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[Senate Hearing 108-945]
[From the U.S. Government Publishing Office]

                                                        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

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        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

                            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 
      Holtz-Eakin, 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

      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 
pharmaceuticals 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 somebody 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.
    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.
    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.
    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, double-digit 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, 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.
    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 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 taking 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.
    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 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-in-glove 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 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 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 purport 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 the riskiest products 
before they enter the country. For the highest-risk 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 cost-effective 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 affordable 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 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.

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 risk-based 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.

   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

        (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 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 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 multi-layered 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.''

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.
    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 
left-wing 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.
    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----
    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----
    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 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 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.
    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.
    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?
    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.
    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 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 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--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.
    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 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 
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

    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 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 large-scale 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.
    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 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.
    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, anti-competitive 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 seniors 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 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 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----
    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 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 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 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 
actively 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 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.
    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 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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