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S. HRG. 108–945 

OPTIONS FOR SAFE AND EFFECTIVE 

PRESCRIPTION DRUG IMPORTATION 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

MARCH 11, 2004 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on March 11, 2004 ............................................................................ 1 

Statement of Senator Breaux ................................................................................. 8 

Statement of Senator Cantwell .............................................................................. 43 

Statement of Senator Dorgan ................................................................................. 3 

Statement of Senator Hutchison ............................................................................ 9 

Statement of Senator Lautenberg .......................................................................... 5 

Statement of Senator Lott ...................................................................................... 4 

Statement of Senator McCain ................................................................................. 1 

Statement of Senator Snowe ................................................................................... 6 

Prepared statement .......................................................................................... 7 

Statement of Senator Wyden .................................................................................. 2 

Letter dated March 3, 2004 to Hon. Ron Wyden from Douglas HoltzEakin, Director, Congressional Budget Office ............................................ 39 

WITNESSES

Burton, Hon. Dan, U.S. Representative from Indiana ......................................... 10 

McClellan, Dr. Mark B., Commissioner of Food and Drugs, U.S. Food and 

Drug Administration (FDA) ................................................................................ 13 

Prepared statement .......................................................................................... 17 

Sanders, Hon. Bernard, U.S. Representative from Vermont ............................... 12 

(1) 

OPTIONS FOR SAFE AND EFFECTIVE 

PRESCRIPTION DRUG IMPORTATION 

THURSDAY, MARCH 11, 2004 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m. in Room SR– 

253, Russell Senate Office Building, Hon. John McCain, Chairman 

of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN MCCAIN, 

U.S. SENATOR FROM ARIZONA 

The CHAIRMAN. Good morning. This hearing focuses the Committee’s attention once again on drug importation, an issue we last addressed 5 months ago. At the time, the Committee didn’t have the 

benefit of Dr. Mark McClellan’s direct input on this very important 

issue. 

Today, Mr. McClellan appears before the Committee in his capacity as the Commissioner of the Food and Drug Administration. He’s 

also the President’s nominee to be the Administrator of the Centers 

for Medicare and Medicaid Services. And until late yesterday, he 

was the chair of the Task Force on Drug Importation that was recently formed by the Department of Health and Human Services. 

Dr. McClellan’s impressive credentials and his current roles and 

responsibilities suggest he is one of the most qualified individuals 

in the Administration to discuss the question of prescription drug 

importation from both the economic perspective and from the 

health and safety standpoint. Indeed, Dr. McClellan’s experience 

makes it all the more puzzling that he has, in the past, declined 

to testify before this Committee on drug importation, despite the 

fact that we have invited him repeatedly to do so. Considering Dr. 

McClellan’s professional and educational qualifications and his apparent willingness to discuss prescription drug importation in 

many, many other public forums, his absence from this Committee’s prior importation hearings has been troubling. 

The matter of prescription drug importation is a complicated one 

that requires the input of our Nation’s best minds. On the one 

hand, it’s imperative that we provide our citizens with access to affordable prescription drugs. On the other hand, we need to ensure 

the safety of our prescription drug supply. It’s a difficult balance, 

and I’ll be the first to say that the demand for lower prices should 

not lead us to sacrifice the health and safety of our citizens. That’s 

why any legislation that permits the freer importation of pharmaVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\76522.TXT JACKIE
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ceuticals must contain safeguards that protect American consumers 

from tainted or counterfeit prescription drugs. 

Achieving this balance is also why those who oppose importation 

must engage in this dialogue to tell us what additional or alternative safety measures they believe will work. Saying, ‘‘No, we 

won’t participate in the debate,’’ is unacceptable. 

Opponents of importation must come to the table with ideas of 

how to build an effective importation system that protects both the 

health and the pocketbooks of American consumers. We’re past the 

point of naysaying. It’s now time to engage. 

We look forward to engaging Dr. McClellan in this extremely important issue and hearing his ideas on how to establish and maintain a safe importation system. I hope we’ll enter today into a constructive discussion about how best to strike a balance between affordable prescription drug prices and a safe domestic and international prescription drug supply. 

I thank Dr. McClellan for agreeing to appear this morning, and 

I look forward to hearing his testimony. 

I think Senator Wyden was here next, and then Senator Dorgan 

and Senator Breaux. 

STATEMENT OF HON. RON WYDEN, 

U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. I appreciate your hearing. 

The Administration’s position on reimportation has always come 

down to just one issue. Their position has been, if you allow reimportation, you put seniors and consumers at risk and jeopardize 

their safety. There is not a single Member of Congress that wants 

to do that, and I think we’re all stipulating to that. 

But what is so unfortunate and detrimental to the public interest 

is, having taken that position, the Administration consistently 

stonewalls when Congress tries to get them to describe exactly how 

much it would cost to run a safety program and how that safety 

program would work. 

I want to make it clear to Dr. McClellan and others who are here 

today, that’s the question I’m going to ask him. What is it going 

to cost? How would such a program work? And I don’t think this 

Committee ought to leave this morning without getting an answer 

to that particular question. The Administration has gone round and 

round on the safety issue in the past. We don’t get to the bottom 

of it until they say, ‘‘This is what a safety program would cost. This 

is how it would work,’’ and then the Congress can figure out how 

to put it in place. 

Finally, Senator Snowe and I have introduced, I think, the only 

bipartisan bill in the Senate, the MEND Act that would focus on 

cost containment, improving the legislation that was enacted last 

November. It goes to the reimportation issue in particular, in that 

we remove the advertising tax deduction from companies who limit 

the sale of drugs to any country, because wholesalers or pharmacies are selling to Americans at a discount, and it seems to me 

that at a time when companies can increase sales by very slick consumer direct-to-consumer advertising, it seems to be a reasonable 

step to say that if you restrict supplies to a country because someVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\76522.TXT JACKIE
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body is selling it to Americans cheaper, then you ought to lose your 

advertising deduction here. 

I do believe it’s the only bipartisan comprehensive cost-containment bill that’s introduced in the Senate thus far, and I hope I’ll 

have a chance to work with my colleagues on this Committee on 

that, as well. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Dorgan? 

STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, thank you very much. 

I think there is some misunderstanding, among some at least, 

that this hearing has something to do with a nomination that has 

been to sent to the Congress for Dr. McClellan to become the Director of the Center for Medicare and Medicaid. It is not about that. 

That’s not what this hearing is about. 

Dr. McClellan has been the head of the FDA, has been requested 

by the Senate and the House to appear before Committees on—in 

this circumstance, on this Committee, he has been requested, on 

two occasions, over a number of months, to appear to discuss with 

us the very, very aggressive campaign being waged across this 

country with the issue of reimportation of prescription drugs. That 

campaign, which—and I have documents on it—that campaign has 

been a campaign of the type I have never seen before, trying to prevent the American people from accessing safe, FDA-approved prescription drugs from other countries, including Canada. And not 

only the U.S. Senate, but the U.S. House has requested Dr. McClellan to come and testify. He has refused. 

In fact, interestingly enough, the Governors Conference had a 

forum on this very issue in this room when the Governors were last 

in town. It was organized by Governor Pawlenty of Minnesota. 

They asked the FDA to be present. The FDA refused. And the 

FDA, in fact, sent a representative to another forum on the same 

day that seemed to fit the philosophical approach of the FDA. 

My mission is not to stop or start any nomination, or to block or 

to enhance nominations. My interest is to make sure that no one 

in this government decides that they can ignore the Congress when 

asked to testify, if, in fact, they aspire to hold a position of trust 

and responsibility. They have to be accountable for what they do. 

And I’m going to ask questions about the same kind of things Senator Wyden will ask. 

I believe, for example, as a representative of a state that is a 

neighboring adjunct to Canada, that a drugstore in Canada has 

about the same chain of custody as a drugstore in the United 

States with respect to prescription drugs. And I think it’s perfectly 

safe for a consumer to access the identical prescription drug—the 

same pill, put in the same bottle, made by the same company. It 

is perfectly safe for a consumer to be able to access that prescription drug from a pharmacy in Canada, for example. And yet the 

FDA has had this mission to try to prevent that from happening 

in almost every circumstance. 

4 

So I appreciate, Mr. Chairman, your holding this hearing. I think 

it’s important that we explore these questions, and I look very 

much forward to having the witnesses appear. 

The CHAIRMAN. Thank you. 

Senator Lott? 

STATEMENT OF HON. TRENT LOTT, 

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. Mr. Chairman, I don’t know how to delicately do 

this, but why are we having this hearing? 

The CHAIRMAN. We had asked Dr. McClellan, on two separate occasions, to appear before the Committee on the issue of drug reimportation. Dr. McClellan was unable to do so, and so we’ve asked 

him to appear again. And after some back and forth, we are very 

pleased that Dr. McClellan has agreed to appear before the Committee, and I have thanked him publicly and privately for doing so. 

As you know, he’s a nominee for a new position. But as Senator 

Dorgan mentioned, it’s not about his nomination for the new position; it’s about the issue of importation of drugs, because he’ll still 

be heavily involved in that issue in his new job. 

Senator LOTT. Well, let me make just two or three points. First 

of all, I think that he should testify before this Committee, or other 

Congressional committees with jurisdiction that he has involvement with, when he is requested to appear. And I don’t think this 

Administration, or any Administration, should refuse to do that. 

There is a tendency sometimes by various people to say, ‘‘No, we 

don’t want to come, so we’re not coming.’’ Well, we’ve got a job to 

do. We don’t do it very well. It’s called oversight and investigation. 

The CHAIRMAN. Right. 

Senator LOTT. And if we can’t get the right witnesses before us, 

we can’t do our job. And I’m highly offended when Administration 

officials have the temerity to say, ‘‘No, we’re not—thank you very 

much, we’re not coming.’’ So I think he ought to be here. I’m glad 

he’s here. 

Having said that, I think he’s an outstanding individual. I have 

not said anything on his nomination publicly. I think he’s done a 

great job at a very difficult agency, the FDA. I have generally considered it, you know, pretty much a lost cause. All of my dealings 

with FDA have pretty much been unhelpful and unfruitful and 

negative. And I think he’s moved in there and done a pretty good 

job with a tough agency, number one. And, number two, I don’t 

know why in the world he’d want to go where he’s going, because 

he’s got an even tougher job. 

But I’ve been very impressed with him. I remember one time we 

were having a meeting in one of the Capitol offices, and he was 

asked to comment, and he commented, and after it was over, I, not 

knowing who he was, I said, ‘‘Who is that? That guy really knows 

his subject matter.’’ And he’s a very brilliant person, and I think 

he’ll make an excellent choice. 

I hope we can have this hearing, ask the right questions, move 

his nomination forward. This is an agency that obviously needs 

strong leadership. And we dumped even more difficulty on his back 

last year with the Medicare and prescription drug bill. And CMS 

needs leadership. So I hope we’ll do that. 

5 

Having said that, one final point. I have always been hesitant to 

support importation, or reimportation, of drugs because I was concerned about how it would work. I was concerned, legitimately, I 

believe, about safety. How do we make sure that it’s not a placebo 

or that it’s, you know, something different from what we’re told? 

And I’ve made that point. But I also have told the pharmaceutical 

industry that they have a growing problem. The cost of prescription 

drugs is getting unbearable, and I cannot explain to my mother 

any longer why she should pay twice or two-thirds more than what 

they pay in Canada or Mexico for the same drugs. I can’t do it anymore. 

And I’ve warned the industry for years, ‘‘Fix this problem. Because if you don’t, we will, and we’re probably going to mess it up.’’ 

This is still America, and my attitude is, if you want to go across 

the border or if you want to order, by some other forum, a drug 

and take the chance of it being not what you’re told it is, and cause 

health problems, my attitude is, go to it. It’s kind of like eating a 

cheeseburger. 

[Laughter.] 

Senator LOTT. If I want to eat a cheeseburger and gain weight, 

I ought to have that dang right. 

But I am now in a position where I’m switching my position. I 

cannot any longer defend a position that would say to people, ‘‘You 

can’t get drugs from—that are unfairly, in my opinion, cheaper in 

Canada and Mexico.’’ 

So I wanted to be here to make the point, Administration witnesses must appear. Number two, I really hope we can confirm this 

guy. Number three, when the next vote comes, I’m switching my 

vote on the importation of drugs. 

The CHAIRMAN. Thank you very much, Senator Lott. 

Senator Lautenberg? 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thanks, Mr. Chairman. 

I’d like to second the criticism of the lack of willingness of Dr. 

McClellan to appear in the past. I had a discussion with him, a 

chance to meet him, and I think we are—I hope that we’re past 

that reluctance. He is a man who knows a great deal about the 

subject, and he ought to be more than willing to come here and 

present it, present his views. 

But we are holding this hearing because there’s one thing that 

we should have done on the prescription drug bill last year, something we haven’t done, and that is examine Medicare, expand the 

Medicare to include a prescription drug benefit, and then be able 

to use the enormous bargaining power by the Federal Government 

to negotiate price discounts based on volume, not unlike the ability 

that the VA has to negotiate with the companies. It’s outrageous 

that we should hold the population that large hostage to—I don’t 

want to say created reasons; that suggests something that might 

not be there, but we have to get to the bottom of this and find out 

why it is that all of the funds for research and development can 

be spent here, and yet the profits of these companies are so incredibly high. 

6 

All Americans are affected by the high cost of prescription drugs. 

Look at—nearly 14 million seniors have no insurance at all. That 

includes prescription drugs. So they pay the full freight. Drug 

prices increasing 15 percent in 2001—seven straight years, doubledigit increases. Seniors, working-class Americans are forced to 

make impossible choices between the medication that they need, 

and food and shelter. And, like others here, I’m concerned that the 

prices can be so much lower, 37 percent lower, in Canada for the 

same prescription drugs sold here in the States. And we see the 

same thing in the European countries, and it’s not right, and we 

can’t explain it satisfactorily to the citizens of our country why it 

is that drugs are 30, 40, 50 percent cheaper in Europe and other 

places. 

So what’s going on here is that these countries are free riders. 

They benefit from new drugs, while they leave American consumers to bear the financial burden of developing and testing these 

drugs. 

But reimportation can carry a risk, even if it’s limited to Canada, 

and there are real safety concerns that I hope this Congress and 

the Administration can work out. So let’s not squander another opportunity, as we did last year, on last year’s medical bill. 

Thanks, Mr. Chairman. 

The CHAIRMAN. Senator Snowe? 

STATEMENT OF HON. OLYMPIA J. SNOWE, 

U.S. SENATOR FROM MAINE 

Senator SNOWE. Very briefly, Mr. Chairman. First, I’d like to include my entire statement in the record. 

I had the opportunity, on Monday, to question Dr. McClellan in 

his potentially new position as Administrator of CMS, and urged 

him to appear before this Committee to answer these questions, because I think, obviously, it is critical that we establish a framework 

for allowing the safe importation of drugs. And if there are concerns regarding safety, then obviously I think that we can take the 

steps to mitigate those issues. 

Clearly, there are many ways within a counterfeiting mechanism 

to establish safe prescription drugs—they’re doing it with pharmacists and wholesalers. And I think that we can take the necessary steps to give this access to affordable medications to all 

Americans. Importation isn’t the problem; it is the solution. So 

hopefully today, as a result of this hearing, we will be able to establish the mechanisms and the steps necessary to go forward in 

addressing this issue expeditiously in the Congress. 

I know that Dr. McClellan indicated, in response to questions on 

Monday, that he certainly is—you know, could potentially have reimportation limited to the scope and types of drugs that are imported. So we ought to explore those issues here today. What steps, 

what resources, what authority is essential in order to make this 

happen? 

I believe we should have a proactive approach to developing this 

legislation. I think certainly there are avenues and provisions that 

could make this done, acceptable and easier, and to account for the 

safety certification required under law. And I know the legislation 

that you have introduced, Mr. Chairman, with Senator Dorgan, 

7 

takes those steps. I think it would fall within the framework of the 

issues and the answers that were provided by Dr. McClellan on 

Monday. Those are the issues that we ought to explore so that we 

can do something that almost two-thirds of the American people 

favor. One in eight households have already been importing medications from Canada. 

So I think that the time has come, not only for Congress, but also 

for the agencies, to remove the barriers, not tell us, you know, how 

it can’t be done, but to tell us how it can be done so we can get 

this accomplished on behalf of the American people. 

The issue concerning prescription drug coverage was one development that was positive for America’s seniors. The other issue is the 

cost and affordability. We also have an equal obligation to address 

the cost and affordability. And that’s why Senator Wyden and I 

have introduced our legislation, because that is the other side of 

the equation that also has to be explored as aggressively as possible. So while we do have the benefit, if we mitigate the value of 

that benefit because of skyrocketing costs of medication, and we 

deny the American people the ability to have access to imported 

medications that I think will offer a measure of competition to prescription drug prices, then I think that we have failed to do our 

jobs. So hopefully this will be a step forward in the process of getting something done now. Not in the long term; it can be done now. 

We have done anti-counterfeiting measures very successfully with 

the $20 bill; it has been a hallmark of success and creativity and 

technology. We know we can get this accomplished. So I hope that 

this hearing will move us forward in addressing this issue. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Snowe follows:] 

PREPARED STATEMENT OF HON. OLYMPIA J. SNOWE, U.S. SENATOR FROM MAINE

Good morning. I would like to thank Chairman McCain for holding this hearing 

so we can discuss with Dr. McClellan the critical issue of drug importation. We 

heard earlier this week from Dr. McClellan in the Finance Committee where we 

considered his nomination to Administrator of the Centers for Medicare and Medicaid Services. I appreciate Dr. McClellan for being with us here today. Both at the 

FDA and at CMS, the role of drugs in promoting health is an essential aspect of 

the job. 

Prescription drugs not only save lives but they improve the quality of life for 

Americans and people throughout the world. Unfortunately for too many Americans, 

obtaining their medication may be no less an ordeal than their illness. 

At the crux of the issue before us is the debate over the safety of the importation 

of prescription drugs. An ABC News-Washington Post poll found that seventy percent of Americans favor t h e personal importation of prescription drugs, despite the 

inconveniences they encounter. Seniors take trips which may be uncomfortable and 

arduous just to purchase affordable medications. Why? Because they too often cannot afford the cost of their medications in the U.S. 

Americans pay a far higher cost for their prescription drugs than do citizens in 

other industrialized nations, where despite comparable wealth, the cost of prescription drugs is a small fraction of that in the U.S. Industry argues this disparity is 

essential to fund industry research. If the developed world must pay higher prices 

for drugs to support industry research, this financial burden should be shared more 

equitably. 

We’re told that importation can’t be done, that it isn’t safe. Yet one in eight American households already use imported prescription drugs. It’s astounding to me that 

the FDA has devoted so much effort to telling Americans not to trust imported 

drugs—even from Canada—where Dr. McClellan has cited a safe system is in place. 

But he says the FDA is unable to assure us of the safety of imported drugs. 

8 

Well, I want to work with Dr. McClellan—and those at the FDA—in ensuring that 

we can provide a good assurance of safety. We can improve safety. Not just our imported drugs but also domestically. For a few pennies, anti-counterfeiting packaging 

can be used. We use it on a twenty dollar bill. A lifesaving prescription deserves 

no less. Drug manufacturers can also track their products using a ‘‘pedigree’’. This 

provides tracking of where a drug comes from, and who’s handled it. Using little 

more than a barcode and an Internet connection, a counterfeit lot of drugs could be 

identified immediately. We want to see a chain of custody—a ‘‘pedigree’’—for prescription drugs for imported and domestic drugs. 

You would also think the FDA would be working hard to improve safety—both 

at home and abroad. Prescription drugs are a global commodity. You would think 

we would have been working together by now—it’s been months since the Washington Post series last year first showed us that counterfeiting was occurring—right 

here in the U.S. But instead the FDA has been working against American consumers in failing to tell us what we can do to promote safe importation. 

It’s time to work together to find answers. The FDA needs to work domestically 

with HHS and Customs, and internationally to ensure the safety of our prescription 

drugs. Most of all we need you, Dr. McClellan, and your colleagues to work with 

us. Drug importation isn’t the problem, but one of a number of solutions to obtaining affordable drugs. 

I look forward to exploring this issue today. Thank you again, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Breaux? 

STATEMENT OF HON. JOHN B. BREAUX, 

U.S. SENATOR FROM LOUISIANA 

Senator BREAUX. Thank you, Mr. Chairman. 

I’m certainly glad to learn that this hearing has nothing to do 

with Dr. McClellan’s confirmation. You sure had me fooled. 

[Laughter.] 

Senator BREAUX. But I’m glad to know that it’s not. I think Dr. 

McClellan is clearly one of the most exquisitely qualified people 

that have been nominated for this position since we’ve had the position in existence. This is a person who, unfortunately, graduated 

from the University of Texas. 

But, other than that—— 

[Laughter.] 

Senator BREAUX.—Harvard Kennedy School degree in government, Harvard Medical School cum laude medical degree, a Massachusetts Institute of Technology degree in economics, a person who 

brings a long history of bipartisan service to this position, serving 

both in the Clinton Administration as a policy advisor, as well as 

serving with great distinction as the Commissioner of the Food and 

Drug Administration. That is a unique set of qualifications to run 

the Center for Medicare and Medicaid, and CMS. And we are fortunate to have a person of this caliber nominated. 

He testified before the Committee that is charged with confirming his nomination, the Finance Committee. We asked questions, we got answers in a bipartisan fashion. Every single member 

voted for his confirmation, other than two. 

He testified, in addition, according to press reports—and I was 

there, something I didn’t agree with, in particular—said, ‘‘Medicare 

Nominee Backs Drug Imports,’’ were the headlines in the New 

York Times following his testimony before the Finance Committee 

on this very issue that we’re talking about this morning. He said, 

at that hearing—the report said that he would work with Congress, 

in a bipartisan fashion, to try and assure the safety of prescription 

9 

drugs being imported from Canada, and work on legislation to accomplish that. He said the way to do it is give the FDA more 

money, more personnel, more power to police the imports, and he 

was going to work with them. In addition to that, the Secretary of 

HHS, Secretary Thompson, has called for a study to be done. He’s 

appointed a group to look at how to do it. 

Now, people who come before the Congress can’t do what the law 

says they cannot do. The law says you cannot import drugs unless 

we can prove they’re safe. The Clinton Administration said, ‘‘We 

can’t do that.’’ This Administration said, ‘‘We can’t do that.’’ And 

yet some would say that they would like the person in charge of 

the program to do what the law says they cannot do, and that is 

impossible. If he did that, then he couldn’t be confirmed, shouldn’t 

be confirmed. He has to go according to what the law says. 

One of the reasons—and finally—is I think that we have such an 

issue on trying to find a solution to the cost of prescription drugs 

is because of the situation we’ve found ourselves in since 1965. 

Seniors don’t complain about the high cost of doctors, in particular, 

or the high cost of hospitalization. Clearly, if you went to Mexico 

or Canada, you could get a doctor to treat you cheaper than in the 

United States. Clearly, if you went to Mexico or Canada, you could 

get a hospital to serve you cheaper than you can in the United 

States. The seniors don’t complain about that. Why? Because they 

have insurance that covers both doctors and hospitals. And now, 

for the first time, at the passage and signing of the Medicare bill, 

seniors in this country will have the same advantages that they 

have in hospitals and doctors, insurance, because they will have insurance for the first time that will cover the cost of prescription 

drugs. And I think that will go a very long way to easing the pressure on seniors saying, ‘‘We can’t afford drugs, we can’t afford prescriptions, we’ve got go to another country to buy them, even 

though we don’t know and can’t guarantee that they’re safe.’’ 

That is a terribly unfortunate situation for our government to 

say that we’re going to solve your problem by letting you go to another country. That’s not the way to solve it, and it’s not what this 

Medicare bill does. It provides insurance, and I think that’s the 

way to solve the problem. 

Thank you. 

The CHAIRMAN. Senator Hutchison? 

STATEMENT OF HON. KAY BAILEY HUTCHISON, 

U.S. SENATOR FROM TEXAS 

Senator HUTCHISON. I thank you, Mr. Chairman. 

Mr. Chairman, I appreciate Senator Breaux’s acknowledgment of 

the superior education of Dr. McClellan, and I will just expand on 

that and say he did learn to read in Texas. 

[Laughter.] 

Senator HUTCHISON. And he read what the Food, Drug and Cosmetics Act requires the FDA to do, and it reads that it is to ensure 

the safety and effectiveness of all prescription drugs marketed and 

sold in the United States. And he took that to be his responsibility, 

and he has carried out that mission superbly. 

I think it is important for us to have a hearing to talk about how 

we can bring down the cost of drugs. But I think that we are takVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76522.TXT JACKIE
10 

ing the exact right approach in assuring safety first, and, at the 

same time, because of the Medicare Reform Act that we have just 

passed, we are beginning to ease the burden on seniors, who have 

huge problems with medical bills, by giving them drug benefits and 

options. 

I am very pleased that Dr. McClellan is here. I hope he will have 

a fair hearing, because he is one of the smartest people I’ve ever 

met. I’ve had conversations with him about his view of medicine 

and medical research and the preeminence of America, and the importance of keeping the preeminence of America in research and 

creativity and trying to find the new drugs that will make life better and longer for our citizens. I think he’s to be commended for 

taking on an even tougher job than the one he will be leaving, if 

he is confirmed, and that is to oversee the dramatic overhaul of the 

Medicare system that Congress has put forward. 

So I want to say that I am pleased that he is going to appear 

here. I hope he will get a fair shake and that his voice will be 

heard in a responsible forum. And I think it will be. And I very 

much hope that we will not rush—or force the rushing—into reimportation of drugs without doing all of the necessary studies that 

would be required, and studies that would show the effects of reimportation of drugs until we have all of the system in place to assure safety. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

I’d like to welcome two of our colleagues from the House who 

have joined us who have both been deeply involved in this issue, 

Congressman Sanders and Congressman Burton. And you both 

look very old. We usually start with the oldest. I’m not sure—— 

[Laughter.] 

The CHAIRMAN.—I’m not sure who is older, so we’ll start with 

Congressman Burton, who I think is older by time in the House, 

isn’t that right? 

Mr. BURTON. Yes, but I’m much younger, Mr. Chairman. 

The CHAIRMAN. Thank you. Congressman Burton, welcome to 

both you and Congressman Sanders, and thank you for taking the 

time. I would ask you to be as brief as possible, because we have 

a series of votes on the floor. I’m sure you understand that. 

Thank you, Congressman. Chairman Burton, welcome. 

STATEMENT OF HON. DAN BURTON, 

U.S. REPRESENTATIVE FROM INDIANA 

Mr. BURTON. Mr. Chairman, first of all let me start off by saying 

that the House has passed the reimportation bill by large majorities, not once, but twice. And we’ve done a lot of hearings on this 

subject. 

Every year, well over a million seniors and others go across the 

border to Canada, or through the Internet, and they purchase their 

pharmaceuticals, and they save hundreds and thousands of dollars 

in prescription drug costs. As many as 25 Governors and many 

mayors across this country are trying to do the same thing for their 

state and local employees because they have budgetary crises and 

they know that they can save tens of millions of dollars if they buy 

their pharmaceutical products from Canada. 

11 

The second thing I’d like to say is that several organizations from 

across the country have shown ways that this could be done safely. 

There’s a lot of technology that’s been used and can be used. And 

I think Olympia Snowe, Senator Snowe, mentioned that. The technology used to stop the counterfeiting of the twenty-dollar bill can 

be used to make sure that these pharmaceuticals are safe. 

Nanochips can be used to make sure these pharmaceuticals are 

safe. And pharmaceuticals have been purchased in a safe way 

across the borders for some time. 

We had four hearings on this subject, and we had Assistant Secretary Hubbard come and testify before our Committee. And we 

asked him, time and again, to give us any examples of where people have been harmed by the pharmaceutical products they have 

bought in Canada. And we’re talking about well over a million citizens that have done this every year. We asked him, on three separate occasions, at three separate hearings. He could not give us one 

example, not one, where people were harmed from pharmaceutical 

products purchased in Canada. 

Now, let me talk just a minute about Mr. McClellan. We asked 

him to appear I don’t know how many times before our Committee. 

Not only would he not appear before the Committee, he would not 

return our phone calls. Now, I understand he’s academically qualified. He’s a brilliant man, make no mistake about it. We all know 

that. And I think he can do a very good job. And I’m not here in 

any way to criticize his confirmation to this position. But I think 

it’s extremely important that anybody in any Administration in a 

position of leadership should appear before the Congress of the 

United States when requested. It’s extremely important, because 

we represent hundreds of thousands and millions of people across 

this country. 

The CHAIRMAN. How many times did you ask? 

Mr. BURTON. We asked him many times. I can’t tell you how 

many times. But during the time we were asking him to appear, 

Mr. Chairman, he gave 18 speeches around the country, some to 

pharmaceutical groups, like PhRMA. And during those speeches, 

he talked about the reimportation issue to them, but he wouldn’t 

do it to the Congress of the United States, the people that represent this country. And I think that’s unfortunate. 

So I’d just like to say today—and I know that time is limited, 

and I’ve cut my statement very short—we had hearings on this in 

the House, we’ve done extensive research on it in the House, it’s 

passed the House twice, overwhelmingly. Reimportation can be 

very safe. There’s technology that ensures safety. Millions of people 

have been doing it safely without any problems. The FDA can’t find 

any examples of problems. 

And so I’d just like to say that I hope Dr. McClellan, in the future, will comply with requests from Congress to come and testify, 

because it’s important. I think you’ve stated that, Mr. Chairman. 

And, second, I think it’s extremely important that the American 

people have an opportunity to purchase pharmaceuticals at a fair 

price. 

Let me give you one example. My wife had breast cancer. It is 

an absolute epidemic among women in this country. In Canada, 

Tamoxifen, the drug of choice, costs up to seven times less than it 

12 

does in America. Now, why should an American woman who’s suffering from breast cancer, who may die from it, not be able to get 

pharmaceutical products that will save her life at a price very close 

to what they do in Canada and Europe? It just isn’t fair. 

And, with that, Mr. Chairman, let me just say I hope Dr. McClellan will get the message from you and from the House that we 

would like to work with him, but we hope he testifies, when necessary, in the future. 

The CHAIRMAN. Thank you very much, Chairman Burton, and 

thank you for coming over today. 

Congressman Sanders? 

STATEMENT OF HON. BERNARD SANDERS, 

U.S. REPRESENTATIVE FROM VERMONT 

Mr. SANDERS. Thank you, Mr. Chairman, for holding this important hearing. And thank you, Senator Dorgan, and all of you who 

are working so hard to end the disgrace of the American people 

being forced to pay, by far, the highest prices in the world for prescription drugs. 

And I concur with Senator Lott and others, who believe that any 

member of the Administration, in any party, should come before 

Congress to defend what he or she is doing. And it is not acceptable, to Mr. Burton or myself or Members of the House, that Commissioner McClellan has not done that. I am glad that is here 

today. 

The crisis—one of the major crises in healthcare today—is the 

fact that millions of Americans are seeing a deterioration in their 

health, and, in some cases, are dying because they cannot afford to 

pay the outrageously high cost of prescription drugs in this country. And the Congress of the United States has a right to know, 

at a time when, year after year, the pharmaceutical industry is the 

most profitable industry in America, at a time when the pharmaceutical industry has over 600 well-paid lobbyists descending on 

Congress, at a time when the pharmaceutical industry has spent 

hundreds of millions of dollars in the last few years forcing Americans to pay sky-high prices for prescription drugs. They have a 

right to know why Commissioner McClellan, time after time after 

time, has stood with the pharmaceutical industry, worked hand-inglove with them to frighten the American people about purchasing 

safe and affordable medicine in Canada and in other countries. 

Mr. Burton is absolutely right when he says that, in the House, 

in strong, bipartisan, tripartisan support, we passed legislation 

that says that prescription drug distributors and pharmacists and 

individuals—and already in America there are well over a million 

Americans who are doing this today—have a right to purchase 

medicine in those countries which are safe and where they can get 

it at a substantially lower price. 

Mr. Chairman, this is a healthcare issue. I would hope that 

somebody asks Dr. McClellan how many Americans are dying 

today because they can’t afford the medicine they need, and how 

many will suffer if he and the Administration are successful in cutting the lines for safe and affordable medicine. 

I would respectfully disagree with Mr. Breaux, who believes that 

the problem is solved with the prescription drug bill recently 

13 

passed. Consumers Union has reminded us that because the pharmaceutical industry was able to inject, in that bill, language which 

prohibits the government from negotiating for lower prices, one 

year after the implementation of that bill in 2007, the average senior will be paying more out of his or her pocket for prescription 

drugs than they are today. 

Now, the good news is that, from what we read briefly in the 

paper, I think in response to a question from Senator Grassley, Dr. 

McClellan indicated that he would be willing to work with Congress to develop a safe reimportation program. I would urge the 

Senators to ask for a great deal of specificity in what that program 

is about. As somebody who introduced legislation dealing with Canada, what we know is that, given the power of the pharmaceutical 

industry, they can sabotage any agreement that you come up with, 

unless you do not put very, very clear language in there addressing 

such issues as a nondiscrimination provision to ensure that drug 

manufacturers cannot get around the law by manipulating the supply of prescription drugs. We already know that the major drug 

companies are trying to hold back drugs from Canada. 

So I would hope that you ask Commissioner McClellan, who is 

now ascending, or wants to ascend, to a very important position, 

hard questions, and hopefully he will come around and work with 

us so that Americans can receive world-class medicine at the same 

prices the rest of the world are paying. 

Thank you very much, Senator. 

The CHAIRMAN. Thank you very much. 

I thank both our colleagues for taking the time and coming over 

and slumming on this side of the Capitol. 

[Laughter.] 

The CHAIRMAN. I appreciate it very much. Thank you. 

We’d like to welcome Dr. McClellan. Dr. McClellan, thank you for 

your patience, and thank you for your agreement to testify before 

this Committee. We’d now like to hear any opening statement that 

you might have. 

Thank you. 

STATEMENT OF DR. MARK B. MCCLELLAN, COMMISSIONER OF 

FOOD AND DRUGS, U.S. FOOD AND DRUG ADMINISTRATION 

(FDA) 

Dr. MCCLELLAN. Thank you, Mr. Chairman and Members of the 

Committee. I appreciate the opportunity to testify regarding the 

cost of prescription drugs and issues related to proposals to legalize 

importation of prescription drugs into the United States. 

Millions of Americans are rightly worried that today more effective drugs are available than ever before, and there’s the hope of 

even better drugs and cures to come, but they won’t benefit, because they can’t afford the high costs. It has gotten to the point 

where millions of Americans feel that they have to choose between 

safety and effectiveness and affordability of their drugs by skipping 

needed doses, cutting pills, or purchasing unproven drugs from outside the security of FDA’s proven regulatory system. 

We’re at a critical time. It’s a time when, on the one hand, the 

problems of keeping modern medicine affordable are greater than 

ever, but, on the other hand, we have major new legislation and 

14 

new opportunities to help Americans lead longer and healthier 

lives. For seniors and persons with disabilities, many of the best 

new opportunities to lower prices and lower costs and to improve 

quality of care are the result of the major Medicare legislation, 

which I hope and expect to start providing assistance with drug 

costs right away. But we also need to carefully examine proposals 

on drug importation and many other ideas, to find even more ways 

to bring modern, safe medical care to Americans at the lowest possible cost. 

It’s easy to understand why more and more people feel like they 

have no choice but to purchase unapproved imported drugs. Americans without coverage, who walk into a pharmacy and pay list 

price are facing much higher prices for brand-name drugs in the 

United States than in Canada, France, or any other country, for 

that matter. Americans now pay half of all costs of prescription 

drugs worldwide, even though we account for a much smaller share 

of prescription drug use around the world. 

For many Americans who are left on their own when it comes to 

prescription drugs, who don’t have good coverage that gives them 

the benefit of negotiated lower prices, the only alternative to high 

prices seems to be buying cheap medicines from outside the country. 

Drug affordability is a serious problem, and there are many 

things that we are doing and should be doing about it. But under 

our laws, FDA has been required, for more than 60 years, to assure 

that drugs are safe, because Congress concluded that you can’t simply assume drugs are safe, and it wrote that into the law. Under 

our laws, drugs must be demonstrated to be safe and effective to 

be legal. No assumptions allowed, by law. 

Other developed countries have similar laws. And when you walk 

into a drugstore in Canada that serves Canadians, you can be very 

confident that you’re getting a product that is safe and effective. 

But that’s very different from buying drugs internationally, outside 

of our regulatory protections, from storefronts or websites that 

don’t serve Canadians, but that are designed to make a profit on 

Americans. As Health Canada and other foreign regulatory authorities have told us, assuring the safety of drugs for Americans 

is beyond their responsibilities. 

FDA works hard to inspect many legitimate manufacturing facilities selling drugs to Americans through legitimate FDA-regulated 

channels, including facilities located in the United States and 

abroad. But we have neither the legal authority, nor the resources, 

to assure the safety of drugs from outside the Federal and state 

system of regulating drugs. And we’ve seen many serious safety 

problems. 

We’ve released several reports in the past year with our partners 

in border security at the Bureau of Customs and Border Protection 

that found numerous imported drugs that were improperly labeled, 

improperly stored, or, even more worrisome, that were controlled 

substances or drugs like Accutane that present special risks if they 

don’t have proper physician and pharmacist risk management. 

We’ve seen many websites that advertise controlled substances and 

even more dangerous drugs without a proper prescription, putting 

patients at risk of misuse and abuse. We’ve seen websites that purVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76522.TXT JACKIE
15 

port to provide FDA-approved drugs, or purport to provide Canadian drugs, but do not. We’ve seen counterfeit drugs. Just recently, 

we worked to shut down a website that was purporting to sell 

FDA-approved and European drugs, but was really shipping worthless products from India. 

We’ve tried to work with Canadian authorities so that Americans 

can be assured of notification in the event that their drugs are recalled in Canada. This happened with some important asthma 

medicines a few months. But there is still no such system in place. 

Now, it would be nice to be able to assure that some of these 

websites are really safe, but our professional staff and our partners 

in pharmaceutical regulation know from years of experience that 

you can’t just assume safety. And so it’s not surprising that these 

websites carry legal disclaimers. But FDA can’t do that. Legal 

drugs in this country don’t carry buyer-beware disclaimers, because 

legal drugs must be demonstrated to be safe and effective. Not only 

that, but the Canadian Internet pharmacies themselves have said 

that they cannot reliably provide large supplies of safe and effective drugs to cities or states or many other Americans. 

On the important subject of drug safety and affordability, I appreciate the views of groups like the AARP, which understand that 

FDA cannot assure safety under current law, and believe that importation should be legalized only if FDA receives the new authorities and resources it needs to assure safety. 

In an effort to move beyond just declaring imported drugs to be 

legal, without assuring that they’re safe, Congress and the Medicare law has directed HHS to answer the right questions about importation. How and under what circumstances can the safety of imported drugs be assured, and what would be the consequences for 

drug prices and patient health? 

We are taking this Congressional mandate very seriously. We recently announced a task force to answer these key questions. The 

task force will hear from a wide variety of healthcare stakeholders 

and the general public to come up with conclusions for Congress on 

these key questions about whether and how importation can be 

done safely and what its consequences would be. 

I believe that when we move past rhetoric to a scientific objective 

analysis, bipartisan progress is possible, and the public wins. After 

9/11 and through the first half of 2002, in response to recognition 

that the threats to our foods had increased, we worked, in a bipartisan fashion with Congress, to review the evidence on whether 

there were gaps in the safety and security of our food imports, and 

how they could be addressed. As a result, Congress, with leadership from its authorizing committees, passed bipartisan legislation 

that gives us an unprecedented ability to protect our food imports 

from deliberate or accidental attempts to contaminate them, while 

still encouraging safe imports. 

As a result of this bipartisan legislation, FDA has boosted its 

food-security activities at the border substantially, with literally 

hundreds of new inspectors and support staff, supported by hundreds of millions of dollars in new food safety and security funding. 

And that staff is backed up with new legal authority. For the first 

time, we are being notified in advance of essentially all commercial 

food shipments ahead of time to allow us to target our efforts to 

16 

the riskiest products before they enter the country. For the highestrisk foods regulated by USDA, meats and poultry, the resources 

and international authorities go even further. We can have confidence in imported meats because USDA has the authority and 

ability to trace products reliably to their source, to inspect those 

plants for compliance with USDA regulations. So thanks to bipartisan action by Congress to find effective ways to assure safety, we 

have enhanced abilities to take action to prevent the ability of 

foods to come into this country that are unsafe. 

We have nothing like these authorities and resources for assuring that entire new classes of imported drugs are safe, such as 

drugs that are similar to FDA-approved drugs, while protecting 

Americans from those who would profit by exploiting any weaknesses in our drug safety and security system. 

We are going to be working hard, with help from the public, to 

answer these questions about whether and how importation could 

work best, and whether large-scale savings would be possible. But 

we’re not waiting. We will continue to use all the authorities and 

resources we do have now, under the law, to improve both drug affordability and drug safety. 

Looking around the country, there are many better, proven ways 

to help control drug costs, ways that don’t sacrifice safety under 

current law, ways that have been actually demonstrated to work, 

ways that can be legally implemented right now. Many states have 

already taken innovative steps in recent years to help bring drug 

costs under control while working to deliver higher quality care. 

And it’s clear that there are still many opportunities to deliver 

lower-cost drug benefits without compromising safety and quality. 

For example, at FDA we’ve made a priority of helping Americans 

substitute generic drugs for the brand-name equivalent. It’s a costeffective way of achieving 50 to 70 percent savings in drug costs. 

FDA has stronger, larger programs in place than ever to make sure 

that generic drugs are just as safe and effective, and we’re implementing new regulations and other reforms to make that as soon 

as legitimate drug patents expire, we have broad generic competition. 

As a result of these recent steps by the FDA, generic drug prices 

in the United States are just about the lowest in the world—on average, 20 percent lower than in Canada for the ten most popular 

generics, and half as much, on average, as in Italy and Germany 

for unbranded generics. 

Today, generic prescriptions have increased to 55 percent of all 

prescriptions. But good drug plans that help educate patients and 

providers about generics can get that share up even higher, to 60 

or 65 percent. And today most states are still spending about 7 or 

8 percent of their Medicaid budgets for higher-cost brand-name 

drugs that have low-cost generic alternatives, according to data 

from CMS. 

There are many other proven legal steps that we can take to cut 

drug costs right now, including disease management and pharmacy 

programs, and steps to prevent errors and costly medical complications through electronic technologies, like FDA’s new requirement 

for bar codes on medicines. We owe it to patients, today and tomorrow, to make our medical future brighter, healthier, and more afVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76522.TXT JACKIE
17 

fordable than ever. FDA’s scientists, doctors, and healthcare experts remain dedicated to this critical public-health goal, while protecting us all from bad medicine. 

Thank you for listening to my opening statement. I’d be happy 

to answer any questions that you all have. 

[The prepared statement of Dr. McClellan follows:] 

PREPARED STATEMENT OF DR. MARK B. MCCLELLAN, COMMISSIONER OF FOOD AND

DRUGS, U.S. FOOD AND DRUG ADMINISTRATION (FDA) 

Introduction 

Mr. Chairman and Members of the Committee, I am Dr. Mark B. McClellan, Commissioner of Food and Drugs at the U.S. Food and Drug Administration (FDA). I 

appreciate the opportunity to testify regarding the cost of prescription drugs and the 

issues relating to proposals to legalize importation of prescription drugs into the 

United States. 

At FDA, our statutory responsibility is to assure the American public that the 

drug supply is safe, secure, and reliable. For more than 60 years, the Food, Drug, 

and Cosmetic Act has ensured that Americans can be confident that, when they use 

an FDA-approved drug, the medicine will be safe and effective and will work as intended in treating their illness and preventing complications. In carrying out this 

responsibility, FDA also works to do all we can under the law to make medicines 

accessible and helping doctors and patients use them as effectively as possible, 

through such steps as expanding access to generic medicines, reducing the time and 

cost of showing that new medicines are safe and effective, and providing up-to-date 

information for health professionals and patients to obtain the benefits and avoid 

the risks associated with powerful medicines. That is my primary mission and that 

is the primary mission of the thousands of dedicated staff, including leading health 

care experts, doctors, economists and scientists who work tirelessly at FDA in public 

service for the American people. In this role, I, like many of my predecessors before 

me, have raised substantial concerns about unapproved, imported pharmaceuticals 

whose safety and effectiveness cannot be assured because they are outside the legal 

structure and regulatory resources provided by Congress. I have also taken steps 

within the law to improve the availability of affordable medicines and reduce drug 

costs, without compromising safety. In my testimony today I look forward to having 

the opportunity to engage in a constructive dialogue about the issue of importing 

prescription drugs as well as discussing steps to provide greater access to more affordable prescription medications. 

Reducing Drug Costs 

FDA shares with Congress its great concern for senior citizens and other patients 

who have difficulty paying for prescription drugs. That is why the Administration 

worked with Congress to enact the new Medicare prescription drug law. And that 

is why at FDA, I have made it a priority for the Agency medical and scientific experts to establish and expand programs that promote access to innovative treatments to help Americans live healthier lives and assure that Americans have access 

to medications and treatments that they can afford. 

FDA has taken a number of significant steps to provide greater access to affordable prescription medications, including unprecedented steps to lower drug costs by 

helping to speed the development and approval of low-cost generic drugs after legitimate patents have expired on branded drugs. Generic drugs typically cost 50 to 70 

percent less than their brand-name counterparts. On June 18, 2003, FDA published 

a final rule to improve access to generic drugs and lower prescription drug costs for 

millions of Americans. These changes will save Americans over $35 billion in drug 

costs over the next 10 years, and will also provide billions in savings for the Medicare and Medicaid programs. I was pleased that elements of this rule were codified 

as part of the Medicare law and that, with FDA’s technical assistance, the law 

added additional mechanisms to enhance generic competition in the marketplace. 

In addition, last year the Administration supported and Congress enacted an increase of $8 million for FDA’s generic drug program, the largest infusion of resources into this program ever. This increase in the generic drug budget enables 

FDA to hire additional expert staff to review generic drug applications more quickly 

and initiate targeted research to expand the range of generic drugs available to consumers. Improvements in the efficiency of review procedures have led to significant 

reductions in approval times for generic drugs since 2002, and consequently will 

18 

save consumers billions more by generally reducing the time for developing generic 

drugs and making them available. 

The Agency has also taken steps to help improve the development process to help 

lower the high cost of developing new drugs. In particular, FDA is continuing to improve the methods by which assistance and advice is provided to sponsors regarding 

what we believe are the best approaches to develop new therapies and maximize the 

prospects for swift FDA approval. These ongoing efforts are designed to provide 

sponsors with the best possible information and thus increase the efficiency of the 

development process. We expect that reforms in drug and biologic manufacturing requirements should help reduce manufacturing costs by 20 percent. FDA has identified several priority disease areas, such as cancer, diabetes and obesity, and new 

technologies including gene therapy, pharmacogenomics and novel drug delivery systems that are good candidates for efforts to clarify regulatory pathways and clinical 

endpoints. 

FDA is also working to prevent adverse events through new rules that would require bar coding for drugs and better ways to track adverse events automatically 

with the goal of preventing billions of dollars in unnecessary health care costs each 

year. FDA’s final rule requiring bar coding of drug is estimated to have net economic benefits of approximately $3.5 billion per year. Avoiding such preventable 

medical complications will also help reduce health care costs, while enhancing quality and safety. In addition, the Agency is striving to promote electronic prescribing, 

to improve quality and reduce prescription costs as well. 

Importation Of Prescription Drugs 

Sixty-five years ago, Congress responded to widespread instances of unsafe drugs 

by directing FDA to create a system for assuring that Americans have a drug supply 

they can trust will not harm them. Over forty years ago, Congress required that 

legal drugs be proven to be effective as well, because modern medicines—when they 

are produced, distributed, prescribed, and used properly—should not only be safe 

but also should prevent the many complications and side effects of diseases. More 

recently, in 1988, Congress enacted the Prescription Drug Marketing Act (PDMA) 

to establish additional safeguards to prevent substandard, ineffective, or counterfeit 

drugs from entering the U.S. Under PDMA, it is illegal for anyone other than the 

drug’s original manufacturer to re-import a prescription drug into the U.S. that was 

manufactured in the U.S. This law was enacted with strong bipartisan support because of high-profile cases of unsafe and ineffective drugs entering the United 

States in large volumes. In one instance, over 2 million unapproved and potentially 

unsafe and ineffective Ovulen-21 ‘‘birth control’’ tablets from Panama were distributed throughout the U.S. In another case, a counterfeit version of Ceclor, a widely 

used antibiotic at the time, found its way into the U.S. drug distribution from a foreign source. Over the years, FDA’s dedicated professional staff has employed PDMA 

and other authorities to build a drug safety infrastructure to ensure that Americans 

enjoy the highest-quality drug supply in the world. 

Unfortunately, the drug supply is under unprecedented attack from a variety of 

increasingly sophisticated threats. This is evident in the recent significant increase 

in efforts to introduce counterfeit drugs into the U.S. market. FDA has seen its 

number of counterfeit drug investigations increase four-fold since the late 1990s. Although counterfeiting was once a rare event, we are increasingly seeing large supplies of counterfeit versions of finished drugs being manufactured and distributed 

by well-funded and elaborately organized networks. At the same time, inadequately 

regulated foreign Internet sites have also become portals for unsafe and illegal 

drugs. For example, FDA recently worked with domestic and international authorities to shut down a website that was advertising ‘‘FDA-approved’’ and safe ‘‘European’’ birth control pills and other drugs, but was actually responsible for importing 

ineffective, counterfeit drugs. Evidence strongly suggests that the volume of these 

foreign drug importations is increasing steadily, presenting an increasingly difficult 

challenge for Agency field personnel at ports-of-entry, mail facilities, and international courier hubs, and our laboratory analysts and border and law enforcement 

partners. 

FDA is doing its best to use its limited international authorities and resources to 

stop the increasing flow of violative drugs into this country, but the task is 

daunting. Each day, thousands of individual packages containing prescription drugs 

are imported illegally into the U.S. FDA’s Office of Regulatory Affairs has inspectors 

who work in the field who perform investigational work pertaining to imported prescription drugs, a job that is not limited to inspections at ports of entry. 

19 

Safety Concerns Relating To Importation 

FDA remains concerned about the public health implications of unapproved prescription drugs from entities seeking to profit by getting around U.S. legal standards for drug safety and effectiveness. Many drugs obtained from foreign sources 

that either purport to be or appear to be the same as U.S.-approved prescription 

drugs are, in fact, of unknown quality. Consumers are exposed to a number of potential risks when they purchase drugs from foreign sources or from sources that 

are not operated by pharmacies properly licensed under state pharmacy laws. These 

outlets may dispense expired, subpotent, contaminated or counterfeit product, the 

wrong or a contraindicated product, an incorrect dose, or medication unaccompanied 

by adequate directions for use. The labeling of the drug may not be in English and 

therefore important information regarding dosage and side effects may not be available to the consumer. The drugs may not have been packaged and stored under appropriate conditions to prevent against degradation, and there is no assurance that 

these products were manufactured under current good manufacturing practice 

standards. When consumers take such medications, they face risks of dangerous 

drug interactions and/or of suffering adverse events, some of which can be life 

threatening. More commonly, if the drugs are subpotent or ineffective, they may suffer complications from the illnesses that their prescriptions were intended to treat, 

without ever knowing the true cause. 

Patients also are at greater risk because there is no certainty about what they 

are getting when they purchase some of these drugs. Although some purchasers of 

drugs from foreign sources may receive genuine product, others may unknowingly 

buy counterfeit copies that contain only inert ingredients, legitimate drugs that are 

outdated and have been diverted to unscrupulous resellers, or dangerous sub-potent 

or super-potent products that were improperly manufactured. Furthermore, in the 

case of foreign-based sources, if a consumer has an adverse drug reaction or any 

other problem, the consumer may have little or no recourse either because the operator of the pharmacy often is not known, or the physical location of the seller is 

unknown or beyond the consumer’s reach. FDA has only limited ability to take action against these foreign operators. 

The Agency has responded to the challenge of importation by employing a riskbased enforcement strategy to target our existing enforcement resources effectively 

in the face of multiple priorities, including homeland security, food safety and counterfeit drugs. However, this system as it works today is already overwhelmed by the 

number of incoming packages, and this presents a significant ongoing challenge for 

the Agency. 

Recent spot examinations of mail shipments of foreign drugs to U.S. consumers 

revealed that these shipments often contain dangerous or unapproved drugs that 

pose potentially serious safety problems. In 2003, inspectors found that the majority 

of the packages examined in these ‘‘blitzes’’ contained illegal, unapproved drugs. 

Last summer, FDA and CBP conducted blitz examinations on mail shipments at the 

Miami and New York (JFK) mail facilities in July, and the San Francisco and Carson, California, mail facilities in August. In each location, the agencies examined 

packages shipped by international mail over a 3-day time span. Of the 1,153 shipments examined, the overwhelming majority (1,019 packages, or 88 percent) contained unapproved drugs. The drugs arrived from many countries. For example, 16 

percent entered the U.S. from Canada; 14 percent were from India; 14 percent came 

from Thailand, and 8 percent were shipped from the Philippines. 

A second series of import blitz exams, conducted in November 2003, also revealed 

potentially dangerous, illegally imported drug shipments. Of the 3,375 products examined, 2,256 or 69 percent were violative. FDA found recalled drugs, drugs requiring special storage conditions and controlled substances. These blitz exams were 

performed at the Buffalo, Dallas, Chicago and Seattle international mail facilities 

and, for the first time, the private courier hubs at Memphis and Cincinnati. Canadian parcels appeared most frequently (80 percent of the mail parcels), while 16 percent were from Mexico, and the remaining 4 percent came from Japan, the Netherlands, Taiwan, Thailand and the United Kingdom. 

Examples of the potentially hazardous products encountered during the exams include: 

• Unapproved drugs such as (1) alti-azathioprine an immunosupressant drug that 

can cause severe bone marrow depression and can be associated with an increased risk of infection and cancer development; and (2) human growth hormone, which can have serious side effects if used inappropriately or in excessive 

doses. 

20 

• Controlled substances—FDA and Customs found over 25 different controlled 

substances were found, including Diazepam; Xanax; Codeine; Valium, 

Lorazepam, Clonazepam and anabolic steroids. 

• Drugs withdrawn from the U.S. market for safety reasons such as Buscapina, 

which appears to be the drug dipyrone, removed from the market in 1977 due 

to reports of association with agranulocytosis—a sometimes fatal blood disease. 

• Improperly packaged drugs shipped loose in sandwich bags, tissue paper or envelopes. 

• Animal drugs not approved for human use such as Clenbuterol, a drug approved for the treatment of horses but also known as a substance of abuse in 

the ‘‘body building’’ community and banned by the International Olympic Committee. 

• Potentially recalled drugs—American consumers were sent Serevent Diskus and 

Flovent Diskus medicines from Canada for the treatment of asthma. Shortly 

after the blitz, certain lots of the Canadian versions of these drugs were recalled 

in Canada. 

• Drugs requiring risk management and/or restricted distribution programs—For 

example, Canadian-manufactured isotretinoin, which in the U.S. is subject to a 

stringent risk management plan, under which prescribers are required to 

screen, educate and monitor patients to avoid certain serious risks such as birth 

defects. 

• Drugs with inadequate labeling such as those with missing dosage information 

or labeling that is not in English. 

But its not just the FDA that has identified both legal and safety concerns about 

importation of prescription drugs, so have many other professional regulators, including State pharmacy boards and most recently courts. On November 6, 2003, 

Federal District Court Judge Claire V. Eagan, U.S. District Court for the Northern 

District of Oklahoma, issued a decision in United States v. RX Depot, Inc. and RX 

of Canada LLC, granting a preliminary injunction to immediately prevent these defendants who operate business that import prescription drugs from Canada, because 

such unapproved drugs were a clear violation of the Federal Food Drug and Cosmetic Act. In addition to her unequivocal findings of law, the Judge concluded that 

these companies could not assure the safety of the drugs they have been importing 

and, as a result, in violating the law have put Americans at serious risk. The Judge 

concluded that ‘‘unapproved prescription drugs and drugs imported from foreign 

countries by someone other than the U.S. manufacturer does not have the same assurance of safety and efficacy as drugs regulated by the Food and Drug Administration.’’ She continues: ‘‘Because the drugs are not subject to FDA oversight and are 

not continuously under the custody of a U.S. manufacturer or authorized distributor, their quality is less predictable than drugs obtained in the United States.’’ 

Recent State Actions 

Despite this ruling and the concerns raised by the Agency, recently, several governors and mayors have proposed to create systems whereby their employees and/ 

or constituents could be directed to Canadian pharmacies for purchasing Canadian 

drugs. FDA has spoken with a number of such officials about our concerns, and 

many have declined to proceed and have turned to other legal, proven ways to safely 

reduce drug costs. However, some states and localities, including the State of Minnesota and the State of Wisconsin have proceeded to establish state run websites 

linking citizens to entities dispensing drugs purportedly from Canada. 

Recent research by the state of Minnesota pointed out significant problems related 

to purchasing non-FDA approved pharmaceuticals from foreign Internet pharmacies. 

Even Canadian pharmacies that participate in the Canadian Internet Pharmacy Association were observed engaging in problematic practices during a single, voluntary, pre-announced ‘‘visit’’ by Minnesota State officials. Minnesota state health 

officials noted dozens of safety problems, such as: 

(1) several pharmacies used unsupervised technicians, not trained pharmacists, 

to enter medication orders and to try to clarify prescription questions; 

(2) one pharmacy had its pharmacists review 100 new prescriptions or 300 refill 

prescriptions per hour, a volume so high that it would have been impossible to 

assure safety; 

(3) one pharmacy failed to label its products, instead it shipped the labels unattached in the same shipping container, even to patients who received multiple 

medications in one shipment; and 

21 

(4) drugs requiring refrigeration were being shipped un-refrigerated with no evidence that the products would remain stable. 

At least one of the Canadian pharmacies visited by Minnesota health officials dispensed many drugs that apparently were not even of Canadian origin, and many 

of the drugs were obtained from prescriptions that had been written and rewritten 

across multiple Canadian provinces. These types of systematic safety problems, 

which appear to be a common way of doing business, would generally be clear regulatory violations that would not be tolerated under the comprehensive system of 

Federal and state regulation of drug safety in the United States. 

Drug Counterfeiting 

In addition, counterfeiting of prescription drugs is a growing global concern. In 

fact, counterfeiting of drugs is commonplace in many countries. In the United 

States, counterfeiting of drugs has been kept to a minimum because of our extensive 

system of laws, regulations, and enforcement by Federal and state authorities. As 

a result, Americans have a high degree of confidence in the drugs they obtain from 

their local pharmacy. In recent years, however, the FDA has seen growing evidence 

of efforts by increasingly well-organized counterfeiters, backed by increasingly sophisticated technologies and criminal operations, intent on profiting from drug counterfeiting at the expense of American patients. 

To respond to this emerging threat, FDA convened a Counterfeit Drug Task Force 

that received extensive comment and ideas from security experts, Federal and state 

law enforcement officials, technology developers, manufacturers, wholesalers, retailers, consumer groups, and the general public. Based on these comments, on February 18, 2004, FDA issued a report that contains specific steps that can be taken 

now and in the future to protect consumers from counterfeit drugs and secure the 

U.S. drug supply chain. 

The report’s framework describes how to strengthen our drug safety assurances 

against modern counterfeit threats through a multilayered strategy that includes 

modern anti-counterfeiting technologies. Promising developments such as ‘‘track and 

trace’’ technologies that cannot be faked like a paper drug pedigree, and verification 

technologies built not only into tamper-resistant drug packaging but also into the 

drugs themselves will make our job of verifying the legitimacy of drug products 

much easier. FDA is working to speed the availability of these anti-counterfeiting 

technologies, but these technologies have not yet been proven, and they are intended 

to complement and reinforce an underlying system for assuring the safety and effectiveness of prescription drugs. 

Thus, anti-counterfeiting technologies hold great promise for strengthening our 

legal drug distribution system, but to be effective they must be used in conjunction 

with effective legal authorities. 

International Drug Prices 

As millions of Americans without good prescription drug coverage experience 

every day, the ‘‘list prices’’ they face for patented drugs when they walk into a drug 

store in the United States can be much higher than the price of drugs sold abroad. 

But these price differences do not result from a comparative advantage in the production of such goods abroad. Foreign ‘‘list’’ prices are lower in part because of price 

controls in foreign countries. While drug prices in the U.S. can be much lower than 

‘‘list’’ for Americans with good drug insurance, in Canada, the Patented Medicine 

Price Review Board (PMPRB) limits both initial prices and price increases of patented medicines through a variety of ‘‘tests.’’ Price controls at the provincial level 

also constrain prices. 

Studies of patented drug prices often ignore how competition in the U.S. today, 

building on the measures described above to improve access and competition in generic drugs, effectively lowers generic drug prices so that many are far lower than 

drug prices abroad. Generic drugs comprise over half of all U.S. prescriptions, a 

much higher percentage than in most other countries. Furthermore, low generic 

prices are fully compatible with strong incentives for research and development of 

new drug products, because generics are allowed in the U.S. only after patents expire. The U.S. policy has meant that patent law and competition, not price controls, 

are the primary mechanism by which to affect incentives for innovation. 

Competition in the U.S. has provided U.S. consumers with some of the lowest 

priced generic drugs in the world. For example, recent studies examined the prices 

for seven drugs that are the biggest selling chronic-use drugs for which the first 

U.S. entry of a generic version occurred in the last ten years (alprazolam, 

clonazepam, enalapril, fluoxetine, lisinopril, metformin, and metoprolol). Five of the 

seven U.S. generic drugs were found to be significantly cheaper than the generic 

version of the same drug available in Canada. Five of the same seven generics were 

22 

also more expensive in Australia than in the United States, with some prices being 

many times greater than the comparable U.S. price. 

Many countries could do more to encourage innovation in health care by changing 

the way their dollars are being spent, to get more value for their citizens. First, 

most countries need more competition when it comes to generic drugs, which should 

be made available quickly and used more widely and at lower prices as soon as legitimate drug patents expire. Regulation of generics should not restrict prices and 

choices; it should focus on promoting free and fair generic drug competition, including lower prices for patients that use generic drugs. The bottom line is that it can 

be possible to redirect billions of dollars in drug spending, through greater use of 

less expensive generic drugs, permitting greater financial rewards for developing 

and providing access to valuable new drugs quickly. This approach encourages innovation without spending more money. If the savings from more competitive generic 

prices and wider use of generic drugs are applied to providing better rewards for 

innovative new drugs, this approach could reduce the inequities in new drug prices 

across countries, while improving the global incentives to develop better drugs. 

The international community has started making progress toward greater fairness 

in drug pricing, with the potential to reduce the excessive burden on American consumers, who currently pay about half of all drug costs worldwide. For example, an 

agreement under TRIPS last year will make very low-cost medicines available to developing countries for urgent public health threats, such as AIDS. In conjunction 

with this agreement, many developed nations agreed not to ‘‘re-import’’ these low 

cost medicines, in recognition of the fact that the price of medicines in a country 

should reflect that country’s ability to pay. The United Kingdom and France are also 

taking steps toward increasing payments for innovative new medicines. The fact 

that significant savings are possible in other developed countries from greater use 

and more competition involving generic drugs means that it is possible to achieve 

fairer new drug prices worldwide with less burden on American consumers, without 

other countries having to spend more. 

Importation Proposals 

At a time when FDA faces more challenges than ever in keeping America’s supply 

of prescription drugs safe and secure, legislation to liberalize drug importation without providing concomitant enhancements in FDA’s authorities and resources to assure the safety of these imports could seriously compromise the safety and effectiveness of our drug supply. The volume of importation that could result from enactment of these bills could overwhelm our already heavily burdened regulatory system. In general, these bills fail to provide FDA with adequate authority or resources 

to establish and regulate the major new ‘‘legal’’ channels for incoming foreign 

drugs—manufactured, distributed, labeled, and handled outside of our regulatory 

system—or even to ensure their safety. Some of these proposals would even limit 

FDA’s existing authorities, which are already being stretched. They would impose 

unprecedented restrictions on FDA’s ability to inspect and test drugs, and FDA’s authority to block the distribution of drugs we think are unsafe. 

Today, FDA drug approvals are manufacturer-specific, product-specific, and include many requirements relating to the product, such as manufacturing location, 

formulation, source and specifications of active ingredients, processing methods, 

manufacturing controls, container/closure system, and appearance. Under section 

801 of the FD&C Act, only manufacturers may import drugs into the U.S. The drugs 

must be produced in FDA inspected facilities. These facilities and the drugs produced in them are currently covered by the U.S. regulatory system, and it is legal 

to import these drugs. But legislation allowing pharmacies or consumers to import 

drugs directly from foreign sources would bypass the protections provided by FDA’s 

drug approval process and by state regulation of firms that dispense drugs within 

their jurisdictions. 

Some drug importation legislation would limit imports to only those drugs that 

are FDA-approved and made in FDA-inspected facilities, where the legislation states 

that it is limited to drugs that comply with sections 501 (adulteration), 502 (misbranding) and 505 (marketing approval) of the FD&C Act. However, this approach 

fails to provide resources, authorities, or the procedural framework necessary for 

FDA to assure such compliance. As a practical consequence, the Agency would be 

forced in many instances to rely on visual examinations of incoming drug packages 

to determine whether a drug is FDA-approved and in compliance with the FD&C 

Act. A visual inspection, however, is not nearly sufficient to verify whether these 

drugs are FDA-approved, manufactured in FDA-inspected facilities or in compliance 

with the adulteration and misbranding provisions of the FD&C Act. This is no substitute for the existing FDA regulatory process, which tracks prescription from the 

acquisition of active and inactive ingredients to on-site inspection of manufacturing 

23 

and distribution facilities, with documentation of appropriate product testing and 

handling. 

Even if a manufacturer has FDA approval for a drug, a version produced for foreign markets usually does not meet all of the requirements of the FDA approval, 

and is thus considered to be unapproved. Even if a drug bound for a foreign market 

is produced in the same plant as a similar drug approved for the U.S. market, FDA 

is not able to track that drug in foreign commerce before it enters the U.S. Consequently, it is difficult for the Agency to determine that a drug appearing at a U.S. 

border is in fact the one produced in the FDA-inspected plant, pursuant to FDA approval. Clearly, there are many foreign Internet operators, counterfeiters, and others who are already showing they are willing and able to take advantages of weaknesses in our drug security system. Taken together, these practical problems mean 

that simply declaring that only drugs ‘‘equivalent’’ to FDA-approved drugs are legal 

to import fails to provide consumers with safety protections, because the declaration 

is not accompanied by the resources and authorities needed to achieve the intent 

of the law while protecting the U.S. drug supply. 

I want to be clear that our objections to legislative proposals that would create 

large, legal channels for drugs to enter our drug supply without assurances of safety 

are based on concerns that they will create substantial drug safety problems without clear, large-scale, long-term benefits. I have particularly raised concerns about 

legislative proposals that would create such channels by weakening our existing 

safety protections rather than providing the necessary resources or additional authorities to enable the Agency to assure drug safety and security. Furthermore, our 

economic experts as well as many others have raised concerns about the limitations 

of potential longer-term benefits and savings that could be realized from imported 

drugs. The Congressional Budget Office has estimated that the savings from even 

broad, multiple-country importation proposals would be smaller than can be obtained through the generic drug reforms that Congress and FDA are in the process 

of implementing now. Even the Canadian Internet pharmacy operators have said 

that they cannot provide safe drugs for Americans on a large scale. These are important concerns, but that does not mean—and I have repeatedly said this—that we 

are opposed to undertaking a thorough effort to determine whether and how importation could be accomplished safely. But this cannot be accomplished by fiat or with 

a presumption of safety. 

Recently, we have been dealing with the first case of BSE infective cow in the 

United States—a cow that came down from Canada and was diagnosed as having 

a BSE infection. In response to this public health risk, we have in place a multilayered safety approach that includes numerous firewalls to protect the U.S. consumer from being exposed to infected product. As a result of these firewalls (which, 

using our significant authorities for imported food safety, we just recently enhanced 

further) the risk of getting vCJD is extremely low. Even so, there are many who 

support continuing to prohibit or ban the importation of beef from Canada and other 

countries where BSE infections have occurred. Yet, some have argued for legalizing 

drug importation in a situation where we don’t even have all of these firewalls in 

place. This is problematic. 

Today, in part thanks to laws recently passed by Congress to ensure the safety 

of imported foods from the threat of a bioterrorist attack, we have specific authorities to protect our imported food supply, including authorities to detain such foods, 

require importers to register with the FDA, require adequate record-keeping and 

prior notification of incoming shipments. When it comes to beef, we go further to 

restrict entry points and USDA inspection facilities as well as employ animal health 

protections as needed to assure safety. And yet, when it comes to drug importation, 

we do not have these types of authorities. 

Some Members of Congress are working on the difficult challenge of identifying 

the resources and authorities necessary to assure safety for certain types of imported drugs. This is a much more constructive approach than simply declaring imported drugs to be legal or restricting FDA’s authorities to keep the U.S. drug supply safe. To help determine whether and what specific authorities and resources 

would provide for the safe importation of drugs, the conference report of the new 

Medicare law gave the Secretary of Health and Human Services specified requirements for a study of drug importation. Among these requirements, the conference 

report asked the Secretary to ‘‘identify the limitations, including limitations in resources and in current legal authorities, that may inhibit the Secretary’s ability to 

certify the safety of imported drugs’’ and to ‘‘estimate agency resources, including 

additional field personnel, needed to adequately inspect the current amount of pharmaceuticals entering the country.’’ 

24 

Medicare Importation Study and Task Force 

Last year, when Congress enacted the new Medicare prescription drug law, it recognized these safety issues and included language that required that the Secretary 

certify the safety of prescription drugs prior to authorizing their importation. At the 

same time, Congress directed the Department to conduct a comprehensive study and 

prepare a report to Congress on whether and how importation could be accomplished in a manner that assures safety. The Department is currently working on 

that analysis and has created an intergovernmental task force to steer this effort 

to completion by the Congressional deadline later this year. 

The taskforce will include representatives from FDA, the Centers for Medicare 

and Medicaid Services (CMS), Customs and Border Protection (CBP), and the Drug 

Enforcement Administration (DEA). The taskforce will bring together a wide variety 

of healthcare stakeholders to discuss the risks, benefits and other key implications 

of the importation of drugs into the U.S., and to offer recommendations to the Secretary on how to best address this issue in order to advance the public health. The 

statutory language and the conference report provide detailed, comprehensive requirements for the importation study. 

As an integral part of the study process, FDA will open a docket for public comment and will hold a series of meetings to gather information and viewpoints from 

consumer groups, healthcare professionals, health care purchasers, industry representatives and international trade experts. Based on its experience with past 

major legislation on safety issues related to foods and drugs, the Agency believes 

this process affords Congress and the Administration an opportunity to fully address 

the complex public health, economic and legal questions in order to make appropriate and effective recommendations about importation of prescription drugs and 

the associated fundamental changes to the Federal Food and Drug Act and in safety 

resources that may be required. 

Conclusion 

The standards for drug review and approval in the U.S. are the best in the world, 

and the safety of our drug supply mirrors these high standards. The employees of 

FDA constantly strive to maintain these high standards. However, a growing number of Americans are obtaining prescription medications from foreign sources. U.S. 

consumers often seek out Canadian suppliers, sources that purport to be Canadian, 

or other foreign sources that they believe to be reliable. While some foreign drug 

manufacturers submit their products to FDA for approval, the imported drugs arriving through the mail, through private express couriers, or by passengers arriving 

at ports of entry are often unapproved drugs that may not be subject to any reliable 

regulatory oversight. FDA cannot assure the safety of drugs purchased from such 

sources. 

The vigilance of FDA and BCBP inspectors is an important tool in detecting imported products that violate the FD&C Act. Given the available resources and competing priorities facing these agencies, however, experience shows that inspectors 

are unable to visually examine many of the parcels containing prescription drug 

products that arrive through the mail and private courier services each day. The 

growing volume of unapproved imported drugs, which often are generated from 

sales via the Internet, presents a formidable challenge. 

FDA firmly believes that we can and should do a much better job of making safe 

and innovative drugs more affordable in the United States, but to succeed we need 

to find safe and affordable solutions that, when implemented, do not put consumers 

at risk. We appreciate and support the bipartisan commitment to making drugs 

more affordable for seniors and other consumers and are working hard to achieve 

the goals of safety and affordability. We believe that Americans should not have to 

settle for less. 

As you know, the President has announced my nomination to head the Centers 

for Medicare and Medicaid Services at this critical time—a time when, on the one 

hand, the problems of keeping modern medicine affordable are greater than ever, 

but on the other hand, we have new legislation and new cures in development that 

give us more opportunities than ever to help Americans lead longer and healthier 

lives. We all agree more needs to be done to continue to address the high cost of 

prescription medicines. 

But we must be cautious and deliberate as we consider proposals to accomplish 

this goal. I urge Members to ensure that any changes do not require American citizens to give up the ‘‘gold standard’’ in drug safety that has become a hallmark in 

this country. FDA’s scientists, doctors, health care experts and regulators must be 

empowered to protect us from bad medicine. We owe it to patients today and tomorrow to make our medical future brighter, healthier and more affordable than ever. 

25 

Thank you for the opportunity to testify. I look forward to responding to any questions you may have. 

The CHAIRMAN. Thank you very much, Dr. McClellan. 

Time magazine is not known as a particularly right-wing or leftwing outfit. They did a very extensive cover story not long ago. Let 

me tell you what Time magazine said, quote, ‘‘While there is no 

doubt that counterfeit and adulterated medicines, some potentially 

injurious, possibly even lethal, are sold over the Internet by unscrupulous vendors, a Time investigation suggests the FDA’s actions against Canadian imports have been part of a concerted campaign to simultaneously discredit its counterpart agency in Canada, provoke fear among American consumers who buy their drugs 

there, blunt an exploding political movement among local and state 

governments to begin wholesale drug buys in Canada, and ultimately preserve the inflated prices charged to U.S. consumers and 

taxpayers.’’ 

That’s from Time magazine. I think it’s very interesting. They 

start out with an article Senator Snowe probably would be interested in about Helen Clark, of Kennebunkport, Maine, who has to 

go to Canada because she can’t afford prescription drugs without 

it. And I think that many of the seniors in my state who have to 

go to Mexico, if asked whether they’d rather go without a prescription drug because they can’t afford it or go to Mexico and take a 

chance, I think most of them would rather go to Mexico and take 

a chance. 

So we’re talking about the cost of prescription drugs, as well, and 

the incredible influence of PhRMA, the Pharmaceutical Research 

and Manufacturers of America. Now, incredibly, to me, in the 

Medicare prescription drug bill was a provision that required Medicare not to negotiate—prohibited them from negotiating—with a 

drug company for lower prices. Did you support that provision of 

the bill? 

Dr. MCCLELLAN. I didn’t negotiate the bill. I have answered 

questions about what I would do in implementing the bill, and I 

do think there are a lot of provisions in the bill that let Medicare 

get drug prices down for seniors, just like people—— 

The CHAIRMAN. On that—— 

Dr. MCCLELLAN.—who are Federal—— 

The CHAIRMAN. On that—— 

Dr. MCCLELLAN.—employees today get lower prices because their 

plans—— 

The CHAIRMAN. On that—— 

Dr. MCCLELLAN.—negotiate for it. 

The CHAIRMAN. On that particular provision of the bill, did you 

support that particular provision of the legislation? 

Dr. MCCLELLAN. I support the provisions in the bill to get drug 

costs down safely, and, in particular, the provisions for pharmacy 

benefit managers and other steps to be taken—— 

The CHAIRMAN. Dr. McClellan—— 

Dr. MCCLELLAN.—to get lower prices—— 

The CHAIRMAN.—I’m asking you a simple question, and I would 

like a simple—— 

Dr. MCCLELLAN. Well, I—— 

The CHAIRMAN.—answer. 

26 

Dr. MCCLELLAN.—support the legislation. I fully want—I want to 

implement it as—— 

The CHAIRMAN. Dr. McClellan—— 

Dr. MCCLELLAN.—effectively as possible. 

The CHAIRMAN.—I repeat my question, Did you support that provision? 

Dr. MCCLELLAN. I support—I support the overall legislation, including the provisions in it. A lot of people have said this is not 

a perfect law, but it’s—— 

The CHAIRMAN. Dr. McClellan—— 

Dr. MCCLELLAN.—one that will—— 

The CHAIRMAN.—you’ve come to this Committee after having 

stiffed us, after having stiffed the House of Representatives. And 

my first question, which is a very simple question—a very simple, 

straightforward question—you won’t answer. I will ask, finally—— 

Dr. MCCLELLAN. OK. 

The CHAIRMAN.—did you support that provision of the bill, yes 

or no? 

Dr. MCCLELLAN. I support the Medicare legislation, including 

that provision. 

The CHAIRMAN. Thank you very much. 

I think I’ll move on to Senator Wyden, because it probably would 

be better to do so. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. 

Dr. McClellan, I want to know about the costs of getting a safety 

program in place, because I think the Administration has just been 

stonewalling this issue. So we’re going to get down in the weeds 

here for—— 

Dr. MCCLELLAN. Yes. 

Senator WYDEN.—a minute. As far as I can tell, with respect to 

safety, you all do testing, you do raids, and you monitor these 

websites. How much do you spend now at the agency to try to look 

at these safety questions? 

Dr. MCCLELLAN. We do not have a large budget at the agency, 

given the scope of our overall regulatory activities. Our total budgetary support for Congress is on the order of $1.5 billion. That includes an enormous scope of responsibility. 

Senator WYDEN. But on the safety issue, with respect to imports, 

how much—— 

Dr. MCCLELLAN. Our total—— 

Senator WYDEN.—do you spend? 

Dr. MCCLELLAN.—our total border resources and supporting staff 

is on the order of several hundred million dollars, and that includes 

doing all of our food safety activities, including—it includes all of 

our new counter-terrorism activities and international interactions 

on trade issues, and the like. And there are a lot international 

issues related to trade. Our staff—— 

Senator WYDEN. Let’s try once more. 

Dr. MCCLELLAN.—has a huge reach. 

Senator WYDEN. How much do you spend on dealing with safety 

issues with respect to imported drugs? That’s raids, testing, monitoring websites. And I’m asking—— 

27 

Dr. MCCLELLAN. Oh, that’s a relatively small amount. I 

mean—— 

Senator WYDEN. How much do you think? 

Dr. MCCLELLAN. I would—in the—in a few million dollars. 

Senator WYDEN. Thank you. 

Dr. MCCLELLAN. Because—— 

Senator WYDEN. Very good. How much do you think, of that few 

million dollars, is spent just with respect to Canada? Because I 

think that there is bipartisan interest in working with the agency 

on making sure that we can monitor safety with Canada. Now, 

you’ve said it’s only several million dollars overall. What is it, one 

million, two million? 

Dr. MCCLELLAN. We don’t have a breakdown like that, because 

our activities, internationally, go to many countries, including 

drugs that may be shipped through Canada from other—— 

Senator WYDEN. All right. 

Dr. MCCLELLAN.—sources and the like. 

Senator WYDEN. But it can’t be more than several million dollars, because—— 

Dr. MCCLELLAN. Well, because we don’t—— 

Senator WYDEN.—overall—— 

Dr. MCCLELLAN.—have any comprehensive system in place to 

work on imported drugs from any countries, including Canada. 

There’s no program like that at FDA now. 

Senator WYDEN. We’re interested in doing it. But—— 

Dr. MCCLELLAN. Yes. 

Senator WYDEN.—I have watched the Administration take Congress around the mulberry bush on this safety kind of question. We 

can’t give you the tools you need until you tell us how much it 

would cost. And you’ve now told me that, with respect to imports 

overall, not just Canada, it’s several million dollars. 

Dr. MCCLELLAN. But, if I could, Senator, if you don’t mind me 

expanding on this a little bit. 

Senator WYDEN. Absolutely. 

Dr. MCCLELLAN. We have set up programs to assure the safety 

of food imports, and, as a result of the bipartisan legislation in 

2002, we were given more than $100 million each year for new resources to assure border security, to get information in on imports 

coming into the country, to do registration of foreign facilities, to 

be able to track imported foods that are coming in. We have nothing like that for drugs. When USDA assures the safety of imported 

meats and poultry, they have even more resources. They have 

enough money to pay for inspectors—— 

Senator WYDEN. How much—— 

Dr. MCCLELLAN.—to go into these individual foreign plants. 

Senator WYDEN.—how much do you believe it would cost to set 

in place the kind of safety program that you believe would assure 

the American people, with respect to pharmaceutical imports? Just 

take us through, you know, the costs. We’ve been debating this for 

years and years, and we’ve got to have our hands around that 

number. 

Dr. MCCLELLAN. OK. It depends on the scope and volume and 

type of products—— 

Senator WYDEN. Well, you—— 

28 

Dr. MCCLELLAN.—that are brought—— 

Senator WYDEN.—you lay out the kind of scope—— 

Dr. MCCLELLAN.—into the country. 

Senator WYDEN. Then lay out the kind of scope that you think 

is in the public—— 

Dr. MCCLELLAN. Well, there have been different ideas proposed 

in Congress for the scope of—— 

Senator WYDEN. Give us yours. 

Dr. MCCLELLAN. Well, there—we’re trying to work with Congress 

to come up with a bipartisan solution for doing this. Many Members have suggested, for example—I’ll give you a for-example—restricting imports to Canada only, doing a larger number of—— 

Senator WYDEN. Right. 

Dr. MCCLELLAN.—countries would be considerably more expensive—— 

Senator WYDEN. Right. 

Dr. MCCLELLAN.—because it would require a much broader 

range of imports to be tested. And in that case, we would need to 

set up mechanisms for assuring border safety, for interacting, 

much as USDA does when they assure the safety of meats and 

poultry. And I think the kinds of costs that USDA incurs and that 

FDA incurs for foods might provide some initial guidance as to 

what that would be. And that is, as I’ve just been saying, on the 

order of several hundred million dollars. But, again, the specific details would depend on exactly what kind of import program Congress envisions, you know, which kinds of imports should be legal, 

which ones aren’t worth the cost of trying to import safely because 

of problems with assuring their safety because they’re controlled 

substances, or drugs that could degrade under improper storage 

conditions, or drugs that have very narrow safety indices. 

Senator WYDEN. So you’re prepared to say, then, that the ballpark for a system involving Canadian imports and something that 

would responsibly address the safety question would cost several 

hundred million dollars a year. 

Dr. MCCLELLAN. But it could be considerably higher or lower 

than that, depending on the scope of drugs that are brought in. 

And that’s why it’s very important to consider the cost of proposals 

in conjunction with the authorities that are given to the FDA and 

in conjunction with the scope and volume of drugs that are to be 

legalized as part of this system. And that’s exactly what we’re trying to pursue with our task force and the public input that we’re 

getting from Canadian regulators, from everyone involved in the 

distribution chain, from consumer groups, and from Members of 

Congress. 

Senator WYDEN. Senator Dorgan and I have been concerned, because in 2000 the FDA estimated that it would need something like 

$23 million for the first year of implementation for all countries. 

Dr. MCCLELLAN. Which bill are you referring to, Senator? 

Senator WYDEN. We understand that that was something that 

was an FDA estimate in the past. 

Dr. MCCLELLAN. You’d probably need to be more specific about 

the FDA estimates. We often provide technical assistance to Congress on bills that Members, like you, are interested in seeing legislated. And so, it would depend a lot on the type of import program 

29 

being envisioned. If this was a smaller one, it would perhaps cost 

less. I’m not sure that implies an FDA endorsement, by the way, 

of just being a safe approach. I’d need to know which bill you’re 

talking about and what the provisions are. And I’d be happy to get 

back to you if you want to send us the information on it. 

Senator WYDEN. That involves one of the proposals of Senator 

Dorgan. But what I want to do is make sure you now tell us what 

you think a program should consist of. You’ve given us a ballpark, 

in terms of costs. Now tell us what you think, in your opinion, not 

the various advisory committees, your opinion of what a program 

should cost. 

Dr. MCCLELLAN. Well, I think there are potentially different 

ways to do this, provided that the safety assurances can be met. 

I don’t have one specific recommendation, because my experience, 

in working with Congress—— 

Senator WYDEN. Your choice, Dr. McClellan. Your choice this 

morning. Yours. How you’d go about doing it. 

Dr. MCCLELLAN. I don’t have one specific proposal. I think to 

move forward on this issue and get something done for the American public, we need to find a bipartisan approach that has broad 

support in Congress, and it gives us the safety authorities and the 

resources that we need to back up the law, and I’m absolutely willing to work with Congress to find the right answer. That’s what 

we did for the Bioterrorism Act to assure the safety of imported 

foods. We came up with a number there of about $125 million a 

year. But that depended on the scope of imports, it depended on 

the kinds of authorities that were provided the FDA. And we want 

to be flexible in working with Congress to address these safety concerns. 

Senator WYDEN. Well, my time’s up, Mr. Chairman. 

The CHAIRMAN. Senator, I’ll enter into the record the VA savings. The VA filed 108 million prescription drugs that cost it $2.8 billion, 

with savings estimated to be in the hundreds of millions of dollars 

because the Veterans Administration is able to negotiate with the 

drug companies for lower prices for our veterans. A provision in 

this law, a living, breathing testimonial, to the political influence 

of the pharmaceutical companies, prohibits Medicare from doing 

exactly what the VA has been doing, saving hundreds of millions 

of dollars. That’s what makes us, Dr. McClellan, a little cynical. 

And I know you’re going to tell me about pharmacy benefit managers and all that, who are able to do it. The pharmaceutical companies put it there for a reason, because when, en bloc, Medicare 

negotiates, they have enormously more leverage than breaking up 

into smaller negotiating groups. They know it, 

I know it, everybody knows it. 

Senator Snowe? 

Senator SNOWE. Thank you, Mr. Chairman. 

And to follow up on that issue, I agree, I think we ought to restore that negotiating authority for the Secretary. Second, as Senator Wyden and I have introduced in our legislation, compare, you 

know, what costs negotiated with the private plans will be participating in the prescription drug benefit program, with those that 

are negotiated by VA and DOD, and offer an incentive within the 

stabilization fund to use those funds for incentives. Because that’s 

30 

going to be critically important. I mean, this is the beginning of a 

huge issue, with respect to how we implement this program. 

And so I think this reimportation question, Dr. McClellan, is a 

dimension of that issue, frankly. It’s how we’re going to have a 

proactive, aggressive approach on the part of government to address the problems and overcome the barriers to solving those problems. I believe in solving problems. I want agencies to solve these 

problems. There shouldn’t be barriers, shouldn’t be hurdles, there 

shouldn’t be bureaucracies. We’ve got the law. 

And when I hear you saying, today, that the FDA is charged 

with the fact that prescriptions imported must be safe, the safety 

of medications, but it doesn’t prohibit FDA from making sure that 

they are safe. I mean, in other words, the FDA can take the steps 

to make the reimportation of medication safe. So it doesn’t prohibit 

the FDA from doing that, it doesn’t prohibit you, in your capacity 

as commissioner, now moving on, but it doesn’t have a prohibition. 

So we need to know, what can we do to make it safe? 

Now, the legislation introduced by Senator Dorgan and joined by 

all of us here is, you know, for example, looking at wholesalers. 

Isn’t that a way of doing it? Because you’ve said that the safety 

programs within Canada have been very good, they’ve done a very 

good job of that. 

Dr. MCCLELLAN. Right. 

Senator SNOWE.That is your testimony. So there are ways in 

which we can do it. 

You mentioned websites. OK, let’s get away from websites for a 

moment. The legislation we’re talking about is wholesalers, pharmacists, the people go to a pharmacy in Canada, present a prescription. It’s face to face. Or wholesalers, who are required, obviously, to do their own inspections. We have the same drugs that 

come from the same manufacturers. We can track all that. So why 

isn’t that something that’s possible, right here and now? 

Dr. MCCLELLAN. Well, that’s certainly something we’re willing 

to—— 

Senator SNOWE. OK. 

Dr. MCCLELLAN.—pursue. What I emphasized, Senator—and I 

know how strongly you feel about this issue; we’ve had a number 

of discussions about it already—is that while the FDA does have 

the authority to declare certain kinds of drugs approved and safe, 

we’re also constrained by the resources and authorities that we 

have to assure safety. And our laws were not designed to assure 

the safety of imported drugs. In fact, Congress made it explicitly 

illegal in the Prescription Drug Marketing Act of 1987, a strong bipartisan measure that was passed because there were unsafe prescriptions coming into the country. And so that’s why I emphasized, 

in my answer to Senator Wyden, that the right way forward is to 

figure out what specific authorities and resources FDA needs, 

which would require legislation, which would be a substantial revision to the Food, Drug, and Cosmetic Act, since it would allow an 

entire new class of drugs that are currently illegal. 

Senator SNOWE. So, well, for example, 10 years ago Congress required the FDA to implement a pedigree so that—— 

Dr. MCCLELLAN. Right. 

31 

Senator SNOWE.—to show the pedigree of medications. Is 

that—— 

Dr. MCCLELLAN. That’s part of—— 

Senator SNOWE.—fully implemented? Has that been—— 

Dr. MCCLELLAN. That’s part of—— 

Senator SNOWE.—fully implemented? 

Dr. MCCLELLAN.—that same law. It is not fully implemented. 

Senator SNOWE. OK. 

Dr. MCCLELLAN. We recently did—— 

Senator SNOWE. Because that would have—— 

Dr. MCCLELLAN.—a task force report to get to full implementation through some new technologies that are coming online over 

the next couple of years, but—— 

Senator SNOWE. But I see that’s at a point, though, that could 

have been done. I realize you weren’t there 10 years ago. But the 

fact is, Congress did mandate it 10 years ago, so you have a chain 

of custody—— 

Dr. MCCLELLAN. It—— 

Senator SNOWE.—in terms of medication. We could track this. I 

mean, that’s the issue here. 

Dr. MCCLELLAN. We could. And that’s actually a good example. 

The way that the law was written had some gaps in it, so that 

there are ways in which drugs without proper pedigrees could 

enter the system. And that’s why it is not possible to implement 

it completely and effectively, and it’s a good example of where some 

further legislation could potentially close those gaps. And, similarly, for—potentially, for international. 

Senator SNOWE. Well, couldn’t it—if there are licensed pharmacists and manufacturers, wholesalers, that were implementing 

this law, participating in the reimportation, could not that make it 

safer—— 

Dr. MCCLELLAN. It could—— 

Senator SNOWE.—if we did that? 

Dr. MCCLELLAN.—if we had an ability. We don’t have any legal 

authority now to license foreign wholesalers, or get them to register, to inspect them, or to test their products, or to do anything 

like that. We do have those kinds of authorities, in some cases, for 

food, and USDA certainly has them for the riskiest foods, the meat 

and poultry. So there might be a good model there. 

Senator SNOWE. Did the FDA ever submit a request, based on 

the requirements of making it safer? 

Dr. MCCLELLAN. Well—— 

Senator SNOWE. We’ve passed this law three times, as I recall, 

since 1999, you know, so has the FDA ever made a request of additional resources, authority, or anything in that respect, given the 

intent of Congress which was made emphatically on three different 

occasions? 

Dr. MCCLELLAN. Well, here now, while I’m at FDA, we have. We 

are working diligently with the task force required under the Medicare bill to come up with a view that reflects input from outside 

experts and others on exactly how this can be done, and that’s 

something we’re spending a lot of time and effort on right now. 

Senator SNOWE. Yes. 

32 

Dr. MCCLELLAN. And we also want to be responsive to any technical assistance you would like on your legislation, as I mentioned 

at the hearing on Monday. 

Senator SNOWE. Right. Well, you know, the reimportation legislation, and law, I should say—the object of it isn’t to subvert the prescription drug law that was recently passed; it’s to undergird it, it’s 

to reinforce it, to help people have access to more affordable medications, because that is the other side of the coin here—— 

Dr. MCCLELLAN. Right. 

Senator SNOWE.—that we’re going to have to grapple with. 

Dr. MCCLELLAN. Right. 

Senator SNOWE. And not only for seniors, but for the 44 million 

uninsured in America that have no insurance coverage and are desperately seeking, you know, medications. And if we’re talking about 

costs of implementing reimportation, talk about the costs of people 

not being able to use prescriptions. 

Dr. MCCLELLAN. Yes. 

Senator SNOWE. You know, 20 percent of Americans are, you 

know, rationing their prescriptions because they can’t afford them. 

Think of the cost to America, the costs to the hospitals, you know, 

to all of the systems, Medicaid, Medicare, everything across the 

board. So it is a cost that’s going to escalate, given the fact that 

prescription drugs are out of reach for most Americans, and it’s an 

important component of healthcare today. 

So we have got to find a way, sooner rather than later, and I 

think we’ve got the dimensions of the legislation that will be introduced by Senator Dorgan and many of us. 

Thank you. 

Dr. MCCLELLAN. And we’re happy to provide technical assistance 

with that legislation. We will continue to work hard on the task 

force. And I would just add, under the law now there are a lot of 

steps that we can take to lower costs. We’ve been doing it with generic drugs, something that the pharmaceutical industry is not 

supportive of, to get those much more widely available. And we’re 

taking other steps, as well. I’m willing to do everything we can, 

under the law. But, as you know, the law also requires us, at FDA, 

to assure the safety of legal drugs in the United States right now. 

Senator SNOWE. Thank you. 

The CHAIRMAN. Senator Dorgan? 

Senator DORGAN. Dr. McClellan, the Time magazine article that 

the Chairman read talked about a concerted campaign. My own 

view of what you have done—pretty much the view of some of my 

colleagues—you have been aggressive in trying to prevent the reimportation of prescription drugs, including from, and especially 

from, Canada. And you know, I’m sure, that the current law allows 

the reimportation from Canada, provided there are two certifications—one, that it is safe; and, second, that it saves money and 

saves cost. 

Dr. MCCLELLAN. Right. 

Senator DORGAN. So I just wanted to make that point. 

Let me ask, Why have you chosen not to testify, when requested 

repeated by the U.S. House and the U.S. Senate, on these important subjects? 

33 

Dr. MCCLELLAN. Well, Senator, I am very pleased to be here 

today to present our agency’s view, and I’m trying to be clear about 

our concerns about safety and hoping that we can find ways to address both safety and affordability. 

Senator DORGAN. That’s not what I asked you. 

Dr. MCCLELLAN. Our agency has consistently tried to do that. We 

have testified—FDA has testified every single time that we’ve been 

asked. I’ve testified before you, as well, as you know, in an appropriations hearing last year, on this very topic, and we tried to work 

very constructively with an insurer in your state to address some 

concerns that they had, and I think we’ve successfully resolved 

that. 

Senator DORGAN. Dr. McClellan, that’s not the question I asked 

you. I asked you why you repeatedly refused to testify in the House 

and Senate from Committees that requested your testimony. 

Dr. MCCLELLAN. Well, when Committees have requested our testimony, we have always provided an FDA witness, including our 

top experts—— 

Senator DORGAN. I’m asking why—— 

Dr. MCCLELLAN.—and people whose views are the same as mine. 

Senator DORGAN. Dr. McClellan, you head the agency. I’m asking 

why you have refused to testify. 

Dr. MCCLELLAN. Well, I—— 

Senator DORGAN. You aspire to a different position in government, and we wonder whether, in that position, you will decide to 

refuse to testify. 

Dr. MCCLELLAN. Senator, this has been a very informative confirmation process for me. I’ve had a lot of opportunities to talk with 

Members of Congress, who have had nice things to say about many 

of the things that we’ve done, and I’ve also learned some about 

problems. The concerns about refusing to testify have been raised 

with me just in the last few weeks. 

Senator DORGAN. Oh, I’m sorry—— 

Dr. MCCLELLAN. We’ve tried very hard to make sure that we’ve 

always had a witness at every hearing, and we’ve always provided 

the witness requested. 

And with Senator McCain, I’m happy to be here now, but I do 

want to conclude by saying I’m very sorry about the perception that 

we haven’t been responsive. And I want to make sure that the reality is that when I’m asked to testify, and asked particularly to 

testify, provided we can make some, you know, reasonable accommodations of scheduling issues, I will be there. I’m absolutely committed to doing that, and that’s something that I’ve very much 

learned—— 

Senator DORGAN. Dr. McClellan, I’m sorry—— 

Dr. MCCLELLAN.—about in this process. 

Senator DORGAN.—that’s disingenuous. I mean, the fact is, you 

have been repeatedly requested to appear, and have not. And your 

spokesman, by the way—with respect to this appearance, your 

spokesman, Mr. Pitts, says you believe you’re stepping forward 

today ‘‘in order to reverse the trend that puts politics in front of 

public health.’’ So I assume that you believe that this process is all 

politics and has nothing to do with—— 

Dr. MCCLELLAN. Absolutely not. 

34 

Senator DORGAN. Well, then would you inform your spokesman 

about that? 

Dr. MCCLELLAN. I certainly will. 

Senator DORGAN. I’d appreciate it. 

Dr. MCCLELLAN. And I intend to be here when you request. And 

I appreciate the attention that this process has put on this issue, 

and I do want to be responsive, going forward. 

Senator DORGAN. Let me ask you a question, if I might. You gave 

a speech in Canada, in Ottawa, Canada. You said this, ‘‘Sometimes 

people have taken this to mean that we, in the United States, don’t 

think the Canadian system is safe. Let me be clear’’—quoting you— 

‘‘when you go into a well-regulated Canadian pharmacy, just like 

when you go into a well-regulated U.S. pharmacy, you can be very 

confident you’re getting the right treatment, the right guidance, 

and what you buy is going to be safe and effective.’’ 

Dr. MCCLELLAN. Right. 

Senator DORGAN. You agree with that? 

Dr. MCCLELLAN. I do. 

Senator DORGAN. All right. Then let me ask this. If you believe 

the chain of custody in Canada offers a prescription drug in Canada that is safe and effective, if it comes from an FDA-approved 

and inspected plant, are there circumstances in which the FDA will 

support—under current law, because the current allows reimportation from Canada, if you think it is safe—are there circumstances 

in which you then would certify it as safe and effective for a pharmacist from North Dakota to go to a pharmacist in Winnipeg, Canada, and purchase a prescription drug made in an FDA-approved 

plant that an FDA-approved drug, and bring it back for resale in 

North Dakota? 

Dr. MCCLELLAN. We don’t have any system in place to assure 

safety under those circumstances. I think, Senator, that would also 

break Canadian law, because pharmacies in Canada are not allowed to resell drugs to other pharmacies. Only wholesalers in 

Canada are allowed to sell to pharmacists, and that’s how they 

maintain that chain of custody. Pharmacies don’t have any system 

set up for maintaining—tracking the drugs and doing recalls and 

things like that. 

Senator DORGAN. Well, let me ask the question again. Would you 

believe it would represent safety for the consumer if a licensed 

pharmacist in our country purchased this drug, Lipitor, from a licensed pharmacist in Canada? This drug is made at an FDA-approved plant, sold in Winnipeg to a pharmacist in a chain of custody that you apparently believe is safe, and the same is true in 

this country. The only difference is, it’s twice as expensive in the 

United States. Same pill, put in the same bottle, made by the same 

company, different price. Nearly $2 in the United States, $1 per 

tablet in Canada. 

So my question is very simple. If a licensed U.S. pharmacist purchases this FDA-approved drug from a licensed pharmacist in Canada, is there a safety issue for the consumer in the United States 

when it is brought back into this country? 

Dr. MCCLELLAN. First, that’s illegal under Canadian law and 

U.S. law now. I think it might be possible to design a system and 

35 

make the changes in the laws necessary to assure safety in those 

circumstances that might be—— 

Senator DORGAN. I’m not asking about—— 

Dr. MCCLELLAN.—I’d like to explore. 

Senator DORGAN. I’m not asking about your interpretation of Canadian law. I’m asking about current U.S. law, which allows reimportation from Canada, provided there’s certification that it is 

safe. I’m asking, under this specific circumstance, would you consider that safe? 

Dr. MCCLELLAN. I would need to know more about how exactly 

the system would work. 

Senator DORGAN. What more would you need to know? If a licensed U.S. pharmacist shops from a licensed Canadian pharmacist—both licensed, both in the chain of custody that is nearly 

identical, according to you and according to the GAO. I don’t understand where there’s a safety leakage here. 

Dr. MCCLELLAN. The reason that the Canadian system is safe is 

that the chain of custody requirements—requirements in Canada 

go from manufacturer to distributor to pharmacist. There is no 

mechanism in place in Canada to assure the safety of the distribution chain between pharmacist to pharmacist. There’s not a system 

set up to track the drugs through that system. If there’s a recall, 

for example, of the Lipitor product, pharmacists are not equipped 

to contact other pharmacists to carry out the recall effectively. It’s 

those kinds of steps that could potentially be designed in a new 

legal or regulatory system, and maybe not even with that much 

cost. So that’s certainly something that I’d be willing to explore, 

but I’d want to make sure that it provides the same kind of safety 

assurance that are provided under Canadian law now, and under 

U.S. law now, for legal prescriptions. 

Senator DORGAN. It is the simplest construct I can conceive of, 

and it appears to me it, too, causes problems for you, and I don’t 

understand that. But let me—Time magazine mentioned ‘‘concerted 

campaign.’’ That has been my view, incidentally, a concerted campaign by you, leading the FDA in this direction. Let me refer you 

to a November, 2003, FDA white paper that you published. And 

this is right smack in the bulls-eye of the kind of campaign that 

has been waged under your leadership. And it puts out a white 

paper that says, Canadian drug prices are higher than U.S. generic 

prices. And you put together a graph that compares U.S. generics 

with brand-name drugs in Canada. 

Dr. MCCLELLAN. And generics in Canada. 

Senator DORGAN. And generics, but that’s not what this says. 

That’s not what this chart is, incidentally. And so you’ve compared 

U.S. generics with brand names in Canada, suggesting somehow 

there’s complete convertibility. 

Isn’t it true that, of the top ten-selling drugs in the United 

States, only one has a generic equivalent? Is that not true? 

Dr. MCCLELLAN. I think more than one does, and there are certainly generic alternatives. If I might, the reason for putting that 

information out is that it turns out that many Americans are ordering drugs from Canada, brand-name drugs from Canada, that 

do have generic alternatives in the United States. And the drugs 

included in that chart are consumed by millions of Americans. And 

36 

the generic versions here are not only much cheaper than the Canadian brand name that you can buy on the Internet, they’re also 

much cheaper than the Canadian generic versions. So this is part 

of an educational effort to let people know that there are safe and 

legal channels for both saving money and getting the prescriptions 

they need. 

Senator DORGAN. If this were an advertisement I’d send it to the 

Federal Trade Commission as deceptive. There’s only one that I 

know of and that’s Prilosec, one of the top ten-selling drugs, that 

have a generic equivalent, and what you’ve done is, in a campaign, 

is put together a chart that suggests somehow that Canadian 

prices are higher than U.S. prices. You know better than that, and 

I know better than that. You said in your opening statement that 

in European countries, and it’s true in every country in Europe, 

and also in Canada, you routinely pay lower prices than in the U.S. 

Dr. MCCLELLAN. For brand-name drugs. 

Senator DORGAN. For brand-name drugs, absolutely. And if 

there’s no generic equivalent then that’s what people are buying. 

And incidentally, you know—we have many examples of these prescription drugs, in which my constituents go to Canada, buy a safe 

drug produced at an FDA-approved plant, bring it back, they take 

it, they save money, and the question for them is, Why do they 

have to be told that somehow this is not legal? Matter of fact, why 

do they have to drive to Canada to get it? Why couldn’t their pharmacist not go there to get it? 

But one last question, I know my time is expired, Mr. Chairman, 

if I might. You, Dr. McClellan, will, in the months ahead, I expect, 

if you are confirmed by the United States Senate, be confronted 

with the question that I think the Chairman will certainly ask, and 

many others in the Congress—and I will support him when he asks 

it, as Senator Snowe said she would—to abolish the provision in 

current law that prohibits the negotiation of lower prices with the 

industry. You will, no doubt, in a new and responsible position, be 

required to be involved in that. And what will your recommendation be? Will you oppose the legislation that would strike that provision of law, or will you be supporting that legislation? 

Dr. MCCLELLAN. Well, I can’t comment on legislation that I 

haven’t seen yet. I can tell you now that my primary and initial 

intent is going to be to take the law that we have now, the law 

that’s on the books and that can start delivering lower prices and 

lower drug costs to seniors right away, and do everything possible 

with that. It’s very clear to me, from my discussions, in this Committee and elsewhere, that there will be a lot of Congressional attention—and that’s appropriate—on making sure that we’re doing 

all we can to get prices down safely and giving seniors access to 

innovative medicine. So I’ll absolutely be willing to come back and 

continue to discuss this issue with you as we work on finding the 

best ways to get low-cost, innovative drugs to America’s seniors. 

Senator DORGAN. Mr. Chairman, I have some other questions 

later. 

The CHAIRMAN. Senator Lautenberg? 

Senator LAUTENBERG. Thank you, Mr. Chairman. 

Dr. McClellan, it’s interesting to hear you respond to the questions. You certainly have a way with words, as they say. And it’s— 

37 

I think we’re all struggling to get an answer to the question about 

whether or not you would support a program to get Medicare the 

opportunity to negotiate directly. And my hearing’s good, and I still 

can’t figure out what you said, in terms of—in your response. 

If we know that we can guarantee the safety of these products, 

would you then say—give us a blanket answer that you would absolutely work—go to work, almost as soon as you take office, because this is the major issue, to bring Medicare into negotiations 

with the drug companies? 

Dr. MCCLELLAN. Well, I don’t—I’m trying to be clear, and I’m 

sorry if I’m not being—I don’t support that provision right now, because, under the law, there’s an alternative approach to get prices 

down, and that’s to have the—— 

Senator LAUTENBERG. Any of the—— 

Dr. MCCLELLAN.—to negotiate lower prices. And, according to 

CBO and others, this is going to lead to a 20, 25 percent savings, 

and that’s as much as could be gotten by the direct Medicare negotiations. So—— 

Senator LAUTENBERG. But why wouldn’t—— 

Dr. MCCLELLAN.—first I’m concentrating on implementing—— 

Senator LAUTENBERG. Why—— 

Dr. MCCLELLAN.—this law effectively. 

Senator LAUTENBERG. But the capacity—the ability to negotiate 

directly is short, simple, and let the forces go in an open market, 

as we do so many other products in our country. And it’s inconceivable for me to listen to what you say and not be able to get an answer that says, well, if everything is in place, will you then support 

this as a step along the way, as opposed to comparing it to other 

opportunities. To me, this—we have a dispute here on—in your testimony today, you say these changes would save Americans over 

$35 billion a year in—— 

Dr. MCCLELLAN. Yes. 

Senator LAUTENBERG.—$35 billion in drug costs over the next 10 

years. And I’m not sure what exactly the changes are that are recommended. But we have, from Dr. Allen Sager, Boston University 

School of Public Health, testified, in 2001, before the Commerce 

Committee, in which he said that reimportation among—can derive 

American savings, in 2001, if it could have been done, that would 

be $30 billion, in a single year, of savings. You say, in your testimony, that changes will save Americans over $35 billion-plus in the 

next 10 years. 

What do you think the savings would be if we could loosen up 

the ability of the Medicare to go ahead and negotiate with the companies? Do you have any idea what could be saved? 

Dr. MCCLELLAN. Well, I would defer to the experts on that, like 

the experts at CBO who have concluded that the prices that Medicare could get would probably not be significantly different than 

the strong incentives to get lower prices in the Medicare legislation 

now through plans that work with the doctors to get those low 

prices. So, in fact, we’ve seen some recent examples in—you know, 

Senator as, you know, we talked about yesterday, where Medicare 

has been overpaying for drugs when there is a regulated price system, and there’s a lot of lobbying that goes into that because Medicare is such a big part of the market. 

38 

So I do want to do everything possible, under the law, to get 

prices down, but a lot of experts have concluded that this additional step would not lead to additional savings. And, in the meantime, I want to use all the tools we have now to get prices down. 

Senator LAUTENBERG. I want to be sure that I understand. 

Maybe everyone else does—— 

Dr. MCCLELLAN. Yes. 

Senator LAUTENBERG.—but I don’t—that the savings that would 

be derived from Medicare negotiating directly for prices, with the 

drug companies, would not be significant savings? 

Dr. MCCLELLAN. That’s what CBO has concluded, yes. 

Senator LAUTENBERG. Do you believe that? 

Dr. MCCLELLAN. I think—you know, I’m deferring to the experts 

who have looked at this bill closely, and who have looked at alternatives closely, and had a lot of experience with seeing what happens when Medicare actually does regulate prices, and seeing that 

they don’t always get to be that low because of all the lobbying and 

input that goes on for, you know, urging higher prices and the like, 

so—— 

Senator LAUTENBERG. Why is the Veterans Administration so 

adept at getting these prices—— 

Dr. MCCLELLAN. Well, that’s a good question. I’ve talked to some 

of the people from the VA, and they have a closed medical system. 

The VA owns their hospitals, they hire their doctors. It’s a government-run and government-operated system. And so when they set 

up a formulary, they can basically tell their doctors and hospitals, 

‘‘You go on this drug, and you can’t get these other drugs.’’ So of 

course they can negotiate very big discounts. 

Medicare is not set up that way, though. Medicare doesn’t own 

the hospitals. It was very important, in the discussion leading up 

the law, for seniors to have choices so that if they liked a particular 

drug, they could make sure to get a plan with that drug on it. In 

the VA system, you don’t have those options; it’s one set of drugs 

that are on formulary, and others that aren’t covered. And that’s 

what leads to some of their strong negotiating power. 

But that’s exactly the kind of thing that I think the drug benefit 

plans are going to do in Medicare, is work with—— 

Senator LAUTENBERG. Dr. McClellan—— 

Dr. MCCLELLAN.—doctors and hospitals and—— 

Senator LAUTENBERG.—you’re a wise—— 

Dr. MCCLELLAN.—get costs down. 

Senator LAUTENBERG.—and educated man, enormously so, despite your obvious youth—— 

[Laughter.] 

Senator LAUTENBERG.—which I always resent, but—— 

[Laughter.] 

Senator LAUTENBERG.—the fact of the matter of is that if you can 

come to a conclusion, to express your view, instead of passing the 

ball over to CBO. You’ve got to have an opinion. This is going to 

be such a large part of your responsibility. 

Mr. Chairman, if I can have a couple of seconds more. There was 

a request from my office to challenge the printing and delivery of 

circulars to Medicare benefits, suggesting that they might have 

been politically motivated more toward the election campaign than 

39 

toward the information and knowledge that we give to the beneficiaries, to the recipients. And GAO came in yesterday with their 

report and said, well—and I assume that you have seen it, because 

you and I did discuss it—that says that, on a technical matter, they 

couldn’t adjudge that this was purely a political program. But they 

point out things that—and you have to read this report. 

They say in this, ‘‘We point out that HHS materials have notable 

omissions and other weaknesses. For example, enrollees for the 

drug discount card program, which is to start June 2004, may be 

charged an annual fee, and savings from the discount cards may 

vary.’’ They say, ‘‘We do question the prudence and appropriateness 

of HHS’s decision to communicate with Members of Congress and 

congressional staff by placing an advertisement in Roll Call.’’ Very 

critical of the information that’s put out in that material. Again, 

they say they couldn’t declare that it was purely political, and, 

thereby, not stop it. But I would urge you to read this, put this in 

your banks of knowledge, which is considerable, and—so that we 

can examine this more closely. They actually removed parts of the 

original circular, because we caught them with their finger in the 

publicity jar. 

And we’re lucky to have someone that has your intellect and your 

education, but, boy, I would hope that you could be more direct in 

your—— 

Senator WYDEN. Would my colleague just yield for a unanimous 

consent request, just for 30 seconds? 

Senator LAUTENBERG. Sure. 

Senator WYDEN. Mr. Chairman, I would just ask that the Congressional Budget Office letter to me, of March 3, be entered into 

the record. It does say, Dr. McClellan, that you would get savings, 

particularly with respect to single-source drugs comprising about 

80 percent of the expenditures of the program. It’s, in effect, a 

change in the CBO position of the earlier letter that was sent to 

Dr. Frist, and I would ask unanimous consent that that letter— 

making it clear that CBO does believe that there would be savings 

as a result of giving the Secretary authority to negotiate their position. I’d ask it be made a part of the record. 

The CHAIRMAN. Without objection. 

[The information referred to follows:] 

CONGRESSIONAL BUDGET OFFICE, U.S. CONGRESS

Washington, DC, March 3, 2004 

Hon. RON WYDEN, 

United States Senate, 

Washington, DC. 

Dear Senator: 

On January 23, 2004, CBO stated in a letter to Majority Leader Frist that striking the ‘‘noninterference’’ provision (section 1860D–11(i) of the Social Security Act, 

as added by P. L. 108–173, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) would have a negligible effect on Federal spending. This letter responds to your question concerning the potential for savings if that provision 

were modified to give the Secretary of Health and Human Services authority to negotiate prices for single-source drugs for Medicare beneficiaries. 

Most single-source drugs face competition from other drugs that are therapeutic 

alternatives. CBO believes that there is little, if any, potential savings from negotiations involving those single-source drugs. We expect that risk-bearing private plans 

will have strong incentives to negotiate price discounts for such drugs and that the 

40 

Secretary would not be able to negotiate prices that further reduce Federal spending 

to a significant degree. 

Nevertheless, there is potential for some savings if the Secretary were to have the 

authority to negotiate prices with manufacturers of single-source drugs that do not 

face competition from therapeutic alternatives. Private plans offering a prescription 

drug benefit to Medicare beneficiaries will have less leverage in negotiating discounts for drugs without therapeutic alternatives than they have in price negotiations for drugs that do face such competition. (In that regard, the Medicare plans 

will be no different than private health plans that offer prescription drug coverage 

to other populations.) 

Under current law, there already are significant pressures that limit the prices 

that manufacturers charge for drugs—whether those drugs face competition from 

therapeutic alternatives or not. Those pressures include the prospects that plans 

will not cover a drug (or will substantially limit the amount they pay for a drug) 

and that manufacturers will provoke a backlash (potentially including legislation) 

if they set prices too high. Moreover, the creation of the Medicare drug benefit has 

given Federal officials greater opportunity and incentive than under prior law to 

bring pressure on manufacturers—for example, by influencing public opinion and 

policy makers—if the prices that manufacturers set for single-source drugs that are 

not subject to competition from therapeutic alternatives are perceived as being too 

high. Giving the Secretary an additional tool—the authority to negotiate prices with 

manufacturers of such drugs—would put greater pressure on those manufacturers 

and could produce some additional savings. 

CBO has not estimated the effect on Federal spending of authorizing the Secretary to negotiate prices for single-source drugs. The extent of any savings would 

depend significantly on the details of legislative language; a proposal that applied 

to a broader range of drugs could generate no savings or even increase Federal 

costs. The effect on Federal spending would also depend on how the Secretary would 

choose to exercise any new authority to negotiate prices. 

If you have any questions, we would be happy to answer them. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Cc: Honorable William H. Frist, M.D. 

Majority Leader 

Honorable Tom Daschle 

Democratic Leader 

Honorable Don Nickles 

Chairman 

Committee on the Budget 

Honorable Kent Conrad 

Ranking Member 

Honorable Charles E. Grassley 

Chairman 

Committee on Finance 

Honorable Max Baucus 

Ranking Democratic Member 

Honorable Jim Nussle 

Committee on the Budget 

Honorable John M. Spratt Jr. 

Ranking Member 

Honorable William ‘‘Bill’’ M. Thomas 

Chairman 

Committee on Ways and Means 

Honorable Charles B. Rangel 

Ranking Member 

Honorable Joe Barton 

Chairman 

Committee on Energy and Commerce 

Honorable John D. Dingell 

Ranking Member 

41 

The CHAIRMAN. Senator Breaux? 

Senator BREAUX. Thank you, Mr. Chairman. And thank you, Dr. 

McClellan, for your appearance. 

Let me be the first to say that the prohibition in the Medicare 

bill against the government negotiating the price of pharmaceuticals comes from legislation introduced by both Democrats and 

Republicans over a long period of time. It’s been a very consistent 

position. It doesn’t matter whether it’s in the bill or not, in this 

Senator’s opinion, because the structure of the Medicare bill is that 

the government is not, in fact, providing the drugs; we’re using a 

private delivery system; the drug prices will be negotiated through 

the insurance providers, who will negotiate with the manufacturers 

to try and get the best price that they can, so they can sell their 

insurance products at the cheapest possible price. The government 

is not involved in the delivery of the insurance products. 

So whether there’s a prohibition or whether it’s there or not, in 

my opinion, doesn’t add—make any difference whatsoever. The fact 

is that the government doesn’t negotiate prices. When the government becomes the principal buyer of the product, we’re not negotiating, we’re setting the prices, what we have done in hospitals and 

doctors and what we do every year, and it’s a huge mistake, it’s a 

huge mess. 

So this is a new methodology, and we don’t have the government 

negotiating, because they, in fact, are not the provider. The insurance companies will negotiate with the manufacturers for the best 

possible price. 

It was interesting that we talked about Time magazine. I doubt 

whether Time has done the same degree of inspection of imported 

drugs as FDA and Customs has over the years. I’d like you to comment on the two recent efforts by Customs and the FDA to try and 

check the drugs that are coming into this country, and what you’ve 

found. 

According to information we have in July and August, FDA and 

Customs conducted a series of inspections involving over 1,150 individual shipments coming into Miami and New York and San 

Francisco and Carson, California, and you found that about 88 percent, or more, of those drugs, randomly seized in four different locations in the United States, in fact, were illegal. They were tainted, they were not properly refrigerated, and they did not, in fact, 

have the materials that they allege that they were providing in the 

actual product that was coming into this country. 

FDA, in August—in November, rather, of this past year, just now 

a few months ago, seized 3,375 random samples of products coming 

into the United States, seizing them again in Buffalo, New York, 

Dallas, Chicago, Seattle, and also through shipment points in 

Memphis and Cincinnati, and found that most of them were coming 

from Canada, about 80 percent, and, of that amount seized, almost 

70 percent were also illegal, improperly refrigerated, did not contain the products that, in fact, they were allegedly containing. 

Now, I’m not sure how many of these that Time magazine did to 

reach their conclusion, but when Customs did it, and FDA did it, 

what do these findings tell you about the current system? 

Dr. MCCLELLAN. Well, they tell me that there are some safety 

gaps out there that foreign entities are willing to exploit whenever 

42 

they get an opportunity. Senator, we not only saw lots of examples 

of unsafe and risky drugs coming in; we continue to see websites 

popping up that purport to be Canadian, but aren’t, Internet sites 

selling controlled substances, and other risky products, not even— 

you know, they might even be approved products, but they’re not 

dispensed under proper conditions for the safe use of the products. 

What I hear from my staff every day—they’re charged, under the 

law, with assuring the safety of drugs in the United States—is that 

there are real safety gaps here, real safety problems. 

Senator BREAUX. Of the products that some say we can import 

safely from Canada because they’re our friendly neighbors to the 

north, and a developed society, where is FDA and Customs finding 

that a large amount of the drugs that, in fact, are coming from 

Canada actually are coming from? What other countries are involved in using Canada as a transshipment port to bring drugs into 

the United States? 

Dr. MCCLELLAN. In that most recent blitz, we did find examples 

of drugs that have come from Canada, but were initially from other 

nations—Mexico, parts of Asia, Europe, and other places. 

Senator BREAUX. Pakistan, India? 

Dr. MCCLELLAN. Some places like that, yes, sir. 

Senator BREAUX. Let me ask the other question. Suppose you design the best possible system to guarantee that drug products coming in from Canada, for instance, are safe, and we spend millions 

of dollars to do it. Suppose the drug companies just say, ‘‘Look, 

we’re going to figure out what the Canadian consumers need to fill 

their needs. And if it’s 200 pills, we’re going to sell Canada 200 

pills. We’re not going to sell them 500, and import Canadian’s price 

system into this country.’’ What’s the current status? What can the 

Administration do if the manufacturers in this country decide to 

sell what the consumers in another country need? Can we require 

them to sell more—— 

Dr. MCCLELLAN. No, we have no legal authorities to do that. No 

legal authority to do that. In fact, Canadian Internet pharmacies, 

themselves, have said that they have concerns about any largescale importation proposal, because they don’t think they could provide cities, states, very large numbers of Americans safely, and 

there have been cases—for example, the State of Minnesota found 

a pharmacy that was actually not using Canadian drugs, but was 

shipping—you know, purporting to provide Canadian drugs, when 

it was actually shipping drugs from Europe because of these kinds 

of supply issues. 

Senator BREAUX. The Medicare bill mandated that the Secretary 

of HHS conduct a detailed study, and he has created a task force 

to look at how you could establish this type of safe system. And 

Senator Wyden talked about how we’re going to do it. 

Dr. MCCLELLAN. Right. 

Senator BREAUX. And my understanding is that what we required in the Medicare bill was they would come up with a detailed 

study to—— 

Dr. MCCLELLAN. That’s right. 

Senator BREAUX.—find out what would have to be in place. 

Dr. MCCLELLAN. That’s exactly right. 

43 

Senator BREAUX. What is going to happen with that task force? 

What is—— 

Dr. MCCLELLAN. That task force—— 

Senator BREAUX.—being done? And when are we going to—— 

Dr. MCCLELLAN. That task force is working hard right now. The 

first public-input meeting for the task force is next week, with consumer groups, including groups like AARP, Consumers Union, others, some of whom support—many of whom support—importation, 

but also some of whom have wanted to make sure that FDA gets 

the resources and authorities it needs. That and similar meetings 

scheduled over the next few weeks, with other components, other 

people who are going to be affected by this type of proposal, the 

drug industry, the distribution—the drug distributors, the wholesalers, pharmacists, everyone who’s going to need to participate in 

this effort will be part of coming up with what the best solution or 

options are for doing this safely and effectively. 

Senator BREAUX. And that will be reported to Congress? 

Dr. MCCLELLAN. And that will be reported to Congress, as Congress has directed us to do. 

Senator BREAUX. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Cantwell? 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Thank you, Mr. Chairman. 

Dr. McClellan, I think this is a very important hearing to get 

your positions on the record as it relates to this bill. And we’ve 

heard today that you do, in fact, support that language that was 

a prohibition on negotiating on pricing. I think, in your testimony, 

you’ve elaborated, or started to elaborate a little bit, that you think 

that there are competitive actions or competitive forces that are 

going to take place through PBMs and other—— 

Dr. MCCLELLAN. Yes. 

Senator CANTWELL.—vehicles, is that right? Is that—— 

Dr. MCCLELLAN. That’s right. I’ve had the opportunity to talk 

with experts from—actually, the VA relies on their own PBM-type 

system to get their savings. The Federal Employee Benefits Plan, 

the insurance that I have and you have, relies on PBMs to get 

prices that are significantly lower than list prices. And there are 

good models there that I think will be even more effective in the 

Medicare population, because it’s so large. Because millions of 

beneficiaries who use drugs a lot will be able to band together and 

demand lower prices, something they can’t do today, when they individually walk into a drugstore off the street. 

Senator CANTWELL. Well, are you aware, Dr. McClellan, that 

there is an outcry about PBMs being the middle manager and not 

passing rebates on to consumers, that, in fact, for free markets to 

work, and work effectively, with competition, that there has to be 

transparency, and that the U.S. Government and several states 

and attorney generals throughout the country are now bringing 

lawsuits against PBMs? 

Dr. MCCLELLAN. And in order to ensure transparency in the 

Medicare bill, we will build off those kinds of efforts to enforce 

44 

transparency. Just as a for example, in the drug card that Medicare is putting together, and will be making available to seniors beginning just in a couple of months, there will be transparency on 

the final prices that Medicare beneficiaries are going to face. 

They’ll be able to compare what they care most about, what are 

they actually going to be paying for the drug, you know, not what 

the rebate is that some manufacturer gets or some health plan 

gets—what is the bottom line price that they have to pay. So 

they’re going to have much more power—— 

Senator CANTWELL. Maybe—— 

Dr. MCCLELLAN.—to find a card. And the only PBMs that are 

going to work are the ones that are going to give them lower prices. 

Senator CANTWELL. Well, I find that hard to believe, because 

we’re already seeing articles that basically are causing my consumers a lot of heartache—months ahead of Medicare prescription 

drug discounts, basically talking about these PBMs, who are under 

investigation, and how they have already—you know, people from 

the Department of Justice investigating MEDCO and others for 

their practices, and yet these are the very people that are proposing these discount cards. 

And so I need to ask you a couple of specific questions, because 

we’ve proposed legislation, and I want to make sure I understand, 

before I support your nomination, where you stand on these. Do 

you think that pharmaceutical companies should own a pharmacy 

benefit manager, or do you think we should pass legislation to prohibit that? 

Dr. MCCLELLAN. I have not looked at your specific legislation on 

this issue, but I’d be glad to. And if I’m confirmed, I’m certainly 

going to work to find ways to make sure that Medicare beneficiaries get transparency, they get to know where the lowest— 

where the prices—what the prices they’re actually going to pay are, 

and they’ll get the lowest prices. And—— 

Senator CANTWELL. Do you—— 

Dr. MCCLELLAN.—the Inspector General, other legal authorities 

that are involved in some of those cases, are the same ones that’ll 

be working with the Medicare program to help enforce the law on 

getting lower prices to seniors. 

Senator CANTWELL. Do you not know, today, whether you believe 

that a pharmaceutical company should also own a middleman—a 

pharmacy benefit manager—— 

Dr. MCCLELLAN. Well, it certainly—I think that’s legal under the 

law now. In general PBMs—— 

Senator CANTWELL. Do you think it should be legal under the 

law? 

Dr. MCCLELLAN. I think that the law should make sure that seniors get transparency about the final prices that they’re paying, 

and they can see very clearly what they’re getting on their drug 

cards and in their drug benefits. It’s final prices that matter. Not 

rebates, not all this complexity. The law needs to focus on informing beneficiaries about where they can get the most help with their 

drugs costs. 

Senator CANTWELL. That’s not the law we have on the books 

today, and I don’t see you advocating for it, either. 

45 

Dr. MCCLELLAN. Well, I—Senator, I would be very happy to work 

with your office on any specific concerns you have about making 

sure that Medicare beneficiaries know what they’re paying for their 

drugs, they know that they’re getting a good deal when they sign 

up for a drug card or a drug benefit. That’s absolutely my goal, if 

I’m confirmed. 

Senator CANTWELL. I want to be clear, because it’s pretty simple. 

If you’re the middleman, and you’re also owned by the parent company, you’re negotiating with yourself. So if you negotiate a 30-percent discount for, say the Federal employees, and you pocket it, 

you’re just pocketing it to yourself. Or if you only pass on 10 percent of the discount to the Federal employees, again, you’re pocketing—so we don’t have transparency. And so I’m—I guess I’m 

amazed that one of the biggest debates that we have, and I heard 

from my constituents, is, how are we going to control costs? 

Dr. MCCLELLAN. Yes. 

Senator CANTWELL. When they find out that there was language 

in the bill prohibiting that cost debate from happening, and now 

you’re saying it’s going to happen in the free market, and we have 

case after case where these middlemen aren’t passing on the 

costs—I mean, the U.S. Government versus MEDCO, destroying 

and increasing drug costs; Alameda County versus MEDCO, anticompetitive pricing; AFSCME versus Advanced PCS, inflated drug 

pricings in California and keeping rebates secret; North Jackson 

Pharmacists are taking suit against these PBMs, anti-competitive 

practices against small pharmacies, artificially fixing prices. Another case, a West Virginia case, keeps rebates from drug companies that should have been passed on. This is what’s going on in 

America, and you don’t even know whether—you don’t understand 

the debate or what legislation—— 

So I want to ask you an additional question, too, because I know 

my time is—— 

The CHAIRMAN. Go ahead. Go ahead. 

Senator CANTWELL.—probably running out. 

But do you think that these collusive pricing activities ought to 

be able to be investigated by the Attorney General of our country, 

and that the documentation on these pricing—the pricing and rebates ought to be passed on, at least in a confidential form, to the 

Attorney General of our country? 

Dr. MCCLELLAN. I absolutely think any collusive behavior should 

be investigated. That’s illegal under the law, and that’s why, in 

many of the cases that you just mentioned, it’s the U.S. Government bringing suit. And it’s going to be the same U.S. Government 

bringing suit on behalf of Medicare beneficiaries if there are any 

collusive behaviors taking place that are cheating them out of 

money. 

But it’s also why—I want to go back to see if I can make clear 

my point about the way that I think beneficiaries should get information. I don’t think it’s of any use to beneficiaries to know whether the rebate’s 10 percent or 30 percent or whatever. What beneficiaries care about is what their drug actually costs. And if a drug 

company is in collusion with a PBM, and they’re sending all the 

money back to the drug company, then that drug price that seniors 

are going to pay is going to be higher. And that’s why I want senVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76522.TXT JACKIE
46 

iors to know what the actual price is. There hasn’t been enough 

transparency in this market, and that’s why it should focus on the 

bottom line for seniors. What price are they actually going to pay? 

And if I’m confirmed, I’m going to make sure that information gets 

out to seniors with the drug cards and with the further steps that 

we take, so they’ll know exactly what they’re getting—— 

Senator CANTWELL. Well—— 

Dr. MCCLELLAN.—and that a plan that sucks up all the money, 

through collusion or legal steps or whatever, is not going to be one 

that they’ll choose. 

Senator CANTWELL. I disagree with your characterization. I think 

the public wants to know if somebody used their leverage, as a big 

market, as a consumer group, to get the 30 percent discount and 

didn’t pass it on to them. I guarantee you, consumers want to know 

that. 

Dr. MCCLELLAN. And—— 

Senator CANTWELL. And I want to know, as—in your position, do 

you support legislation making these drug companies and pharmaceutical benefit managers disclose those discounts? 

Dr. MCCLELLAN. The bill does include provisions that let the 

Medicare program know about what is being done with the discounts that are negotiated—whether they’re being passed on, 

whether they’re translated into actual benefits for beneficiaries. 

That, plus knowing about final prices, is a good opportunity, under 

current law, to make sure beneficiaries are getting lower prices, 

and that’s going to be backed up by the full force of the government 

against any collusive behaviors. 

Senator CANTWELL. Well, Mr. Chairman, I know my time is expired, but maybe on the next round we can talk about exactly what 

the bill does say, because it does not give that authority. 

So thank you. 

The CHAIRMAN. Just a follow-up on Senator Cantwell’s conversation with you. She believes that the bill does not give the authority. 

You believe that it does? 

Dr. MCCLELLAN. I believe that the bill provides a mechanism for 

seniors to get much lower prices on their drugs. According to the 

estimates, close to 20 percent lower prices on brand names, 50 percent lower—— 

The CHAIRMAN. Dr. McClellan—— 

Dr. MCCLELLAN.—on generics. 

The CHAIRMAN.—you know, these are simple questions. 

Dr. MCCLELLAN. And I’m sorry if I’m not being direct. I—— 

The CHAIRMAN. The question is—— 

Dr. MCCLELLAN.—certainly want to be. 

The CHAIRMAN. Senator Cantwell says that the bill does not give 

the authority, and you are saying that it does. Now, do you disagree with Senator Cantwell? 

Dr. MCCLELLAN. I certainly don’t want to disagree with Senator 

CANTWELL. My understanding of the legislation is that drug benefit 

providers are required to pass on information about what they’re 

doing with their rebates. I also know that when regulations to implement the drug benefit are proposed, and they’re going to be proposed soon, and I’d like to—you know, if I’m confirmed, I’ll get over 

there and get them out soon—there will be a lot of opportunity for 

47 

discussing exactly how this transparency would work, and exactly 

what steps can be taken to effectively address the important concerns that Senator Cantwell has raised. And I—— 

The CHAIRMAN. It’s not a matter of concerns—— 

Dr. MCCLELLAN.—would be—— 

The CHAIRMAN.—it’s a question of whether the authority is in the 

law or not. But, Dr. McClellan, you know that probably the major 

reason why this legislation was passed was because of the support 

of AARP. AARP views legalizing importation for individuals from 

Canada as a required issue of top interest and concerns to our 

members and the American public. How long have you been concerned about this issue of reimportation? 

Dr. MCCLELLAN. I’ve been concerned about it for as long as I’ve 

been in this job. It’s something that—— 

The CHAIRMAN. Which is—— 

Dr. MCCLELLAN.—that I heard since—— 

The CHAIRMAN.—which is how long? 

Dr. MCCLELLAN. Since November of 2002. 

The CHAIRMAN. And in this period of time, yet you have not yet 

formulated a proposal of your own to address this issue? 

Dr. MCCLELLAN. Well, we have worked with Congress, we are 

working, as directed by Congress, through the task force to come 

up with a—— 

The CHAIRMAN. Again, a simple question, Dr. McClellan. Have 

you formulated—— 

Dr. MCCLELLAN. I don’t have my own specific proposal on this 

now. 

The CHAIRMAN. Thank you. Thank you. 

Also, the AARP has stated publicly that they believe that the 

provision prohibiting negotiations should be repealed. According to 

a 2001 Inspector General’s report from the Department of Health 

and Human Services, quote, ‘‘The average prices that Medicare carriers currently use to establish reimbursement amounts bear little 

or no resemblance to actual wholesale prices that are available to 

physicians, suppliers, and other large government purchasers. But 

every time the agency has sought authority to negotiate with drug 

companies, Congress has blocked them.’’ 

I feel very strongly, Doctor, that, particularly with the concerns 

that have already been raised about PBMs, to rely on them to negotiate for lower prices is not going to get it. 

I would hope that since you have been involved in this issue of 

reimportation, not just from Canada, but European countries and 

other countries, that you would come up with a proposal. We rely 

on the Administration and people like you to give us proposals so 

that we can examine them. We almost never have a piece of legislation seriously considered by the Congress unless we have a legislative proposal, or at least principles, from the Administration. I 

think it’s time that the Administration came up with a proposal so 

that we can make these importation of drugs both safe and available, since, again, as you and I have discussed several times, we’re 

not talking about an academic situation. We’re talking about seniors who are going to bed tonight making a decision whether to pay 

for a prescription drug or to eat. And I would argue that, since you 

have been in this job for several years, you will continue in the 

48 

same line of work, that you almost have an obligation to these seniors to come up with a proposal of your own so that we can make 

their prescription drugs more affordable. I hope you will do that, 

Dr. McClellan. If you want to respond, I’d be glad to—before I turn 

to Senator Wyden. 

Dr. MCCLELLAN. No, go right—I don’t want take time away—— 

The CHAIRMAN. Thank you. 

Senator Wyden? And let’s try to make it brief. Dr. McClellan has 

been with us for quite awhile. 

Senator WYDEN. Dr. McClellan, when can the Congress expect to 

get the recommendations from the task force on reimportation? 

Dr. MCCLELLAN. The Congressional direction was to do a comprehensive study, and they gave us 1 year to complete that. I believe the Secretary said that he wants to try to move up that date. 

I’m firmly committed to moving this along as quickly as possible, 

as well. 

Senator WYDEN. So, again, when can you expect we’ll get it? I 

mean, I think—as you look through all this, it’s very convenient 

that if you take the maximum amount of time, the Congress will 

get it after the election. Don’t you think 6 months would be sufficient? Because then people—— 

Dr. MCCLELLAN. We could certainly—— 

Senator WYDEN.—then people would have it well before the election, would actually be able to consider their views on that at that 

time. 

Dr. MCCLELLAN. I’d certainly like to get it done sooner. The Secretary firmly committed to that in his testimony yesterday, maybe 

getting it done by summer. I would also add that while the task 

force is continuing its activities, we will continue to be able to provide technical assistance to Members of Congress. I know there are 

many in Congress who do want to move forward with legislation 

in a timely way, and we will provide assistance for those efforts. 

You all mentioned legislation that you’re introducing. I know 

Chairman Gregg, in our authorizing committee, the Health Committee, is also interested in finding a safe and effective and timely 

way to do this, with bipartisan support. And while our task force 

is ongoing, we certainly want to support the legislative efforts, as 

well. 

Senator WYDEN. I think it’s very unfortunate that after 2 hours 

of discussing this topic, you still haven’t told us your preference 

with respect to how this be put in place. And I’ve got a couple of 

more questions. I’d like to know, for example, what technologies 

you’re going to need and—other than bar-coding. I mean—— 

Dr. MCCLELLAN. Yes. 

Senator WYDEN.—there may be some other kinds of tools that 

you’ve got—— 

Dr. MCCLELLAN. I’d be happy to stay and talk with you about 

that for a little while if you want. 

Senator WYDEN. But you’ve got an opportunity to lead on this 

issue; and, instead, what you’re doing is passing the buck. And you 

have the opportunity to do that, because Congress did say do it 

after the election. I think it’s unfortunate that you’re doing it. I 

know how talented you are. You and I have worked on these 

issues—— 

49 

Dr. MCCLELLAN. Yes. 

Senator WYDEN.—for a long time. And I think the fact that 

you’re sending this off to a commission and saying, ‘‘Let’s let another 6, 7 months,’’ who knows how long go by—probably after the 

election. I don’t think that’s in the public interest. You’ve got the 

expertise. Give us the information about your preference with respect to what it’s going to cost, and the nuts and bolts of running 

the program. 

And my last question for you is essentially this. My colleagues 

have talked about a variety of issues here today, particularly 

changing the negotiating provision. I’ve entered into the record the 

CBO letter, making it clear that there are some savings, particularly with respect to single-source drugs. My question to you is— 

and I ask this as somebody who voted for the bill—I voted for the 

bill and still have the welts on my back to show for it. I think there 

are improvements that can be made. 

In your view, how would it undermine the structure of the bill 

to make the two changes that my colleagues are talking about 

today, and that Senator Snowe and I have proposed? The two 

changes, of course, are making it possible to reimport drugs safely, 

and to give the Secretary negotiating authority. I want to hear 

your views. How do you believe it would undermine the bill to 

make those two changes, which go right to the heart of making it 

possible to better contain costs? 

Dr. MCCLELLAN. Well, Senator, my concerns about importation, 

as I’ve tried to make very clear today, are about finding a way to 

do it safely. And if the safety concerns can be addressed, I think 

you’d have the full support of the very dedicated FDA staff that’s 

out there enforcing the law to make sure that the American drug 

supply is safe, day in and day out, with more complex and more 

sophisticated threats to the safety and security of our drug supply 

than ever before. And that’s what our task force is about. And I 

agree with you, we should try to do it as quickly as possible—— 

Senator WYDEN. Would it—— 

Dr. MCCLELLAN.—and work with you. 

Senator WYDEN.—undermine the bill to make the two changes 

that have been discussed this morning? 

Dr. MCCLELLAN. Well, I think that importation is an issue that 

doesn’t need to be coupled to the Medicare bill. I mean, importation 

is an issue that we should be, as we are today, thanks to Chairman 

McCain, discussing, frankly and explicitly, about the best way to 

move forward on—I’m very appreciative of the full support from 

this Committee to addressing the safety concerns and giving the 

FDA the new legal authorities and resources that we’d need to do 

it safely. That’s not something that I think is tied directly to the 

Medicare legislation. Is that—does that answer your question 

about part of—— 

Senator WYDEN. I’m just asking a straightforward question. 

Dr. MCCLELLAN. Yes. 

Senator WYDEN. We want to make two changes, the reimportation position, and the Secretary’s negotiating—— 

Dr. MCCLELLAN. Yes. I don’t think—— 

Senator WYDEN.—authority. As somebody who voted for the bill, 

I want to know, in your opinion, if you make those two changes 

50 

does it undermine the bill? Does it gut the bill? Does it throw the 

bill—— 

Dr. MCCLELLAN. I don’t think importation, done safely and effectively, has any direct—— 

Senator WYDEN. All right. How about—— 

Dr. MCCLELLAN.—impact on the Medicare bill. 

Senator WYDEN.—how about the negotiating authority—— 

Dr. MCCLELLAN. The negotiating authority would be a fundamental change in the Medicare legislation itself, since the way that 

the legislation—— 

Senator WYDEN. Would it undermine the bill? The question is— 

of course it’s a fundamental change; it’s giving the Secretary some 

bargaining power—would it undermine the bill? I don’t think it 

would. I believe in using private marketplace forces. That was one 

of the reasons I voted for the bill. 

Dr. MCCLELLAN. Yes. 

Senator WYDEN. I think giving the Secretary an additional tool, 

as the Congressional Budget Office has now said, provides another 

way to generate savings. I want you to tell me, this morning, in 

your opinion, giving the Secretary that negotiating authority, 

would it undermine the bill? 

Dr. MCCLELLAN. I think, based on everything I’ve seen so far, it 

would not add much to the ability of the plans to get lower—— 

Senator WYDEN. Would it undermine the bill? 

Dr. MCCLELLAN.—prices, but I’d be happy to talk with you—— 

Senator WYDEN. Would it undermine—— 

Dr. MCCLELLAN.—further about ways to do it to where it might 

not undermine the bill. I don’t see a compelling need for it right 

now to get lower prices for seniors and lower drugs costs, because, 

as CBO and others have said, this is a way to get costs down, but 

I do want to talk with you further about the issues related to single-source drugs and whether that can be a substantial source of 

savings without putting patients at risk. I’m happy to discuss that 

with you further. 

Senator WYDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Dorgan? 

Senator DORGAN. Mr. Chairman. 

Dr. McClellan, the reason you are here this morning is, this 

Committee had asked you to testify, the letters from three—six 

Members, rather—seven Members of the U.S. House to the Senate 

Finance Committee saying they had asked you to testify; you refused. And so you’re here today. And you indicate that you want 

to find a way to work with us to do this safely, but there’s no evidence that you’ve been interested in that at all. 

In fact, a letter you received February 10 from seven Members 

of the U.S. House, Republicans and Democrats, said the following— 

these are seven bipartisan Members of the U.S. Congress—‘‘It’s disheartening, instead of working with the Congress to find common 

solutions for lowering drug prices and ensuring the safety of the 

drug supply, the FDA is spending its resources to produce inflammatory, unscientific attacks on legislation that stands to benefit all 

Americans.’’ 

So this is a bipartisan group of Members of the U.S. House that 

sends you a letter. I mean, look, you need to understand that what 

51 

you have done has not sent any signals to anyone that you want 

to work with us. In fact, it has been exactly the opposite. These 

folks think you have waged an inflammatory, unscientific attack on 

this idea. 

So that’s why you’re here. And let me ask you a question about— 

you say you want to help now, help us find a way to do this safely. 

You know that Europe does this, something called parallel trading. 

You’re in France and want to buy a prescription drug from Spain, 

no problem. You’re in Italy and want to prescription drug from 

Germany, no problem. Apparently no safety issues. So, in Europe, 

they’ve found a way to do that which you oppose. If you’re looking 

to really help us find a way to do this, is there an instructive example with respect to parallel trading in Europe and—— 

Dr. MCCLELLAN. I do think that’s quite instructive. I’ve actually 

had this discussion with some of the Members of Congress who 

support importation. For example, Congress Emerson, Jo Ann 

Emerson, has talked to a number of European pharmaceutical companies and others involved in parallel trade over there, and has actually suggested some participants in the upcoming meeting that 

we’re going to have with the task force on how other regulatory 

agencies around the world have dealt with parallel importation. 

There are some differences in Europe. One is that there is a European Union government structure, so that when they want to 

apply consistent regulatory methods, there’s this over-arching body 

that can help make it happen across countries, and address safety. 

In addition, they are having some concerns over there about the 

safety of parallel importation. The European Union, as you know, 

is expanding to include a number of Eastern European countries, 

some of whom have significant rates of counterfeit drugs and other 

safety problems. 

So I absolutely think there’s a lot to learn from that kind of effort, and we intend to incorporate that in our task force work. 

Senator DORGAN. Well, Dr. McClellan, we’ve actually had someone sit in the chair that you’re now sitting in that comes from the 

European Union, and who’s involved in parallel trading, and his 

testimony would not emphasize that they have some concerns; his 

testimony emphasized, ‘‘This works. There is not a problem. 

There’s an easy way to do this.’’ That was his testimony. And that 

comes from someone—— 

Dr. MCCLELLAN. Right. 

Senator DORGAN.—involved in it. And, you know, I think if you 

had given us the least bit of hope, in the last year and a half, that 

you were going to do anything other than actively fight this every 

step of the way, and, in fact, raise issues that I think are specious 

issues, in a way that scares people, then I—you probably wouldn’t 

be here at this hearing. This is not my preferred way to spend the 

morning; nor is it perhaps yours. But you’ve brought this hearing 

on yourself, in my judgment, and I—you know, look, you, by now, 

understand, I think, perhaps listening to Senator Lott this morning—Senator Lott is not alone. Day after day after day, those of us, 

including Senator McCain and others who have been involved in 

this, understand our colleagues are saying, look, there needs to be 

an opportunity for open trade in a way that provides safety and 

deals with safety issues, but there needs to be a way that gives the 

52 

American people the opportunity to purchase prescription drugs at 

a fair price, and that is not the case today, in all too many circumstances. 

So, you know I have—I had a whole list of questions, and I think 

that—I think you understand, from this hearing, a couple of 

things—at least I hope you do, and I hope you will tell your spokesperson to zip it. It’s not about politics; it’s about policy. And when 

you’re asked to testify before Committees, you need to respond. 

Otherwise—the Congress is not going to put in place people that 

say, ‘‘Well, take a hike,’’ when you’re asked to testify. 

And I especially point back to Governors summit. These are Republican and Democratic Governors, who came to this town. 

They’re all very concerned about this. They’re not interested in 

doing something that’s unsafe for their consumers. They wanted to 

have a forum, and they invited your agency, and you said no, and 

yet you sent someone from your agency to another forum down the 

street that was sympathetic to your point of view that there ought 

not be reimportation. That’s what persuades many of us that there 

has not been a genuine interest in wanting to work with us. 

It is—you know, the fact is that it’s reasonable for us to disagree 

about policy. I’m not—I don’t mean to be unfriendly to you. I don’t 

even know you. You know, I mean, we’re not—we don’t have dinner 

together, we don’t exchange Christmas cards. You, by all accounts, 

have a great resume, and I’m sure you do wonderful work in a 

number of areas. But in this area, which is of great concern, to a 

lot of senior citizens, especially, but all consumers who suffer 

health problems and simply can’t afford prescription drugs, this 

issue is important. And I’ve said it many times, miracle drugs offer 

no miracles to those that can’t afford them. And there are too few 

people here in this 40 or 50 square miles that don’t understand the 

inability to afford prescription drugs you need to save your life. 

And so, thank you for being here, and I hope that this discussion 

is instructive to you, and to the FDA especially. 

Dr. MCCLELLAN. Mr. Chairman, do you mind if I take a minute 

to respond? I want to thank you, Senator, for giving me the opportunity to listen to these concerns. And I appreciate everything that 

you’ve said. While we may not agree on each and every policy 

issue, I actually saw a lot of similarity of views in this room today 

about the need to find a way to do importation that addresses the 

safety concerns. And I think there is a consensus that it’s going to 

take legislation to do that, to give FDA some new authorities and 

new resources to do it. 

I will try, as my part in the task force—and I know Secretary 

Thompson wants to, as well—to move the task force along as quickly as possible to fulfill this mandate from Congress to find the right 

way to do it. But I also understand that some of the Members, including you, want to address this issue very quickly. And, in the 

meantime, while our task force is working, we’ll try to do it as 

quickly as possible, we are going to be happy to provide technical 

assistance to those Members who feel strongly about this issue, and 

work on legislation. 

We may not agree on all the policy issues, but I agree with you 

that we should provide the technical support, and we should acVerDate Nov 24 2008 07:45 Nov 06, 2012 Jkt 075679 PO 00000 Frm 00056 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\76522.TXT JACKIE
53 

tively and fully engage on the issue of finding a way to do this safely and effectively. 

The CHAIRMAN. Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. 

Dr. McClellan, back to this point about PBMs. 

Dr. MCCLELLAN. Yes. 

Senator CANTWELL. Because I really think that this legislation 

that was passed is really playing a very cruel trick on seniors 

across America. You are telling them that the free marketplace is 

somehow going to produce this competition that is going to lower 

the drug prices. And I have to tell you, I had probably 15 to 20 

town meetings in January and previously—right when the legislation was passed. Nobody there was buying it. They believe that 

Medicare should have had a comprehensive plan and negotiated as 

a big market buyer—— 

Dr. MCCLELLAN. Yes. 

Senator CANTWELL.—and negotiated those prices themselves. But 

that’s not what we’re stuck with. And so now the question becomes—and my read of this legislation that was passed does require some audits, does require some disclosures by the prescription drug plans, but it does not require PBMs to disclose. In fact, 

the Inspector General for the HHS has already tried to get PBMs 

to disclose this information. That’s why some of these attorney generals across the country, and the U.S. Attorney in Pennsylvania, is 

having challenges with these cases, because they can’t get access 

to the information. 

So now here you are, going to be sitting at the top of this big 

operation in which, underneath you, these discounts and kickbacks 

are going to be moving back and forth. And the question is, what 

do you believe should be disclosed? In fact, the Inspector General 

from the Department of Health even said—or warned that rebates 

collected by benefit managers working for Medicare programs 

might violate anti-kickback laws at the Federal level unless 

amounts paid to companies are disclosed in writing. 

So we really don’t have this clear today. We don’t have clear 

what has to be reported and by whom. And we’re going to hide behind this legislation, saying, ‘‘Well, don’t worry about that language saying that you don’t have to—there’s no negotiation on 

prices. The free market’s going to do it.’’ But then you take all the, 

you know, hands off on making sure that the free market really 

works with transparency. 

So I want to go back again—and I’m happy to hear your reading 

of this legislation, on closer review—but I want to understand from 

you, today, whether you think that PBMs should be forced to disclose, to the Attorney General, these rebates, the specific rebates. 

Dr. MCCLELLAN. If that’s what it takes to assure that beneficiaries are getting lower prices and are getting the benefits that 

are supposed to come from competition, I think that’s something I 

would support. As I understand it, the Secretary does have some 

authorities to compel the information that he thinks is necessary 

to understand whether seniors are really benefiting, under the law, 

by lower prices. 

And I don’t mean to put this off. All I meant, with my earlier 

answer about talking about the regulations that are going to be 

54 

forthcoming and so forth, is that I intend to have a full and frank 

public discussion about the best way to get low prices to seniors 

under this legislation. And we will put out a proposed rule that will 

discuss things like what kind of information will be provided to the 

Secretary to understand what kind of rebates are occurring and 

whether they’re being passed on to seniors, and what kind of information will be provided to seniors to help them understand whether they’re getting the best deal or not. And I absolutely welcome 

your ideas and your thoughts on how we can make sure that seniors are really getting those benefits. 

There’s one area where I fully agree with you is that if these reductions in prices and reductions in costs don’t materialize, seniors 

and the American public are not going to be satisfied, and they 

shouldn’t be satisfied, and we’re going to have to go back and find 

a different way to do this. 

But I do feel like there is a lot that can be done under this current law to get prices down, and I hope we get a chance to work 

together to do that. 

Senator CANTWELL. Well, I don’t know if I agree that there’s a 

lot under this current law, but I will take you at your word in saying that you support the rebates if that is what is necessary, because I think that is what’s going to be necessary. And so I hope 

you didn’t take your own words lightly, because that is exactly 

what is needed here. And so I’m going to take those remarks as 

someone who is serious about making sure that these PBMs disclose rebates. Is that correct? 

Dr. MCCLELLAN. And I will look—— 

Senator CANTWELL. Is that—— 

Dr. MCCLELLAN.—forward to working—— 

Senator CANTWELL.—is that correct? 

Dr. MCCLELLAN.—with you. 

Senator CANTWELL. Is that a correct—— 

Dr. MCCLELLAN. If that’s what’s necessary to get the low prices 

to seniors and make sure they’re benefiting from the discounts and 

rebates. And I’m going to look forward to working with you, if I get 

confirmed, on—— 

Senator CANTWELL. And what—do we have to disprove if it’s necessary? What else do we have to do to prove if it’s necessary? 

Dr. MCCLELLAN. Well, I think one thing to do would be to look 

at the proposed regulations that the Administration puts out in implementing the Medicare law, and that’s going to include a lot of 

provisions that are going to be designed to make sure that any rebates or discounts that occur are directed to the benefit of seniors. 

And so we’re going to have a chance then to talk about whether 

the mechanisms are adequate. And we’re going to have a chance 

then to discuss whether further regulatory changes, or maybe even 

legislation, is necessary to help make sure seniors get the benefits 

necessary. I’m absolutely committed to working with you in that 

process. 

Senator CANTWELL. Well, I think you have a big task ahead of 

you—— 

Dr. MCCLELLAN. Yes. 

55 

Senator CANTWELL.—in this regard, and I think that—I’m not 

quite sure you understand the fine line that you’re walking here 

with your testimony. 

But thank you, Mr. Chairman. 

Dr. MCCLELLAN. Thank you, Senator. And I’d be happy to talk 

with you or your staff further about this to make sure we’re doing 

all we can to address this very important concern. 

The CHAIRMAN. Thank you, Dr. McClellan. 

I’m a politician, and I think I have a fair idea about public opinion. American public opinion right now, particularly amongst our 

seniors, is that they want to be able to get their prescription drugs 

at the lowest possible price. Right now, they see that in Canada 

and overseas. Despite the power of the pharmaceutical companies, 

we will pass, as the House has passed, twice now, a requirement 

for the ability to reimport drugs from Canada. And I believe that 

will be expanded to other European countries. 

So my suggestion is that you prepare for it and be part of the 

solution, rather than, as is the perception here, that you and the 

Administration have been blocking it. 

I also believe that the provision prohibiting—particularly since 

the AARP has come out in favor of repeal—well, they’ve come out 

for safe importation; they’ve also come out for repeal of this provision prohibiting Medicare from negotiating—I suggest that you also 

prepare for that. 

One of the reasons why the significant majority of seniors do not 

support this bill is because they see the not-so-gentle hand of the 

pharmaceutical company, and they see their inability to import 

drugs from Canada, and they don’t see any lowering of the prices 

of prescription drugs for any of them. Now, maybe as the law is implemented, we will see those improvements. But right now, with 

the seniors around American, you’ve got a lot to prove, and I hope 

that we will be able to move forward in that fashion. 

I thank you for appearing, and you’re certainly welcome to respond. 

Dr. MCCLELLAN. Mr. Chairman, I want to thank you for your 

leadership and your clear passion and continued passion on the 

issue of helping seniors, and, in particular, getting them lower 

prices for medicines that they need in getting them better medical 

care. 

I’ve appreciated the opportunity to be here today. I’ve learned 

something from this process about the importance of interacting 

with you and your colleagues as constructively as possible. 

I’d like to think that this has been a very constructive interchange, in the sense that there is, I think, a lot of consensus 

around finding ways to make the fundamental changes in the importation law that might be needed to assure safety and to assure 

the effectiveness of imports, and recognition that, you know, we’ve 

got some dedicated professional staff at the FDA that want to make 

sure drugs are safe, and we need to augment that with new authorities and new resources if we’re going to take on the challenge 

of these additional kinds of imports. 

I can also say that if you do pass legislation to do importation, 

of course the agency is going to do everything it can to implement 

that law as effectively as possible. My hope would be that, through 

56 

our task force and through any technical assistance that we can 

provide, that legislation would really address the safety concerns 

that have been raised, and I think there are some legitimate ones, 

and hopefully we can find a way forward in a very timely way to 

address that. 

So thank you for your leadership, and thank you for the opportunity and for the time that you’ve taken to hear from me today 

about this important, important issue. 

The CHAIRMAN. Thank you very much. 

This hearing is adjourned. 

[Whereupon, at 12:07 p.m., the hearing was adjourned.] 

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