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S. HRG. 113–799 

TEN YEARS LATER: A LOOK AT THE MEDICARE 

PRESCRIPTION DRUG PROGRAM 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

WASHINGTON, DC 

WEDNESDAY, MAY 22, 2013 

Serial No. 113–5 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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(II) 

SPECIAL COMMITTEE ON AGING 

BILL NELSON, Florida, Chairman 

RON WYDEN, Oregon 

ROBERT P. CASEY JR, Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

KIRSTEN E. GILLIBRAND, New York 

JOE MANCHIN III, West Virginia 

RICHARD BLUMENTHAL, Connecticut 

TAMMY BALDWIN, Wisconsin 

JOE DONNELLY Indiana 

ELIZABETH WARREN, Massachusetts 

SUSAN M. COLLINS, Maine 

BOB CORKER, Tennessee 

ORRIN HATCH, Utah 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

JEFF FLAKE, Arizona 

KELLY AYOTTE, New Hampshire 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

KIM LIPSKY, Majority Staff Director 

PRISCILLA HANLEY, Minority Staff Director 

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(III) 

CONTENTS 

Page 

Opening Statement of Chairman Senator Bill Nelson ......................................... 1 

Prepared statement .......................................................................................... 2 

Statement of Ranking Member Susan M. Collins ................................................. 3 

PANEL OF WITNESSES 

Margaret Woerner, Medicare Beneficiary and Helpline Volunteer, Medicare 

Rights Center ....................................................................................................... 5 

Jack Hoadley, PhD, Research Professor, Health Policy Institute, Georgetown 

University ............................................................................................................. 11 

Richard Smith, Executive Vice President for Policy and Research, Pharmaceutical Research and Manufacturers of America ............................................. 20 

Robert G. Romasco, President, AARP .................................................................... 45 

APPENDIX 

PREPARED WITNESS STATEMENTS

Margaret Woerner, Medicare Beneficiary and Helpline Volunteer, Medicare 

Rights Center ....................................................................................................... 7 

Jack Hoadley, PhD, Research Professor, Health Policy Institute, Georgetown 

University ............................................................................................................. 14 

Richard Smith, Executive Vice President for Policy and Research, Pharmaceutical Research and Manufacturers of America ............................................. 22 

Robert G. Romasco, President, AARP .................................................................... 47 

ADDITIONAL STATEMENTS FOR THE RECORD

National Committee to Preserve Social Security & Medicare ............................. 82 

The National Association of Chain Drug Stores ................................................... 84 

MARPx Coalition Principles for Prescription Drug Benefit Design .................... 89 

Pharmaceutical Care Management Association .................................................... 93 

Ron Pollack, Executive Director, Families USA ................................................... 98 

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TEN YEARS LATER: A LOOK AT THE 

MEDICARE PRESCRIPTION DRUG PROGRAM 

WEDNESDAY, MAY 22, 2013 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:33 p.m., in Room 

366, Dirksen Senate Office Building, Hon. Bill Nelson, Chairman 

of the Committee, presiding. 

Present: Senators Nelson, Wyden, Warren, Collins, and Ayotte. 

OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN 

The CHAIRMAN. Good afternoon. In the interest of time, since a 

vote will be called at 3:40, Senator Collins and I are going to forego 

the opening statements, and so we will get right in with your testimony. We will insert our statements in the record. 

[The prepared statement of Chairman Nelson follows:] 

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[The prepared statement of Senator Collins follows:] 

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The CHAIRMAN. Let me, first of all, introduce you all before. 

We are going to hear from Margaret Woerner. Ms. Woerner—Dr. 

Woerner—is a Medicare beneficiary herself, and she has volunteered at the Medicare Rights Center in New York City for the past 

eight years. In this capacity, she has listened to other beneficiaries 

and their families, and provided them with information on a wide 

variety of issues. Being a volunteer and a beneficiary, Dr. Woerner 

has a unique perspective on Medicare Part D. 

Jack Hoadley—Dr. Hoadley—is a research professor at the 

Health Policy Institute at Georgetown. Recently, Dr. Hoadley has 

studied various aspects of Medicare Part D, including the spending 

trends and the use of formularies. Dr. Hoadley was also recently 

appointed to a three-year term as a member of the Medicare Payment Advisory Commission. 

And, Richard Smith, Executive Vice President for Policy and Research at the Pharmaceutical Research and Manufacturers Association—Mr. Smith has worked extensively in health care. 

And, Robert Romasco, he is the President of AARP. 

And so, this is a distinguished panel. 

And because, Senator Wyden, I said we are going to forego the 

opening statements since we have a vote coming up, we will get 

right with the witnesses. 

So, Dr. Woerner, we will start off with you. 

Your full statement will be placed in the record, and if you all 

could give us about a five-minute summary, we would appreciate 

it. Thank you so much. 

STATEMENT OF MARGARET WOERNER, MEDICARE BENEFICIARY AND HELPLINE VOLUNTEER, MEDICARE RIGHTS 

CENTER 

Ms. WOERNER. My name is Margaret Woerner. I am a Medicare 

beneficiary and have been a helpline volunteer for the past eight 

years at the Medicare Rights Center in New York City. 

The Medicare Rights Center is a national nonprofit organization 

that works to ensure access to affordable health care for older 

adults and people with disabilities. 

As a volunteer, I provide information and counseling to Medicare 

Part D beneficiaries and their family members on a variety of 

issues. This work is deeply gratifying because I can help people 

solve very real life problems. 

I have seen the positive impact that access to prescription drug 

coverage under the Part D benefit has had for so many older adults 

and people with disabilities. Yet, while these benefits are undeniable, many barriers to accessing needed medications still exist. I 

believe that the Part D benefit can be made even stronger by addressing these issues. 

I speak to countless beneficiaries who go to the pharmacy to fill 

a prescription only to find that their Part D plan refuses to cover 

the medication. When this happens, most beneficiaries leave the 

pharmacy empty-handed and without answers. 

Upon calling the plan, they are given any number of reasons for 

the denial. For example, the plan wants them to try a less expensive drug first, the drug is not on the plan’s formulary, or the drug 

is being taken for an off-label indication. 

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Yet, before a beneficiary can even begin to appeal to have the 

drug covered, I must counsel that she first must request a written 

coverage determination from her plan and include a letter of support from her doctor. Many of the people I speak to have not received instructions from their plan on how to do this. 

Callers often express frustration at the need to jump through so 

many hoops. Because of these hoops, some will try to pay for the 

prescriptions out of pocket; others will simply go without their 

medication because they cannot afford it. 

I helped a 75-year-old woman living in Florida who received a denial notice from her Part D plan, stating that they would not authorize a drug for her rheumatoid arthritis without additional medical information. When she had previously been living in Ohio, this 

same plan covered the same drug. So she was quite confused and 

upset as to why they would not fill this prescription this time. She 

left the pharmacy without her medicine, and it took four weeks for 

her to get the prescription covered. In the meantime, she had to 

suffer through the pain and inflammation caused by her arthritis. 

The large number of plans available and the frequent plan 

changes from year to year make it nearly impossible for many of 

our callers to make the right decision about enrolling in a new Part 

D plan or keeping their existing plan. 

I have found that from year to year my own out-of-pocket costs 

for the same coverage and for the same medications can vary greatly from plan to plan. 

I speak to many beneficiaries who attempt to understand their 

coverage before they enroll only to find out after they have enrolled 

that their medication is subject to numerous restrictions or that 

their costs are much higher than they can afford. 

To get the most out of your coverage, you must know the differences between preferred brand name drugs versus nonpreferred 

brand name drugs versus preferred generic drugs versus nonpreferred generic drugs versus specialty drugs; you must know how to 

obtain your drugs from preferred in-network pharmacies versus 

nonpreferred in-network pharmacies versus mail-order pharmacies; 

and, of course, you must know whether your drugs are subject to 

any restrictions. 

Part D has done many good things for older adults and people 

with disabilities, but there is much more that can be done to improve the program. 

Thank you for the opportunity to testify about my experience 

helping people with Medicare Part D. 

[The prepared statement of Ms. Woerner follows:] 

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The CHAIRMAN. Thank you, Dr. Woerner, and we are looking forward to some questions as we dig into this issue of the Medicare 

prescription drug benefit. 

Dr. Hoadley. 

STATEMENT OF JACK HOADLEY, PH.D., RESEARCH PROFESSOR, HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY 

Mr. HOADLEY. Thank you, Mr. Chairman, and thank you, members of the Committee. I do appreciate this opportunity to talk 

about my ongoing research work on the record of Part D over the 

10 years since the law was passed, and that is the occasion for this 

hearing. 

Part D really marked several firsts in Medicare. It was the first 

outpatient drug coverage for Medicare beneficiaries, something that 

was not included in the original program; the first part of Medicare 

solely available through private plans and not part of the Fee-ForService system; the first time Medicare had provided direct assistance to low-income beneficiaries not relying on Medicaid to provide 

that assistance; and an unusual benefits structure with a gap in 

coverage, also known as the donut hole. 

As we look at the record of Part D over the time since it started, 

there are some important successes but some ongoing issues and 

concerns, and I want to mention a few of each; first, the successes. 

The cost of Part D has been 30 percent lower than the initial 

budget projections, and that is a really important thing, something 

we do not often get to talk about. This is not so much a result, in 

my view, of plan competition as some have argued. But the program has been able to take advantage of the lower spending trend 

on prescription drugs over this period of time and the increased use 

of generic drugs as many of the popular drugs that people take 

have gone off formulary and have become available as generics. 

Lower enrollment has also been somewhat of a factor although not 

one of the ones that we should be so happy with. 

A second success is that enrollees in Part D have had reduced 

out-of-pocket spending and increased access to their needed drugs, 

and the research record is really very supportive of this finding. 

Third, Congress has taken steps to fix the most important design 

flaw in the program—that donut hole that I referred to earlier— 

and that is still on schedule to be phased out by 2020. That means 

that people are not running into the problems of having to stop 

their drugs when they hit that donut hole as they did before, and 

once it is phased out, that issue will really have gone away. 

Fourth, the program’s start back in 2006, despite a lot of initial 

concerns, went relatively smoothly. And while there were glitches 

along the way and glitches continue, in many cases during that initial rollout, problems were fixed and resolved, and we ended up 

with people enrolled in the program. 

But issues do remain. Although Congress and the CMS have 

made important adjustments, there is still room for improvement, 

and again, I want to highlight four areas. 

First, Part D remains complex and confusing to many beneficiaries as you just heard discussed a bit. Despite some really important CMS efforts to streamline the program, there are still too 

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many plans with too many complicated differences that are hard 

for people to understand. 

People really regularly report that it is a confusing benefit. As 

a result, people do not always pick the plan that is best for them, 

and furthermore, they do not always look at alternative plans during the open enrollment period that might save them money and 

put them in a better situation. 

Second, not every Medicare beneficiary has drug coverage. It appears from the best available data that 10 percent—1 in 10 beneficiaries—do not have adequate drug coverage, do not have Part D 

or some other equivalent coverage that is as good or better than 

Part D. We do not fully understand who those people are and why 

that has happened, but that is something we really need to redouble efforts to make sure everybody who needs that benefit really 

has access to it and gets it. 

Third, there are some important issues remaining with the lowincome subsidy program. It has been a very powerful program and 

a big help to people who get the subsidy, but of the people who 

have to apply on their own and do not automatically get the subsidy through Medicaid, only 40 percent of those required to apply 

actually have done so and gotten the low-income subsidy. So more 

than half of people that we think are eligible are not enrolled in 

the subsidy, and that means they are not getting the extra help 

they are entitled to. 

Furthermore, those with the subsidy generally must switch plans 

on a fairly regular basis in order to gain all the benefits of the subsidy—for example, to keep a plan with no premium charge. Right 

now, we know that 1.6 million beneficiaries who are part of the 

low-income subsidy program are actually paying a premium to stay 

enrolled in Part D, something that they would not have to do if 

they were to switch to one of the eligible plans. 

But even the fact of switching to other plans—and CMS does reassign quite a few people each year—means that people’s existing 

coverage is disrupted; they run into formulary issues, drugs that 

used to be covered that are not anymore and this sort of thing. 

So there is a problem sort of with both ways, and again, there 

are things that we could probably do to address some of these 

things. 

Fourth, although the cost has been below projections, spending 

trends in the future could add cost pressures. The wave of patent 

expirations that has been responsible for keeping spending down is 

slowing, and so that is going to mean we will not get the advantage 

of that in the future. 

And a lot of the new drugs on the market tend to be expensive 

specialty drugs—drugs that come at a high price tag. They are important therapies, and beneficiaries need appropriate access to 

those drugs, but they are going to be expensive drugs. 

And there are policy levers available, going everywhere from 

more availability of follow-on biologics—and there have been some 

steps taken in that direction—the potential to use the Part D rebates that the Chairman and others on the Committee have supported, and better medication therapy management by plan to try 

to make sure there is appropriate use of those drugs. 

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And I could add some of the points that Dr. Woerner talked 

about—about the appeals process. 

The bottom line is that we can point to some clear successes in 

the program, but it is critical we not rest on the record of its success and address some of the outstanding issues. 

And, just as one last point, let me observe that the experience 

in launching this program may also offer some really valuable lessons to the launch of the insurance exchanges this fall, and I would 

be glad to talk more about that in response to questions. 

[The prepared statement of Mr. Hoadley follows:] 

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The CHAIRMAN. Dr. Hoadley, thank you for the value of your research. 

Mr. Smith. 

STATEMENT OF RICHARD SMITH, EXECUTIVE VICE PRESIDENT FOR POLICY AND RESEARCH, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA 

Mr. SMITH. Mr. Chairman, Ranking Member Collins and members, good afternoon. 

Medicare Part D has been highly successful. And, like my colleagues, I will come to a few points where we believe improvements 

can be made, and some of those will echo the points they have 

made, but overall, it has been highly successful. 

Nine in ten seniors have drug coverage. Ninety-four percent are 

satisfied with their coverage as reported by MedPAC. 

Program costs are 45 percent less than initially projected as we 

have worked with the CBO data, and average monthly premiums, 

which remained at about $30 from 2011 through 2013, are half the 

original forecast. 

Medicines, of course, play a central role in fighting disease, especially for seniors. Yet, they are a modest part of health spending. 

Part D accounted for only 10 percent of Medicare costs in 2012. 

In addition, growth in spending has been acknowledged. Growth 

in spending on medicines has undergone a sharp and sustained 

slowdown in recent years. In each of the last 3 years, CBO has reduced its 10-year forecast for Part D by over $100 billion. 

And Part D is responsible for much of the overall slowdown in 

Medicare spending. Further, CMS says its spending per person in 

Part D will grow 1.8 percent in 2013, and marketwide, 4 of the 5 

years with the lowest prescription drug spending growth have occurred since Part D began in 2006. 

One reason for slow growth in drug costs is the prescription drug 

life cycle in which brand companies develop medicines which later 

become generics, and here, I have a slight disagreement with my 

co-panelist. I believe that the market works to obtain maximum 

savings from the life cycle. 

Four out of five prescriptions are now filled with generics, and 

this system is unique to medicines. It contains costs and allows resources to be reallocated from older to newer treatments. Due to 

the life cycle, between 2006 and 2010, the average cost per day in 

10 commonly used classes of medicines in Part D dropped from 

$1.50 to $1.00. 

Medicines can also help reduce other health costs. In November, 

CBO announced it will credit policies that increase use of medicines with savings on other Medicare services. In making this 

change, CBO cited research finding that in its first full year Part 

D reduced nondrug medical costs for beneficiaries who previously 

had no or limited coverage by an average of $1,200. This equaled 

about $13 billion in savings in 2007. 

And new research suggests even greater potential. For instance, 

increased adherence with medicines for congestive heart failure 

could save Medicare $22 billion in the coming decade. 

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ready buy drugs on behalf of tens of millions of people in the commercial sector and use their clout and specialized expertise to negotiate discounts that lower Part D premiums and beneficiary costsharing. And, likewise, beneficiaries have an incentive to pick plans 

with low premiums and good coverage. 

And I will be glad to come back and address that in questions. 

Some suggest that more savings could come from Part D through 

government negotiation. We disagree. Because of the robust price 

negotiations by private plans already built into the program, CBO 

has consistently found that giving the government authority to negotiate would have a negligible effect on Federal spending unless 

the Secretary imposed new restrictions on access to medicines. 

Some have also proposed that imposing Medicaid’s price controls 

are mandated rebates on medicines used by low-income Medicare 

beneficiaries. Proponents of this suggest it would simply be a return to the pre-Part D status quo, and I believe that is not accurate. 

First, the policy, as proposed, would apply to millions of people 

who were never eligible for Medicaid drug coverage. 

Second, Part D extended negotiated discounts to 11 million people who previously did not have them. It also increased generic use 

and led to new cost containment tools that have now been spread 

throughout the market. 

Third, there have been major policy changes since 2006. The 

BIO–PhRMA sector now pays a higher Medicaid rebate, a fee to 

the Medicaid Trust Fund and 50 percent discounts in the coverage 

gap. Analysts estimate these new costs add over $100 billion over 

10 years. 

And analysts, including a former CBO director and former CMS 

chief actuary, see mandated rebates as leading to higher premiums 

fewer plan choices and more restrictive formularies in Part D. 

Researchers have also found that price controls would discourage 

R&D investment in new medicines at great cost to private health, 

and CBO has noted that Part D rebates could discourage R&D investment in medicines mostly used by seniors. 

The U.S. leads the world in drug development, and the BIOPhRMA sector is one of the most R&D-intensive in the economy, 

accounting for 20 percent of all business-funded R&D in the United 

States. In addition to improving medicines that improve lives, R&D 

is widely recognized as driving economic growth. 

I will conclude by noting that, like any program, improvements 

could be made in Part D. For instance, not all eligible individuals 

are enrolled, as my colleagues have pointed out. Seniors could be 

encouraged to shop more among plans and be supported in that 

shopping to make good choices. And there could be improvements 

in medication therapy management in the specialty tier. However, 

program improvement should not undermine the hallmarks and 

successes of Part D. 

Continued innovation is challenging. There is a lot more to be 

done. Consider that without new treatments to alter the course of 

the disease, Alzheimer’s will cost Medicare and Medicaid $300 billion annually by 2030. None of us want that to happen. So hope 

for the future lies with continued innovation. 

And I appreciate your invitation to testify. 

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[The prepared statement of Mr. Smith follows:] 

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The CHAIRMAN. Thank you, Mr. Smith, and congratulations on 

your industry developing extraordinarily wondrous new drugs. And 

this will continue. 

Mr. SMITH. Thank you, sir. 

The CHAIRMAN. Mr. Romasco. 

STATEMENT OF ROBERT G. ROMASCO, PRESIDENT, AARP 

Mr. ROMASCO. Chairman Nelson, Ranking Member Collins, Senator Warren, my name is Rob Romasco. I am a member of AARP’s 

all-volunteer board of directors, and I proudly serve as AARP’s 

president. 

On behalf of AARP’s more than 37 million members, we thank 

you for holding this hearing on the Medicare Part D Prescription 

Drug Program. 

As we approach the tenth anniversary of the Medicaid Modernization Act, Part D is helping millions of Medicare beneficiaries 

afford the prescription drugs they need. 

AARP continues its strong support of the Medicare drug benefit, 

which provides help to older Americans, those with disabilities and 

those with low incomes or catastrophic drugs costs. Part D has improved their access to prescription drugs. Prescription drug coverage plays a vital role in the health and financial security of older 

Americans. Part D has been a true success in helping seniors get 

and stay healthy. 

As part of the Affordable Care Act, the initial Part D coverage 

gap is slowly being eliminated through escalating discounts. According to CMS, these changes have helped save people more than 

$5.1 billion on prescription drugs. 

Chairman Nelson, I would like to take this opportunity to thank 

you for your support of this key provision of the ACA. 

The Part D is coming under budget. We have heard the estimate 

is 30 percent lower than CBO’s projection 2003. Last year, CBO acknowledged that taking medications helps prevent hospital admissions and reduces the use of other medical services. This shows the 

importance of Part D in helping control spending in the Medicare 

program and, critically, offers a path to controlling costs throughout the entire health care system. 

Among the most important protections in Part D is the extra 

help provided by the low-income subsidy to help those least able to 

afford their drugs. 

Amid the successes of Part D, however, we see opportunities for 

improving the program. 

Our members, especially Medicare beneficiaries, still tell us they 

continue to struggle to afford prescriptions. The Asset Test is a 

particular concern. To be eligible for the low-income subsidy in 

2013, beneficiaries cannot have $1 more than $13,300 in savings. 

This is hardly enough to get through the years of retirement, and 

that is why AARP has consistently opposed the Asset Test. 

Also, AARP believes recent recommendations to modify prescription drug co-payments for low-income beneficiaries may be premature. Instead, we recommend further research to help understand what is driving utilization and to ensure that any changes 

in the LIS benefit will not interfere with access to necessary drugs. 

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Also, Part D enrollees are faced with increasing cost-sharing as 

the drug plans get more complex, with more cost-sharing tiers and 

increased cost-sharing for both preferred and nonpreferred brand 

name drugs. 

Further, AARP does not support making Part D enrollees pay 

higher premiums based on their income. Seniors in Medicare have 

already paid into the system through payroll taxes, and those with 

higher incomes paid more over their lifetimes. In many cases, seniors with higher incomes are still working and continue to pay 

Medicare taxes often because they do not have the savings they 

need to retire. 

AARP is concerned that those with higher incomes may simply 

choose not to participate in Part D, fundamentally changing the 

nature and quality of the program. 

We do, however, recognize we must take steps to reduce costs. 

AARP urges Congress to enact legislation that will lower overall 

costs in Part D rather than simply cost-shifting to older Americans 

and asking them to pay more for their care. 

In that vein, we strongly support the Medicare Drug Savings Act 

which would require prescription drug manufacturers to provide rebates for drugs provided to low-income beneficiaries dually eligible 

for Medicare and Medicaid. This would restore savings they received prior to the enactment of MMA. This legislation is estimated 

to save $141 billion over the next 10 years. 

AARP looks forward to working with all members of Congress to 

enact this sensible legislation to improve fiscal stability of Medicare 

while protecting beneficiaries. 

We have also consistently supported legislation that would enable the Secretary of HHS to use the bargaining power of Medicare’s 49 million beneficiaries to negotiate lower drug prices. 

Further, we support reducing the market exclusivity period for 

biologic drugs from 12 to 7 years. This could save billions for beneficiaries, the Medicare program, for employers and for health care 

payers. 

In conclusion, we should focus on efforts to hold down costs, not 

simply shift costs in the form of either higher premiums or co-payments for Medicare beneficiaries. 

We look forward to working with members of Congress on both 

sides of the aisle to improve Part D and find ways to keep drug 

coverage affordable for people with Medicare. 

Thank you very much. 

[The prepared statement of Mr. Romasco follows:] 

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The CHAIRMAN. Thank you to all of you. 

We are going to get into questions, and it will help flesh out, 

since Senator Collins and I did not make an opening statement, 

setting the table for the discussion today. And I am going to defer 

my questions until our colleagues have asked theirs. 

Senator Collins. 

Senator COLLINS. Thank you very much, Mr. Chairman. Let me 

begin by commending you for holding this series of hearings as we 

approach the 10th anniversary of the Medicare Modernization Act 

of 2003. 

I was proud to vote for that legislation, and I think that it is possibly—no, I am going to go out on a limb here and say it is the 

only entitlement program in history where the actual experience 

has produced much lower costs both for the government and for 

beneficiaries than was initially estimated. Usually, it goes the 

other way when we create a new benefit. So that is good news indeed as is the high satisfaction rate. 

Nevertheless, there are some very important issues that we need 

to explore as we approach the tenth year of this program. 

Dr. Woerner, I was very interested in hearing your experience in 

counseling beneficiaries. Many Part D plans now use medication 

utilization management tools such as prior authorization, medication substitution or quantity limits that restrict a beneficiary’s access to prescription drugs. 

I have heard concerns from my constituents that some drug 

plans have what I refer to as a Fail First Policy in which a beneficiary may be prescribed a more expensive medication but first has 

to use a lower cost drug or a plan-preferred medication and actually experience the failure of that medication before they are allowed to use the medication that their doctor wanted to prescribe 

in the first place. 

I know of an elderly woman in Maine who had the experience of 

having side effects from a drug that was the lower cost drug and 

had a terrible cough for a month from it. When she was able to 

switch to the drug that her doctor originally prescribed, she was 

fine. 

Is this common in your experience? 

And do you have any suggestions—and I am going to ask all of 

you this question. Do you have any suggestions for how we can 

strike the right balance between making sure that plans do have 

the ability to legitimately control costs and yet not put our seniors 

through a situation where they are going to have to experience the 

failure of a drug before they can get the drug their doctor knew 

was the preferred medication in the first place? 

Ms. WOERNER. You have it exactly right, Mrs. Collins. We get 

many, many calls from people who have gone through that process. 

Their doctor has prescribed a drug, and the plan says before we 

will cover that drug you must try sometimes two or three other 

drugs. 

Now very often the caller will tell me, I have tried those drugs, 

and I had a terrible rash when I got that, or I had a terrible intestinal problem. 

They have already been through those, but in order to convince 

the plan they need to get documentation from the doctors who preDeShaun on LAP51NQ082 with DISTILLER

60 

scribed those earlier medications. That is not always possible or 

certainly not always easy to do. 

So I would say that is a very common problem among the callers 

that we get. 

Senator COLLINS. Thank you. 

Ms. WOERNER. I am not sure I have the ability to answer the 

question of how to improve the lot of these people who really need 

the drug that the doctor has prescribed and still have some cost 

containment issues. 

Senator COLLINS. Let me ask the rest of your panelists. 

It is very good to have you verify that you get those kinds of calls 

that my office does too, and we have gotten them even when the 

physician has written the letter saying the person needs this particular drug. 

Why don’t I just quickly go down the panel? 

Dr. Hoadley. 

Mr. HOADLEY. Yes, I think that there are some potential things 

you can do, and one of the things is just to understand how often 

this happens. We know; we have good data on how many drugs 

these limits apply to. What we do not know is how many people 

run into these issues in a simple way and how many run into them 

in a way that is more complicated and takes more steps to resolve. 

So just more information would be better. 

I think plans could be forced to target these measures better. 

There are some cases where there probably are appropriate measures. There are safety issues in some cases, and in those situations, 

certainly, there should be—these measures are appropriate. But if 

plans targeted them to a smaller, more select set of drugs, that 

would probably help. 

We also need clearer and simpler processes, both to go through 

this and to appeal it. But you hear the same thing from doctors; 

you know, the paperwork involved to request one of the exceptions 

or an authorization or to document that fail first or step therapy 

kind of situation is a real burden on doctors. 

And my last comment, I guess, goes exactly to this point that you 

were talking about a moment ago, which is you have already tried 

that drug before. And a better method to track this, certainly in 

one specific area, is if a person moves from Plan A to Plan B, that 

information that they tried and proved that information to Plan A 

should be carried along to Plan B. Obviously, if somebody is new 

to the program, then you are going to have to involve the doctor 

in some way. But a better way to carry the history forward—and 

maybe with some of the electronic tools we have got more ability 

to do that than we did in the past. 

But I think there are things that are not easy, simple solutions, 

however. 

Senator COLLINS. Thank you. 

Mr. SMITH. Thank you, Senator. 

I will start exactly where Dr. Hoadley left off. 

I think that there is a real opportunity to improve the situation 

by bringing along information as individuals transfer among plans, 

and that is something that we have supported. And that also gives 

plans—the new plan—an opportunity to look at the full range of 

utilization and see if there are other issues that need to be worked 

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61 

out. So I think that would be a step forward for the program and 

for beneficiaries. 

I will also note that CMS has looked at some plan practices, and 

its call letter this year indicated that, you know, there are some instances in which we think you are overdoing it and we really do 

not want to see that. I think it leaves plenty of leeway for the plans 

without overdoing it. 

And it may be that we should be looking more to identify are 

there plans that are outliers; are there plans where we are seeing 

a particular pattern of problems, and then really looking intensively. 

And then, finally, I would say that it may be—and here, I am 

quite honestly thinking out loud. It may be that we should think 

that in some instances maybe the presumption should be in favor 

of the beneficiary so they do not have to fail first, and then you can 

unwind the issue later on. 

Senator COLLINS. Thank you. 

I know my time has expired, but I am going to ask for the record 

if you would provide me with AARP’s—— 

The CHAIRMAN. No, go ahead. 

Senator COLLINS. Thank you. 

Mr. Romasco. 

Mr. ROMASCO. Thank you, Senator. 

I think a lot of the things we are hearing here are transparency, 

information, portability. 

And one thing AARP has always supported is the primacy of the 

relationship between the doctor and the patient. My personal experience is the doctor understands what I need and what I have done 

before. And the only thing I would add is they make good judgments based on the total cost and impact. 

Studies at Johns Hopkins have shown when physicians see the 

total cost impact they make a good judgment—what is best for you 

medically combined with what the cost is. 

So I think those things, in combination with what my fellow panelists would do, would improve the situation. 

Senator COLLINS. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. Thank you, Ranking Member Collins. I really appreciate your having this hearing. 

And thanks to all of you for being here. 

Now I want to look at another part of this. According to CMS, 

93 percent of traditional Medicare spending goes toward the care 

of beneficiaries with multiple chronic conditions, and prescription 

drugs are clearly a vital part of their care. They allow us to manage successfully many chronic diseases, thanks in part to up-front 

investments and innovation in the pharmaceutical and biotechnology industries. 

But, unfortunately, just because a drug is prescribed does not 

mean a drug is actually taken according to the terms of that prescription, and this matters when we are trying to get better outcomes at lower costs across our health care system. 

I understand—and I think you alluded to this study; it may have 

been you, Mr. Smith—a study by Rand researchers found that paDeShaun on LAP51NQ082 with DISTILLER

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tients at high risk for cardiovascular disease who reliably took 

their cholesterol-lowering drugs had about 35 percent fewer hospitalizations compared with those who did not. That is a really remarkable difference just brought on by taking your drugs. 

And I understand the new CBO study shows that increased prescription drug use actually reduces the cost of other health care 

services. 

So one important way to improve effective drug use is through 

the medication therapy management programs that you spoke 

about. Medicare Part D plans, as I understand it, require these 

programs for seniors and those with multiple chronic conditions to 

help with their medication regimens, hopefully, increasing adherence and assuring that the drugs that are prescribed are taken effectively for each individual. 

But what I want to know is, how can we improve on the medication therapy management programs and if there are other evidence-based strategies that we might employ to get more people 

taking their prescription medication successfully? 

Mr. Smith, could I start with you on that? 

Mr. SMITH. Certainly, Senator. Thank you very much for the 

question. 

This is an area that I think has tremendous potential, and it is 

one of those areas in health care where you can say, you know, we 

can actually get the cost savings we all want with better outcomes 

for the beneficiary. And you really cannot argue with that. 

So, in terms of medication therapy management programs, we 

are very encouraged to see CMS publish the first study this year 

about the experience with medication therapy management programs in Part D, and it found that for COPD and congestive heart 

failure the medication therapy management programs were, in fact, 

helping lower hospitals costs. So that is really good news—better 

quality care, lower costs overall, better results for the beneficiary. 

Senator WARREN. And, Mr. Smith, let me just interrupt just for 

one second just because I want to make sure I understand. 

Mr. SMITH. Yes. 

Senator WARREN. It is lower cost on those two diseases—— 

Mr. SMITH. Yes. 

Senator WARREN [continuing]. Because those were the two studied—— 

Mr. SMITH. Yes. 

Senator WARREN [continuing]. Not because they found that there 

were not lower cost in other areas. 

Mr. SMITH. Yes, I believe that is right. 

So I think a couple of points, and I will leave lots of time for my 

colleagues. 

A couple of points that I would suggest are I think we actually 

need a lot more research. We need to know more about what is 

going on with the medication therapy management programs, 

which strategies seem to work well, under what circumstances, so 

that there can be broader learning and we can take advantage of 

this opportunity. 

You asked about other strategies. One that might be related to 

taking advantage of medication therapy management that has attracted a good amount of interest lately is called synchronization. 

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So you may have a senior who is taking five different medicines. 

They have to go to the pharmacy five different times during the 

course of a month. 

If you put it all together—and there is now software that will do 

it—you get a couple of benefits. The senior only has to go once, and 

you see all of those prescriptions together. So, if there are any 

issues in the contraindications among the medicines and so forth, 

you have an opportunity to take care of them. 

So I think looking at strategies like that—learning more about 

how MTMP is working and how its successes can be extended—is 

important. 

And we also need to learn why CMS reported that a fair number 

of seniors who were contacted for medication therapy management 

were not taking advantage of the opportunity offered. We need to 

learn about that so that we can work through it. 

Senator WARREN. Good, very helpful. 

Mr. Romasco, would you like to add? 

Mr. ROMASCO. Just a couple of thoughts—one is I think everything Mr. Smith said is worthy of that, but the first barrier to compliance is making sure you can afford the drug in the first place, 

which is why a lot of the suggestions that we make here focus on 

keeping the costs down and potentially lowering the cost—because 

that is the first barrier, because the number of stories of people actually noncomplying on a conscious level, to basically spread their 

Lipitors over 60 days versus 30 days, is unfortunately all too common. 

The second thing is compliance is habit-forming. Basically, if you 

are taking medication when you are 60 under a health care company plan, you will probably be more likely to keep doing it when 

you retire and are under Medicare. So we need to look at the entire 

compliance issue and learn from how the private plans are actually 

encouraging compliance as they have employers sponsor things. 

So I think those two issues—making sure the cost is low enough 

to make sure that you can afford the drug in the first place, and 

some of the suggestions that Mr. Smith made I think are worthy— 

understanding why people skip it even when they know it is good 

for them. 

Senator WARREN. Would it be, Dr. Hoadley, if you could very 

quickly add anything more? We have got good ideas here. 

Mr. HOADLEY. Yes, I would easily second the comments I have 

heard on affordability matters a lot. 

And we need to know a lot more about what the plans are doing 

in their MTM programs, and CMS is starting to put that record together. 

CMS also includes, or has proposed to include, more information 

in their Star Rating System, and this could be eventually a tool by 

which plans could compete over their ability to do this well. And 

so a consumer could say, ah, this plan has a better track record at 

helping to improve adherence. 

And I think there are some solutions where technology could play 

a role—the synchronization that Mr. Smith talked about. 

But even other things about taking the medications—if you are 

a person with those multiple chronic conditions and you have got 

four, five, six, eight, ten different drugs to take and each one says 

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with food, on an empty stomach, this and that, helping that patient—maybe this is a role that pharmacists could play, or nurses, 

as part of a medical team. Help the person figure out what is the 

right way to array their medications across the day. Make it very 

easy to do that. 

People who are running into more disability problems, it is intimidating to look at that array of drugs. And, did I already take 

that one? 

And how can we provide more aids and tools to help people take 

them together. Get them lined up. Maybe figure out some of them 

are not needed. Get the important drugs and really build some assistance to the patient in trying to use their drugs well. 

Senator WARREN. Very thoughtful. 

And I am out of time here. Dr. Woerner, did you just have a brief 

remark you would like to add? 

Ms. WOERNER. Well, just that our callers do not talk about being 

in such programs, and I am not sure what that means. 

Senator WARREN. Good. That is a very helpful point about going 

back and understanding this. 

I just want to thank you all. I think we have got some great 

ideas for how, if we make the right investments, we can get better 

outcomes at lower costs. And that has got to be where we are aiming. 

Thank you, Mr. Chairman. 

The CHAIRMAN. And I want to underscore what Mr. Romasco has 

said, that cost is still a major barrier. It is not unusual in Florida 

that a senior—fortunately, it does not happen very often, but a senior is making a choice between their medicine and food. And that 

should not be in America in the year 2013. 

Senator Ayotte. 

Senator AYOTTE. I want to thank the Chairman and Ranking 

Member for having this hearing and the witnesses for being here 

today. 

I wanted to ask—I guess I would start first with Mr. Smith and 

anyone on the panel who has a comment on it. 

The Affordable Care Act created what is called the Independent 

Payment Advisory Board, and this board was—it is unique. I do 

not know if it is unique in its structure, but in order to overturn 

decisions of the board you actually need a three-fifths vote of Congress. So it would not be simply how we would normally pass legislation—an up or down vote—if we disagreed with the recommendations of the board. 

But also it contains a provision that a majority of the people 

making the decisions that would impact payments to Medicare providers—and, therefore, I think could also impact what recipients 

would receive, depending on what was covered. Those individuals, 

a majority, cannot be involved in treating patients or providing 

health care services to Medicare beneficiaries. So, obviously, they 

can serve on it but cannot be a majority who are making these decisions on what will be covered. 

I raise the issue because I have heard from many physicians in 

New Hampshire, and provider groups, that they are concerned 

about IPAB and how it would impact seniors’ care. 

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And just this past month 500 organizations, including several 

from New Hampshire—they really represent a diverse sector of the 

health care industry, small and large—wrote to Congress, urging 

us to eliminate IPAB. 

As I understand it, PhRMA has previously expressed opposition 

to IPAB. I wanted to ask you why that is, also what impact you 

think that IPAB could have potentially on Medicare Part D. 

And then certainly I would open it up to other panelists that 

have an opinion on this and would like to comment on it. 

So thank you. 

Mr. SMITH. Thank you for the question, Senator. 

I think I would start at you are absolutely correct. We have expressed serious concerns about IPAB and opposition to IPAB, along 

with many, many others across the health care system and many 

other communities. And I think I would say that that starts with 

the fact that IPAB can make major changes to laws that Congress 

has passed without the usual checks and balances from Congress 

or the courts, and I think that that raises a lot of reasons for concern. 

I would note that its advocates argue that IPAB will focus on 

savings through quality improvement, through the sorts of things 

that we were just talking about and that I think are an intelligent 

way to go. 

But I think that is almost certainly wrong, and it is not because 

IPAB will be made up of short-sighted people. But the reality is it 

has to meet spending targets in one-year time frames, and quality 

improvements typically take longer to yield these kinds of savings. 

And CBO itself has pointed out that it expects IPAB to focus on 

payment cuts, and I think within that it will focus very much on 

Part B and Part D because those are called out in the statute to 

be targeted. And I think that manipulating payment amounts in 

this fashion can, of course, have very significant effects on beneficiaries’ access to care. 

Today, because we have the market-based system we do in Part 

D—Mr. Romasco mentioned affordability around access—84 percent of all prescriptions in Part D last year were dispensed with 

a co-pay of $10 dollars or less. And we have that market-based system that has driven these kinds of results. 

But I do not think you are going to get that kind of result from 

this sort of board that has been created. I think it is going the traditional ways that really can significantly restrict access. 

Senator AYOTTE. Thank you. 

Do others have opinions or thoughts on IPAB? 

Mr. HOADLEY. I would just observe that for the moment at least 

the low spending growth trend we have seen in the last couple of 

years has made the triggers that are built into that—even if the 

IPAB had been staffed and existed, it would make those kinds of 

deliberations unnecessary. 

So maybe the observation to make here is that if we continue to 

maintain a track record like this particular program has maintained and do the kinds of things we have been talking about to 

keep it working well, then that will help make those deliberations 

unnecessary. 

Senator AYOTTE. So we will not IPAB. 

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Mr. HOADLEY. We would not need IPAB. 

Senator AYOTTE. But if we ever do, I, obviously, want to make 

sure that it does not create—— 

Mr. HOADLEY. Understand. 

Senator AYOTTE [continuing]. A situation where people are not— 

you know, it creates—one of the concerns is, obviously, just the 

super majority that is required. 

Dr. Woerner, I do not know if you have a thought on IPAB. 

Ms. WOERNER. I do not think I have anything to contribute on 

that topic. 

Senator AYOTTE. Thank you. 

Mr. Romasco. 

Mr. ROMASCO. I think the legislation clearly calls for it as a 

failsafe because the real issue here is health care costs overall. If 

we cannot get them to grow at the economic rate or lower, that is 

where our problem is. So that is sort of a failsafe mechanism. 

And I think Dr. Hoadley’s idea that it is there in case as opposed 

to mandatory is worthy of consideration. We need a mechanism 

that continues to focus on the $2.7 trillion we are spending and 

whether or not that is growing too fast and effective. 

Senator AYOTTE. Now I appreciate that, but if the failsafe is 

there and you all are concerned—obviously, rightly so, as all of us 

are—in terms of what is the care that people receive, I want to 

make sure that that failsafe has accountability here. So, if decisions that are made are not correct, you know, this Congress can 

correct them in the normal course. 

And I am a supporter of actually ending it. 

But I do appreciate all of you coming here today and thank you 

for the work that you are doing on Medicare Part D. Thank you. 

The CHAIRMAN. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. And, Mr. Chairman, 

thank you for very timely leadership. I think this is a particular 

important time for us to look back. 

And, Dr. Woerner, it is so great to have the Medicare Rights 

Center. I can remember days when all of us had Diane Archer on 

speed dial for the wonderful work that she had been doing for the 

rights of seniors. 

And, welcome to all of you. 

Recalling just for a minute the ferocious debate that took place 

when this legislation was first considered, I think you have to start 

with the proposition that at that time the level of desperation 

among seniors for some measure of assistance with their medicine 

was just extraordinary, and at that time it really felt like this debate had gone on for eons. 

I mean, I can remember this back in the days when we were just 

getting the Gray Panthers off the ground in Oregon. We were talking about this very issue. 

And I came to the conclusion at the time that we were really at 

a fork in the road and that if we did not take the opportunity to 

at least get started it would probably be eons more before we ever 

got this effort underway. 

I told Senator Warren, I remember talking with Senator Kennedy, who of course worked for this for years. 

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So I voted for the legislation. The welts on my back for doing so 

took a couple of years to heal. But the reality is at least we have 

gotten started and we have been able to help a lot of people. 

And, Dr. Woerner, your points with respect to the future are 

really spot-on. 

I just want to ask a couple of questions here by way of what is 

ahead. 

Now one of the major concerns today is how seniors are going to 

afford these specialty drugs—what are called, in effect—I guess the 

technical name is the specialty tier drugs. These were drugs that 

largely were not even on the boards back when this program got 

started—cancer drugs, arthritis drugs, MS drugs. 

I have been very concerned, for example, about Xeljanz. This is 

a drug where the government played a very large role in its development. Pfizer, now the company with the drug, looking like 

$25,000. That is a big lift for the seniors that Senator Nelson does 

such a good job advocating for. 

What would be your counsel with respect to how to deal with 

these specialty drugs that are so expensive? 

And I think, increasingly, they are going to be injectables and 

they are going to play a bigger and bigger role in the health care 

landscape. 

So, your thoughts on holding down the costs of these specialty 

drugs for seniors would be how I would start. 

Ms. WOERNER. Well, there is a particular problem with specialty 

drugs for people who are really in lower incomes. What happens is 

for other medications, if the doctor prescribes a particular medication that is in a high tier, not a specialty tier, the client can appeal 

to lower the tier, lower the price, if there is not another drug that 

that person can use instead. 

Specialty drugs do not have that. One cannot appeal for a lower 

price for a specialty drug. 

And we have had many callers who have needed one of the specialty drugs for conditions like multiple sclerosis, for example, who 

cannot appeal to the company because they are low-income. 

One woman I recall was living on about $1,700 Social Security 

income. She was above the level for the extra help—low-income 

subsidy, and that is not a lot of income. So she really had to choose 

between her multiple sclerosis drug at a very high cost and food 

or other everyday living expenses. 

So I think the first thing would be to allow a process of the same 

kind of appeal that you have for tier appeals, lowering tier costs, 

apply to the specialty drugs. 

Senator WYDEN. That sounds too logical for Washington. 

[Laughter.] 

Let us work with all of you. I want to see if I can get one other 

response. 

And then I thought Senator Warren asked a very good question 

about chronic disease and medicine, and I would like to get that 

in if I can. 

So why don’t we have one more response? 

Mr. SMITH. Sure. On the chronic disease issue and ways to move 

forward, Senator? 

Senator WYDEN. Yes. 

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Mr. SMITH. Yes. So perhaps picking up where I left off, one of 

the issues with medication therapy management today, as it is set 

up in Part D, is who is targeted for medication therapy management. Right now, you have to have high drug expenditures, and in 

practice, you have to be taking a lot of different medicines. 

So part of the issue there is that we may be missing people who 

are not adherent because they are not taking their medicines and 

they do not have the level of drug expenditure that triggers MTMP. 

Maybe we ought to be looking at what is their total expenditure 

and what kind of conditions do they have and can MTMP be helping rather than just zeroing in the way we did. I think we have 

a lot of opportunity to make progress on cost and on quality by 

going these routes. 

Senator WYDEN. My time is expired. 

I hope that all of you as companies and advocates will also start 

to factor in that these drugs affect people differently. For years and 

years, medicine has always been based on the proposition that this 

drug will affect Harry and George in the same way, and Sally and 

Betty in the same way. 

And I think this is particularly important in the area of chronic 

disease, where Senator Warren has made the important point that 

we ought to be focused more on patient management and relate to 

individuals. And to do that right, we are going to need to know 

more about the differential treatment of medicines for different 

people—what is really sort of the gun at least with personalized 

medicine, but where there is going to have to be a lot more work. 

Senator Nelson, again, a big thanks to you for all the leadership. 

The CHAIRMAN. Well, thank you, Senator Wyden, and thank you 

for bringing up the appeals process and for Dr. Woerner’s excellent 

response. 

I will give you an example. A lady in Florida, Ms. Beagles, when 

her drug for a brain tumor went into the specialty category and she 

had no appeal process, it went from $30 a month to $650 a month. 

And, obviously, there is a need now. 

Any of the remaining three of you want to comment about the 

appeals process? 

Mr. SMITH. Senator, I fully agree with Dr. Woerner’s point. 

PhRMA has long been on record in support of treating the specialty 

tier in the same way as the other tiers are treated for this purpose. 

The CHAIRMAN. Okay, let’s move on to another subject. 

Mr. Smith, you heard Mr. Romasco say that the very same drugs 

that Medicare used to pay for—— 

Mr. SMITH. Yes. 

The CHAIRMAN [continuing]. When the prescription drug legislation was passed in 2003—— 

Mr. SMITH. Yes. 

The CHAIRMAN [continuing]. Because those people that had been 

receiving their drugs under Medicare now are over age 65—— 

Mr. SMITH. Yes. 

The CHAIRMAN [continuing]. They get their drugs in Medicare. 

And now the price that the U.S. Government is paying is not the 

same. It is not the same to the degree of the statement by Mr. 

Romasco that it costs the U.S. taxpayer over 10 years an additional 

$147 billion. 

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Now how can we justify that for these dual eligibles? 

Mr. SMITH. So, Senator, thank you very much for the question, 

and I suspected I might get it. So I appreciate your putting it out 

there and the opportunity to respond. 

Let me begin by noting that Medicaid has never been viewed as 

the benchmark for Medicare for any service. It has not been viewed 

as the benchmark for physician payment. It has not been viewed 

as the benchmark for hospital payment. 

And I will also note that organizations such as Mr. Romasco’s advocated aggressively for moving the dual eligibles out of Medicaid 

and into Medicare because of the restrictiveness and the uncertainty and the skimpiness that often accompanies Medicaid benefits. 

I think that we also have something of an apples to oranges comparison in that there have been major policy changes that are not 

taken into account when these calculations are done. 

So, for instance, since 2003, or since 2006 if you will, there are 

coverage gap discounts that the CMS actuary recently, or last year, 

estimated that just over 6 years, not the usual 10 that we are all 

used to, comes at a cost to the industry of about $30 billion. 

So, spun out over 10 years, that is going to be $50 billion or $60 

billion. There is $30 billion going into the Medicare Trust Fund 

that is paid by the industry. 

So I think that taking Medicaid over here and only taking part 

of Medicare over here and not looking at the totality of Medicare 

does create a little bit of an apples and oranges—or a lot of an apples and oranges—effect. 

Finally, I will add that we have strong, powerful purchasers with 

lots of tools out there to drive savings. They do drive savings. Part 

D costs today, for 2012, are 54 percent lower than was projected 

in 2004 after the program passed while Medicare as a whole has 

increased. 

So Medicare deserves fair prices, good prices, savings. It is getting them. That is why CBO has knocked $100 billion a year off 

the cost of the program in each of the last 3 years. 

And these powerful, sophisticated purchasers are buying them in 

a market. We think that is the right way to do it because government price controls layered on top of the market, I believe, will significantly undermine the program’s effectiveness, its competitive 

forces, that lead to good results for beneficiaries and will significantly undermine the U.S. industry’s innovative capacity. 

The CHAIRMAN. I want you to tell your employers that I give you 

an A for your response. If I were in your shoes, I would have liked 

to have been as articulate to respond as you do, but it does not cut 

it. 

And it does not cut it when the U.S. Government is, in fact, a 

big purchaser that you talked about—— 

Mr. SMITH. Yes. 

The CHAIRMAN [continuing]. In a competitive marketplace. 

The United States Government gets that discount with Medicaid, 

which is almost as big a program eventually as Medicare drugs will 

be. 

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And the U.S. Government also gets that discount in the Veterans 

Administration, which is another multiple of tens of millions of veterans, each requiring drugs. 

And, the U.S. Government also gets that discount through the 

Department of Defense. 

So, when we talk about the competitive marketplace, clearly, 

since some of are invested with the idea that we are trying to get 

the biggest bang for the taxpayer’s buck, and you have someone 

who is eligible here up until they get 64 years of age and 364 days, 

but on the 365th day they suddenly are eligible for those same 

drugs here, provided by the government. 

And remember, the way that we are phasing in under the health 

care bill—the way that they are phasing in Medicare Part D for 

seniors—is that the Federal Government will continue to pick up 

more and more of the cost as the donut hole is shrunk, and as a 

result, what there ought to be is balance in the system. 

Now I started my comments early on by complimenting you. 

Mr. SMITH. Understood. 

The CHAIRMAN. Complimenting you on what your industry is 

doing is absolutely fantastic because of the miracles that you are 

creating before our eyes in what you are researching and developing, and in no way do we want to lessen that R&D. However, we 

have come down to a basic question of dollars and cents for the taxpayer, and this is one that we are going to have to look at. 

Now I, of course, took this on when we passed the health care 

bill, and I got beat in the Senate Finance Committee, but this issue 

is not going to go away. And so you should face that. 

And that is especially so over the course of the next 7 years as 

the U.S. Government is picking up more and more and more so 

that, by 2020, 100 percent of the cost of the drugs in Medicare Part 

D on that donut hole are going to be absorbed for the senior. 

Mr. Romasco, you look like you are ready to say something, and 

then I am going to turn to my colleagues here. 

Mr. ROMASCO. I could not support the concept more fully. The 

U.S. Government is a huge purchaser, much bigger than any of the 

individual insurance companies. It continues to baffle me that it is 

like telling Wal-Mart they cannot negotiate with Procter and Gamble over the price of Tide. It just does not make sense. 

I think the other example—and I think Mr. Smith alluded to it, 

and it is a very important issue about research and development— 

is there was a similar argument in the early eighties about the 

Hatch-Waxman Act which paved the way for generic drugs. Oftentimes, the industry made the argument that this would stifle R&D, 

and yet, through their ingenious market forces, we now have generic drugs, everybody is prosperous, the industry has grown, and 

they continue to be successful and profitable. 

So I think that the concept of secretarial negotiating authority is 

a critical idea. I think shortening the generic biologic horizon from 

12 to 7 years is another possibility. And the discount in the Act 

that your legislation supports is another way of keeping our eye on 

the ball as the affordability of the drugs, not only in Medicare but 

across the entire health system, is at stake. 

The CHAIRMAN. Before I turn to Senator Collins, let me just 

make note; I wish Senator Wyden were here because going back on 

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the history of all of this, it is true that the prescription drug benefit 

was first authorized and set up in 2003 in the prescription drug 

bill, but there was another thing that was set up at that time, and 

it became very costly to the government. 

And it was setting up a new delivery of Medicare through an insurance company called Medicare Advantage, delivered through an 

HMO, which is an insurance company. 

And what happened in that 2003 legislation was insurance companies were given a 14 percent bump per senior citizen beneficiary 

of Medicare. That became so expensive that when the health care 

reform bill came along we had to save Medicare because it was 

going bankrupt, and one of the major reasons was that the Federal 

Government was paying out too much to the insurance companies, 

over and above Medicare Fee-For-Service. And that was leaned out 

over time through that health care bill. 

So, in the history of this whole continuum here, we have one 

overstepping and that now being corrected, and that is why I bring 

up this prescription drug benefit where there is such a significant 

increase to the taxpayer on the bill, on the drugs delivered through 

Part D. 

Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

I am going to follow up on the Chairman’s very interesting questions in this regard because this is an issue where I can see both 

sides of it, frankly. 

On the one hand, you look at the VA system, where government 

has used its purchasing power for years to negotiate prices. We do 

it in the Medicaid program. It was not just President Obama who 

has included this in his budget, but the Bowles-Simpson Commission also had the recommendation, which gives it some credibility 

in my eyes. 

On the other hand, you can certainly look at the marketplace 

and say that we have 1,000 plans, there is lots of competition, and 

we have sophisticated insurers who are doing that kind of negotiation with very good results for the consumer since the prices are 

so much less for premiums than had been projected in the costs for 

government. 

So I am truly of two minds about this and about which way is 

the better way to go. 

So, Mr. Smith, from your perspective, since you can legitimately 

point to a successful program that has driven down prices with successful, sophisticated negotiators in these plans, but if it should not 

be extended, why do we have it in Medicaid and in the VA program? 

Mr. SMITH. Okay. Thank you for that question, Senator. 

So the first point I would make is that I think it is always possible to look somewhere else and find a different price point and 

say, why doesn’t a different program get that price point? 

Medicare is, in fact, just central to the U.S. marketplace. It is a 

much more significant program than both Medicaid and VA. And 

I think because we have statutory provisions that have set prices 

in those programs over the year because there are exceptional reasons for those programs does not mean that we can expect that we 

would have the same effect if we extended that to Medicare. 

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I think extending these rules for smaller programs that have exceptional circumstances—veterans and so forth—to Medicare would 

send very negative signals both into the Part D program and into 

the market as a whole. 

I know that there is a view that it is really just easily affordable. 

And I think that when I look at what McKinsey says, for instance, about pharmaceutical R&D, it says over the last—you 

know, in recent years, pharmaceutical R&D has not been earning 

a return on investment. 

When I see what a slew of analysts say about pharmaceutical 

R&D that echoes what McKinsey has to say, I think that it is clear 

that we are at a point where this kind of policy would force choices. 

And it is going to force choices about R&D. It is going to change 

the fundamental nature of Part D with the potential to increase 

premiums, have more restrictive formularies and so forth. And it 

is going to change the nature of the industry as an economic driver. 

Final point I will make is that those programs that we are often 

compared to—VA, Medicaid. Again, as I mentioned, there was a 

broad-based by the advocacy community to move prescription drug 

coverage out of Medicaid, into Medicare, specifically because of the 

shortcomings of the Medicaid program. 

And I think we have heard today that while there are issues to 

be addressed, there is a broad endorsement of how well the program today is working for seniors. 

And, second, I would note that many of those programs are very 

restrictive around access, far more so than Part D. Part D plans 

offer a far broader range of medicines than does VA. And, in fact, 

many veterans who have VA coverage are also enrolled in Part D, 

and they are using Part D because they are getting access to medicines that they are not getting in VA. 

So I think we have a range of issues, but the most direct point 

I can make is that I think what is being proposed is, in some sense, 

a race to the bottom because there is an example over here of a 

program with a specific set of prices; it should be transported over 

here. 

That has not been discussed around hospitals; it has not been 

discussed around doctors, where there are also dual eligibles. It has 

only been discussed around medicines. 

And for the reasons I have stated, I think it does force real 

choices instead of being something that will be without consequence. 

Senator COLLINS. With respect to the vital research and development on new drugs that the pharmaceutical industry does, isn’t the 

American consumer really subsidizing that for the rest of the 

world? 

I mean, most countries do have controls on the cost of medications. I am very attuned to that issue, living in a border state with 

Canada. 

Mr. SMITH. Absolutely. 

Senator COLLINS. And, in a way, it is the American consumer 

that is paying for that cost, are we not? 

Mr. SMITH. Sure. Well, I think that American consumers pay for 

the cost, and I actually think consumers in foreign countries end 

up paying for the cost. 

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Senator COLLINS. How? 

Mr. SMITH. With significant restrictions on access to medicines. 

We also have a situation in which the global center of the biopharmaceutical research sector through the 1980s and so forth was 

in Europe. Today, the U.S. greatly outweighs Europe. And I think 

the fact that we have market-based pricing rather than government price controls is a significant part of the reason that that is 

the case. 

I will also note, finally, that our market-based system creates 

and drives incentives to use dollars where they are valuable. 

So, overseas, they have price controls on brand medicines, and 

they suppress R&D, and they suppress their use, and at the same 

time they pay about twice as much for generics. So, instead of rewarding innovation, where the medical advances come from, they 

actually suppress innovation and they pay twice as much for 

generics. 

Now generics are about 30 percent of spending on medicines in 

the United States. Imagine if we adopt the foreign government 

policies of paying twice as much for generics while pushing down 

on brand medicines. 

Senator COLLINS. Thank you. 

Mr. Romasco, just one final question. Recent studies have shown 

that the vast majority of Medicare Part D beneficiaries do not 

choose the cheapest plan, the least expensive plan, to meet their 

needs. And one study found that, on average, beneficiaries spend 

$368 more each year than they would have spent had they purchased the least expensive plan available in their region, given 

their medication needs. There has been a little bit of allusion to 

this today. 

But I want to ask you; based on your experience as the President 

of AARP, why do you think that is? 

Mr. ROMASCO. I think we alluded to it earlier today. Dr. Woerner 

basically gave us an insight into the complexity and the overwhelming—when we are faced with cajillions of choices, the human 

reaction is to avoid and stick with what you know. 

Senator COLLINS. But what those surveys show is that about 40 

percent of the beneficiaries think that there are too many—— 

Mr. ROMASCO. Right. 

Senator COLLINS [continuing]. Choices and it is confusing, but 40 

percent, the other 40 percent, think it is great and like having all 

those choices. 

Mr. ROMASCO. Well—and I think the issue is, do we have the 

tools in place to help people make those choices? 

Some of the suggestions that Dr. Smith and Dr. Hoadley made 

plus, as I recall, I think you and Senator Nelson authorized a GAO 

study—— 

Senator COLLINS. We have. That was going to be in my statement. 

Mr. ROMASCO [continuing]. To figure out, are these tools working? 

And I think we heartily support and endorse that because that 

is another aspect of helping people make these choices. 

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Simplification and transparency—the transparency is one thing, 

but if it is too confusing to people, it is hard for them to make the 

right choices. 

And the second thing is give them the right tools so when they 

engage it actually does benefit them. 

So we heavily endorse your effort to get to the bottom of that 

with that GAO study. 

The CHAIRMAN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

I want to go back to the cost question that you raised, but you 

were talking about the cost to the government about Medicare Part 

D. I want to talk again about out-of-pocket costs to the individual 

consumer. 

Back on this question about getting people to take their prescriptions and if they do not have their prescriptions filled and if they 

do not have them filled in a timely manner—so every 30 days on 

a 30-day prescription—then obviously they cannot get the benefits 

from those prescriptions. 

I understand there is a Rand study out now that shows that for every $10 increase in the co-pay on a prescription that compliance 

rates on taking medications dropped by about 5 percent. And we 

talked earlier about the importance of people taking those prescriptions if we are going to drive down costs and get good outcomes. 

Of course, this is, in my view, one of the best parts about the Affordable Care Act—is to close the donut hole so that we get more 

people filling their prescriptions. 

And I understand the CBO says they believe that just closing the 

donut hole is going to increase drug compliance—people taking 

their prescriptions—by about 5 percent and that is going to save 

us about $35 billion. 

So these are very important about how we lower costs, and so I 

want to go back to this question about how we lower out-of-pocket 

costs for our consumers—how people can get those costs down. 

So, Mr. Romasco, go back to this question. What should we be 

doing? 

Mr. ROMASCO. Well, I think, you know, I have touched on a couple of things that we think will have a significant impact on reining in these costs. Again, secretarial negotiating authority and the 

biologic window for closing that exclusivity on generics for biologic 

and biosimilars, I think are two possible avenues. 

A lot of the compliance issue—we talked about synchronization. 

If you look at the Affordable Care Act, the implementation of accountable care organizations begins to look at team approaches as 

opposed to silo approaches for patient care and the coordination of 

care, which allows people to both get the support of not only their 

physician but of their team of medical professionals, to focus on 

keeping the costs down and looking at the whole patient and all 

the dimensions of that. 

Senator WARREN. I appreciate that point because it really goes 

back to the point that Senator Nelson was making earlier. This is 

not just about the out-of-pocket costs of the drugs, and it is not just 

about what the government spends on the drugs initially. It is to 

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the extent that it causes people not to have their prescriptions 

filled, that it increases costs on down the line. And so we are talking about a much larger impact of how the drugs are actually 

priced and the out-of-pocket part on that. 

Mr. Smith, I will give you one more chance to say something 

about how we are going to bring those costs down. 

Mr. SMITH. Sure. So I think that—look, I have already made my 

points about some of the issues that Mr. Romasco made, and I will 

just remind everyone because he has referenced the biologics a few 

times, and data exclusivity. I actually think that the one provision 

of the Affordable Care Act that was passed with strong recorded bipartisan majorities in both chambers was the 12 years of data exclusivity as a balance between incenting the innovation that we all 

want to see and creating a biosimilar pathway for affordability. 

We are closing the coverage gap, and I would note that—let me 

take it outside of Part D for a moment, just as an example. 

I would note that there are a number of employers, for instance, 

who—looking at how to bring down their costs—have actually cut 

their co-pays for medicines. And they did not do it just for generics. 

They did it for generics, and they did it for brands because, as Senator Wyden pointed out, people are different and need different 

treatments. Some are going to need a brand medicine. Others are 

going to be using a generic. 

And they are finding that they are having a good experience by 

actually reducing their co-pays, and it is helping them control 

costs. 

The final point I will make is that the co-pay is not—you know, 

medicines are about 10 percent of Medicare spending. Brand medicines—if you look at all Federal Medicare and Medicaid spending, 

brand medicines are about 8 percent of all of that spending. 

So I do not think that the kinds of proposals that have been suggested are what is really going to help improve adherence. I think 

it is some creativity, looking at how we tie medication therapy 

management to utilization and looking for opportunities to take advantage of the cost savings that medicines can bring. 

Senator WARREN. Fair enough, Mr. Smith. 

Mr. SMITH. Yes. 

Senator WARREN. But, surely, you are not pushing back on the 

point in the Rand study, that a $10 increase in co-pay—— 

Mr. SMITH. No, no, no. 

Senator WARREN. Okay, I just want to make sure that you were 

not saying—— 

Mr. SMITH. If I—— 

Senator WARREN. I may have misunderstood. 

Mr. SMITH. Okay. 

Senator WARREN. So long as we are clear on that. 

Mr. SMITH. Yes. 

Senator WARREN. Okay, Dr. Hoadley, did you want to add anything on that? 

Mr. HOADLEY. Yes, I think you raise a really important point 

with the Rand study. 

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pay for a generic drug can really increase utilization of that drug 

and adherence to that drug. 

And, as Mr. Smith said, some of the flexibility that has been 

tried in private plans with value-based insurance design and lowering co-pays—the problem with doing that in Medicare is two-fold. 

One is the basic design of Part D includes 25 percent average 

cost-sharing. So a plan that wants to lower their co-pays overall 

has to do it as an enhanced plan with a higher premium, and that 

is one approach, or there has got to be some change in the legislation in terms of the overall average cost-sharing level and bringing 

it down lower than 25 percent. Obviously, there are implications 

for doing that. 

But, even with that, perhaps some greater flexibility that CMS 

could look at, in terms of letting plans experiment with lower copays for certain classes of drugs that are really much more important clinically, is something to think about but, also, certainly trying to push plans and encourage plans to look at lower co-pays for 

generics where you can get more bang for the buck. 

The last comment I would make is one of the things that really 

complicates the story for the Part D program is that in the world 

of standalone drug plans, if we increase adherence, we are actually 

increasing the amount of spending that the plans are on the hook 

for. 

And so, we have built in kind of a perverse incentive to say they 

are going to do better when less spending occurs on the drugs, 

whereas, in fact, we may want more spending on drugs to get the 

higher occurrence, to get the payoff in Part A and Part B. So figuring out a way to change and rethink about how we build the 

standalone drug plans, to get away from that perverse incentive, is 

something really worth trying to think about. 

Senator WARREN. That is a very good point. 

And, Dr. Woerner, did you want to add anything to this? 

I am over time, so I will ask you to be brief. 

Ms. WOERNER. Only that I think by simplifying the process of 

choosing a plan it would help individuals find plans in which their 

costs would be lower. That is a minor thing, but it is something 

that could be done. 

Senator WARREN. I do not see that as minor. I take it to be a 

good point. 

But I do understand that if we are trying to reduce costs overall, 

co-pay costs for the individual must come down, and that we are 

just caught in the wrong cycle right now with high co-pays. We 

have got to change that if we are going to have better outcomes at 

lower costs. 

Good. Thank you all. 

Thank you, Mr. Chairman. Thank you very much for doing this. 

The CHAIRMAN. Well, going to the broader issue, from drug plans 

to the Medicare Advantage plans, there is a Star Rating System. 

The idea is that you let the competitive market forces work—a senior sees that this insurance Medicare plan is rated higher on quality and that they would vote with their feet and they would go to 

the higher rated one. 

Now it has just been in existence for—just beginning. 

Do you all have any comment on the Star Rating System? 

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Mr. HOADLEY. The Star Rating System has been around. I mean 

the new financial incentives that are attached to it are the newest 

part of that, but we have had Star Ratings now really since almost 

the beginning of Part D. 

What we do not understand very well is the degree to which consumers are using those ratings to make choices of drug plans. 

The information is out there. It is on the web site, so it is very 

accessible. And we think we have done it in a reasonably comprehensible way. But we have not seen a lot of research yet to 

know how much people are using that information. 

When we look in the aggregate at how many people are in plans 

with different kinds of Star Ratings, we do not see a particularly 

higher enrollment in the 5–Star or 4–Star rated plans over the 3– 

Star rated plans. 

So I think more transparency and more publicity to those ratings 

but, also, more research to sort of see what is it that people take 

into account. 

And this whole phenomenon of simplifying the program—you 

know, to the extent that people just are not even shopping, then 

obviously, they are not shopping based on stars. If they say this is 

too complicated, I am going to stick in the plan I am in even 

though it has a 2.5-Star Rating and even though it has gotten more 

expensive within the last 3 years, that is where the problem lies. 

So finding ways to encourage people, to make it easy to shop, and 

then to take into account some of the ratings as well as the direct 

cost factors is something that we need to do better at. 

Mr. SMITH. Senator, if I might, one of the important aspects of 

the Star Rating System is, in fact, adherence to medicines. It gets 

a pretty good weighting in the Star System. I think that that is important. It is a good incentive. 

And let me just add to Dr. Hoadley’s comments that I think we 

have to recognize that some of this is going to be a work in 

progress. 

And there was discussion about the importance of beneficiaries 

shopping among plans, and I think that is absolutely right. Beneficiaries, when they do switch plans, they save money on their outof-pocket costs. That is really important—an average of about $300. 

One of the things that MedPAC has found is that in the early 

years of the program we only had about 6 percent of beneficiaries 

who were switching plans at open enrollment. That is now ticked 

up according to MedPAC’s finding to, I believe, 13 percent. And 

among some of the younger enrollees coming in—the younger cohort coming into the program—it is even a little higher; it is about 

16 percent. 

So I think that there are opportunities. We want to encourage 

people to shop. We want to give them those tools. And that can 

help. It can help on the quality side. It can help on the out-of-pocket cost side because when they do switch they are saving money. 

The CHAIRMAN. How much, in your opinion, is the lowered cost 

that we are seeing due to the utilization of generics? 

Mr. HOADLEY. It is really a very large factor in what has driven. 

And the study that I did, published last year, looked at the generic 

use as being one of the very important factors in the lower cost 

trends. 

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We have had such a swing in the period of time since 2006, when 

the first enrollment in Part D occurred, to more generic use. And 

I think the numbers just between 2006 and 2010 were something 

like 60-some percent generic use up to 80 percent generic use, and 

it is undoubtedly higher since 2010 per the most recent data I have 

seen. 

So I do think that has been a very big part of the story, but it 

could be even more. 

Mr. SMITH. If I might, I am going to agree that use of generics 

is a sizeable part of the savings, but two points about that that I 

touched on in my testimony. 

One is those generics originated with innovator medicines. They 

would not have been there if there were not innovator medicines 

to copy and that have been developed. 

And the second is that it is really our marketplace that drives 

the very high use of generics and maximizes the savings out of 

them. Mark McClellan, when he was CMS Administrator at the 

early days of the program, emphasized that Part D and its competitive forces are actually driving up generic use. 

The CHAIRMAN. But you are happy with the health care bill that 

gave 12 years exclusivity for the biologics? 

Mr. SMITH. We fully agree with the determination made in Congress, absolutely. 

The CHAIRMAN. You brought out here in this hearing that the 

low-income subsidy assistance is not being utilized like it should. 

What can we do? 

Mr. HOADLEY. I think it is a hard thing to address. I think some 

of it is the, again, complexity. So there is an Asset Test attached 

to the low-income subsidy eligibility unless people come in through 

their Medicaid programs in some states. 

And so there is some thought that the fact you have to not only 

meet an income test but you have also got to attest to your assets 

is something that some people just do not want to go through. They 

do not want to do that additional paperwork. It makes the forms 

longer and more complicated. 

We do not understand this question very well, and that is one 

of the dilemmas, but I think that it is probably one of the sources— 

the fact that you have to go through an application process. You 

have to submit an application either to the state Medicaid agency 

or to the Social Security Administration; fill out an application; 

wait and get that approved. That is also certainly a factor. 

And then I think some of it is just knowledge. I think Dr. 

Woerner talked about people who were not aware that there were 

these subsidies available. And we just need to do a better job of 

building awareness about the existence of the subsidies so that people know that they have that option available. 

The CHAIRMAN. I will wrap up if it is okay with you all. 

You mentioned, Senator Warren, the burdensome cost to seniors, 

and I had mentioned the excess cost to the U.S. Government in trying to afford the prescription drug benefit. 

The Inspector General has come out with a study that says that 

Medicaid as compared to Medicare with regard to drugs—that 

Medicaid collected two-thirds as much in rebates as Medicare Part 

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D despite having only one-quarter of the expenditures that Medicare has in their drugs. 

And the most shocking part about this finding is that the IG did 

this study with data before the Affordable Care Act mandated the 

Medicaid rebate percentage increase taking effect. So this is before 

all of that occurred. There was still this huge disparity. 

It is a disparity, for example—and we will have copies of this 

chart if you need it—that shows on Prevacid for heartburn and acid 

reflux, Medicaid paid 65 percent less than what Medicare paid; 

with Crestor, to lowering cholesterol, that Medicaid paid 42 percent 

less than Medicare, and so forth. 

Now that is in the IG study done back then. 

So I am going to call for the IG to have another study to get the 

latest information on these numbers, and then we can discuss that 

at a future hearing. 

Any further comments? 

Okay. Well, thank you all. You have been an excellent panel. The 

meeting is adjourned. 

[The prepared statements for the record are in the Appendix] 

[Whereupon, at 4:09 p.m., the Committee was adjourned.] 

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DeShaun on LAP51NQ082 with DISTILLER


Insert offset folio 65 here 93288.065
99 

Æ 

DeShaun on LAP51NQ082 with DISTILLER


Insert offset folio 66 here 93288.066