that. But 

I just want your take on the consequence on the dispensing fee side 

of the equation. 

And, secondly, something that the Chairwoman touched on, are 

you pushing the pharmacists to be prescribing brand-name medicines which are going to be more expensive? So I don’t know where 

all of the savings is at the end of this whole thing. I understand 

the charge and the mandate that you received over there as a result of what we did with the Deficit Reduction Act, which obviously 

some of us opposed and such. 

19

But, again, I just want to know the consequences on dispensing 

fees and the fact, are you truly going to be pushing people to utilize 

more brand-name and, thus, negating what the generic drug prescription is supposed to be delivering in the way of savings. 

Mr.SMITH. Thank you, sir. On the—and pharmacists do get paid 

in two components in general—on the acquisition cost, and that is 

what the Inspector General—that is sort of where the ball started 

rolling. When then Inspector General said you are paying—Medicaid is paying $1.5 billion too much based on acquisition cost, 

them looking at acquisition cost. 

Then, the states are also looking at the dispensing fee, and the 

other side of the payment—what a state determines under Medicaid what a provider actually gets paid. So they set the reimbursement rates to the states, and a state can say—they have all of the 

authority to say, ‘‘We need to increase our dispensing fee. We are 

concerned about access, particularly in the rural areas, so we are 

going to pay our rural pharmacists more.’’

We are particularly concerned about the impact on the independent pharmacists, so we can—we will pay them more than what 

we will pay a chain. So the states still have the authority to make 

the adjustments and decisions that they believe are needed to assure access for our Medicaid beneficiaries. 

Mr.GONZA ́LEZ. Doesn’t that work against your very savings goal? 

I mean, what I am saying is, all right, let us say GAO, everybody, 

and probably the individuals who are going to testify in a few minutes, are correct—that it is not going to be adequate compensation 

for the generic drug and such with the new formula that you have 

come out now. So can you just push and make up for some of that 

shortfall on the dispensing side? And if you can, and which they 

will if you can, then where are the savings? 

It is all—I mean, a dollar is a dollar is a dollar. We can split up 

the cost between dispensing and the cost of the drug itself, but at 

the end of the day, isn’t it basically the same budget, the same 

amount of money? And the troubles that we have been experiencing in Texas regarding the state’s failure to really meet its obligation under the Medicaid program, and making sure that it is 

available, it is only going to get worse. 

And so I guess I just—I don’t see, isn’t it the potential is any perceived savings be gobbled up by some other component? 

Mr.SMITH. I think that we have accomplished something that is 

very important in the rule on the acquisition cost in itself. Now we 

will have much better information about what the true acquisition 

cost is in itself. So that is an important—that is an important gain 

in itself. 

The extent to which states then make a determination that they 

have to raise a dispensing fee, they will—again, I think then they 

will go through the analysis that they very well may need to increase the dispensing fee, but not the entire amount to offset the 

savings that is paying on the acquisition cost more specifically. 

ChairwomanVELA ́ ZQUEZ. Time has expired. 

Mr.GONZA ́LEZ. Thank you. 

ChairwomanVELA ́ ZQUEZ. Mr. Smith, I have two more questions. 

First, we all know that there was a statutory requirement for 

20

issuing the rule. My question is: was there a statutory requirement 

for the implementation of the rule? 

Mr.SMITH. Well—

ChairwomanVELA ́ ZQUEZ. Yes or no? Simple answer. 

Mr.SMITH. I think there is an expectation that we implement—

ChairwomanVELA ́ ZQUEZ. No, no, no, no. 

Mr.SMITH. —the statute. 

ChairwomanVELA ́ ZQUEZ. That is—

Mr.SMITH. I am not—

ChairwomanVELA ́ ZQUEZ. No, I am talking to you about statutory 

requirement of implementing the rule. And if there is not, my question is: would you hold off at that line of implementation until you 

have all the data that you admitted here you don’t have? So that, 

then, you can have a final rule that accounts for the needs of small 

pharmacies? 

Mr.SMITH. I think we were required to issue the implementation. 

I am sorry—to issue a final rule, which is what we did July 1. 

ChairwomanVELA ́ ZQUEZ. Yes, but that is not my question. 

Mr.SMITH. In terms of the effective date, we have delayed the effective date by delaying when the first new federal upper limit will 

go into effect. 

ChairwomanVELA ́ ZQUEZ. Well, I am not talking about issuing the 

rule and the effective date. I am talking to you about the implementation of the rule. 

Mr.SMITH. I am sorry. The implementation—the new federal 

upper limit is implementation. 

ChairwomanVELA ́ ZQUEZ. Okay. Let me ask you another question 

since cost saving is an issue here, right? Can you tell me why do 

you think funding was cut for only generic drug reimbursement 

and not for brand name drugs? 

Mr.SMITH. I think this did stem from a realization that where 

there is competition between generics and brand names, that is 

how you get on a FUL in the first place; that Medicaid was overpaying and not getting the best price, which is in many respects 

an underlying assumption about the Medicaid program that Medicaid should be getting the best deal for reimbursements. 

ChairwomanVELA ́ ZQUEZ. So let me ask you a last question now. 

Could there have been cost savings if the reimbursement formula 

for brand name drugs was altered? 

Mr.SMITH. Presumably. I mean, Congress could have enacted a 

number of different ways to find savings. 

ChairwomanVELA ́ ZQUEZ. So why do you think we did not? You 

have been saying all along, ‘‘I think, I think, I think,’’ in the many 

questions that I have been asking you. 

Mr.SMITH. I think there was a clear indicator from the Office of 

Inspector General that drugs that have competition on the folds, 

Medicaid was overspending by a million and a half dollars. 

ChairwomanVELA ́ ZQUEZ. Ms. Clarke, do you have any questions? 

You will be recognized for five minutes. 

Ms.CLARKE. Thank you very much, Madam Chair. 

Madam Chair, why don’t you come back to me? I am sorry. I 

defer at this time. 

21

ChairwomanVELA ́ ZQUEZ. Yes. So we are going to finish this 

round, and, Mr. Smith, you are going to be excused. Are you ready? 

Okay. 

Mr.SMITH. Thank you, Madam Chair. 

A little freshman SNAFU, and I want to thank you and the 

Ranking Member for holding this hearing, and it will have an impact on all of our congressional districts. 

On July 6 of 2007, CMS released a final rule on Medicaid drug 

pricing that would redefine the average manufacturer’s price, also 

known as the AMP, and cut Medicaid reimbursements to pharmacies for generic drugs by $8 billion over the next five years. 

Unfortunately, the final rule remains fundamentally flawed. It 

includes a final definition of AMP that could severely underpay retail community pharmacies if used as a reimbursement metric. In 

my community, this is a huge, huge concern. 

These reductions could force many pharmacies to close or reduce 

hours, jeopardizing Medicaid beneficiaries’ access to retail pharmacies. If payments to pharmacies end up below their cost for generic drugs, pharmacies could earn a greater margin by dispensing 

a higher priced brand medication in Medicaid, about $150, which 

is more than seven times higher than the average payment for generic medication, around $20. 

As you know, too, Madam Chair, there are about 8,750 community pharmacies active in our state. Community pharmacies employ 

more than 117,000 employees, including over 13,000 employees 

who work at independent pharmacies. Medicaid is 15.9 percent of 

the marketplace. 

ChairwomanVELA ́ ZQUEZ. Mr. Smith, I’m very concerned that the 

final rule that CMS has promulgated as it relates to how Medicaid 

reimburses pharmacies for generic medications will threaten the 

ability of low income beneficiaries and seniors in my district in 

Brooklyn, New York to access prescription drugs and services at 

their local retain pharmacies. 

CMS was instructed by Congress and the Deficit Reduction Act 

of 2005 to define AMP to accurately reflect retail pharmacy acquisition costs. However, based on my understanding of the final rules, 

CMS chose to completely ignore congressional intent and has done 

nothing to help mitigate the unprecedented level of cuts to community pharmacies. 

Do you believe that the final rule that CMS has issued provides 

for an accurate benchmark to reimburse pharmacies and provide 

an adequate level of reimbursement to pharmacies to help insure 

their continued participation in the Medicaid program? 

Mr.SMITH. I believe the final rule is a reflection of payment on 

the acquisition costs. The acquisition costs for the drugs on the federal upper limit, that limit would now still be two and a half times 

the lowest drug that is available. So on the acquisition side we do 

believe that is a margin that is allowable. 

Secondly, it is all drugs on the FUL in the aggregate. So there 

is a relationship that this is not a drug by drug. This is all of the 

drugs together in the aggregate. 

Ms.CLARKE. And inherent in that is an unintended consequence. 

Mr.SMITH. Well, again, I think we will all have a much clearer 

understanding of what actual acquisition costs are, which I think 

22

is a good thing for everyone, and the savings themselves to the 

independent pharmacists represents about one percent of their 

pharmacy sales. 

Ms.CLARKE. Mr. Smith, I have been hearing from my pharmacies 

that the implementation of the tamper proof prescription pad requirement mandated by Congress in the recently enacted Iraq supplemental earlier this year could cause some difficulties. Pharmacies tell me there may not be enough pads available for all prescribers at the time of the October 1st launch, and that pharmacies 

could be faced with either turning Medicaid beneficiaries away who 

show up with prescriptions written on non-compliant pads or risking a subsequent denial of reimbursement of prescriptions dispensed under those circumstances. 

Would CMS be willing to delay implementation of the requirement or to at least phase it in over a period of 180 days beyond 

the mandated October 1st effective date? 

And would CMS be willing to use some discretion in enforcing 

the requirement over the first six months? 

Mr.SMITH. As you are aware, Congress just passed that law very 

recently. We are going to do our very best to meet the effective 

date, and we are doing our very best to comply with what Congress 

told us to do. 

We have worked with the pharmacists. We have heard from the 

pharmacists. We have heard from the states. The tamper proof, a 

number of states have said in many effects we already do this. So 

it will have no impact on it. 

So this is going to impact pharmacists in those states that have 

not already moved to the tamper proof, which the intent itself is 

to prevent fraud and abuse in the Medicaid programs. So the impact is on states that do not already have tamper proof, and we are 

working hard with them to find ways that they can come into compliance. 

Ms.CLARKE. So you are up here to help mitigate those circumstances. 

Mr.SMITH. We will continue to assess the ability to make that 

date and adjust. 

Ms.CLARKE. Accordingly. Thank you. 

Thank you very much, Madam Chair, and I will yield back. 

ChairwomanVELA ́ ZQUEZ. Any other member? 

Mr. Smith, I will excuse you, but before you leave this room, 

again, I just want to reiterate the impact that this is going to have 

not only on local pharmacists, but Medicaid recipients throughout 

this country, and I will hope that you will provide more time before 

implementing the AMP until you have the data that is required by 

the Regulatory Flexibility Act. 

If I am one of those pharmacists sitting here in this room, by the 

way, I just will ask you. Have you heard of any pending lawsuit 

in light of the Regulatory Flexibility Act? 

Mr.SMITH. I understand that is something that is being considered. 

ChairwomanVELA ́ ZQUEZ. Okay. Well, with that, you are excused. 

Mr.SMITH. Thank you very much. 

ChairwomanVELA ́ ZQUEZ. And I will ask the next panel to come 

forward and take your seats, please. 

23

Okay. We are going to proceed with our second panel. Our first 

witness is Percy Bellow. Is he here? 

Okay. So let’s go with Mr. Osterhaus. Mr. Osterhaus is a community—sorry. And I will recognize Mr. Braley for the purpose of introducing his constituent. 

Mr.BRALEY. Thank you so much. It is my distinct pleasure to introduce one of my constituents who is uniquely qualified to testify 

here today. 

Matt Osterhaus is a community pharmacist and consultant and 

co-owner of Osterhaus Pharmacy in Maqueketa, Iowa. 

Osterhaus Pharmacy has been a family owned operation since 

1965, and Matt is actively involved in community development, as 

well as an adjunct faculty member at the University of Iowa College of Pharmacy, and he has had the great fortune of practicing 

with his father, also a community pharmacist who served in the 

Iowa legislature and has a great background in how these Medicaid 

adjustments impact patients, as well as community pharmacists. 

And we welcome you here today 

STATEMENT OF MATTHEW OSTERHAUS, PHARMACIST, 

OSTERHAUS PHARMACY, ON BEHALF OF ASSOCIATION OF 

COMMUNITY PHARMACISTS CONGRESSIONAL NETWORK 

Mr.OSTERHAUS. Thank you very much, Congressman Braley. 

Members of the Small Business Committee, thank you for allowing me to testify this morning on behalf of the Association of Community Pharmacists Congressional Network and the independent 

pharmacies they represent across the country. 

Since the launch of Medicare Part D, the prescription program 

in January of 2006, hundreds of pharmacies have closed. It is my 

belief and the belief of thousands of pharmacists and pharmacy 

owners across the nation that if the economic environment of pharmacy remains as it is today and CMS implements average manufacturer’s price, or AMP, a reported in the recent ruling, the citizens in the nation may see an unprecedented loss of pharmacies, 

in particular, independent community pharmacies. 

The one-two punch of Medicare Part D along with AMP, the way 

that has been thrown out at us really threatens the survival of the 

community pharmacy. The loss of these businesses will potentially 

impact the access for our citizens, our patients who depend on 

pharmacies for their prescription and health care needs. 

I see independent community pharmacy as kind of the classic example of small business in the United States. We have survived 

through a lot of ups and downs for several centuries. I think we 

have survived because we do add value along with the dispensing 

of medications and the care for our patients. 

Many of these businesses serve as the anchor of their small 

towns, including Osterhaus Pharmacy who is, I guess the downtown anchor of Maqueketa, Iowa. We are in a community of 6,000 

people. We employ 25 people in our pharmacy, including seven 

pharmacists. We provide medication therapy management for patients with private insurance, with Medicaid, with Medicare Part 

D. Approximately 30 percent of my patients have Medicaid as either their primary or their secondary insurance. 

24

As we face crises over the years, we have come out of those, but 

I see none other that has ever been as hard hitting as the potential 

AMP legislation. With the creation of Medicare Part D, the PBMs, 

or pharmacy benefit managers, began setting reimbursement on a 

huge percentage of the prescriptions that we dispense to our patients. 

And there are a lot of small businesses, pharmacies, across this 

nation who closed their doors due to the slow and low reimbursements in this plan. It has been estimated that a third of our health 

care dollars are being spent on administration, benefit management, and frequently not allowing benefits. 

I feel we need to reallocate our health care resources and refocus 

them on the care of patients. I think we also need to insist that 

the providers provide value for the dollars spent. 

Independent pharmacy is somewhat unique as a small business 

group in that we have very little control over the cost of what we 

pay for the medications. There is a limited number of wholesalers 

or sources for the prescription drugs, and we have almost no control over the price that is set that we are paid for it. 

Yet when it comes time to squeeze savings from the system in 

this escalating cost environment, both state and federal government turn to pharmacy as if we had full control. 

Now, through CMS and the establishment of AMP, generic pricing structures is striving to save billions of dollars by cutting payments on medications to pharmacies across the country, and many 

people think that there is a lot of fat to be cut. 

But if we set up the system the way that is certainly out there right now, if we pay $100 to bring a medication in to our pharmacy 

from the wholesaler and Medicaid decides to reimburse us 85, and 

then we wait four to six weeks to be paid for it, we cannot stay 

in business very long. 

Utilizing a formula to establish product reimbursement is fundamentally flawed. Bringing it in at less than the acquisition that 

pay my wholesaler is not a recipe for success. Utilizing mail order 

pharmacies and hospital out-patient pharmacies in the formula I 

think is a significant flaw, and it is an inequity that needs your 

attention today, and I certainly appreciate the opportunity and the 

attention you have given it in this hearing. 

I think it is obvious that a small business of any type cannot survive if the revenue that comes in does not match the cost of the 

product being sold and the overhead that we need to provide quality service to our patients or the consumer. 

I submit to you that hundreds of independent pharmacies may 

be lost if AMP is implemented as currently designed. This is a blow 

to small business, but it is devastating to the patients served by 

these small business. 

Pharmacists across the country are agonizing over the thought of 

not being able to serve their patients, and those patients will be 

distraught over the thought of losing their pharmacies. 

People up here maybe on the Hill or people at CMS may think 

that there is not an access issue in pharmacy. When I come to 

Washington, D.C., I can see four pharmacies on one corner sometimes, but in Iowa, a prime example of rural America, there are 

several counties that only have one pharmacy, and these patients 

25

understand that if they lose that pharmacy it could be 30 to 40 

miles to the closest pharmacy. 

I think of my own patients. I think of Don who has a seizure disorder, was totally uncontrolled. Our pharmacists worked with him 

to help him adhere to this regimen. He has not been back in the 

emergency room or the hospital sense. 

I think of Peggy, my patient with multiple sclerosis. We have collaborated with her physician to better control her pain, who helped 

her quit smoking. Community pharmacies care. Pharmacists care 

and want to partner with Medicaid to take care of these patients. 

I feel we serve a vital role in our health care system. These are 

small businesses that provide entry level health services to the patient. We need to have a system of reimbursement that is fair so 

that we can continue to be in business. The average number of employees in an independent pharmacy is 12, but they all expect to 

receive their paychecks every week, and we expect to be able to 

give them a decent living. 

There are a lot of ways that pharmacists could help save health 

care dollars. 

Am I pushing my time? 

ChairwomanVELA ́ ZQUEZ. Mr. Osterhaus, we have five minutes 

and it is up, but I will give you an extra minute so that you could 

summarize. 

Mr.OSTERHAUS. Thank you. 

The Iowa Medicaid pharmaceutical case management project is 

working to provide extra value to the patients of Iowa that are covered under Medicaid. Pharmacists want to partner with Medicaid 

to take good care of these patients. 

I would ask you to direct CMS to rework the formula for AMP 

and to delay implementation until states can establish an equitable 

fee for the services we provide. We can increase the value and increase the quality of care given to these patients, but we need to 

work on it together. 

Thank you again for the opportunity to testify today. 

[The prepared statement of Mr. Osterhaus may be found in the 

Appendix on page 49.]

ChairwomanVELA ́ ZQUEZ. Thank you, sir. 

Our next witness is Anthony Civello, Chairman, President and 

Chief Executive Officer of Kerr Drug, Inc., in Raleigh, North Carolina. He is testifying on behalf of the National Association of Chain 

Drug Stores. Mr. Civello is the Chairman of the NACDS Board of 

Directors. He has served on this institution sine 1998. 

Welcome, sir, and you will have five minutes to make your presentation. 

STATEMENT OF ANTHONY CIVELLO ON BEHALF OF THE 

NATIONAL ASSOCIATION OF CHAIN DRUG STORES 

Mr.CIVELLO. Thank you very much, Madam Chair, and members 

of the Committee. I thank you for your interest, and I thank you 

for your understanding. 

As you said, I am a CEO of a chain of drugstores. There are 102 

drugstores. They are all based in North and South Carolina. SixtyVerDate 0ct 09 2002 09:18 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36110.TXT LEANN
26

five percent of these stores, however, are in rural North Carolina. 

So we service many Medicaid patients. 

I would like to ask the Committee if you mind if I do not use 

my prepared notes and I maybe just refer to some of the comments 

that Mr. Smith made earlier on. And I, quite frankly, as amazed 

that Mr. Smith feels he is an expert on community pharmacy economics. He made a joke about AWP, ain’t what paid. We call AMP 

ain’t my price because it does not reflect what we are paying. 

Also, the comments about independent pharmacies or chain 

pharmacies will lose one percent of their sales based on the implementation of AMP, and that is categorically wrong. Our rural 

stores particularly fill up to 50 percent of their total prescriptions 

in Medicaid prescriptions. Our Durham County stores fill 30 to 40 

percent of their prescription. Sixty-one percent of all of our prescriptions are generic. 

The OIG and the GAO has said that AMP will equal 36 percent 

below our cost. I cannot see how he gets the math to work to state 

that one percent will be affected, and I take offense to that. 

First of all, NACDS has worked with Grant Thornton and our 

Coalition for Community Pharmacy, and we have done a nationwide study on the cost to fill prescriptions. We did it with 23,000 

pharmacists participating, and we used over 832 million prescriptions. We accounted for all costs, and it cost $10.50 on average to 

fill a prescription. This flat out will not work with an AMP that 

is 36 percent below our cost. 

The comment was made that there was a comment period. Well, 

I’d like to reflect on that a minute. That is, for the last two years 

we have provided comments. I believe the comments have been 

heard but not listened to. 

We have provided data indicating that the AMP as being described in the role, in the projected role, at the time by CMS was 

flawed and inaccurate, but again, it fell on deaf ears. 

The bottom line is just very simple, and I repeat what Mr. 

Osterhaus said at the outset. The bottom line is this is going to be 

very damaging to community pharmacy. I have been in the business for 40 years as a pharmacist, and I do not only represent the 

chain drug industry today. I represent also all of pharmacy as a 

pharmacist. 

And I can tell you that we have not faced the situation like this 

in my history. It is very damaging and will be very damaging. That 

is the bottom line. 

The comment was made that this will not serve as a disincentive 

to generics. That is patently incorrect. This will be a disincentive 

for generics. The fact is across our nation generic utilization varies 

from a low of 45 percent in New Jersey to a high of over 60 percent 

in the State of Washington. There is a lot of room for savings by 

increasing utilization in generics. 

This AMP role will decrease that incentive. It will, in fact, 

incentivize brands. The comment was made earlier that brands 

cost six times more. That is fact. That I agree with. 

It will do something else for brands that you should be aware of, 

and I believe you are. It will lower rebates. The lower the AMP, 

the lower the rebates. So we will have increased utilization of 

27

brands and less rebates. I just cannot make the math work and to 

accept any of Mr. Smith’s remarks. 

There are solutions. Quite frankly, we have approached the administration on many occasions and again fallen on deaf ears. We 

need action now. As an industry I call upon you for all of community pharmacy to act now. 

We need legislation. The implementation is upon us. It will be 

here by year end. We have got to act now. We need legislation. 

There are a number of things that we could bring to the table. We 

need people that will listen to us. Every day we negotiate with our 

state legislators, and the comment was made we are not dumping 

on our states. We are. We are, in fact, dumping on our states. 

And our states are trying because we are a part of that business. 

We are members of the community, and they are reacting by trying 

to increase the dispensing fees. But this is clearly dumping. 

Let me just give you a couple, if I could take 30 seconds here, 

a couple of areas that I would suggest the Congress address. Clarify the definition of AMP and include only sales to wholesalers for 

drugs distributed. 

Quite frankly, just make it be the price we pay. It is that simple. 

Do not publish a list that is below our cost. 

Establish federal payment limits on drugs with as little as two 

sources of supply. We need you to go back to the pre-DRA, which 

is three sources of supply versus the two that the AMP ruling has 

in it right now. 

I will conclude by saying, again, I appreciate your listening. I 

stand ready to answer any questions today and in the future as it 

relates to this dire situation. 

Thank you. 

[The prepared statement of Mr. Civello may be found in the Appendix on page 55.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Civello. 

Our next witness is Mr. Charlie Sewell. He is the Senior Vice 

President of Government Affairs at the National Community Pharmacists Association. The National Community Pharmacy Association represents 24,000 independent pharmacies and 50,000 community pharmacists and their patients across the country. 

Prior to joining NCPA, Mr. Sewell was President of ACG Enterprises. 

Welcome, sir, and you will have five minutes for your presentation. 

STATEMENT OF CHARLIE SEWELL ON BEHALF OF NATIONAL 

COMMUNITY PHARMACISTS ASSOCIATION 

Mr.SEWELL. Thank you, Madam Chair and Committee members. 

We really appreciate the opportunity today to talk about our concerns with the AMP rule. 

You mentioned that we represented 24,000. We used to represent 

24,000. Today unfortunately we only represent a little over 23,000. 

Frankly, community pharmacy was doing very well for the last five 

years, until a year ago. We were holding steady in terms of our 

number of pharmacies. 

28

In fact, we were showing a little bit of growth, and now what has 

happened in the last year, we had an intervening variable, Medicare Part D. In the last year we have lost 1,152 pharmacies across 

the nation. That is five percent of independent pharmacy. We certainly have been staggered with the low and slow reimbursements 

associated with Medicare Part D, but we are still trying to do the 

best for out patients. 

Unfortunately, we are looking at a situation now with the Medicaid proposal that is now in the final rule where we are going to 

be knocked to the canvas and knocked to the canvas hard, and we 

are going to find it very difficult to get up. 

We have ten percent of our pharmacies, over 2,300 pharmacies 

across the country. Over 50 percent of their business is Medicaid. 

If they are going to be reimbursed at 36 percent below their cost 

and with the minuscule state dispensing fees as they are now, 

there is now way they are going to be able to stay in business. 

You know, CMS talk about having a further comment period. 

That further comment period is going to be way too late for a lot 

of these pharmacies because they are going to start going out of 

business almost overnight. 

Congressman Gonza ́lez mentioned that it is all about quality 

time with our pharmacists. We do spend an extraordinary amount 

of time with our patients. It is because of our pharmacists that patients day in and day out avoid adverse drug interactions. It is because of our pharmacists that patients take their much needed 

medicines on time and properly. 

When that relationship is done away with, and that is what is 

going to happen, Medicaid patients are going to suffer, but also patients across the board are going to suffer, as has been mentioned 

by Mr. Braley. We have a lot of pharmacies. We have a lot of pharmacies. We are the only pharmacy within 30, 40 miles. If we are 

not there, there is nobody to go to for their medical needs. The 

pharmacist is really the front line to defense. 

Uncle Sam unfortunately has become our business partner. That 

was not our choice. Now about 50 percent of the average independents’ pharmacy, their business is government, either Medicaid, 

Medicare or Tri-Care. 

And what we have discovered is Uncle Sam is a lousy business 

partner. He does not do a very good job, and now we have been 

handed the average manufacturer’s price. Now, we knew it was 

going to be bad. We just did not know how bad it was. 

When Congress voted on this measure in the Deficit Reduction 

Act, they had no numbers. They had no AMP data because the 

AMP data was always confidential information that was reported 

between the manufacturer and CMS. We asked CMS to release 

data to us on a confidential basis so we could respond with their 

specific concerns and show them exactly what this impact was 

going to be. They failed to provide us that data. 

I mean, they say that we did not want it published. Of course 

we did not want inaccurate data published. It would be misleading, 

but we wanted the data so that we could show them the net effect. 

Unfortunately, we were not able to do that. So the only data that 

is out there is what GAO and OIG have, and they have shown exactly, exactly the same results when you look at GAO they say they 

29

are going to be reimbursed at 36 percent below our cost for 59 of 

the 70-some total drugs that they looked at. They actually looked 

at 77 drugs which represented over 50 percent of the marketplace 

in Medicaid. On average we are going to be reimbursed at 36 percent below our cost. 

OIG looked at the top 25 high expenditure drugs in the Medicaid 

program. They said that for 19 of the 25 we would be reimbursed 

below our costs, and then if you look at the five out of the other 

six and you factor in our cost to dispense that Mr. Civello related, 

you are looking at a situation where we are going to lose money 

on those drugs as well because they are not going to come close to 

covering the 1050 that it costs to run your pharmacy. That is what 

it costs to run the pharmacy, to pay for the pharmacist, to pay for 

the rent or the mortgage, to keep the utilities paid for. I mean, that 

is simply the operation of a pharmacy, and if you don’t cover the 

cost of the drug and what it costs to actually operate the pharmacy, 

you can’t stay in business. 

I mean, you hope you also eke out a meager profit. That is certainly not being allowed by this rule. 

CMS made a number of sweeping generalizations in the rule, and 

you heard some of those today from Mr. Smith. They essentially reject out of hand OIG and GAO. Yet they have never provided any 

specific reputation to either of those studies. They just say they disagree with them. 

CMS suggests that the shortfall can be made up by increasing 

dispensing fees a the state level. Talk about an unfunded mandate, 

that is an unfunded mandate to the states given their budgetary 

pressure. 

And what we find of interest is they are really talking out of both 

sides of their mouth. There was an increased dispensing fee. It was 

just offered up by Louisiana, and their plan? Guess what. CMS rejected it. So they say they are going to allow the states to increase 

the dispensing fees. In fact, the first opportunity they had they rejected the plan that was put forward by the State of Louisiana out 

of hand. 

They go on to say in the rule that there is a significant impact. 

They did not address that impact at all. They shirked their responsibilities with regard to the Regulatory Flexibility Act. I mean, 

there has been no analysis whatsoever of the 18,000 pharmacies all 

whom we represent and what kind of impact this is going to be. 

We are looking at it and saying it is going to wipe out almost 

our entire net profits. Any business that does not make a profit 

does not stay in business. 

With that, Madam Chair, I would be glad to answer any questions at the appropriate time. 

Thank you very much. 

[The prepared statement of Mr. Sewell may be found in the Appendix on page 61.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Sewell. 

Our next witness is Mr. Ed Hagan. He is the Director of Pharmacy at the Associated Food Store in Salt Lake City, Utah. He is 

testifying on behalf of the Food Marketing Institute, which has 

member companies with retail pharmacists. The Food Marketing 

30

Institute conducts programs in research, education, industry relations, and public affairs on behalf of its 1,500 members. 

Prior to joining Associated Food Store, Mr. Hagan was the Director, Pharmacy at Woodtry Food and Drugs. 

Welcome. 

STATEMENT OF ED HAGAN, ON BEHALF OF FOOD MARKETING 

INSTITUTE 

Mr.HAGAN. Good morning, Chairman Vela ́zquez and members of 

the Committee. 

I very much appreciate this opportunity to testify before the 

Committee about an issue of significant importance to all of its supermarket pharmacies, particularly those that are small businesses 

and the Medicaid beneficiaries that we serve. 

FMI is extremely concerned about basing reimbursement for prescription priced drugs on the artificial concept of AMP. We believe 

that this use of AMP in the way it has been implemented by CMS 

will cause severe hardships for pharmacies and Medicaid recipients 

alike. 

Associated Foods is a member owned cooperative based in Salt 

Lake City, Utah. In addition to the independent stores we serve, 

we own 21 stores and with three other wholesalers co-own the 

Western Family private label. Seventy-five of our stores across 

eight states and Guam have pharmacy operations. These pharmacies range in size from some locations filling as few as 70 prescriptions a day to larger that fill between four and 500. 

While some of our stores are located in large metropolitan areas, 

Associated Foods also includes stores with pharmacies in small 

towns, such as Twin Bridges, Montana, Kamas, Utah, and Raymond, Washington. Many of our stores in these small towns represent the only pharmacies available. 

Medicaid represents a little over ten percent of our business 

overall, but this figure jumps to more than 15 percent in many of 

our rural areas. Our generic percentage, currently is 61 percent of 

our prescriptions are filled with generic drugs. 

Pharmacy profit margins, particularly in the case of small supermarket pharmacies, are a small percentage of total store revenues 

and a far lower percentage than most other pharmacy retail businesses. The gross margin for associated food store pharmacy operations is in the range of 20 percent with net profits lower than two 

percent. 

A recent GAO study on this issue suggests that many pharmacies will lose money when AMP based FULs are implemented. 

Because pharmacy margins are razor thin, many pharmacies will 

not be able to sustain such losses and will either have to leave the 

program or go out of business. 

Most of the associated food stores with pharmacies are single 

store owned operations. These stores generally encounter the same 

per store expenses of the stores of larger chains, the same salaries 

for pharmacists, same liability and other insurance requirements, 

the same operating costs, but without the ability to minimize the 

losses imposed by AMP policies through economies of scale and better purchasing power of larger chains. 

31

The opinion on how the states and various private payers react 

to the implementation of AMP as a benchmark: my rough estimate 

is that this policy has the potential to decrease pharmacy margins 

by five to seven percentage points, which would cause many of the 

small stores represented by Associated Foods to lose money. 

Even if the damage is solely limited to Medicaid, this would be 

a devastating cut for retail pharmacy and could result in the failure of some of our small business members. 

Facing these cuts, Associated Foods’ pharmacies and other FMI 

may find it extremely difficult to serve Medicaid patients. This 

issue will only be compounded as states such as California seek to 

move to an AMP based payment for all prescription drugs that are 

not subject to the FUL and as other payers turn to AMP for their 

own purposes. 

Complicating the AMP problem is the fact that dispensing fees 

do not begin to cover the costs we incur when dispensing a Medicaid or, for that matter, any other prescription. By dictating that 

CMS use AMP for both the Medicaid rebate program and FUL for 

multiple source drugs, the Deficit Reduction Act left the agency 

with an almost impossible balancing act. 

We believe that CMS failed to adequate use its discretion to mitigate the severity of the problem. Our industry believes that the 

competing roles of AMP as currently defined can really never be 

successfully reconciled. 

To reconcile the AMP problem, we believe Congress needs to act 

in creating a separate benchmark for pharmacy reimbursement, 

separate from the calculations needed for Medicaid rebates. The 

use of this new benchmark would remove the need for some of the 

contortions CMS undertook in its proposed rule to balance the 

needs of pharmacies and drug manufacturers, and it would allow 

for a clear and accurate reimbursement metric without interfering 

with the Medicaid rebate program. 

While we believe that a division of the two sets of responsibilities 

currently assigned to AMP is most appropriate, if Congress decides 

not to undertake a change of this magnitude, Congress should at 

least take steps to mitigate the negative effect of the AMP policy 

on retail pharmacies. These steps can include a more accurate definition of the retail pharmacy class of trade that excludes from AMP 

rebates and discounts that simply are not available to us at retail 

pharmacy. 

This definition should exclude all mail order pricing, including 

PBM discounts to mail order, and all other entities such as hospitals and nursing homes that are not typical retail pharmacy. 

In conclusion, I appreciate the opportunity to testify on this important health care issue on behalf of the FMI members who operate in store pharmacies in their supermarket. We are hopeful that 

the House Small Business Committee and the Congress will act to 

address the potentially devastating cuts that retail pharmacy is 

now facing as a result of the changes to the Medicaid prescription 

reimbursement policies. 

I will be happy to answer any questions the Committee may 

have. 

[The prepared statement of Mr. Hagan may be found in the Appendix on page 69.]

32

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Hagan. 

Mr. Sewell, I would like to address my first question to you. I 

understand that independent community pharmacists get 92 percent of the revenue from prescription drug sales and tend to serve 

a higher proportion of Medicaid beneficiaries than all of the retail 

pharmacies. My question to you is with many community pharmacists working only within two or three percent profit margins, 

what will be the consequences if this new formula is implemented? 

Mr.SEWELL. The average community pharmacies’ net profit is 

under three percent right now, and when you translate that to dollars, it is about $128,000 is all you are able to eke out in the way 

of profit for a year. 

We are looking at a situation where almost all of that is going 

to disappear under this rule. You know, we deliver Medicaid services to such a higher percentage of Medicaid patients, and while 

the national average is about eight percent, we really are delivering right now about 16 percent in terms of our average store. 

That is how many Medicaid patients we are dealing with, 16 percent of our total business. 

So a disproportionate amount of the cuts are going to fall on our 

shoulders, and we are going to be first in line to go out of business. 

We are already going out of business because of Part D, and now 

we are going to see this added to that let of lows. 

ChairwomanVELA ́ ZQUEZ. Ms. Civello, given the numerous challenges with producing a stable and accurate AMP, what alternative 

benchmarks do you feel would be better suited for calculating Medicaid reimbursement fees? 

Mr.CIVELLO. And I am very happy to answer that. I would like 

to reflect on the question you asked Mr. Sewell first. 

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.CIVELLO. And clearly state that the National Association of 

Chain Drug Stores, the majority of our members have less than 50 

stores. So there is much serious concern on our members’ parts because we are all part of community pharmacy. 

In fact, the 92 percent number you mentioned at Kerr Drug is 

85 percent. So we’re like a bit independent. The average for al of 

NACDS is over 70 percent. It’s a serious issue for all of community 

pharmacy. 

In regard to your question what benchmark, you know, very 

clearly what we as an industry are prepared to step to the plate 

to do is accept reimbursement for the product cost that equates to 

what we pay. Now, there are a number of formulas that can be 

used. There’s a number of terms. WAC is a term, but I don’t think 

we should talk just about what might replace AMP. I think we 

need to talk about the fact that AMP is flawed and does not represent what we pay for the product. The industry, community pharmacy, is prepared to accept reimbursement at what we pay for the 

product. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Hagan, FMI estimates that supermarket pharmacies account 

for roughly 14 percent of all out-patient prescription drugs dispensed in the United States. It is anticipated that the percentage 

will increase over the next few years. 

33

How will the implementation of this rule impact small businesses 

in the supermarket industry? 

Mr.HAGAN. One of the things that I noted when doing the research for this testimony is, like I stated, that in our rural areas 

we have much higher percent of Medicaid prescriptions. In our 

rural areas we also tend to have lower prescription volumes than, 

say, our metro Seattle, metro Salt Lake stores, but yet we have the 

same fixed costs. So our labor percentage tends to run quite a bit 

higher in a rural area, and those are the people that are going to 

lose money, close the doors, or stop accepting first. 

And so the more that grows in the rural area, the faster that 

they are going to make some real decisions. 

ChairwomanVELA ́ ZQUEZ. Okay. Mr. Osterhaus, I really am interested in hearing directly from independent retail pharmacists. I 

want to ask you two questions. First, how will the new reimbursement formula impact your business? 

And, two, do you think that you will be able to continue to participate in the Medicaid program if the new formula is implemented? 

Mr.OSTERHAUS. Well, I do not think there is any question that 

implemented the way it is now, we would have to make a serious 

decision about what we can do to stay in business. As I said, 30 

percent of our patients have either Medicaid as a primary insurer 

or secondary insurer. So it affects a lot that we do every day. 

We are from a poor county, and it is just the way it is. I think 

the impact would be significant. I do not think that in my case in 

a town the size that I live in that I could really stay in business 

and not take care of Medicaid patients. I think in my heart these 

are the patients who need us more than anybody else, and I could 

not stay in business and turn people away. 

I mean, we are the only independent pharmacy in Maqueketa. So 

they would have no place else to go to see a pharmacist who takes 

the time to counsel them, to identify problems and solve problems. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

I will now recognize Mr. Shuler. 

Mr.SHULER. Madam Chair, thank you. 

And to the gentlemen, thank you for your testimony and, more 

importantly, thank you for your commitment to communities. Far 

too often I think we forget how much work and dedication our 

pharma system, what they mean to our community. I mean just in 

your testimony you talk about how many people really and truly, 

they have their doctors, but they certainly lean on their pharmacists a great deal on all of their problems and issues, and far 

too often we don’t tell you thanks enough, and so thank you for the 

pharmacists. 

And to Kerr Drugs, living in Bryson City, growing up there, obviously Kerr Drugs was our pharmacist, and that was the only pharmacist we’ve had for quite some time, and so you’ve really been a 

staple in our community. I commend you not only for the work that 

you do in the pharmacist, but sponsoring Little League programs 

and stuff like that, I think it goes a long way, and so I commend 

you and thank you. 

34

You know, Mr. Osterhaus has talked about how it is going to impact him, but from FMI, how will it affect you on the reimbursement side? 

And maybe some of the others of you, how is the reimbursement? 

Is it six weeks with you? Maybe having a little more leverage with 

the larger, more franchises. How is it impacting you? 

Because that has to be a tremendous amount. I mean, my local 

pharmacy, we spoke about this particular issue. He was to the 

point that not only was he banking with one bank, but he was 

banking with three just because of lines of credits to be able to run 

and operate his business. 

Mr.HAGAN. That is a very accurate observation, and I believe the 

lag time between filling a prescription and when you are reimbursed does vary between a number of insurers, but very accurate 

to say four to six weeks after you fill a prescription you will get 

the check. 

So there again it is the more business you do, the more exposure 

you have and we find that to be just exactly the same. 

Mr.SEWELL. If I might add, we have just done a study of all of 

independent pharmacy and sine the advent of Part D, we have now 

had to take out a credit line on average of $70,000, but for many 

of our pharmacies, it is in the hundreds of thousands of dollars. We 

are banking the program while the Part D plans, the PBMs are 

getting paid up front and sitting on that money because they have 

a vested interest in doing so, so that they can make interest on the 

float. 

That does not make any sense. 

Mr.SHULER. Mr. Civello. 

Mr.CIVELLO. Thank you, and thanks for your comment about 

Kerr Drug in Bryson City. I appreciate that. 

I think you need to understand what the days outstanding were 

with Medicaid prior to the dual eligibles went from Medicaid to 

Medicare, and it was anywhere between ten and 14 days. 

When you take that ten and 14 days and more than double it to 

30-plus days, it is a big number whether you are one or whether 

you are 100 stores. To Kerr Drug, we already have a credit line. 

There is $5 million more on that credit line because of that delay. 

It is significant dollars. It is costing our industry a lot of money, 

and it is not right because the government still pays in a timely 

fashion, seven to ten days. Where is the money for the other 20 

days?

Mr.SHULER. It is being floated, I guess. 

[Laughter.] 

Mr.SHULER. Well, thank you all for your testimony, and once 

again, on behalf of the Committee, thank your pharmacists and 

your staff for the hard work and dedication they do for our people. 

I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Braley. 

Mr.BRALEY. Mr. Shuler and I share the distinction of both having 

under performed in the recent congressional baseball game we 

claimed due to injuries we received before the game, but his comment about Little League baseball sponsorship took me back 40 

35

years to Brooklyn, Iowa when Crosson’s Rexall Drug had their 

name on the back of Little League baseball uniforms when I was 

growing up in a town of 1,500, and I think that type of story is 

what we really need to be talking about because we run the risk 

of losing the valuable role that many pharmacists play not just in 

taking care of patients, but in the role they play in making their 

communities a wonderful place to live and work. 

And, Mr. Civello, you made the comment that your comments 

have been heard but not understood, and that they have fallen on 

deaf ears. Well, I invite you to join the club. 

[Laughter.] 

Mr.BRALEY. On February 16th of 2007, I was proud to send a letter to Administrator Norwalk, along with 70 other members of 

Congress, asking on behalf of Medicaid beneficiaries and retail 

pharmacies in our districts and writing to express our deep concern 

about CMS’ proposed changes in the payment for prescription 

drugs in the Medicaid program and concluding with the request 

that the proposed payment formula would be devastating to many 

retail community pharmacies, Medicaid beneficiaries. 

And in response to that we got a classic nonresponse from the 

Administrator, and I received this copy on April 12th of 2007, and 

it gives you some sense of our frustration in dealing with the same 

issues you’re talking about. 

‘‘Dear Mr. Braley: 

‘‘Thank you for your letter on behalf of your constituents regarding the definition of average manufacturing price.’’

And then it goes on to recite what that means, and it concludes 

by saying, ‘‘A summary of the comments and our responses will be 

included in the final rule which we expect to publish by July 1st, 

2007. I appreciate you sharing your comments. I will also provide 

this response to the co-signers of your letter.’’

The letter itself did nothing to address the concerns raised by 70 

members of Congress. So if you think you are frustrated, join the 

party. 

I talked to you about the letter that 109 members of Congress 

signed as a response to this letter on May 18th of 2007. My staff 

and I have not received any response to that letter, despite the 

pending date of the release of the final rule. 

And then on July 11 of 2007, I wrote to the Administrator after 

the final rule is released asking for clarification about how the proposed Iowa plan that I mentioned was going to be impacted by all 

of this we are talking about. 

So we share your frustration, and we want to work with you because I can tell you based upon 109 signatures across the board on 

a bipartisan basis, people understand your concerns and we need 

to do more to help you. 

I want to start, Mr. Osterhaus, by asking you this question. We 

have talked a lot about the adverse impact on rural communities. 

Over ten percent of Iowa’s 1,066 pharmacies are in rural areas and 

are operated independently, and I assume your pharmacy fits both 

of those bills. 

Mr.OSTERHAUS. Yes. 

36

Mr.BRALEY. Can you tell us what in your opinion CMS should do 

to insure that access to drug care in rural communities is not jeopardized by this new reimbursement rule? 

Mr.OSTERHAUS. Well, I think my comments would stand that we 

need to have a fair reimbursement policy, and I think that as Mr. 

Mr. Civello said, I think pharmacy is ready to be transparent on 

the product cost side. But it is a two-headed animal. The fee has 

got to take care of the cost of what it takes to be in business. If 

we want to have community pharmacists on the ground being partners in this program to make the program both successful and efficient and of high quality, we need to have fair reimbursement. 

How they come about getting what really is acquisition price is 

one thing, but shoveling off to the states to let them decide what 

they are going to pay for a fee really splits this into two pieces that 

I think we are just looking for another problem. 

So I would certainly say that Mr. Hagan’s comment about taking 

a total different look at AMP with not bringing it into the rebate 

picture, which is a whole other rat’s nest that probably should not 

be part of our health care system to begin with, I think maybe 

makes some sense. But if we’re going to utilize what we call acquisition cost, it needs to be accurate, and if the only thing we have 

to go on is the GAO report, which says that did not happen. 

Mr.BRALEY. Madam Chairwoman, I see that my time has expired, but I just want to make this closing observation and join in 

Mr. Shuler’s comments about the tremendous benefit that we receive from the pharmacists and pharmacy employees that you all 

represent. 

When I was running for Congress, I spent a lot of time in December of ’05 and January and February of 2006 touring community 

pharmacies in my district, and I saw dedicated, committed individuals who were spending inordinate amounts of time, up to 80, 100 

hours a week, trying to make sure that the patients they served 

got the best information about the difficult choices they were being 

faced under Medicare D. 

I want to applaud everyone that you represent and please take 

back our best wishes and our thanks for the valuable service they 

provide and under very difficult circumstances. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Braley. 

And now I recognize Ms. Clarke. 

Ms.CLARKE. Thank you, Madam Chair. 

I just want to commend you and the Committee for really highlighting this issue. I want to thank our panelists for really bring 

to us in real time, you know, the absolute impact of this rule. 

Let me just say that I think it is imperative that we address this. 

This is a crisis upon a crisis upon a crisis not only for the delivery 

of pharmaceuticals in our communities. I think about the public 

health implications of it because we in the government have now 

put a huge obstacle in the way of our community’s receiving quality 

medications that are required to contain certain types of public 

health diseases and illnesses in addition to the wellness factor for 

our communities. It just compounds what we know is the challenge 

for most communities, be they rural or urban like mine. 

And so I want to thank you once again. The remedies, I think, 

are well spelled out in these gentlemen’s testimony here today, and 

37

I do not want to reiterate them. I want to thank you for being on 

the forefront and really driving home for us this impending crisis. 

And, Madam Chair, once again thank you and thank you to my 

colleagues as well. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Any other member wishing to make any other questions? 

No. Okay. So I want to thank all of you for coming here today. 

This we understand is an important issue, and you know, sometimes all of these federal agencies come here, they issue regulations, and then when we ask them if they consider other alternatives, well, you know, they put the blame on Congress. 

I want to say this. I know that this Committee does not have jurisdiction over this issue, but we do have jurisdiction over the Regulatory Flexibility Act, and we will continue to press upon CMS to 

refrain from implementing this rule until they have all the facts, 

all the data, and they really conduct an impact analysis on the adverse effect of this rule on small and community pharmacists. 

So with that I will ask unanimous consent that members have 

five legislative days to submit a statement for the record. Without 

objection, so ordered. 

And this hearing is now adjourned. 

[Whereupon, at 12:12 p.m., the Committee was adjourned.]

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