U.S. GOVERNMENT PUBLISHING OFFICE

22–221 PDF WASHINGTON : 2018

S. HRG. 114–805 

EPIPEN PRICE INCREASES: HOW REGULATORY 

BARRIERS INHIBIT PHARMACEUTICAL COMPETITION 

FIELD HEARING 

OF THE

SUBCOMMITTEE ON CHILDREN AND FAMILIES 

OF THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

ON

EXAMINING EPIPEN PRICE INCREASES, FOCUSING ON HOW 

REGULATORY BARRIERS INHIBIT PHARMACEUTICAL COMPETITION 

OCTOBER 7, 2016 (Lexington, KY) 

Printed for the use of the Committee on Health, Education, Labor, and Pensions 

( 

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

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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

LAMAR ALEXANDER, Tennessee, Chairman 

MICHAEL B. ENZI, Wyoming 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

RAND PAUL, Kentucky 

SUSAN COLLINS, Maine 

LISA MURKOWSKI, Alaska 

MARK KIRK, Illinois 

TIM SCOTT, South Carolina 

ORRIN G. HATCH, Utah 

PAT ROBERTS, Kansas 

BILL CASSIDY, M.D., Louisiana 

PATTY MURRAY, Washington 

BARBARA A. MIKULSKI, Maryland 

BERNARD SANDERS (I), Vermont 

ROBERT P. CASEY, JR., Pennsylvania 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

SHELDON WHITEHOUSE, Rhode Island 

TAMMY BALDWIN, Wisconsin 

CHRISTOPHER S. MURPHY, Connecticut 

ELIZABETH WARREN, Massachusetts 

DAVID P. CLEARY, Republican Staff Director 

LINDSEY WARD SEIDMAN, Republican Deputy Staff Directory 

EVAN SCHATZ, Minority Staff Director 

JOHN RIGHTER, Minority Deputy Staff Director 

SUBCOMMITTEE ON CHILDREN & FAMILIES

RAND PAUL, Chairman 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

MARK KIRK, Illinois 

ORRIN G. HATCH, Utah 

PAT ROBERTS, Kansas 

BILL CASSIDY, M.D., Louisiana 

LAMAR ALEXANDER (ex officio), Tennessee 

ROBERT P. CASEY, JR., Pennsylvania 

BARBARA A. MIKULSKI, Maryland 

BERNARD SANDERS (I), Vermont 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

PATTY MURRAY (ex officio), Washington 

LARRY SMAR, Minority Staff Director 

(II) 

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C O N T E N T S 

STATEMENTS 

FRIDAY, OCTOBER 7, 2016 

Page 

COMMITTEE MEMBERS

Paul, Hon. Rand, Chairman, Subcommittee on Children and Families, opening statement ........................................................................................................ 1 

WITNESSES

Jackson, Laura, Coordinator, Kentucky Families With Food Allergies Support 

Group, Lexington, KY .......................................................................................... 2 

Prepared statement .......................................................................................... 4 

Spencer, John, PharmD, Independent Pharmacist, Owner, Spencer Drugs, 

Richmond, KY ....................................................................................................... 5 

Prepared statement .......................................................................................... 6 

Strow, Brian K., Ph.D., BB&T Professor for The Study of Capitalism, Professor of Economics, Western Kentucky University, Bowling Green, KY ....... 7 

Prepared statement .......................................................................................... 10 

Gottlieb, Scott, M.D., Resident Fellow, American Enterprise Institute, Washington, DC ............................................................................................................. 13 

Prepared statement .......................................................................................... 15 

Almeter, Philip J., PharmD, Senior Director, Pharmacy Acute Care Services 

and 340B Programs, UK Healthcare, University of Kentucky, Lexington, 

KY .......................................................................................................................... 23

Prepared statement .......................................................................................... 25 

Waters, Jim, President, Bluegrass Institute for Public Policy Solutions, Lexington, KY ............................................................................................................. 30 

Prepared statement .......................................................................................... 32 

(III) 

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EPIPEN PRICE INCREASES: HOW REGULATORY BARRIERS INHIBIT PHARMACEUTICAL COMPETITION 

FRIDAY, OCTOBER 7, 2016 

U.S. SENATE, 

SUBCOMMITTEE ON CHILDREN AND FAMILIES, 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, 

Lexington, KY. 

The subcommittee met, pursuant to notice, at 2:57 p.m., at the 

University of Kentucky College of Health Sciences, Charles T. 

Wethington, Jr. Building, Commons Room, 900 South Limestone 

Street, Lexington, KY, Hon. Rand Paul, chairman of the subcommittee, presiding. 

Present: Senator Paul. 

OPENING STATEMENT OF SENATOR PAUL

Senator PAUL. Hello. Welcome. Thank you for coming. The Senate Committee on Health, Education, Labor, and Pensions Subcommittee on Children and Families will please come to order. 

This afternoon, we’re having a hearing on EpiPen price increases. It’s important when you get upset about something or 

when you see a problem that you try to scratch beyond the surface 

and see what the origin of the problem is and try to fully understand it before we react and try to fix it. 

I’d like to thank the University of Kentucky, the UK College of 

Pharmacy, and UK Healthcare for hosting this subcommittee hearing. 

When I first heard about the EpiPen price increases going up 500 

percent, I was like anybody else, outraged. I have allergic reactions 

to bees and have had to use epinephrine when I was a kid. Many 

families have that sort of experience, and they hate to think of sort 

of a lifesaving drug having a—they just don’t understand why it 

costs 500 percent more, particularly when the ingredients are quite 

inexpensive. 

The ingredients—epinephrine has been around for maybe 100 

years. It’s about a dollar’s worth of medication in there, and people—some have tried to say, ‘‘Well, it’s a complicated device.’’ They 

haven’t really been in a modern hospital if they think a spring 

loaded needle is a complicated device. 

We’ve been exploring the question. We’ve had the FDA come in. 

We won’t have them represented here today. It’s kind of hard to 

get bureaucrats out of Washington. We have interviewed them in 

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the office, and we have some serious questions. Some of these questions we will discuss here with the panel. 

One, they have a patent, and I’m for patents. That’s intellectual 

property. It’s one of the reasons why the great developers of things 

that require patents are intellectual property, like drugs. We’re a 

leader in creating new drugs, innovative drugs. That’s great. Patents can’t last forever, and their patent will run out in 2025. They 

got it in 1987, a 38-year patent. My understanding is that an original patent is about 20 years. How did it get to be 38 years? 

We want to know why there’s no competition. Why is there only 

one person selling these? There is a generic. There’s many different 

generics, but there’s at least one generic that applied 7 years ago. 

Is it a little too long to have the government take 7 years to approve things? Why does it take so long, and what can we do to 

speed up the process? 

We ought to think about how long patents should be. We ought 

to think about how long the process should be. Then we ought to 

think about how other countries do it and whether or not some 

other countries do it more quickly. 

One of the bills that we’ve introduced says if it’s been approved 

in Europe, and it’s on the general market, and there hasn’t been 

any significant health or safety problems with it, then maybe we 

can dispense with the Phase 1, Phase 2, Phase 3 trials and go directly to a committee that would still review the information, review it for safety and efficacy, but maybe not make the company 

start over, and that we could expedite this. Or maybe we should 

expedite things when there’s only one person making something 

and the price goes up at an alarming pace. 

There are a lot of good ideas. We have some patients in the audience who have allergies and have to buy the EpiPen. We have people who are involved with pharmacies selling the medication. We 

have economists and policymakers. 

Without any further ado, we’re going to start by going around, 

and you can either make an opening statement or you can introduce yourself and make an opening comment, but I’m going to give 

you your choice, and then we’ll proceed from there. I’ll begin by introducing Laura Jackson, who is the coordinator of the Kentucky 

Families With Food Allergies support group. 

Laura. 

Ms. JACKSON. Thank you for inviting us today. I hope I can give 

you a good perspective on what parents and families are going 

through. 

Senator PAUL. Thank you. If you want to make any more comment than that, you can. We’ll come back in a question and answer, but go ahead if you—— 

Ms. JACKSON. So I should go ahead? 

Senator PAUL. Yes. If you have a statement, go ahead. 

STATEMENT OF LAURA JACKSON, COORDINATOR, KENTUCKY 

FAMILIES WITH FOOD ALLERGIES SUPPORT GROUP, LEXINGTON, KY 

Ms. JACKSON. I have been a food allergy parent for over 25 years, 

raising two sons with life-threatening food allergies. I know all too 

well the dangers of a severe allergic reaction, having witnessed it 

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with my own child, watching my son’s symptoms progress from 

mild to severe in a matter of seconds, seeing his labored breathing, 

the panic in his eyes, racing to the emergency room and wondering 

if we could get there in time, knowing that a tragedy was possible, 

living with the fear of it happening again, and then worrying at 

every meal. 

These experiences inspired me to form the Kentucky Families 

With Food Allergies support group here in Lexington 10 years ago. 

There are many parents like me in our State, all facing the financial and emotional responsibilities that come from raising a child 

with a life-threatening condition. That is why Kentucky’s food allergy parents are so concerned about the current EpiPen price increases. 

For over 15 years, my family purchased between 8 and 10 

EpiPen two-packs per year for our sons who are now grown. We 

needed that many due to expiration dates and also to ensure that 

the injectors would always be within reach at home, when traveling, or at school, because prompt administration can make the 

difference between life and death. 

In 2013, we were thrilled to have a new option when the Auvi– 

Q injector came onto the market. It was compact and much more 

user friendly. We switched to the Auvi–Q when it was first introduced. In 2013, it cost my family roughly the same amount as the 

EpiPen injectors. Soon after, the EpiPen manufacturer began offering significant discounts so that EpiPens were less expensive than 

Auvi–Q. Then Auvi–Q offered discounts. I saw the cause and effect. 

Now that EpiPen had a competitor, they found a way to lower the 

price. 

Two years later, in July 2015, our insurance changed to a nearly unreachable $5,000 deductible. We began paying the cash price. At 

that time, our cost for an EpiPen two-pack or an Auvi–Q two-pack 

was virtually the same, about $390. 

Within a few months, there was a dramatic change in price. In 

October 2015, Auvi–Q was recalled, and 2 months later, our cost 

for an EpiPen two-pack shot up to well over $600. That was an increase of over $200. Since our insurance had not changed, I believe 

that the manufacturer was responsible. When I asked my pharmacist why the price had increased so dramatically, he said, ‘‘They 

are the only game in town.’’ It is my feeling that if Mylan had competition, the price would drop. 

Last year, we went looking for an alternative and were pleased 

to find the Adrenaclick generic auto injector that cost us $116 for 

a two-pack. It works a little differently than the EpiPen and is not 

an exact generic, and, therefore, my pharmacy and my allergist 

had never mentioned it. 

I believe the other reason that the Adrenaclick was never prescribed for my sons is the product’s sporadic availability. 

Adrenaclick is manufactured by the American company, Amedra 

Pharmaceuticals. At various points in time over the last several 

years, Amedra Pharmaceuticals has not been able to keep up with 

the demand. The situation is confusing for all involved, pharmacies, physicians, and consumers. Assuming the supply catches 

up soon, how do we make sure that consumers are aware of this 

lower-cost option? 

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My local school system is also affected. They tell me that fewer 

parents are sending EpiPens to keep at school due to the cost. This 

creates a dangerous situation. In Fayette County, each building 

has four stock EpiPens for emergency use. They are intended to be 

a safety net for the undiagnosed or for students whose own EpiPen 

is for some reason not available. Those EpiPens stay in the building. That means students are riding on buses without EpiPens, 

going on field trips without EpiPens, walking home without 

EpiPens. 

In addition, an average of one in 13 children now have a food allergy, which is roughly 2 per classroom. The school’s four stock 

EpiPens cannot possibly protect the entire student population. Parents need to continue to supply EpiPens for children with documented food allergies, but with skyrocketing costs, many parents 

can’t. The high cost is putting children at risk. 

There are many families in our local support group who are 

struggling with this issue. Some parents are keeping EpiPens past 

the expiration date. Some parents are doing without. Many parents 

have told me that they are frustrated that one company has so 

much control. 

We need this lifesaving medication to be sold at a reasonable 

price so that every child can be safe. Please allow more manufacturers to produce epinephrine injectors. 

[The prepared statement of Ms. Jackson follows:] 

PREPARED STATEMENT OF LAURA JACKSON

My name is Laura Jackson, and I have been a food-allergy parent for over 25 

years, raising two sons with life-threatening food allergies. 

I know all too well the dangers of a severe allergic reaction, having witnessed it 

with my own child. Watching my son’s symptoms progress from mild to severe in 

a matter of seconds—seeing his labored breathing—the panic in his eyes—racing to 

the emergency room and wondering if we could get there in time—knowing that a 

tragedy was possible—living with the fear of it happening again—worrying at every 

meal. 

These experiences inspired me to form the Kentucky Families with Food Allergies 

support group here in Lexington 10 years ago. There are many parents like me in 

our State, all facing the financial and emotional responsibilities that come from raising a child with a life-threatening condition. That is why Kentucky’s food allergy 

parents are so concerned about the current EpiPen price increases. 

For over 15 years, my family purchased 8 to 10 EpiPen two-packs per year for 

our sons who are now grown. We needed that many due to expiration dates, and 

also to ensure that the injectors would always be within reach at home, when traveling, or at school, because prompt administration can make the difference between 

life and death. 

In 2013, we were thrilled to have a new option when the Auvi-Q injector came 

onto the market. It was compact and much more user-friendly, so we switched to 

the Auvi-Q when it was first introduced. In 2013, it cost my family roughly the 

same amount as the EpiPens injectors. Soon after we had already filled our prescription, the EpiPen manufacturer began offering significant discounts so that 

EpiPens were less expensive than Auvi-Q. Then, Auvi-Q offered discounts. I saw the 

cause and effect: now that EpiPens had a competitor, they found a way to lower the 

price. 

Two years later in July 2015, our insurance changed to a nearly unreachable 

$5,000 deductible, so we began paying the cash price. At that time, our cost for an 

EpiPen two-pack or an Auvi-Q two pack was virtually the same at about $390. 

Within a few months, there were dramatic changes in price. In October 2015, 

Auvi-Q was recalled, and 2 months later our cost for an EpiPen two-pack shot up 

to well over $600. That was an increase of over $200. Since our insurance had not 

changed, I believe that the manufacturer was responsible. 

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When I asked my pharmacist why the price had increased so dramatically, he 

said, ‘‘They are the only game in town.’’ It is my feeling that if Mylan had competition, the price would drop. 

We went looking for an alternative. Unfortunately, there is no exact alternative. 

We opted to purchase a generic epinephrine injector, called Adrenaclick, that cost 

us $116 for a two-pack, but it is not an exact substitute. That is why the pharmacy 

won’t automatically substitute one for another. Some consumers might find the generic harder to use. In addition, many parents are not aware that Adrenaclick is 

available. EpiPen is well-known due to their advertising and marketing campaigns, 

but there is no marketing for the generic. That is another issue to address: how do 

we make sure consumers are aware of this lower-cost option? 

My local school system is also affected. They tell me that fewer parents are sending EpiPens to keep at school, due to the cost. This creates a dangerous situation. 

In Fayette County, each building has four stock EpiPens for emergency use, but 

they are intended to be a safety net for the undiagnosed or for students whose own 

EpiPen is not available. Those EpiPens stay in the building. That means students 

are riding on busses without EpiPens, going on field trips without EpiPens, walking 

home without EpiPens, going to sporting events without EpiPens. The high cost is 

putting children at risk. 

There are many families in our local support group who are struggling with this 

issue. Some parents are keeping EpiPens past the expiration date. Some parents are 

doing without. Many parents have told me they are frustrated that one company 

has so much control. We need this life-saving medication to be sold at a reasonable 

price so that every child can be safe. Please allow more manufacturers to produce 

epinephrine auto-injectors. 

Senator PAUL. Thank you, Ms. Jackson. 

John Spencer is an independent pharmacist and the owner of 

Spencer Drugs. 

STATEMENT OF JOHN SPENCER, PharmD, INDEPENDENT 

PHARMACIST, OWNER, SPENCER DRUGS, RICHMOND, KY 

Mr. SPENCER. Thank you, Senator Paul. As you said, my name 

is John Spencer, and I graduated from the University of Kentucky 

College of Pharmacy in 1992. I have worked in an independent 

pharmacy since 1989, and I currently own four independent pharmacies. My staff and I are literally on the front lines of patient 

healthcare and provide education and information that is necessary 

for our patients to take their medications correctly in order to 

maximize their effectiveness in their treatment. 

Unfortunately, in the past few years, we find that we have become arbitrators between pharmaceutical manufacturers, pharmacy benefit managers, insurance companies, and patients. Too 

often, we have to attempt to explain huge price increases and formulary changes to a person that is sick and often in need of potential lifesaving medication. As you might imagine, these excuses are 

hard to come by. When talk of multimillion-dollar salaries for drug 

company executives is all over the news, it is really hard for my 

patients to understand when the price of their prescription increases by 500 percent. 

I am a businessman, and I understand the free market. However, 

in the pharmaceutical industry, there are too many players with 

the ability to manipulate the system, and that is not at the heart 

of true capitalism or reasonable business ethics. I also understand 

that the pharmaceutical companies with proprietary products need 

to make a profit and be paid for their research. It appears that, in 

many cases, these companies are choosing an increase in their 

stock price over an increase in accessibility to those who need the 

treatment the most. 

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This industry has to be put under a different microscope when 

we evaluate their pricing practices. We’re not dealing in sporting 

goods or appliances. We’re dealing with products that can mean life 

and death for our patients. 

It is an inconvenient truth for the makers of EpiPen when we 

tell them about a local teacher with severe peanut allergies who 

finds out that her co-pay for her EpiPen is now $250. The last time 

I checked, most school teachers are not highly compensated, and 

the idea of having to replace this product year after year is not a 

pleasant thought. 

Mylan does not want to discuss about a mother from Tennessee 

whose child was starting kindergarten this year. She couldn’t believe the price she had heard from her local pharmacy, so she started calling pharmacies in Kentucky in hopes of finding a cheaper 

price. Heather Bresch might be uncomfortable hearing about my 

colleague’s patient with alpha-gal allergy whose insurance co-pay 

was $626 because her deductible had to be met. 

Currently, you can go online to EpiPen.com and apply for a co- pay discount card, which may take up to $300 off your prescription 

in certain instances. In my two decades of work in pharmacy, I 

have no memory of any co-pay card offering such a staggering discount. What I know is that if you can afford to offer a $300 discount, there’s at least a $300 profit in your product. 

A 30 cc vile of epinephrine, as the Senator was mentioning, 

which contains enough drug to make several EpiPens—probably in 

the neighborhood of 20—costs me $58.99. Therefore, it’s really hard 

to believe that the active ingredient has a significant bearing on 

the cost of the product. 

Lawsuits, citizens’ petitions, and back-door payment deals between brand manufacturers and generic companies that are about 

to launch their product seem to be the norm. I guess this explains 

why some pharmacy benefit managers still choose to pay for products like Nexium and Crestor long after AB-rated generics exist, 

even though they are sometimes less than 5 percent of the cost of 

the brand name drug. 

On Mylan’s Web site under the heading, Integrity, ‘‘Doing what’s 

right is sacred to us. We behave responsibly, even when nobody is 

looking. We set high standards from which we never back down.’’ 

My response to that would be everyone is now looking, and we expect more responsible behavior. 

Thank you, Senator. 

[The prepared statement of Mr. Spencer follows:] 

PREPARED STATEMENT OF JOHN SPENCER, PHARMD 

Senator Paul, my name is John Spencer and I graduated from the University of 

Kentucky College of Pharmacy in 1992. I have worked in independent pharmacy 

since 1989 and I currently own 4 independent pharmacies. My staff and I are literally on the front lines of patient health care and provide the education and information that is necessary for our patients to take their medications correctly in order 

to maximize their effectiveness in their treatment. 

Unfortunately in the past few years, we find that we have become arbitrators between pharmaceutical manufacturers, pharmacy benefit managers, insurance companies and patients. Too often we have to attempt to explain huge increases in 

prices and formulary changes to a person that is sick and often in need of a potential life-saving medication. As you might imagine, those excuses are hard to come 

by. When talk of multi-million dollar salaries for drug company executives is all 

over the news, it is really hard for my patients to understand when the price of 

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their prescription increases by 500 percent. I am a businessman and I understand 

the free market, however in the pharmaceutical industry there are too many players 

with the ability to manipulate the system and that is not at the heart of true capitalism or reasonable business ethics. I also understand that pharmaceutical companies with proprietary products need to make a profit and be paid for their research. 

But it appears that in many cases these companies are choosing an increase in their 

stock price over an increase in accessibility of their product to those who need their 

treatment the most. 

This industry has to be put under a different microscope when we evaluate their 

pricing practices. We are not dealing in sporting goods or appliances. We are dealing 

with products that can mean life or death for our patients. 

It is an inconvenient truth for the makers of EpiPen when we tell them about 

a local teacher with severe peanut allergies who finds out that the copay for her 

EpiPen is now $250. The last time I checked most schoolteachers are not highly 

compensated employees and the idea of having to replace this product every year 

is not a pleasant thought. 

Mylan does not want to talk about the patient from Tennessee we heard from 

whose child was starting kindergarten that couldn’t believe the price that was 

quoted by her local pharmacy and was calling to see if she might find a better price 

in Kentucky. 

Heather Bresch might be uncomfortable hearing about my colleague’s patient with 

Alpha Gal allergy whose insurance copay was $626.16 because her deductible had 

to be met. 

Currently you can go online to www.epipen.com and apply for a copay discount 

card which may take up to $300 dollars off your prescription in certain instances. 

In my two decades of work in a pharmacy I have no memory of any copay card offering such a staggering discount. What I do know is that if you can afford to offer 

a $300 discount there is at least a $300 profit built into your product. 

On Mylan’s Web site under the heading ‘‘integrity’’ it reads, ‘‘Doing what’s right 

is sacred to us. We behave responsibly, even when nobody is looking. We set high 

standards from which we never back down.’’ My response to that would be . . . everyone is now looking and we expect more responsible behavior. 

Thank you Senator Paul for your time and for your concern about this issue. 

Senator PAUL. Our next witness is Professor Brian K. Strow, 

Ph.D., who is a Professor of Economics at Western Kentucky University in my hometown of Bowling Green and a BB&T Professor 

for the Study of Capitalism. 

STATEMENT OF BRIAN K. STROW, Ph.D., BB&T PROFESSOR 

FOR THE STUDY OF CAPITALISM, PROFESSOR OF ECONOMICS, WESTERN KENTUCKY UNIVERSITY, BOWLING GREEN, 

KY 

Mr. STROW. Thank you, Senator Paul, for inviting me to testify 

before this committee today. I value any opportunity I have to talk 

about the values of competition, generally, and in this case, specifically, as it applies to the pharmaceutical industry. 

My comments today will revolve around the value of competition, 

generally, to markets and to consumers, specifically, evident—I’ll 

show some evidence of that value in the pharmaceutical industry, 

specifically; explain barriers to this competition, generally, and why 

they might occur in general scenarios and also, specifically, why 

they’re occurring in these specific drug markets; and then at the 

end, suggest some policy solutions that we might look at addressing the very specific barriers to competition. 

To economists, we generally find that competition is good and 

more competition is better. Why is that the case, and why do consumers value choice? It’s because they gain power in the economic 

transaction. If there’s only one producer, a monopoly producer can 

charge a lot more than if there’s a competitor out there. If I’m willing to pay $10 for a drug, and I’m able to pay $10 for a drug, and 

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they charge me $10 for a drug, that transaction will occur, but I’ve 

got no, in economic terms, consumer surplus. I get no extra benefit 

out of making this purchase. 

If the price of drugs fall—and we’ll look at how this happens through competition—say, to $4, if I’m still willing to pay $10 and 

only have to pay $4, in economic language, I’d be gaining $6 of consumer surplus. What we look at as benefits to society—we’re going 

to add up, as economists, these consumer surpluses, freeing up, as 

it were, people’s incomes to spend on meeting other needs and 

wants. 

The FDA actually comes in very handy here, because in 2005, 

they did a very specific study regarding the benefits of competition 

in the pharmaceutical industry. What they did was look between 

1999 and 2004 at average drug prices and compared it to the number of competitors in each specific drug market, so if there were 

two drug makers, three drug makers, one drug maker, five, six— 

they took it out to double digits. 

What is interesting when you see the study is virtually every increase in the number of competitors in the market resulted in a decrease in prices. The most notable decrease in price came when the 

second generic entered into the market. 

You say, ‘‘Well, why is this the case?’’ Let’s say that there is, 

again, just one producer, a monopoly producer, and they raise the 

price. What is the consumer to do? If it’s a case of—like the 

EpiPen, where someone has got to have the epinephrine—it’s a life 

or death situation—you’re left with little recourse. 

You introduce one competitor, and all of a sudden, if the price 

goes up for one, that competitor has a choice, and they can do one 

of two things. They can either not raise their price and increase 

their market share and increase their profitability, or, given that 

explicit occlusion is illegal, they could still engage in something 

called price following and start raising their price anyway. 

When there are smaller numbers of producers in any market, 

this price following is more common. Again, what the FDA found 

was that it took as little as that third company, the second generic, 

to virtually wipe away this price following effect and drive prices 

down in a market. 

The key question, then, is not whether more competition is good 

or bad. It’s a fairly straightforward microeconomic principle that 

more competition will lead to lower prices for consumers. The question is where would these barriers to competition arise? Why are 

we finding in some markets an absence of competitors? 

We can think about this broadly first. We can think about circumstances that cause a reduction in competition. They might include things like control over scarce inputs. Think about De Beers 

and control over costume grade diamonds. They’ve got the diamonds. No one else has the diamonds, so they might be able to 

have some extra market power. 

We can think of IBM at the birth of super computers and thinking they had some technological superiority. They knew something 

that other people didn’t know. That could give you some advantage. 

We could think about really high up front costs. There are not a 

lot of jumbo jet producers in the world. There’s Boeing, there’s Airbus. There’s two, and why might that be the case? You’d have to 

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have a company larger than most countries’ GDP to even startup 

a company. 

The other big one would be if there’s economies of scale in production. Think of electricity production. Small scale production 

wouldn’t be cost efficient. 

Finally, the last major barrier to competition comes from government regulations itself. The Senator alluded to some of these in his 

opening statement. They include patents, licensing rules, and government prohibition on competition. Think in this case of the post 

office. There’s an actual prohibition against competing in the delivery of mail. 

When we look at the pharmaceutical industry, generally, and the 

EpiPen situation, specifically, what we don’t see are these big startup costs. Sure, there are some startup costs. We’re not talking Boeing-sized startup costs. Epinephrine has been around for a long 

time. There’s no big scientific reasons, no great technology that’s 

not available to other people. 

We can go one at a time and go through most of the reasons why 

there is this barrier to competition. It turns out the barrier does 

exist, but it’s coming specifically from that last item, the government regulations. 

First of all, there’s the patent situation. Again, there’s a reason. 

Society faces a tradeoff. We can offer patents, which gain a company monopoly status, and we know that by giving them monopoly 

status, that’s going to increase their pricing power. We do it on 

purpose, and the reason society has decided to do this on purpose 

is to encourage innovation. If you can’t recoup your research and 

development costs, people will not spend time and money to expand 

the technological frontier and improve people’s lives. 

The question is not whether we have patents or not. The question is the optimal length of patents. One of the big issues we’re 

facing now in the pharmaceutical industry are patent extensions. 

Sure, you came up with a great idea at the beginning, but now 

maybe instead of taking the pill once a day, you can take it twice 

a week, and is that worthy of patent protection. What we need to 

do is look at a tradeoff between the value of innovating to a twicea-week pill or a different delivery mechanism for the epinephrine 

versus the extra consumer surplus we could generate by extending 

competition more quickly. 

The second area, then, is going to be with licenses. In this case, 

we’re thinking FDA approval itself. You have to obtain FDA approval to become a competitor. So when we look at absence of competition in the market, particularly in the face of high prices, you 

say, ‘‘Well, why aren’t there new competitors just jumping in?’’ 

Again, if there are not huge technical barriers, what’s going on? It 

turns out there is a very lengthy, as you noted, process for approval 

to be a competitor. 

If we’re thinking shoes, if we’re thinking a shoe store, and the 

only shoe store in town jacks up the price of shoes, there’s a very 

low barrier to start a new shoe store and compete, or you could 

have online competition. Here, though, if you had to ask ‘‘Mother, 

may I?’’ from the government, and the government says, ‘‘Three 

years from now, 4 years from now, 7 years from now, you might 

be able to, if you fill out enough paperwork, pay enough, between 

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$1 million and $5 million in application costs to start a shoe store,’’ 

you could see how there could be a lot of shoe stores that have a 

lot of monopoly status. You would artificially be restricting the 

number of competitors to the market. 

If we’re doing this on a logical basis, should the FDA have licensing? You can make a good argument for that, that they want to ensure product safety, and, again, we’re going to face a tradeoff. Product safety is going to be the biggest issue here. The question is not 

do we have any approval process, but is 4 years, 5 years, 7 years 

the appropriate amount, particularly in cases where we already 

know what the drug does. It’s not a new drug. There aren’t new 

side effects. It’s the same drug in a generic form. 

Does there need to be some product testing to make sure that the 

drug is what it says? Sure. Does that need to take 5, 6, 7 years? 

Certainly, by increasing these—the FDA increasing the cost of getting generics to the market has done a huge disservice to consumer 

surplus. At a minimum, they should do a cost-benefit analysis and 

determine in each case—is this going to be the first generic, or is 

this going to be the 17th generic? We know from the evidence that 

the 17th generic does not reduce prices as much in the market as 

the second or, most notably, the third competitor overall with the 

second generic. If the FDA is facing scarce resources, like we all 

do, we could hope that they could prioritize to those areas in terms 

of approving new drugs that will, in fact, lead to the highest increase in consumer surplus. 

The last barrier to competition and corresponding policy change 

is when the government itself regulates the use of an item. In this 

case, with EpiPen, there were some States and local school districts 

that mandated specifically that it was EpiPen that had to be stored 

at the school and the competitor was not allowed. When that’s the 

case, you restrict entry into the market. You’re not even allowing 

the competitor to come in and bid down price. 

Restricting government’s ability itself to pick winners and losers, 

to say, ‘‘You must choose this drug versus that drug,’’ will stand 

to increase competition and consumer surplus. 

Thank you. 

[The prepared statement of Mr. Strow follows:] 

PREPARED STATEMENT OF BRIAN K. STROW, PH.D. 

My name is Brian Strow, Ph.D., WKU BB&T Professor for the Study of Capitalism and Professor of Economics at Western Kentucky University. I am grateful 

for the opportunity to come before the U.S. Senate Committee on Health, Education, 

Labor, and Pensions’ Subcommittee on Children and Families to testify regarding 

the benefits to consumers of increased competition by producers, provide evidence 

of the value to consumers of increased producer competition in the pharmaceutical 

industry, explain how barriers to producer competition arise in markets generally 

and the pharmaceutical industry specifically, and offer policy suggestions aimed at 

reducing said barriers for the benefits of consumers. 

THE BENEFIT TO CONSUMERS OF COMPETITION

For consumers, choices are ‘‘good.’’ More choices are ‘‘better.’’ Economists measure 

‘‘good’’ and ‘‘better’’ in terms of consumer surplus. Consumer surplus is the difference between the amount of money that consumers are willing and able to pay 

for a good or service and the price they actually have to pay for the good or service. 

If one is willing and able to pay up to $10 per for one dose of a prescription drug 

and the price is set at $10, there is no consumer surplus. If the price of the prescripLIFEBOOK092 with DISTILLER

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tion drug falls to $4, then the consumer gains $6 of consumer surplus when they 

purchase the drug. 

Competition among producers in markets for goods or services works to lower 

prices and improve quality in said markets thereby increasing consumer surplus. In 

order to maximize profits, monopolists will tend to artificially restrict the quantity 

of a good or service available on the market and increase the price of the good or 

service. As each new subsequent producer enters the market, consumers gain greater decisionmaking power over what good or service to purchase. Any given producer 

loses power over the consumer and must compete for said consumer’s business by 

offering a better good or service or lowering the price they charge. Standard microeconomic theory suggests that as the number of competing producers increases, 

prices fall. 

THE BENEFIT TO CONSUMERS OF PHARMACEUTICAL COMPETITION

In 2005, the U.S. Food and Drug Administration reported a direct relationship between the number of drug producers in a market and the average price of the drug 

for sale that occurred between 1999 and 2004. Their chart is included below. While 

increased producer competition was found to generally lower average drug prices, 

the best news for consumers was that the largest percentage benefit from increased 

competition occurred when merely the second generic drug entered the market. Reductions in drug prices directly related to increased producer competition are the 

rule, rather than the exception, in the pharmaceutical industry. 

Source: FDA analysis of retail sales data from IMS Health, IMS National Sales 

Perspective (TM), 1999–2004, extracted February 2005. 

WHY BARRIERS TO COMPETITION ARISE

In general, barriers to producer competition arise from a limited set of circumstances. These circumstances include control over scarce inputs (De Beers’ control over costume grade diamonds), technological superiority (IBM at the beginning 

of super computers), large up-front costs (the jumbo jet industry), the presence of 

economies of scale (large scale electricity production may be cheaper than small 

scale production), and government regulations (patents, licensing rules, or government prohibition as in the case of the postal monopoly). 

In the absence of these barriers, if a company were to dramatically increase the 

price of their good or service in absence of an increase in their production costs, one 

of two things will occur. Their competitors will not respond to the price increase and 

gain market share or they will respond by increasing their own prices (explicit price 

collusion is illegal). The larger the number of competitors, the greater the likelihood 

that one producer will attempt to gain market share and not raise prices. As they 

lose market share, the other producers are forced to reduce their prices or get 

squeezed out of the market. 

If there are a small number of competitors and they all increase their prices, the 

increased price acts as a signal to potential producers indicating that resources need 

to be reallocated into the increased production of the very good or service whose 

price has been increased. As long as the price of the good or service remains above 

the price that would be derived from perfect competition, the signal for new entrants remains. New entrants will enter into the market until the price returns to 

the price suggested by a perfectly competitive market. (F.A. Hayek, The Use of 

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Knowledge in Society 1945 and Milton Friedman, Capitalism and Freedom, Chapter 

8). 

As in the recent case of EpiPen price increases, one must address the question 

of what specific barriers to competition exist in the short run and the long run. If 

no barriers to entry existed for producers, they would have instantaneously responded to higher EpiPen prices with similar products aimed at the same consumers. 

EpiPen producers don’t have access to scarce resources or superior technology. 

Other drug makers also have the ability to engage in large scale drug production, 

so the argument that new production lines take time to implement only carries 

short term explanatory power. That is, a drug maker could only increase prices for 

a specific drug for a short period of time. Dramatically increasing their prices risks 

long term damage to the drug maker’s public image which risks their relationship 

with consumers in other product markets. 

The chief barrier to competition in the pharmaceutical industry is government 

regulation—in many forms. Patents, issued by the United States Patent and Trademark Office offer producers limited term monopoly rights to the production of a 

good. The U.S. government purposefully restricts short term producer competition 

in order to incentivize long run innovation. If we were to the point where we had 

invented all there was public benefit to invent, disbanding the patent system would 

increase competition and consumer surplus. We do not yet live in such a world, and 

reducing the economic returns to patents risks diminished research and development in the pharmaceutical industry. 

The FDA has to approve or license the production and sale of pharmaceutical 

drugs in the United States. The longer time (and financial burden) it takes to gain 

FDA approval for drug production to commence, the less competition pharmaceutical 

producers face in the short run which gives them increased pricing power thereby 

reducing consumer surplus. 

Last, government monopolistic regulations themselves can contribute to the lack 

of competition. In the case of EpiPen, many State and local governments mandated 

that schools stock epinephrine. Some of these governments entered into agreements 

with Mylan (the producer of EpiPen) that they not buy from EpiPen’s competitors. 

POLICIES DESIGNED TO LOWER BARRIERS TO COMPETITION IN THE PHARMACEUTICAL

INDUSTRY

As there are three specific factors that reduce long run competition in the pharmaceutical industry, reforms proposed to successfully increase competition in the 

pharmaceutical industry must specifically address one of these three factors: patent 

law, the FDA regulatory process, and direct government involvement in drug markets. 

Patent reforms could include increasing the innovation bar necessary to qualify 

for patent protection. Is changing a pill from a daily pill to a twice a week pill really 

worthy of a patent extension if it decreases consumer surplus? At a minimum, the 

patent office should be required to do a cost benefit analysis before granting patent 

extensions. 

Increase the speed at which generic drugs are approved by the FDA. While the 

approval process for generics is shorter than for new drugs, the FDA could be 

incentivized to use their scarce resources in ways that maximize consumer surplus. 

The FDA could be required to do a cost benefit analysis regarding their usage of 

scarce inputs. This would work to expedite the very drugs whose benefit to consumer surplus are the greatest. 

Don’t allow agents of the public sector to pick which specific producer gains monopoly access to a public market. Analysis by Best Practices LLC. Indicates that the 

most effective ways for drug makers to increase profits are through patent extension 

and large volume purchaser contracts. By eliminating public officials’ ability to engage in exclusive drug deals, one can ensure increased competition in the pharmaceutical industry. 

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To summarize: competition is good more competition is better, the chief barrier 

to increased competition in the pharmaceutical industry is government, policies designed to lower drug costs and increase consumer surplus need to begin with regulatory reform. 

Senator PAUL. Thank you. Our next witness is Dr. Scott Gottlieb. 

He is a Resident Fellow at the American Enterprise Institute, a 

well-known writer, and a practicing physician. 

Scott. 

STATEMENT OF SCOTT GOTTLIEB, M.D., RESIDENT FELLOW, 

AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Dr. GOTTLIEB. A reformed government bureaucrat, having 

worked at FDA for a number of years. 

I want to thank you for having me today, Senator, and for the 

opportunity to testify before the committee. 

I want to pick up on some of the discussion around the regulatory failure and around the lack of competition. The lack of competition in this market and for the EpiPen product does stem from 

regulatory failure stemming from FDA policy, and I think that policy can be fixed. 

The first breakdown, in my view, is just the sort of growing cost 

and complexity of that FDA approval process. To give you some 

statistics on that, for generic drugs that were launched in 2015, it 

took about 4 years for them to be approved, to go through the FDA 

process, largely because less than 1 percent of the applications actually get reviewed and approved on their first cycles. You have 

multiple cycling of these generic applications, and often it’s over 

minor issues that don’t get to the overall safety and effectiveness 

of the products. 

At the same time that the complexity has gone up, so has the 

cost. When I was at FDA, we used to, as a rule of thumb, say that 

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a generic drug application—to file and get it through FDA would 

cost about a million dollars, and a category of drugs would have to 

reach about $10 million in total revenue to be genericized, to have 

sufficient revenue to make it worth filing that million-dollar application. 

Today, it can cost upwards of $20 million to file a generic drug 

application, and the general market rule of thumb is that a drug 

would have to fetch between $25 million to $50 million in revenue 

to justify the investment. So you have a situation where you have 

these low utilization products on the market that don’t have any 

competition. 

Of about 1,300 branded drugs on the market, 10 percent have 

lost all patent protection and only have one competitor. These are 

some of the high priced drugs that we have been talking about in 

the news, drugs like clomipramine, which had an 1,800 percent 

price hike from 2013 to 2014; fluconazole, a 996 percent increase 

over the same year; doxazosin, a 1,169 percent increase. You have 

one competitor on the market. They have to amortize the cost of 

developing that product over a very low volume. There’s no competitors coming in trying to drive the price down, and you end up 

having these big price increases. 

These problems are compounded when it comes to the class of 

generics that I would call complex generics or complex drugs. Typically, a complex drug is a drug that has something unusual about 

its formulation or its mechanism of action that makes it hard to 

determine that it’s the same exact drug as the drug it’s trying to 

copy based on a traditional test that we require as part of the generic drug process. 

The generic drug process requires what are called bio-equivalents 

and bio-availability studies, which basically means that if you take 

the drug and you can measure the drug in someone’s blood at the 

same level and in the same proportion as the drug it’s trying to 

copy, you can get approval just on the basis of those tests, just by 

showing that your drug gets into the blood the same way and stays 

in the blood for the same length of time. That was built for a world 

when drugs were fairly simple chemicals. They were all pills. They 

were small molecules. 

In a world where drugs are complex and just merely measuring 

them in the blood isn’t a good approximation of what their benefit 

might be, it’s a lot harder to put those drugs through the traditional generic drug process. Think, for example, of a drug that acts 

locally like a metered dose inhaler for asthma. It’s acting directly 

on the lungs, so measuring how much of that drug gets into the 

blood isn’t going to be a good approximation for how it works in the 

lungs. In fact, it is the case that we don’t have generic competition 

to some very expensive metered dose inhalers for asthma that have 

long lost patent protection. 

Or think of a topical agent like a dermatological cream. If you 

want to know why old acyclovir costs so much, it’s because it’s hard 

to develop a generic formulation of something that acts locally and 

topically. 

In the case of EpiPen, it too would fall into this category of complex generics, and the complexity here is the device. It’s the product for delivering the drug, the auto injector. The problem is that 

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1The American Enterprise Institute for Public Policy Research (AEI) is a nonpartisan, nonprofit, 501(c)(3) educational organization and does not take institutional positions on any issues. 

The views expressed in this testimony are those of the author. 2 EpiPen, ‘‘Prescribing Information,’’ August 2012, https://www.epipen.com/hcp/-/media/ 

files/epipen/prescribingpercent20information.pdf. 

if someone wants to copy EpiPen, the law says that they have to 

have the exact same instructions for use in their label as EpiPen. 

In fact, Mylan has patented some of the unique attributes of their 

auto injector that deal with how you would instruct a patient to 

use it. If someone wants to copy EpiPen, they basically have to 

copy EpiPen’s instructions for use, but the instructions for use deal 

with patented aspects of the auto injector. 

There’s a catch–22 here. If someone wants to develop a different 

auto injector, a different form of epinephrine, a different device, 

and wants to get approval as a new drug, because they can’t go 

through the generic drug process because they can’t copy EpiPen’s 

label, FDA might say to them, ‘‘Actually, we don’t think you can 

be a new drug because you’re basically the same ingredient as 

EpiPen so you have to go through the generic drug process.’’ You 

can get caught in a catch–22 of sorts, and I think that there are 

companies caught in this process if you were to ask FDA. 

What’s the up-shot here? The generic drug law is a very old law 

that was written at a time when drugs were very different and 

were basically simple chemicals. Now that we have these categories 

of complex generics, we might think about changing the law to 

allow FDA to have more discretion to ask for different complements 

of information for the purposes of developing generic copies of some 

of these drugs. 

In the case of EpiPen, that might mean allowing a generic copy 

to EpiPen to have slightly different instructions for use, as long as 

it’s not going to create a patient safety issue, but still be considered 

a generic formulation of EpiPen and still be substitutable at the 

point of the pharmacy to provide that kind of price competition 

that we seek in the market. 

With that, I’d be happy to answer questions. I appreciate being 

here. 

[The prepared statement of Dr. Gottlieb follows:] 

PREPARED STATEMENT OF SCOTT GOTTLIEB, M.D.1

Mr. Chairman, thank you for the opportunity to testify before the committee. 

The rising list price of drugs such as the lifesaving EpiPen autoinjector,2 coupled 

to the increasing exposure that consumers have to these costs as a consequence of 

secular change in the design of insurance coverage, has appropriately focused increasing scrutiny on how drugs are priced. It’s often argued that drugs are one of 

the last vestiges of market-based pricing in our highly regulated health care industry. By contrast, regulators in Washington set most prices for clinical services. It’s 

true that drug makers have more pricing discretion than other sectors in health 

care, whether it’s in comparison to hospitals, providers, or even medical device makers. The market for drug products is hardly a utopia of free market pricing and vibrant competition. The drug market is subject to its own peculiar price setting and 

regulation. These rules undermine the competitive opportunities that could help inspire more choice and competition, and help lower costs. 

Today I want to talk about three areas where I believe that regulation creates 

barriers to pharmaceutical competition. I will focus my remarks on how policymakers could remedy these market failures, enable more choice, and stimulate more 

price competition. 

The first issue deals with the way that the Food and Drug Administration (FDA) 

regulates drugs. Here I focus on what I categorize as complex medicines. These are 

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3Mary Caffrey, ‘‘How Increased Cost Sharing Triggered the EpiPen Crisis,’’ AJMC.com, August 24, 2016, http://www.ajmc.com/focus-of-the-week/0816/how-increased-cost-sharing-triggered-the-epipen-crisis. 

circumstances where the drugs have certain intricacy associated with their formulation or delivery. Developing cheaper, copy versions of these complex drugs, after legitimate patents have lapsed, are made especially difficult by shortcomings in regulatory policy. 

The second area relates to existing price controls and mandatory rebates in programs such as Medicaid and 340B. These government rebate schemes put upward 

pressure on drug prices, by creating financial pressure to raise the list prices on 

drugs in order to provide fiscal room for accommodating the mandatory kickbacks. 

The problems associated with this system are longstanding and manifold. But these 

burdens are made more acute by a recent, sharp, and secular change in the structure of drug insurance coverage that has left more consumers exposed to the list 

price of drugs, before the rebates are applied. 

Consumers who increasingly find themselves underinsured for drugs—even while 

more medical care shifts toward the use of higher-cost, specialty medicines—are not 

directly benefiting from the rebates that end up lowering the real, net price of the 

medicine. The health plan benefits from these rebates. They help offset premium 

costs. But the underinsured consumer can end up paying the full list price, not the 

post-rebate price. 

In the case of EpiPen, a drug product that’s used for the emergency treatment 

of certain allergic reactions, the invoice price for a two-pack EpiPen product in 2016 

is currently about $600. But these invoice or ‘‘list’’ prices do not account for any rebates and other discounts. According to recently published data, the net price received by Mylan for each EpiPen 2-Pak was $274.3 This is the ‘‘net’’ or ‘‘real’’ price. 

The remaining 54 percent of the list price was split among Pharmacy Benefit 

Managers (PBMs), insurers, wholesalers, and pharmacy retailers. 

Toward addressing these challenges, our drug market would be more competitive 

if drug makers were able to offer—and purchasers able to demand—up-front discounts off the list price of drugs, rather than have to settle for back-ended rebates 

that aren’t available to consumers when they purchase a drug at the pharmacy 

counter. But legal precedents that Congress could address through legislation largely stand in the way of the ability of drug purchasers to demand discounts, and the 

feasibility of drug makers to offer them. 

Third and finally, there are obstacles to the more competitive pricing of the sort 

of ‘‘single source’’ breakthrough medicines that are providing some of the most 

meaningful public health advances. These include branded drugs that provide substantial benefit and even outright cures for some forms of cancer and diseases such 

as Hepatitis C. 

We need to allow innovative drugs that offer meaningful advances in medical care 

to be priced in a market system based on the benefit that they offer, and the cost 

of the capital required to underwrite the long and uncertain development path for 

creating these sorts of breakthroughs. We don’t want to undermine the model for 

investment and innovation that makes these advances possible and has given us the 

most vibrant market for the research and development of biotech and drug products 

in the world. 

At the same time, those who purchase these drugs should be able to demand 

prices that relate to the benefits that these products deliver and the circumstances 

for which they are prescribed. Right now, government rules regrettably prevent this 

sort of price discrimination based on indication and outcomes. Drug makers can’t 

offer prices based on measures of benefit or grounded in the purpose for which a 

drug is prescribed. Patients can’t demand these sorts of price concessions. 

FDA REGULATION SHORTCOMINGS OBSTRUCT COPIES OF COMPLEX GENERICS

Drugs such as EpiPen fall into a category of products that one might classify as 

complex generic medicines. It’s been noted that the active ingredient in the EpiPen 

is epinephrine, a very old drug. What makes the EpiPen unique is its delivery vehicle—an autoinjector that’s packaged in a convenient, pen-like device. The product’s 

key attribute is its ability to reliably deliver accurate doses of the essential medicine. This meaningful convenience and the product’s reliability allowed EpiPen to 

capture a substantial portion of the market for injected epinephrine, but it is not 

the only such product available. 

The current market for these epinephrine products breaks down this way: Of the 

4.2 million prescriptions for epinephrine products written in 2016, about 3.9 million 

were for combination products (i.e., autoinjectable devices containing the medicine, 

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4 U.S. Food and Drug Administration, ‘‘Sanofi US Issues Voluntary nationwide Recall of All 

Auvi-Q® Due to Potential Inaccurate Dosage Delivery,’’ October 13, 2015, http://www.fda.gov/ 

Safety/Recalls/ucm469980.htm. 5The Adrenaclick sells for a list price of around $140 per unit. 

such as the EpiPen). According to IMS Health, Mylan represented about 3.8 million 

of these prescriptions. Impact Laboratories comprises the bulk of the remaining 

market share of autoinjectables. A third autoinjectable combination product, AuviQ marketed by Sanofi, was voluntarily recalled in 2015 due to malfunctions with 

the device.4

In addition to these autoinjectable products, a number of generic forms of epinephrine are available in ampule and vial form as well as packaged in a prefilled 

syringe. These products constitute a small number of prescriptions written for epinephrine in 2016. The top four vial manufacturers totaled about 217,000 prescriptions. 

While the EpiPen’s manufacturer, Mylan, maintains some important intellectual 

property around its autoinjector that the company believes differentiates its device, 

this should not—and has not—prevented other companies from developing their own 

pen-like devices for autoinjecting epinephrine. However, the way that FDA administers its generic drug regulatory process has left the agency tied in some policy 

knots when approving similar products as generic substitutes for EpiPen. At the 

same time, other regulations make it hard for competitors to EpiPen to get their 

products approved as new, branded alternatives to EpiPen through the new drug 

approval pathway. Policy shortcomings can leave potential competitors in a regulatory Catch–22. 

One issue relates to the existing statute and FDA regulations that govern the approval of generic drugs, the Abbreviated New Drug Application (ANDA) process. 

FDA maintains that, if a patient has to be retrained to use a generic alternative 

to a branded product, then the alternative product cannot bear the same labeling 

as the drug it seeks to copy, and it cannot meet the burden of the ANDA process 

and be approved as a generic equivalent. The copy drug can’t be considered the 

‘‘same’’ and serve as a substitutable alternative. 

This means that an alternative to a complex drug or a complex drug and device 

combination such as EpiPen would have to function in the exact same manner as 

EpiPen. To the extent that Mylan maintains some intellectual property around some 

of the functions of the EpiPen that correlate to some unique instructions on how 

to use the device, this can impede entry of generic competitors to EpiPen—even if 

most of the fundamental intellectual property (IP) on the drug and the device has 

lapsed. 

At the same time, under FDA’s existing rules it could be difficult for a competitor 

to EpiPen to seek approval under the longer and costlier new drug approval process 

as a branded alternative to EpiPen. Here is the Catch–22, of sorts, at play. A competitor might not be able to go through the ANDA route, but may not qualify as 

a new drug, either. 

This could occur in an instance where a competitor to EpiPen might be filing for 

approval under a regulatory pathway referred to as 505B(2). The regulatory pathway is named for the section of FDA’s statute that gives rise to this alternative approval process. 

First, it would be unusual for FDA to approve a drug through the 505B(2) pathway and allow it to be therapeutically substitutable for another product (in this case 

EpiPen). So any EpiPen alternative approved under 505B(2) would not be a true generic alternative to EpiPen. Such an approval would, nonetheless, still create market competition that could help lower costs. But there is a second regulatory obstacle. In situations where a product is likely to be a therapeutic equivalent to a drug, 

FDA encourages (and could in some cases require) a drug developer to file as an 

ANDA. So there could be situations where FDA compels drug makers to file under 

the ANDA route, only to hit a policy obstacle in trying to copy the instructions for 

use in the EpiPen label without infringing some of EpiPen’s IP around its 

autoinjector and its unique functions. 

Such is the case with another epinephrine product, Adrenaclick.5 Like EpiPen, it 

is a formulation of epinephrine delivered through an autopen. Pharmacists cannot 

substitute it for EpiPen, despite the similarities. That’s because while it’s the same 

drug, Adrenaclick has a different autoinjector and, thus, bears a different set of instructions for using the device. It cannot be approved as a generic product that is 

substitutable for EpiPen. 

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6 Robert Lionberger. ‘‘Complex Generic Drugs,’’ presentation at the Generic Pharmaceutical 

Association Fall Technical Meeting, October 29, 2013, http://www.fda.gov/downloads/ 

AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM374191.pdf. 7 Aloka Srinivasan, ‘‘Complex Generics: Maximizing FDA Approval Prospects’’ Parexel, 2015, 

https://www.parexel.com/files/6714/3076/9385/ComplexGenericslWPApril2015lfinal.pdf. 8Zachary Brennan, ‘‘House Panel Calls on GAO to Study FDA’s Approval Pathway for Complex Generics,’’ Regulatory Affairs Professionals Society, December 15, 2015, http:// 

www.raps.org/Regulatory-Focus/News/2015/12/15/23775/House-Panel-Calls-on-GAO-toStudy-FDApercentE2percent80percent99s-Approval-Pathway-for-Complex-Generics/. 9 Huub Schellekens et al., ‘‘How to Regulate Nonbiological Complex Drugs (NBCD) and Their 

Follow-On Versions: Points to Consider,’’ AAPS Journal 16, no. 1 (January 2014): 15–21, 

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3889532/. 10 Alicia Mundy, ‘‘FDA Approves Generic Lovenox,’’ Wall Street Journal, July 24, 2010, http:// 

www.wsj.com/articles/SB10001424052748703294904575385133623904548. 11 Rao N.V.S. Mamidi et al., ‘‘Pharmacokinetics, Efficacy and Toxicity of Different Pegylated 

Liposomal Doxorubicin Formulations in Preclinical Models: Is a Conventional Bioequivalence 

Approach Sufficient to Ensure Therapeutic Equivalence of Pegylated Liposomal Doxorubicin 

Products?’’ Cancer Chemotherapy and Pharmacology 66, no. 6 (November 2010):1173–84, 

https://www.ncbi.nlm.nih.gov/pubmed/20661737. 

These issues fall broadly into a category of challenges that relate to the approval 

of ‘‘complex generic drugs.’’ 6 While there is no official definition of ‘‘complex’’ 

generics, one can broadly define complex generics as generic drugs for which it is 

particularly difficult to establish therapeutic equivalence as defined in the Orange 

Book. 

Some complex generics present significant challenges in establishing pharmaceutical equivalence due to problems related to physiochemical characterization. For 

some, a simple bioequivalence study is not enough to establish that the generic drug 

will have the same clinical and safety profile as the reference-listed drug that it 

seeks to copy.7

In soliciting a study from the Government Accountability Office, Congress defined 

complex generics as drugs that were not fully characterized because the active pharmaceutical ingredient has molecular diversity, because scientific analytic methodologies are unable to fully identify the molecular structures and physiochemical properties of the active ingredient, and because the nature of the active ingredient is 

not understood well enough to identify the drug’s mechanism of action that produces 

its therapeutic effect.8

Similarly, complex drugs have also been defined by authors as nonbiological products ‘‘where the active substance is not a homo-molecular structure, but consists of 

different (closely related and often nano-particulate) structures that cannot be isolated and fully quantitated, characterized and/or described by state-of-the-art physicochemical analytical means and where the clinical meaning of the differences is 

not known.’’ 9 In this regard, complex drugs can share characteristics with 

biologicals. 

FDA has defined complex generics more broadly to include these circumstances, 

as well as situations such as EpiPen, where the complexity is related to the drug’s 

delivery. This could include situations like EpiPen, where a drug is delivered 

through a complex device. 

This might involve, for example, a drug that acts locally on tissue lining the gut 

(such as oral vancomycin) or an inhaled drug that acts directly on the lungs (like 

metered dose inhalers (MDIs) for the treatment of asthma and other lung diseases). 

Complex drugs might also be one that is delivered through a complicated delivery 

mechanism such as EpiPen or, to take another example, a drug delivered through 

a controlled-release patch. 

FDA has faced perpetual policy challenges, in part of its own making, when it has 

tried to ‘‘genericize’’ a growing number of these complex drugs through its ANDA 

pathway. Because of the FDA’s policy constraints, as well as its own scientific ambiguity when advancing regulatory principles for developing copies of complex drugs, 

sponsors often say that they feel like they are ‘‘shooting in the dark’’ when developing the product, preparing dossier for an effective FDA filing, or engaging in the 

back-and-forth between FDA and the company during the review. 

For example, the agency delayed for years the approval of a generic alternative 

to long-acting heparin—long after the legitimate intellectual property on that medicine had lapsed.10 Similar delays challenged the approval of complex generic formulations, such as oral vancomycin, liposomal Doxorubicin HCl injection,11 and topical 

Acyclovir ointment. 

In other cases, FDA made errors in how it approved generic alternatives to complex drugs like IV iron, requiring its decisions to be revisited. Or FDA established 

regulatory principles that were widely criticized and ultimately rescinded, such as 

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12Scott Gottlieb, ‘‘How Obama’s FDA Keeps Generic Drugs off the Market,’’ Wall Street Journal, August 19, 2016, http://www.wsj.com/articles/how-obamas-fda-keeps-generic-drugs-off-themarket-1471645550. 13 U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, ‘‘Understanding Recent Trends in Generic Drug Prices,’’ January 27, 2016, 

https://aspe.hhs.gov/pdf-report/understanding-recent-trends-generic-drug-prices. 

cally on the eye. In the latter case, for products that act locally on tissue rather 

than acting systemically after being absorbed into the blood, FDA can lack reliable, 

rigorous principles for demonstrating sameness in how two versions of a drug act 

on the target organ. 

The problem is that the generic drug approval process was crafted at a time when 

most drugs were relatively simple, small molecule pills. The process for copying 

these drugs was relatively straightforward. The system for proving sameness largely 

turned on the ability to show that a copy of a drug can get into the blood at the 

same levels and in the same timeframe as the branded drug that it was seeking 

to emulate. It could then be postulated, based on these ‘‘bioequivalence’’ and ‘‘bioavailability’’ studies, that the generic drug would have the same therapeutic profile 

as the branded drug that it sought to copy. 

This classical generic pathway was sufficient for many well-defined, small, low 

molecular weight drugs where the analytical testing fully characterized the product 

and showed pharmaceutical sameness to the reference-listed drug. Together with a 

proof of bioequivalence to the reference product, this information allowed for the 

submission of an abbreviated file (ANDA) with a waiver for efficacy and safety studies. FDA would nonetheless be able to declare that the copy was fully substitutable 

for the reference drug. 

With complex generics, the ability to determine sameness based on bioequivalence 

and bioavailability is sometimes not as straightforward. That might be because the 

complex drugs act locally on an organ and therefore, the level of drug found in the 

blood is not an effective surrogate for surmising its therapeutic effect. Or the complex drug might be an intricate formulation, where the concentration of active ingredient found in the blood cannot be accurately measured. Or the drug might be like 

the EpiPen and involve a complex delivery system that requires instructions for use 

that cannot be precisely copied in labeling from one version of the product to the 

next. 

As a consequence, I believe that Congress should consider legislation to modernize 

the generic drug framework to allow FDA greater discretion in the kinds of data 

it relies on for its generic approvals in this narrow category of complex drugs. This 

would require, for example, granting FDA the ability to ask for more than just bioequivalence and bioavailability data in making judgments around sameness. Or it 

might require Congress to grant FDA more discretion to make minor modifications 

in generic labeling to account for small variations between a branded drug and the 

proposed generic copy, for example, when instructions for use might be marginally 

different. 

It’s noteworthy that generic industry stakeholders named the creation of a specialized review pathway for complex abbreviated new drug applications as a priority 

during user fee negotiations. The agency has also discussed with generic drug manufacturers the need for more clarity from FDA in this pre-ANDA space, according 

to meeting minutes. 

These challenges with the complex drugs are compounded by the overall slowness 

and inefficiency of the generic drug approval process. As I recently noted in The 

Wall Street Journal,12 the complexity and cost of completing even an average (less 

complex) generic drug application has also grown enormously. In 2003, when I 

began working at the FDA, we estimated that it cost less than $1 million for a firm 

to file a generic drug application. A drug would have to earn about $10 million in 

annual revenue before it would be subject to generic competition. Today, filing a generic application requires an average of about $5 million and can cost as much as 

$15 million. This means that a drug may not face brisk generic competition until 

it exceeds $25 million in annual revenue. 

As I previously noted, the key to the generic economic model is to keep entry 

prices low enough to attract multiple competitors. One study estimated the cost to 

consumers of generics to be 90 percent of the branded drug’s price if there is only 

one generic entrant. But the price falls to 63 percent if there are five competitors 

and 40 percent when there are 10 competitors. Yet of the 1,328 branded drugs on 

the market, about 10 percent have seen patents and exclusivities expire, but face 

no generic competition.13

Some of these are the high-cost medicines that are the subject of political wrangling, drugs such as clomipramine (which saw a 1,818 percent price hike from 2013 

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14 U.S. Food and Drug Administration, ‘‘FDA/GPhA: Quarterly Meeting on GDUFA,’’ March 

23, 2015, http://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsare 

DevelopedandApproved/ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ 

UCM442070.pdf. 15 Janet Woodcock, ‘‘Implementation of the Generic Drug User Fee Amendments of 2012 

(GDUFA),’’ testimony before the Committee on Health, Education, Labor, and Pensions, U.S. 

Senate, January 28, 2016, http://www.help.senate.gov/imo/media/doc/Woodcock5.pdf. 16Gottlieb. ‘‘How Obama’s FDA Keeps Generic Drugs off the Market.’’ 17 Ed Silverman, ‘‘Generic Drug-Safety Rules Debated,’’ Wall Street Journal, February 26, 

2015, http://www.wsj.com/articles/generic-drug-safety-rules-debated-1425009063. 18Policy and Medicine, ‘‘IMS Releases 2016 Report on Prescription Drug Spending—Net Price 

Growth 2.8 percent in 2015,’’ May 2, 2016, http://www.policymed.com/2016/05/ims-releases2016-report-on-prescription-drug-spending-net-price-growth-28-in-2015.html. 

to 2014); fluconazole (996 percent increase); and doxazosin (1,169 percent). Each of 

these drugs accounts for less than $2 million in total Medicaid spending, meaning 

that very few people are using them. Given the high generic entry costs and the 

infrequent use of these drugs, it’s often no longer economically viable for more than 

one firm to make them. 

Owing to these economic challenges, infrequently used generics may now have 

only one competitor and cost as much as branded drugs. When the price of a drug 

rises, it becomes profitable and the target of new competition. The FDA recently 

committed to review new generic drug applications in a 15-month cycle, an improvement over a median of more than 2 years for applications submitted in 2013.14 For 

generics filed in 2009, the median review time exceeds 3 years. Yet generics 

launched in 2015 took about 4 years for the FDA to approve, since less than 2 percent of applications were approved on their first submission.15 FDA committed to 

improve first-cycle approvals, but it still rejects most applications before demanding 

resubmissions, delaying competition.16

Toward addressing these challenges, in addition to defining a new path for complex generic drugs, FDA should also prioritize files for these sorts of busted generic 

drug categories, especially where the generic targets an uncommon and serious ailment. Companies that pursue copies of these ‘‘discarded’’ generics could receive a 

voucher that would allow them to get expedited review of another generic drug. The 

value of this voucher would give firms more incentive to market copies of low volume generics. 

FDA must also scrap a draft rule it crafted to deliberately expose generic companies to rampant product liability suits—the so-called generic drug labeling rule.17

FDA also needs to tailor its oversight of manufacturing to the way that generics operate, usually by manufacturing dozens of different drugs on each production line 

and hundreds of different medicines in a single plant. Right now, FDA is trying to 

force generics into the much costlier way that branded firms operate their manufacturing plants, by requiring that generic product lines be dedicated to just one or two 

different drug products. 

The regulatory delays are even more apparent with the complex drugs. Yet these 

complex medicines comprise a growing and important portion of our therapeutic armamentarium. The generic entry of some important copies of these medicines, once 

the legitimate intellectual property has lapsed on the branded alternatives, has 

sometimes been needlessly delayed. This saddles consumers with unnecessary costs 

that were never intended when the generic pathway was envisioned. These shortcomings largely stem from the absence of scientific tools for determining sameness 

in these settings, and the regulatory framework to efficiently approve these copies 

through FDA’s ANDA pathway. Yet the agency insists on trying to force these drugs 

down the traditional generic drug approval process. It’s time for Congress to define 

a more efficient pathway. 

PRICE CONTROLS FORCE REBATES AT THE EXPENSE OF DISCOUNTS

In the cost of medicines, another challenge facing consumers is the growing gap 

between the list price of drugs and the actual, net price paid by those who purchase 

the medicines on their behalf. In many cases the average net price is much lower 

than the list price. In fact, the average net price for drugs actually rose at a 5-year 

low in 2015 and is rising in relative concert with overall health care inflation.18

But the list prices of drugs are rising much more sharply. The gap between these 

two prices—the list price and the real, net price actually paid by health plans—reflects rebates that drug makers eventually pay to health plans as a way to provide 

money off the sticker price of a medicine. This byzantine system is an unintended 

consequence of past policymaking. But its growing impact on consumers is unmistakable. 

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19 Henry J. Kaiser Family Foundation, ‘‘2015 Employer Health Benefits Survey,’’ September 

22, 2015, http://kff.org/health-costs/report/2015-employer-health-benefits-survey/view/exhibits/. 20 Robert Langreth, ‘‘Secret Rebates: Why Patients Pay $600 for Drugs That Cost $300,’’ 

Bloomberg News, October 5, 2016, http://www.bloomberg.com/news/articles/2016-10-05/patients-lose-out-on-big-pharma-s-secret-rebate-merry-go-round. 21Scott Gottlieb, ‘‘Why Drug Makers Charge Outrageous Prices,’’ CNBC, August 29, 2016, 

http://www.cnbc.com/2016/08/29/why-drug-makers-charge-outrageous-prices-commentary. 

html. 

As more consumers find themselves on health plans that have adopted very high 

deductibles, that also use closed and narrow drug formularies that leave a growing 

number of important medicines completely uncovered, and that use fixed coinsurance rather than fixed co-pays as a way to distribute costs to consumers, these conditions mean that the high list prices on drugs are the prices being paid by a growing number of consumers when they buy medicines at the pharmacy counter. Recent 

data from Kaiser that examined drug spending from 2004 to 2014 showed just how 

much these out-of-pocket costs have risen, far outpacing the costs paid by the health 

plans. Average payments toward deductibles more than tripled, rising 256 percent, 

and average payments toward coinsurance more than doubled, rising 107 percent. 

Over this time, average payments by health plans themselves increased only 58 percent.19

In the end, insurers may ultimately pay a price for a medicine that is half the 

‘‘list’’ price paid up front by the consumer. The consumer never receives the direct 

benefit of the rebate, which gets paid to the insurer. This is precisely the circumstance that occurred for many consumers who purchased EpiPen at or near its 

list price. 

These challenges are not just a function of high deductibles, which leave consumers exposed to the list cost of their drugs up to the point that they reach their 

deductibles. They are also a function of the growing use of narrow and closed drug 

formularies. These are schemes where insurers agree to cover to a shrinking list of 

drugs. When the drugs don’t make it onto these narrow formulary lists, the closed 

structure of the formulary means that a drug is completely uncovered. Moreover, 

what consumers spend out of pocket doesn’t count against their deductible or out 

of pocket maximums. 

Now that these insurance features have become a mainstay of plans sold in the 

Affordable Care Act and are being sanctioned—if not encouraged—by Federal regulators as a way to accommodate the law’s other regulatory costs, these same insurance designs are being imported into employer-sponsored coverage and coverage sold 

outside the exchanges. The Kaiser Family Foundation says that a quarter of workers with employer sponsored insurance (ESI) must pay the full cost of drugs before 

their coverage kicks in, up from 17 percent in 2011.20

The problem is that our current system provides incentives for companies to push 

lists prices higher, only to rebate the money later on the back end. Yet the rebates 

don’t benefit consumers equally and they don’t necessarily help offset the costs paid 

by those who need a particular drug. The rebates eventually make their way back 

to health plans to help offset the collective costs of premiums. But if a patient needs 

a particular drug, they will increasingly find that they are paying the full, negotiated price at the pharmacy counter. They never see the real ‘‘net’’ price, after the 

rebate is applied much later. The rebate is paid to the health plan, not the patient 

buying the drug. 

Government policies help push the list prices higher, even as the net prices grow 

more slowly and in some cases even decline. For one thing, mandatory rebates required by programs such as Medicaid and 340B create incentives to launch drugs 

with high list prices if companies know they will be required to provide a fixed rebate off those charges. The use of average sales price in Medicare provides similar 

incentives to launch with a high list price, so do market conditions that largely prevent companies from offering up-front discounts to health plans and instead force 

them to compete based on providing rebates. 

Because companies can negotiate based only on providing rebates rather than discounts, they know that the list price will bear increasingly less relation to their real 

price.21

This is another place where Congress can act to provide more market competition 

based on a system where purchasers can demand discounts up front, rather than 

back-ended rebates. Discounts would actually benefit consumers more evenly since 

consumers would have the opportunity to acquire drugs at the pharmacy at the discounted price. 

It gets to the issue of why there is this artificial divide between the list and net 

price in the first place. Why, in other words, does the discounting in the drug space 

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22 21 Collin Levey, ‘‘Trial Lawyers Get Their Comeuppance,’’ Wall Street Journal, July 19, 

1999, http://www.wsj.com/articles/SB932313148898376573. 23Milt Freudenheim, ‘‘Drug Makers Settle Suit on Price Fixing,’’ New York Times, February 

10, 1996, http://www.nytimes.com/1996/02/10/business/drug-makers-settle-suit-on-price-fixing 

.html. 24Scott Gottlieb and Kavita Patel, ‘‘A Fair Plan For Fairer Drug Prices,’’ Health Affairs Blog, 

July 11, 2016, http://healthaffairs.org/blog/2016/07/11/a-fair-plan-for-fairer-drug-prices/. 

take the form of rebates paid to pharmacy benefit managers through a convoluted 

system on the back end of the transaction, rather than an up-front discount on the 

drugs? 

It all stems from litigation in the late 1990s, brought by chain store pharmacies, 

that claimed that drug makers were colluding to discount to HMOs and not providing the same discounts to pharmacies, in violation of Sherman Antitrust Act. 

Drug makers contended that they did nothing wrong, and the discounts they made 

available to HMOs and providers were appropriate because these purchasers could 

move market share, while the pharmacies could not.22 The litigation, which comprised dozens of separate cases, was ultimately consolidated into a single class action. Drug makers eventually settled the suits. They agreed to offer the same price 

to all channel partners. In other words, discounts that they made available to HMOs 

would also be available to pharmacies.23

To get around this outcome, the drug makers moved away from offering discounts 

and toward today’s model of rebates. These rebates are based on complex formulas 

tied to some measure of units of a drug that are sold. The idea was that these rebates could be offered to everyone, including pharmacies. But the pharmacies would 

never be able to satisfy the burden of evidence to qualify for the rebates. Only the 

health plans could make the required representations related to how many units of 

a particular drug that it sold. 

This raises an interesting question: Could Congress legislate to make it legal for 

drug makers to engage in price discrimination based on purchaser, offering discounts to one channel and not to another, so long as the drug makers were not conspiring to offer similar discounts? The answer, probably, is yes. If drug makers could 

offer discounts, purchasers would start demanding them. A discount would potentially be far more equitable, transparent, and pro-competitive than a rebate—especially where the rebate does not flow evenly to all consumers. Increasingly, it’s consumers who are underinsured or uninsured that are stuck paying the full list price 

at the pharmacy counter. 

If the ‘‘rebate’’ came in the form of up-front discounts, rather than back-ended 

givebacks, more consumers who are underinsured would benefit from the negotiated 

‘‘real’’ price. 

WE SHOULD ALLOW DRUGS TO BE PRICED BASED ON OUTCOMES AND INDICATIONS

Third and finally, we need to allow drugs to be priced based on how they are 

being prescribed and the outcomes that they deliver. Right now, regulation largely 

prevents the same medicine from being sold at different prices when it’s being used 

in different settings. For example, a drug must largely be sold at the same price 

whether it is used in a high-value indication or used for which there might be less 

evidence of benefit. The same rules also largely prevent drugs from being priced 

based differently based on measuring the outcomes that they deliver to a group of 

patients. Regulations largely foreclose these kinds of arrangements, referred to collectively as value-based contracts. 

Among other things, the Office of the Inspector General would probably view such 

indication-based discounts as an illegal inducement for doctors to prescribe more of 

a drug for a certain use. The FDA might interpret a contract tied to an indication 

or outcome that isn’t precisely specified in the drug’s FDA-approved label as a form 

of illegal, off-label promotion. In order to enable these arrangements, FDA would 

need to concede that commercial, contract-related communications constitute protected speech under the First Amendment and thus are not subject to the agency’s 

active regulation.24

The way that the Medicaid best price and average sales price (ASP) are calculated 

(two price schedules that are maintained by the Centers for Medicare and Medicaid 

Services (CMS) for the purpose of price setting) would also present an obstacle to 

these kinds of value-based contracts. Under these price schedules, when drug companies offer indication- or outcomes-based discounts, they would be penalized across 

all of the indications for which a drug is prescribed. The discounts offered in one 

indication-based contract would lower the cost paid by every plan that ties its price 

to the ASP and Medicaid best price. It would also mean that the benefit of these 

discounts would be available to heath plans—through a lower overall Medicaid best 

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25Stephen Miller, ‘‘Employers Project Health Premium Hike of 6% in 2017,’’ Society for 

Human Resource Management, August 10, 2016, https://www.shrm.org/resourcesandtools/hrtopics/benefits/pages/health-premiums-2017.aspx. 

price and ASP—even when the health plans don’t enter into the same value-based 

contracts. 

Congress could act to provide a safe harbor when companies pursue these valuebased contracts, to make sure that sponsors don’t face regulatory obstacles from 

FDA, CMS, or OIG when the contracts meet certain public health goals. This could 

provide another vehicle for purchaser to demand more discounts from drug makers, 

and more ways to tie these discounts to circumstances and outcomes that matter 

most for patients. 

CONCLUSION

These policies will take on increasing importance as the nature of drug coverage 

changes. These changes in coverage are partly a consequence of the Affordable Care 

Act, which favored narrow provider networks and drug formularies as a way to accommodate the cost of other regulatory priorities. This has left more consumers 

underinsured for their drug purchases. The exchange-based plans also relied on constructs like closed drug formularies. These same insurance constructs—having been 

rendered politically acceptable under the ACA—are being imported into commercial 

insurance plans as well. The National Business Group on Health, in a 2016 survey, 

found that 50 percent of employers reported that they plan to use a closed formulary 

to help control costs.25

The result is a sharp, secular change in the structure of drug coverage. More consumers are paying the list price for drugs, not the lower net price eventually paid 

by health plans, after rebates are applied. Congress can act to increase competition 

by enabling more drugs to reach the market, especially low-cost generic medicines. 

And enabling more health plans to negotiate discounts that can directly benefit consumers. 

Senator PAUL. Thank you. We’ll save the questions—we’ll go 

around and save the questions. 

Our next witness is Philip Almeter, who is the Senior Director 

of Pharmacy Acute Care Services and the 340B Programs at UK 

HealthCare here at the University of Kentucky. 

STATEMENT OF PHILIP J. ALMETER, PharmD, SENIOR DIRECTOR, PHARMACY ACUTE CARE SERVICES AND 340B PROGRAMS, UK HEALTHCARE, UNIVERSITY OF KENTUCKY, LEXINGTON, KY 

Mr. ALMETER. Thank you, Senator Paul, for the opportunity to 

provide testimony regarding the rising prices of medications in the 

United States. I am pleased to see that the HELP Committee has 

taken an interest in this issue. 

The University of Kentucky’s UK HealthCare operates two hospitals, several ambulatory clinics, and six retail pharmacies, one of 

which is a specialty pharmacy. In fiscal year 2016, we saw 38,000 

discharges, 1.29 million outpatient visits, and UK Pharmacy Services dispensed 430,000 outpatient prescriptions. 

Many of the medication price increases seen recently have affected UK and in my opinion can be classified into two basic 

groups: direct/obvious and indirect/less obvious. The direct/obvious 

reasons include increases in innovation, consequences of the FDA’s 

Unapproved Marketed Drugs Initiative, changes in ownership, and 

the sole source effect. Indirect/less obvious reasons are surrounding 

the pharmacy benefit management impact. 

The majority of the increases in innovation lies with the specialty 

pharmacy. In the last 5 years, spend with specialty medications 

has doubled, contributing to 70 percent of overall medication spend. 

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The primary drivers for this were therapy developments for hepatitis, autoimmune diseases, and oncology, which accounted for 

$19.3 billion in the increased spend. I believe we will continue to 

see the cost of many new therapies remain expensive, which have 

a higher price ceiling than what is seen with non-specialty items. 

In 2006, the FDA announced its Unapproved Marketed Drugs 

Initiative, with the goal of bringing medications that do not currently have FDA approval for marketing into compliance with the 

approval provisions of the Federal Food, Drug, and Cosmetic Act, 

with one of the goals being to not adversely affect public health, 

imposing undue burden on consumers, or unnecessarily disrupting 

the market. My observations are that this new initiative 

incentivizes manufacturers to put forth R&D dollars for older 

agents in order to gain market exclusivity. 

With neostigmine, a medication used to reverse neuromuscular 

blocking agents, used since 1939, UK HealthCare has seen the 

price increase 519 percent in 3 years. This was started in December 2013 when e ́clat-funded studies and gained market approval 

from FDA. The FDA allowed other agents to enter the market, and 

in November 2015, the price increased further to 127 percent. In 

January, Fresenius Kabi also funded studies, receiving market approval. The price increased further in February 2015 to 519 percent, and it stayed there despite a third manufacturer, West-Ward, 

in December 2015 gaining FDA approval. 

With vasopressin, a medication used since the 1950s in the treatment of vasodilatory shock, a single manufacturer gained FDA approval in 2014. Since then, the other generic manufacturers have 

dropped out, leaving only one manufacturer of a critical medication, 

which puts patients at risk in case of a national shortage. The price 

increased 3,362 percent in 2 years, and in the same time period, 

UK HealthCare has spent approximately $650,000 more on this 

medication. 

As a result of this initiative, medication spend has increased. 

However, these are the same medications that we have been using 

in the hospitals for decades. 

The change in ownership effect that has been seen with acquisitions of drugs like EpiPen is also impacting medications used specifically in the hospital setting. Nitroprusside saw price increases 

of 1,745 percent following Valeant’s acquisition of this medication. 

Calcitonin injection saw a price increase of 1,258 percent and then 

again 3,259 percent in a period of 2 years following Mylan’s acquisition of this medication. Unlike the FDA initiative, these manufacturers have not invested any dollars in R&D. 

A phenomenon that has been reported in the retail environment 

over the last 2 years is a sole source effect seen with many 

generics. These are typically older generic medications that have 

fallen out of favor due to other novel therapies. As manufacturers 

leave this market and only one or two remain, we are seeing skyrocketing price increases. This is impacting many patients who use 

older generic medications based on their affordability. 

Potential solutions to these issues include introduced legislation 

such as Senate Bill S. 3335, the Fair Drug Price Act of 2016, as 

well as asking FDA to consider performing an analysis on the market impact of the Unapproved Marketed Drugs Initiative thus far. 

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Regarding the PBM impact, during the full House Committee on 

Oversight and Government Reform hearing on EpiPen, Heather 

Bresch, CEO of Mylan, stated that although the cost of the two-pen 

EpiPen is $608, Mylan only receives $274 net revenue on the transaction. Questions should be asked as to where the remaining $334 

go. Lack of transparency will obscure where every dollar goes. 

However, given the rapidly increasing profits of the larger PBMs, 

questions should be directed in this direction. 

PBMs have evolved since the 1970s such that we have seen unprecedented growth in consolidation, decreasing transparency, and 

conflicts of interest develop with PBM-owned mail order and specialty pharmacies. Introduced legislation that could improve transparency in this sector of healthcare are House Bill H.R. 244, the 

MAC Transparency Act, and Senate Bill S. 3308, Improving Transparency and Accuracy in Medicare Part D Spending Act. 

Thank you for the opportunity to provide testimony today. 

[The prepared statement of Mr. Almeter follows:] 

PREPARED STATEMENT OF PHILIP J. ALMETER, PHARMD 

Thank you, Senator Paul, and members of the Committee for the opportunity to 

provide testimony today regarding the rising medication prices in the United States. 

The University of Kentucky’s UKHealthCare (UK) operates two hospitals numbering 945 beds, several ambulatory clinics and six retail pharmacies, one of which 

is a specialty pharmacy. In fiscal year 2016 UK saw 38K discharges, 1.29M outpatient visits, and UK Pharmacy Services dispensed 430K outpatient prescriptions. 

The medication price increases seen recently, that have affected UK, can be classified into a variety of categories but for the purposes of this testimony will be placed 

into two basic groups, Direct/Obvious and Indirect/Less Obvious. The Direct/Obvious 

reasons include increase innovation, consequences of the Food and Drug Administration (FDA) Unapproved Marketed Drugs Initiative, changes in ownership, and 

the sole source effect. The Indirect/Less Obvious reasons are surrounding the Pharmacy Benefit Management (PBM) Impact. 

INCREASES IN INNOVATION

The majority of Increases in Innovation with medications can be generalized into 

the Specialty Pharmacy Phenomenon. Specialty medications now make up the majority of the drug development pipeline and within the last 5 years spend with specialty medications has doubled contributing to 70 percent of the overall medication 

spend between 2010 and 2015. The primary drivers for this growth were therapy 

developments in Hepatitis, autoimmune diseases, and oncology, which accounted for 

$19.3B in increased spend.1 For example, in the case of Hepatitis C, in 2014 there 

was an increase of 742 percent in the cost of treatment as Sovaldi, Olysio and 

Harvoni entered the market. In 2015 the spend with Hepatitis C specialty improved 

with competition from newer agents (Technivie, Zepatier, and others) as well as 

more stringent insurer evaluations on appropriate use.2 Another example is specialty medication developments in the field of Oncology, which has had much innovation and thus spend. This has been demonstrated with advances in 

immunotherapy and approaches with combination regimens such that annual costs 

for therapy approach $295K per a patient. These regimens have demonstrated significant increases in survival compared to traditional standards of care.3 4 With the 

proliferation of this specialty medication phenomenon, we will continue to see the 

cost of many new therapies remain expensive, which have a higher price ceiling 

than what is seen with non-specialty items. 

FDA UNAPPROVED MARKETED DRUGS INITIATIVE

In 2006 the FDA announced its Unapproved Marketed Drugs Initiative with the 

goal of bringing medications that do not currently have FDA approval for marketing, due to a lack of safety and efficacy data, into compliance with the approval 

provisions of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) ’without adversely affecting public health, imposing undue burdens on consumers, or unnecessarily disrupting the market.’’ 5 To put this into historical context, in 1938 the 

FD&C Act was enacted due to the 107 deaths that resulted from mistaken ingestion 

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of diethylene glycol. The purpose of this Act was to ensure that medications were 

proven safe before use. Several drugs that were marketed before this Act were 

grand fathered in (e.g. levothyroxine, digoxin, nitroglycerine, and phenobarbital). 

The 1962 Kefauver-Harris Amendment to this Act was passed due to the serious 

birth defects seen with the tranquilizer medication, thalidomide. The purpose of this 

amendment was to ensure that medications also be proven to be effective before use. 

This requirement was also extended to medications that received FDA approval between 1938 and 1962. The initiative, which includes Prescription and Over the 

Counter medications, has the potential to impact as many as 5,000 agents. 

Although the intent of this initiative was not to disrupt the market, this has not 

been the case for hospitals. Below are two case examples with the medications neostigmine and vasopressin: 

Neostigmine: Observed price increase of 519 percent in 3 years. 

• Originally patented in 1933 and approved in the United States in 1939. 

• Up until December 2013 there were a handful of generic Neostigmine products that never went through formal FDA safety and efficacy evaluations. 

• December 2013—Eclat funded studies to evaluate the use of what is already 

known with neostigmine and received formal FDA approval for reversal of nondepolarizing neuromuscular blocking agents after surgery. 

• FDA allowed time for other agents to enter the market. 

• November 2015—Price increased 127 percent. 

• January 2015—Fresenius Kabi, following funded studies, received FDA approval to enter the market. 

• February 2015—Price increased further to 519 percent. 

• December 2015—WestWard, following funded studies, received FDA approval 

to enter the market. 

• End result: a handful of manufacturers making the same product used since 

the 1930s but there is a new average price that is 519 percent higher. 

• Impact: 

• Compared to fiscal year 2014, UK spent $243K more in fiscal year 2015 

and $259K more in fiscal year 2016. 

• Measures were taken to modify use as much as possible. 

• The need for this agent has not changed; however, in absence of these 

efforts UK would have spent $700K more in the span of fiscal year 2015 

and fiscal year 2016. 

• Vasopressin: Observed price increase of 3,362 percent in 2 years. 

• First used as a vasopressor agent in the 1950s. 

• Par Pharmaceuticals funded studies to evaluate the use of what is already 

known with vasopressin and received formal FDA approval for use in increasing 

blood pressure in adults with vasodilatory shock (e.g., post-cardiotomy or sepsis) 

who remain hypotensive despite fluids and catecholamines. 

• November 2014—Par gains approval and price increases to 1,137 percent. 

• April 2015—As other generics begin to drop out of the market price increases 

2,321 percent. 

• January 2016—Price increases 2,787 percent. 

• July 2016—Price increases 3,362 percent. 

• Impact: 

• Compared to fiscal year 2014, UK spent $194K more in fiscal year 2015 

and $452K more in fiscal year 2016. 

• Measures were taken to modify use as much as possible. 

• The need for this agent has not changed; however, in absence of these 

efforts UK would have spent $800K more in the span of fiscal year 2015 

and fiscal year 2016. 

CHANGE IN OWNERSHIP EFFECT

Over the last few years a shift in the markets with generic medication price increases has gained much attention in the press. This is largely for the impact it has 

had on patients in the retail setting and the barriers that have come with making 

much needed medications unaffordable. The most notable examples have been seen 

with Mylan’s EpiPen and Turing’s Daraprim. This change in ownership effect has 

also been observed with medications that are largely used in hospitals, however, 

given that these medications are not dispensed in a fee-for service environment, 

public awareness to the extension of this issue is low. Unlike the examples listed 

above with the FDA initiative, the manufacturers of these generic medications have 

not invested dollars into research of the medications’ safety and efficacy profiles. 

Below are 2 case examples with nitroprusside injection and calcitonin injection to 

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demonstrate the financial impact of this effect on UK. Nitroprusside is used for the 

immediate reduction of blood pressure in hypertensive crises, for producing controlled hypotension to reduce bleeding during surgery, and for the treatment of 

acute congestive heart failure. Calcitonin is used for the early treatment of 

hypercalcemic emergencies. 

• Nitroprusside Injection: Observed price increase of 1,745 percent in less than 

2 years. 

• Since 1988 Hospira has owned and produced. 

• December 2013—Marathon acquired and the price increased 350 percent. 

• February 2015—Valeant acquired and price increased 1,250 percent. 

• July 2015—Valeant increase price 1,438 percent. 

• August 2015—Valeant increased price 1,745 percent. 

• Impact: 

• Compared to fiscal year 2014, UK spent $194K more in fiscal year 2015 

and $104K more in fiscal year 2016. 

• Measures were taken to modify use as much as possible. • The need for this agent has not changed; however, in absence of these 

efforts UK would have spent $100K more in the span of fiscal year 2015 

and fiscal year 2016. 

• Calcitonin Injection: Observed price increase of 3,259 percent in a little over 

3 years. 

• Since 1986 Sebela has produced this product. 

• August 2014—Increased price 1,258 percent (from the price in January 2013). 

• September 2015—Mylan acquired the product. 

• March 2015—Increased price 2,823 percent. 

• May 2016—Increased price 3,259 percent. 

• Impact: 

• Compared to fiscal year 2014, UK spent $451K more in fiscal year 2015 

and $390K more in fiscal year 2016. 

• Measures were taken to modify use as much as possible. 

• The need for this agent has not changed; however, in absence of these 

efforts UK would have spent $1.5M more in the span of fiscal year 2015 

and fiscal year 2016. 

It should be noted that in addition to the impact on medication spend, this has 

also led to a need for increased resources to manage. Both the FDA initiative and 

the change in ownership effect led UK to create a pharmacist role responsible for 

overseeing larger medication utilization initiatives 2 years ago. This role, filled by 

Dr. Jeremy Flynn, has been key in monitoring for price spikes, identifying current 

use of affected medications, gaining consensus from providers on how we can modify 

use (supported by evidence-based literature), and monitoring utilization moving forward. What is not known and has not been measured is the clinical outcomes associated with these practice changes. This month UK will be sending Dr. Flynn to Chicago for advanced analyst training so that outcomes can be measured in conjunction 

with these increasing utilization initiatives. 

SOLE SOURCE EFFECT

A phenomenon that has been reported in the retail environment over the last 2 

years is a sole source effect seen with many generic medications. The medications 

that are being affected by this are typically older therapies and have been somewhat 

replaced by novel therapies. With diminishing interest in these generic medications 

and manufacturers looking to invest in innovative new therapies, several generic 

manufactures are leaving this market. The result is that there may be one or two 

remaining manufacturers. When this occurs, price increases are not uncommon. 

Below is a table of medications reported by Vizient Inc. that have observed sharp 

price increases as a result of this sole source effect 6: 

Generic medication 

Percent price 

increase 

2014–2015 

Hydroxychloroquine 200 mg tablet .......................................................................................................................... 1,245 

Fluoxetine HCl 10 mg tablet .................................................................................................................................... 1,131 

Atenolol 50 mg tablet .............................................................................................................................................. 803 

Propranolol 40 mg tablet ......................................................................................................................................... 783 

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Generic medication 

Percent price 

increase 

2014–2015 

Digoxin 125 mcg tablet ........................................................................................................................................... 681 

It should be noted that this is similar to the impact often seen with medication 

shortages as generic injectable medications have seen drastic price increases when 

shortages occur.7

A potential solution to some of the Direct/Obvious reasons listed above include 

S. 3335: Fair Accountability and Innovative Research (FAIR) Drug Pricing Act of 

2016, introduced on September 15, 2016 by Senator Baldwin (WI). This bill contains 

language that would require manufacturers of certain drugs and biological products 

to report to the Department of Health and Human Services that result in a 10 percent or more increase in price over a 12-month-period. 

Additionally, consideration should be given by the FDA on analyzing the market 

impact of their Marketed Unapproved Drugs Initiative thus far. If the two medication examples listed above increased expenses in excess of $1M in a 2-year span of 

time for a single health system, then careful consideration should be given to the 

approach of this initiative as others in the potential denominator of 5,000 are considered. 

PHARMACY BENEFIT MANGER IMPACT

During the Full House Committee on Oversight and Government Reform hearing 

on EpiPen, Heather Bresch, CEO of Mylan, stated that although the cost of the 2- 

pen EpiPen is $608, Mylan only receives $274 net revenue on the transaction.8

Questions should be asked as to where the remaining $334 goes. It is likely shared 

between the wholesaler, insurer, pharmacy, and PBM. Lack of transparency will obscure where every dollar goes, however, given the rapidly increasing profits of the 

larger PBMs, it is not unlikely that they are receiving the majority of this. 

PBMs are the middle men of sorts in the prescription drug industry coordinating 

the sale and reimbursement of prescription drugs between health insurance plan 

sponsors or employers, drug manufacturers, and local and national pharmacies. 

PBMs started out in the 1970s as entities that mostly performed claims processing. 

Much has changed over the years as PBMs now largely control the flow of medication from manufacturers to patients, control the formularies of covered medications, 

control the reimbursement amounts provided to pharmacies for dispensing medication and other related therapy management and counseling services, and run their 

own mail order and specialty pharmacies, which many patients are often required 

to use under certain plan designs. PBMs do provide valuable services, such as their 

touted ability to gain reductions in medication costs for plans and employers, provide national pharmacy access, and facilitate pharmacy benefits for a wide variety 

of clients.9 Despite these benefits some of the concerns with the evolved state of 

PBMs as it relates to rising medication costs are the considerable consolidation of 

the PBM market coupled with unprecedented growth, the lack of transparency in 

PBM operations and finances, and the PBM ownership of mail order and specialty 

pharmacies. 

The PBM market in the United States has undergone rapid consolidation to the 

point that it resembles an oligopoly. In 2012 the Federal Trade Commission (FTC) 

permitted Express Scripts Inc. (ESI) to acquire Medco (the two largest PBMs in the 

United States at the time), thus forming the largest specialty pharmacy, Accredo. 

Then in March 2015 the FTC allowed United/Optum’s acquisition of Catamaran (the 

third and fourth largest PBMs) to form OptumRx. Finally, in July 2015 the FTC 

allowed CVS Caremark (the largest PBM for Medicare Part D plans) to acquire 

Omnicare (the largest long-term care pharmacy), which is heavily reliant on Part 

D patients. This consolidation has led to three large PBMs (ESI, CVS Caremark and 

OptumRx) controlling approximately 80 percent of the PBM market. Parallel to the 

consolidation, the two largest of these PBMs (ESI and CVS Caremark) have demonstrated a profit increase from approximately $900M to $6B (600 percent increase) 

in a span of 10 years.10

The lack of transparency with what is occurring with rebates (as mentioned in 

the EpiPen hearing) and payments at the transactional level (adjudication and beyond) coupled with this consolidation and growth of the PBM industry has led many 

in the retail pharmacy business to question the practices of the PBMs. The advent 

of Direct and Indirect Remuneration (DIR) fees (a.k.a. ‘‘Clawbacks’’) has extended 

the timeframe for the dispensing transaction to take place long after the adjudicaLIFEBOOK092 with DISTILLER

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tion (sometimes weeks or months) so that PBMs can charge additional fees after the 

transaction making it difficult for pharmacy owners to determine profitable dispenses. Additionally, the pricing structure of many pharmacy contracts with PBMs 

is not transparent with regards to the Maximum Allowable Cost or MAC, making 

the MAC for many PBM agreements a moving target. In response, the industry is 

developing tools for pharmacies to monitor transaction payments from PBMs for any 

deviations in the MAC. However, even with the use of such tools, PBMs make it 

difficult for pharmacies to appeal incorrect MAC pricing claims. 

Tied into the rising price of medications is the PBM ownership of mail order and 

specialty pharmacies. PBMs are tasked with managing drug costs for health plans 

and employers by maintaining a formulary. However, if the PBM owns a pharmacy, 

will the PBM prefer medication A which is effective or medication B which is also 

effective but could have a better rebate and the cost of paying a pharmacy at the 

transaction level for the medication is irrelevant because it is owned by the PBM? 

This strong link between the PBMs and their owned pharmacies has had a direct 

impact on UK’s specialty pharmacy in day-to-day management of patients. UK has 

had patients who wished to have their specialty medications filled with UK Specialty Pharmacy. In the process of completing the fill a Prior Authorization (PA) is 

often required. This involves contacting the PBM to make a case for approval of the 

therapy and often involves engaging the medical team, providing labs, and sharing 

information on previously failed therapies. Following the PA being issued by the 

PBM, UK pharmacy staff have learned to act promptly as there have been numerous instances where the PBM-owned pharmacy contacts the clinic staff via phone 

and asks for a duplicate prescription to be sent. Early on in UK’s specialty pharmacy operation PBM-owned pharmacies could capture specialty prescription by this 

method; however, after much discussion with clinic staff over the frustrated patients 

who were forced to wait for their medication to be dispensed from a pharmacy 

States away, this PBM strategy has not been as successful. 

It is likely that this strategy has been successful in other pharmacy settings 

which simply do not have the resources to combat this conduct. 

There are several potential solutions to making this contributing sector to the 

true price of medications more transparent. H.R. 244: MAC Transparency Act (only 

pertains to Medicare), introduced on January 9, 2015 by Rep. Doug Collins (GA). 

This bill contains language that would prohibit PBMs from transmitting patient information (including claims data) to PBM-owned pharmacies unless the plan enrollee voluntarily elects to allow this, and require PBMs to define and disclose MAC 

to participating Pharmacies, to identify the source for this calculation, to not update 

any more frequently than 7 days, and to establish a dispute resolution process for 

reimbursed claims that are below the acquisition cost. S. 3308: Improving Transparency and Accuracy in Medicare Part D Spending Act, introduced on September 

12, 2016 by Senator Shelley Capito (WV), will allow for greater transparency at the 

claim level between retail pharmacies and PBMs as it will prevent Clawbacks from 

occurring and will require PBMs to be transparent about fees at the adjudication. 

CONCLUSION

In closing I am pleased to see that legislation has been introduced to address the 

Direct/Obvious and Indirect/Less Obvious reasons for the medication price increases 

we have seen. It is my hope that public awareness of this issue in the retail environment will be extended to the hospital environment for the reasons listed above. 

Thank you, again, for the opportunity to provide testimony today. I am happy to 

answer any questions you have. 

REFERENCES

1. Medicine Use and Spending in the US. IMS Institute. April 2016. 

2. Express Scripts 2015 Drug Trend Report. 

3. Helwick C. Cost of Immunotherapy Projected to Top $1 Million per Patient per 

Year. ASCO Post. July 10, 2015. 

4. Loftus P. FDA Approves Merck’s Keytruda for Most Common Form of Lung 

Cancer. WSJ. October 2, 2015. 

5. Guidance for FDA Staff and Industry. Marketed Unapproved Drugs—Compliance policy Guide. September 19, 2011. 

6. Lucio S, Birt A. Understanding Escalating Drug Prices and Mitigation Strategies. Vizient Webex. September 20, 2016. 

7. Erstad BL. Value-Based Medicine: Dollars and Sense. Crit Care Med. 2016 

Feb;44(2):375–80. 

8. Testimony of Heather Bresch. Reviewing the rising price of EpiPens. Before the 

House Committee on Oversight and Government Reform. September 21, 2016. 

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9. Jorgenson J, Zappa A. Is PBM Transparency an Answer to Controlling Rising 

Drug Costs? Am J Pharm Benefits. 2015;7(4):161–164. 

10. Testimony of David A. Balto. The State of Competition in the Pharmacy Benefits Manager and Pharmacy Marketplaces. Before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. November 17, 

2015. 

Senator PAUL. Thank you. 

Our final witness—and then we’ll have some discussion—is Jim 

Waters, who is the President of the Bluegrass Institute for Public 

Policy Solutions. 

STATEMENT OF JIM WATERS, PRESIDENT, BLUEGRASS 

INSTITUTE FOR PUBLIC POLICY SOLUTIONS, LEXINGTON, KY 

Mr. WATERS. Thank you, Senator. Good afternoon. 

As Senator Paul said, I’m with the Bluegrass Institute for Public 

Policy Solutions. We are now celebrating our 13th year. We were 

founded in 2003 as a State-based free market think tank. 

Whether we’re talking about manufacturing or education or 

healthcare or the development of new drugs, it’s vital that we do 

understand that the free market does work when it’s allowed to do 

so. Competition, as we’ve heard, drives innovation, and perhaps nowhere is that innovation more important than in the area of research and developing drugs that save lives. 

I’d like to tell a short story that I shared with 1,500 freedom 

fighters at the State Policy Network to show that while there are 

risks and while regulators often claim that they’re looking out for 

us and that they are being compassionate, the consequences of 

placing unmovable barriers to lifesaving drugs is the wrong approach, as it actually does end up costing rather than saving lives. 

Once upon a time, an eagle’s egg was knocked loose from its nest, 

and it rolled down the mountain into a barnyard full of chickens. 

Intending compassion, these chickens committed to protecting that 

egg until it hatched, after which they raised this creature, not as 

a beautiful eagle, but as just another chicken who scratched for 

grubs and worms and flittered around the barnyard. 

One day, a neighbor convinced the farmer who owned these 

chickens to let him take that eagle up the mountain and see if he 

could fly. When that man released him, of course, that innate desire to live free and soar took over, and that majestic bird stretched 

his wings and flew into the sky. 

What if he hadn’t? What if he had fallen to the ground and died? 

Would anyone dare claim that that neighbor had done evil in giving that eagle the opportunity to fly? Should we really have kind 

of a rope-a-dope drug approval system that says no, even to seriously ill or terminally ill human beings’ right to try every option 

to save their lives, even if in the end it doesn’t always work? 

What if medical missionary Dr. Kent Brantly had died of that 

humiliating wasting disease of Ebola, even after taking ZMapp 

while in Liberia, where he was 6,000 miles from family and utterly 

alone? Sure, he had a right to know that no human had ever been 

tested and that it hadn’t fully passed all of the FDA safety protocols, which had been going on for years with that drug. Who should 

have told him that he had no such right to try it until some government agency finally got around to approving this drug, even as he 

stood close enough to death’s door at age 33 to push it open? 

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Who had the right to deny Kalamazoo College sophomore Emily 

Stillman the opportunity to try a vaccine against meningitis that 

was available but not yet approved by the drug bureaucracy, even 

after years of testing and trials. Too often, bureaucracy has cried 

in Chicken Little fashion, ‘‘the sky might fall,’’ while denying the 

Emily Stillmans of our world the right to try and save a life, her 

life, as if that life belonged to some government agency. 

Yet no government agency blocked Dr. Brantly’s access to the experimental ZMapp and the ensuing miracle which finds him today 

fully healed and still serving the world’s poor and downtrodden. It’s 

a moving story, don’t misunderstand. I’m very happy about what 

happened to him and for his family. What about all the others that 

also had a right to at least try? Who also could have lived a miracle? 

Twelve hundred people make it through the FDA’s Compassionate Use Application each year. The process is so complicated. 

It’s very time consuming and extremely expensive. Plus the FDA 

keeps no record of the many, many people who try but who are denied that application. The first step in that process alone is laborious. It requires a physician to complete an application to the FDA 

that takes around 100 hours just to fill out, after which the manufacturer also must submit lengthy documentation requirements. 

The FDA then has a month to review the submission and either 

grant or deny the request, and if there are any questions at all, 

that 1-month clock starts completely over from the very beginning. 

After the FDA approves a request, a separate committee not affiliated with the FDA, called an Institutional Review Board, also must 

approve the patient’s use of the drug, and this board can also take 

up to a month to reach a decision. What do you think happens a 

lot of times during that process? Sadly, there are many documented 

cases of patients dying while their application is being considered 

through this process. 

While the FDA claims these regulations are needed to protect 

lives, in the end, they are too often costing lives. It seems like our 

government’s experimental drug policy seems to have been more 

about control, about kind of picking and choosing, and EpiPen is 

a great example of this. Here we have a wonderful medical invention, and without the heavy-handed regulatory process currently 

enforced by the FDA, I’m convinced that other manufacturers 

would not only create a similar product, but an even better one. 

Perhaps most disturbing about the EpiPen situation is that the 

FDA, at least at this point, as we’ve heard, has limited manufacturing of this lifesaving device to pretty much a single company, 

and the reason they do it is important to understand. They do it 

under the guise of ensuring safety. We want to make sure this is 

safe before we allow other manufacturing of these types of drugs. 

Yet this regulatory overreach has not only dramatically increased 

the price of the product because there’s no competition, but it also 

discourages other manufacturers from developing better products. 

This is cronyism at its worst, favoring a single company while 

shutting out other firms who would participate while also discouraging the research and development that would bring new, probably even better drugs to market. I would ask the question: Where 

is the compassion in forcing drug manufacturers through what 

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amounts to be a 7 to 10-year, up to a $2 billion process for some 

new drugs just to get them to the marketplace while people die 

who were willing to accept the risk of those drugs that may not 

have completely jumped through all the FDA hoops? It doesn’t 

seem compassionate, and it certainly doesn’t seem fair. 

What if Dr. Brantly had taken ZMapp and then died anyhow? 

What if Emily Stillman had died even if she had taken the vaccine? 

Should that risk outweigh the potential of life restored? I have to 

ask: Should some government agency even be taking the temperature of such a risk with individuals willing to accept that? 

An alternative ending to that parable that’s often been used tells 

about how the eagle died in that chicken coop, having never been 

given the opportunity to try, never knowing that he could fly. Who 

knows the miracles that await by giving those even at death’s 

crossing the right to know, the right to try, the right to see if they 

just might soar once again as well. It has happened, you know. 

Thank you. 

[The prepared statement of Mr. Waters follows:] 

PREPARED STATEMENT OF JIM WATERS

Good afternoon. My name is Jim Waters, and I’m privileged to serve as president 

of the Bluegrass Institute for Public Policy Solutions, Kentucky’s first and only freemarket think tank, which was founded in 2003. 

Whether we’re talking about manufacturing, education or health care, it’s vital 

that we understand that the free market works—when allowed to do so. Competition drives innovation. Perhaps nowhere is innovation more important than in the 

area of researching and developing medicines that save lives. 

I’d like to tell a short story to illustrate: 

Once upon a time, an eagle’s egg was knocked loose from its nest and rolled down 

the mountain into a barnyard full of chickens. Intending compassion, these chickens 

committed to protecting this egg until it hatched, after which they raised this creature—not as a beautiful eagle—but as just another chicken who scratched for grub 

and worms and flittered around the barnyard. 

One day, a neighbor convinced the farmer who owned these chickens to let him 

take that eagle up the mountain to see if he could fly. When that man released him, 

that innate desire to live free and soar took over. That majestic bird stretched his 

wings and flew into the sky. 

But what if he hadn’t? What if he’d fallen to the ground and died? Would anyone 

dare claim the neighbor had done evil in giving that eagle the opportunity to try? 

Should we really have a rope-a-dope drug-approval system that says ‘‘no’’ even to 

terminally ill human beings’ right to try every option to save their lives—even if— 

in the end—some of those lives do cease? 

What if medical missionary Dr. Kent Brantly had died of the humiliating, wasting 

disease of Ebola even after taking Zmapp while in Liberia—6,000 miles away from 

family and utterly alone? Sure, he had a right to know that no human had ever 

been tested and that it hadn’t fully passed FDA safety review, which have been 

going on for years. But who should have told him that he had no such right to try 

it until some government agency finally got around to approving it, even as he stood 

close enough to death’s door at age 33 to push it open? 

Who had the right to deny Kalamazoo College sophomore Emily Stillman the opportunity to try a vaccine against meningitis that was available but not yet approved by America’s drug bureaucracy—even after years of testing and trial? 

Too often that bureaucracy has cried in chicken-little fashion: ‘‘the sky might fall’’ 

while denying the Emily Stillmans of our world the right to try and save a life— 

her life . . . as if that life belonged to a government agency. 

Yet no government agency blocked Dr. Brantly’s access to the experimental 

Zmapp and the ensuing miracle, which finds him today fully healed and still serving 

the world’s poor and downtrodden. 

It’s a moving story. Don’t misunderstand. I’m very happy for him and his family. 

But what about all the others that also had a right to at least try? Who also could 

have lived a miracle? 

LIFEBOOK092 with DISTILLER

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Twelve-hundred people make it through the FDA’s ‘‘compassionate use’’ application each year. But the process is complicated, time-consuming and expensive. The 

FDA keeps no record of the many, many people who try but are denied such application. 

The process is complicated, time-consuming and expensive. The first step in the 

process requires a doctor to complete an application to the FDA that takes around 

100 hours to complete, after which the manufacturer must also submit lengthy documentation requirements. The FDA then has a month to review the submission and 

either grant or deny the request. If there are any questions, that 1-month clock 

starts over. 

After the FDA approves a request, a separate committee not affiliated with the 

FDA—called an Institutional Review Board—also must approve the patient’s use of 

the drug. This board can also take up to a month to reach a decision. 

Sadly, there are many documented cases of patients dying while their application 

is being considered. 

It seems like our government’s experimental drug policy has been more about control . . . about picking and choosing. EpiPen, for instance, is a wonderful drug. But 

without the heavy-handed regulatory process currently enforced by the FDA, I’m 

convinced other manufacturers could not only create similar—but better—products. 

Perhaps most disturbing about the EpiPen situation is that the FDA has limited 

the manufacturing of the lifesaving anti-allergic reaction device to a single company 

under the guise of ensuring safety. Yet this regulatory overreach has not only dramatically increased the price of the product, it has discouraged other manufacturers 

from developing even better products. 

This is cronyism at its worst—favoring a single company while shutting out other 

firms who want to participate and discouraging the research and development that 

would bring new and better drugs to market. 

Where’s the compassion in forcing drug manufacturers through what amounts to be a 7-to-10-year, $2 billion process while people die who were willing to accept the 

risk of drugs that may not have completely jumped through all FDA hoops? It’s not 

compassionate, and it certainly doesn’t seem fair. 

What if Dr. Brantley had taken Zmapp and then died anyhow? What if Emily 

Stillman had died even if she had taken the vaccine? Should that risk outweigh the 

potential of life restored? Should some government agency even be taking the temperature of such a risk? 

An alternative ending to that parable that’s often been used tells about how the 

eagle died in that chicken coop, having never been given the opportunity to try . . . 

never knowing he could fly. Who knows the miracles that await by giving those even 

at death’s crossing the right to know, the right to try, the right to see if they just 

might soar once again? 

Senator PAUL. Thank you, Jim. I may have to steal that eagle 

story sometime. It’s pretty good. 

[Laughter.] 

Jim mentions an ancillary issue, which is the right to try for people who are terminally ill, and there is a bill percolating through— 

I think 30-some-odd State legislatures now passed it—and I’m a cosponsor of it in the Congress, and we are trying to get that through 

as well. 

We had some moving testimony from some patients with ALS, 

and one of the points that they made was that a lot of treatment 

for a new disease may well be specifically targeted to you and to 

the genetic mutation you have. There’s said to be over 20 different 

mutations for ALS. It’s not all the same disease, and perhaps 

maybe you’re going to go to a lab, and some day, they’re going to 

draw your blood, look at your chromosomes, look at your genetic 

defect, and they can’t do a 1,000-person clinical trial on it because 

the treatment is going to be for you. 

It kind of goes to Dr. Gottlieb’s point that maybe we have to look 

at our criteria. Maybe what we used to do 20 years ago shouldn’t 

be the same. 

One of the most important things is when we’re unhappy about 

something, that we look for the root cause and we don’t blame the 

LIFEBOOK092 with DISTILLER

34 

wrong person. We’re all unhappy, uniformly unhappy, at how the 

price went up by 500 percent, but there’s a couple of different reactions. We could say, ‘‘Well, we need price controls. We just need to 

tell the companies they can only charge $100.’’ Price controls were 

the disaster that brought down the Soviet Union and are the disaster that leads to poverty under socialism. 

What we have to say—well, was this a free market? Was this 

really capitalism, as Dr. Strow was saying? Are there barriers to 

entry that are government? Are some barriers acceptable? Are we 

going to let the government be involved in some safety and efficacy? Probably, yes, but can they go too far? 

The FDA, when we brought them in, they said to us, ‘‘Oh, you 

fixed this a year ago’’—we passed some reforms about a year ago— 

and they said, ‘‘We’re doing a lot better now,’’ and I said, ‘‘Well, it’s 

been 7 years. How about the EpiPen alternative?’’ 

There are a lot of technical questions, and when you try to dig 

into this, if you bring the generic manufacturers in about these 

things, they’re afraid to talk to us, because if I publicly state what 

any of the generic people are talking about—which they’re allowed 

to tell me—they’re afraid the FDA will punish them and will never 

approve their process. We ask the FDA, and they say it’s proprietary—‘‘We can’t tell you any information about the applications.’’ 

It takes about four—3.7 times for the application to go to the 

FDA, come back, go to the FDA, come back, and 7 years is just, 

frankly, unacceptable. We do need to fix the system. With regard 

to EpiPen, it’s both looking at people finagling or manipulating the 

patent system, and then it’s also looking at speeding up the entry 

of new drugs into the marketplace, not only new drugs, but generic 

drugs. 

One of the things that I’d like to ask Dr. Gottlieb would be with 

regard to—we had these reforms, and I know you understand the 

reforms. Do you think the reforms were enough? Do you think the 

FDA is doing a better job? There’s some indication that the application time may not have gotten shorter since the reforms. They tell 

us one thing, and then we look at the statistics and it doesn’t necessarily seem to be better. 

Dr. GOTTLIEB. The statistics are getting better, because the cycling—they’re trying to address the cycling. The overall length of 

time that it takes to review an application hasn’t really gone down. 

They’re reviewing more applications—they’re getting more applications done within a certain timeframe, but they’re still having 

these multiple cycles, and it’s still taking a lot of years to get an 

application through. It’s also too early to tell what impact the generic drug user fee law had on the process. It certainly gave them 

more resources. 

With respect to this particular issue, though, there hasn’t been 

anything that’s resolved this issue of these complex formulations, 

and these, frankly, end up being a lot of the new and more innovative drugs and a lot of very important drugs. There have been other 

cases where there have been drugs where patents have long since 

lapsed, and FDA has struggled to approve generic versions to those 

drugs. 

A classic example recently was lovenox. The lovenox patents 

were up for two or 3 years, and FDA was fumbling trying to get 

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the generic entrants through the generic drug approval process. It 

relates back to, again, trying to fit these complex drugs through 

that old generic drug application, that old generic drug process. 

When I was at FDA, we were just starting to think about how 

we were going to approve generic copies of biosimilar drugs, and 

the FDA staff were arguing that they didn’t need Congress to do 

anything. They didn’t need new legislation. They could approve generic copies of biological drugs through a pathway called 505(b)(2) 

that existed. It turns out Congress did legislate, and thankfully, because if the FDA was struggling to try to approve these biologics 

through their traditional pathway or some nuance in the authorities that they thought they had, it wouldn’t have gone as smoothly. 

The same thing is operative here. The FDA will argue that they 

don’t need new authority to deal with these complex drugs, yet 

they keep making mistakes when it comes to trying to introduce 

competition. They argue that they can put it through their traditional process, but, in fact, they haven’t been successful at doing 

that. 

This is a ripe opportunity for Congress to look at this whole category—to the extent that the category itself can be defined, and I 

think it can—and think of a sort of generic-plus type of approval 

process that’s a little different than the traditional process but allows these drugs to enter the market more quickly. 

Senator PAUL. Going back to whether or not this is broken capitalism or whether this is cronyism or what we should do, some will 

propose that we just need to cap the price and have price controls 

on drugs and that, somehow, that’s the answer. 

Dr. Strow, do you think this is a breakdown of capitalism, or do 

you think this is artificial barriers to entry from the government? 

What do you think of price controls? 

Mr. STROW. Price controls generally make me squeamish, but I’m 

going to come back to that. I’m just going to start with the simple 

answer of, yes, it’s largely due to barriers to entry. 

Senator PAUL. Governmental barriers. 

Mr. STROW. Government barriers to entry. Specifically, let’s 

imagine a race. The gun is about to go off. We’ve got epinephrine 

or the EpiPen in one lane and a potential competitor in the next. 

The gun goes off. EpiPen takes off down the track, and you physically restrain the competitor and say, ‘‘You can’t go yet. You have 

to start an FDA approval process, and 4 to 7 years down the line, 

we’ll let you start running the race.’’ You might imagine who’s 

going to win that race, at a minimum, not just 4 to 7 years, but 

for some time after that. 

The thing is with the patent system, we know when that gun is 

supposed to go off. We know when the patent expires—and we can 

go back and argue about whether or not we should extend patents—but we do know when the patent expires. If we know that’s 

when the race can start between the brand name and the generic 

guys, why don’t we let the generic guys go through all the product 

testing before the gun goes off? Why don’t we hit it so that when 

the gun goes off, everyone gets to run? That would dramatically increase the role of generics in the market and bring them to market 

more quickly. 

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The overarching question we have to ask is: Does the FDA care 

about drug prices? We can argue that the reason they’re set up is 

solely for drug safety, and if you’re only looking at one end of the 

spectrum, then it’s always going to be their incentive to have the 

safest possible thing, which is—safety is good, but they’re not taking account of the tradeoffs. 

The question is: In their charter itself, should they be forced to 

consider safety at what cost? All kinds of levels of government have 

to do cost-benefit analysis, and FDA, I don’t think, should be immune from that. 

I was going to hit on price controls. Let’s take two scenarios. In 

one scenario, you’re going to put price controls on for something 

that’s patented. You just undid the patent protection. In another 

form, you either have a monopoly right to sell a product or you 

don’t. If you come in on the back side and say, ‘‘Yes, we’ll give you 

a patent, but’’—wink, wink, nod, nod—‘‘we’re going to tell you what 

to charge,’’ there no longer is that incentive to innovate in existence 

in the first place. You’d be effectively getting rid of the patent system. 

The second question is: Do you want price controls for things 

that aren’t subject to patents? Then the question becomes: Where 

is, again, the role of competition? Why would you need a price ceiling if new entrants could come in? We see from evidence in the 

drug industry itself and from the FDA, the evidence that they have 

collected, that when you allow the competition to happen, the competition does materialize and drug prices do fall. It would be a solution in search of a problem. 

Senator PAUL. I like the idea of maybe starting a generic application process before it expires. If it’s going to take you 4 years, if 

you took your 4 years before it expires, it wouldn’t be as much of 

a complaint. All of us essentially acknowledge that we are not 

against patents and that we like the innovation that patents allow. 

Particularly if we’re going to reform this in ways drug companies 

may not like—but if you reform it such that you speed up the process of getting the patent and getting the approval, then they have 

a longer period of time to enjoy their patent protection. You could 

speed it up on the tail end, the transition to generics, but you could 

also speed it up on the front end so they can make more money 

on the front end if they can get their FDA approval sooner, which 

sooner FDA approval, if done properly, is what we want—lifesaving 

drugs more quickly on the market. 

Does anybody else have a comment on Dr. Strow’s comment on 

letting the generic application process start earlier? It doesn’t start 

now, right? You have to wait until the end to file any paperwork? 

Mr. WATERS. That would have a huge impact since 90 percent of 

all medicines filled in the United States are generic. Beginning 

that process earlier would certainly affect in a positive way—a lot 

of people. 

Senator PAUL. I kind of wanted to broaden the debate beyond 

EpiPen, because Philip Almeter mentioned several of the drugs— 

so did Dr. Gottlieb—of all the different drugs. This isn’t a one drug 

thing. There’s a host of these and many of them in the generic 

sphere. 

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Sometimes we will ask: Why did everybody go out of business? 

We get these vague things, like voluntary recall or a manufacturing problem, and what I’m wondering is—and Scott may know 

this more than anybody else—is are they sometimes being told 

quietly by the FDA ‘‘You’re going to get a public punishment. You 

can voluntarily do this, or you can say manufacturing problem.’’ In 

reality, it’s the FDA that is shutting them down by saying ‘‘You 

didn’t pass a certain inspection.’’ 

Our understanding is that in the last couple of years—did something change to make it worse? Are there stepped-up investigations 

that are maybe knit-picking that really aren’t going to the safety 

issue but are overwhelming some of the drug production, and then 

all of a sudden, we have no competitor because of an inspection 

process? 

Dr. GOTTLIEB. Right. It is the case that FDA dramatically 

changed its enforcement standard with respect to what we call 

good manufacturing practices or GMPs as they apply to the generic 

drug industry, out of a perception not entirely untrue that the generic industry was operating at a different standard, in some cases 

a lower standard, than the branded industry, and they wanted to 

bring everyone up to the same standard. 

They did that in a fashion where they went into these generic 

manufacturing plants and issued what we call 483s, which are 

findings of deficiencies, and the 483s become public and they create 

liability for the companies. If a company continues to operate a 

plant after it has received a sanction from the FDA saying that the 

plant is deficient in some significant way, that’s a hard position to 

put a company in and for the company to continue operating. 

What happened was they did this, and they knocked off the market 25 percent of the parenteral drug manufacturing in the United 

States. By parenteral drug—injected drugs, and these are a lot of 

the drugs that have been in shortage and where the prices have 

gone up. Last year, we almost had a shortage of normal saline in 

this country because they knocked the plants—— 

Senator PAUL. That was a reaction to the contaminated steroid 

injections that happened at the company—what, up in Massachusetts or something? 

Dr. GOTTLIEB. I think it’s actually the opposite. They did this 

prior to what happened in Massachusetts, and once these shortages 

were created by FDA for the branded drugs, more of the market 

shifted toward the compounded drugs, and that’s why the utilization of the compounded drugs spiked. The FDA, by trying to address a risk in one context, actually increased the overall public 

health risk because more of the market shifted to less regulated 

products, the compounded products in the case that you referenced. 

A lot of that manufacturing is not coming back online. The FDA 

has still imposed requirements on the generic manufacturers that 

are much costlier than what they used to be. For example, a generic manufacturing plant might produce hundreds of drugs in a 

plant and literally dozens on a single manufacturing line. The 

branded industry might produce a single drug or two on a manufacturing line. FDA is increasingly saying, ‘‘We want only a few 

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pensive, and it’s not the expense at which the generic drug industry has traditionally operated. It’s increasing the cost of the manufacturing. 

When you increase the cost of manufacturing a pill that used to 

cost 2 cents and now it costs 3 cents or 4 cents to manufacture, 

that’s a 100 percent or 200 percent price increase. There’s a cost 

of goods component here as a result of the regulatory increase 

that’s contributing to the price increases that we’re seeing in the 

market. 

Senator PAUL. I guess what we have to look at is in the mission 

that the FDA is given—are they going in and—have we increased 

inspections that are shutting down plants because of a problem, or 

are we doing it just because of an increased zealousness, that we 

have decided that we want to inspect these, and that perhaps it 

isn’t improving safety? They’ve made a unilateral decision without 

a real problem. 

Dr. GOTTLIEB. Right. My view has been it’s a little bit of both, 

obviously, and there are situations where the FDA is on very firm 

ground in terms of shutting down a manufacturing facility. The 

larger problem is that there’s a disconnect between the FDA field 

force that goes in and inspects these plants and issues these public 

findings and the policymakers back at FDA, the career staff who 

are more sensitive to considerations of what the real public health 

risk would be in allowing a plant to manufacture in some subpar 

State versus taking the manufacturing offline and creating unintended consequences. 

The policymakers in FDA have a very hard time getting control 

over the field force. The field force operates as sort of an independent law enforcement unit and doesn’t really respond to those 

policy prerogatives. They’ll go in and shut a plant down, even if the 

policymakers might say, ‘‘Look, we would rather that plant continue to operate under close supervision while they remediate 

themselves because we don’t want to precipitate a shortage that 

might force doctors and patients to have to use a compounded alternative that we know is a lot less safe.’’ 

That kind of teaming of those two regulatory pieces of FDA isn’t 

happening. The only place it is happening is on the biologic side, 

and that’s in large measure because after we had those shortages 

of the flu vaccine that you’ll remember, you saw long lines in Florida because the FDA shut down some flu vaccine manufacturers 

right before flu season. CBER, the Center for Biologics, adopted 

what they call team biologics, where they basically forced the field 

force and the review staff to work together on these inspections, 

and so you had inspections happen that were much more sensitive 

to what some of the potential consequences would be of shutting 

down a facility. 

That’s not happening as much on the drug side. You’re seeing 

unilateral decisions taken by the field force to shut certain facilities 

or force their shuttering, and then the consequences are felt by the 

career staff at FDA who worry about the unintended consequences. 

Senator PAUL. I want to go back briefly to what Dr. Gottlieb said 

earlier. Neither side will tell us—the FDA or the people making the 

generics—exactly why it hasn’t been approved. There are articles 

out there saying that it’s not enough the same. 

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The question I asked to the FDA was, ‘‘What does that mean? 

Have you defined a sameness standard?’’ They said, ‘‘We’re working 

on it.’’ Companies have gone through 7 years of being denied, and 

there’s no written standard of what the same means. I say, ‘‘Does 

it inject .3 milligrams, the same as the EpiPen?’’ They won’t tell 

you that, either, but I think the answer is yes. 

I think it works. It injects the proper dose. It’s not harming anybody. It may be that the instructions aren’t exactly the same, and 

I was like, ‘‘Are you telling me that if the spring that launches the 

needle is a right-handed spring versus a left-handed spring, it 

wouldn’t be the same?’’ They were like—essentially, yes. 

It’s a distinction without a difference that’s stopping things, so 

they’re screwing up a whole marketplace, making us wait 7 years 

for competition based on something that actually works. The catch– 

22 is they’re saying it’s not enough the same, but if it’s different, 

then give them a patent. Give them a patent for a brand new device. Then they’ll be sued also. 

What happens is every time a generic wants to come on the market, they immediately get sued by the patented every time, and 

then there’s a 30-month waiting period. We’re looking at maybe 

shortening the 30-month waiting period. They’re going to sue them 

every time. Why don’t we shorten it and make it 12 months or 15 

months? 

I’m of the belief that we need more oversight of the FDA, and 

the last time around—they want to put soft words in for the FDA, 

like they may do something. I want to say that they shall do something. They need more oversight from us, because left to their own 

devices, they don’t have a good track record. I guess you could 

argue that for safety, we have done a pretty good job in our country. 

I wanted to see if anybody else knew anything about the tetracycline problem or some of these other drugs. Maybe, Philip, you 

can comment on this. They say there’s a shortage of the base ingredients going into tetracycline, and I don’t see a shortage in any 

other marketplace. I don’t understand how when you order it—if 

you go to Walmart and you take a water off there and you scan 

it, they know it’s gone and they order more water. Unless it’s a diamond or something, and there’s a shortage of—tetracycline used to 

be for pennies. 

A mother told me the other day it cost her $1,200 for a 1-month 

supply for her kid’s—I think it’s doxycycline or minocycline—but a 

tetracycline—it’s been generic for 50 years probably. Even the derivatives are generic. Do you have any comment on the tetracycline? 

Mr. ALMETER. No, the tetracycline shortages really occurred in 

2011, and that’s when we saw the real—the shortages spike 

across—hospitals were opening their totes in the morning and not 

seeing drugs in their totes. 

Senator PAUL. Has the price come back down or not? 

Mr. ALMETER. It hasn’t. In January 2011, it was $6.76 a bottle 

for the 500 milligram capsules. Then in January 2013, it was $900, 

and then in May or June 2015, it’s now $1,260 a bottle. There’s 

only two manufacturers, Watson and Teva. Nothing else has 

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changed. It was short due to raw ingredients at the time, but nothing else has really changed. 

Senator PAUL. I hear that, and I’m not sure—my warning signals 

of being suspicious about what I am being told. Shortage of supply. 

Why? Does anybody know? 

Mr. ALMETER. I was going to say your question earlier to Scott 

regarding what’s the message that pharmacies hear when all of a 

sudden something is unavailable—the example I gave earlier with 

the FDA Unapproved—with vasopressin and neostigmine, all we 

saw was messages from our wholesalers saying shortage issue, 

manufacturer’s product issue. There were none of the details behind the scenes of ‘‘X manufacturer got approval, and we’re getting 

pressure to get out of here or we’re going to have fines put on us.’’ 

You have to do a lot of digging. You have to ask representatives. 

They don’t want to talk. A lot of it—you have to wait until it comes 

out in the news. 

Senator PAUL. It’s opaque. There isn’t a transparency, and some 

it is this idea of proprietary knowledge. We’re not hearing it from 

either side. One side is afraid of the FDA. The FDA says—and I 

understand the proprietary rules—‘‘we can’t tell you anything 

about it.’’ 

Like on the sameness thing, how do we fix that? The FDA is feeling some pressure now. They’re going to actually define sameness. 

I asked them the same—some of these EpiPens have said it was 

a dosage problem. I want to know how far off it was. I want to 

know what a standard of error is. I want to know—was it doing 

.31? Was it harming anybody? What’s the range? Can it go from 

.295 to .305? What is the range? They said they kind of have that, 

but they didn’t seem to be very easy and forthcoming with it. 

Then I asked them the question, ‘‘Well, did the EpiPen—what 

was its standard of error?’’ That’s not really what you’re comparing 

to. You’re having to do new studies where you compare something 

to EpiPen, but the EpiPen may not have had—why wouldn’t you 

compare it to an original study, that if EpiPen does .3, and it has 

a range of error on its injection, that would be the standard you 

would go by. But that, apparently, is not true. You have to go by 

new studies where you compare yourself to EpiPen. Right? 

Dr. GOTTLIEB. To your point, initially, about the patent issue, 

Mylan was clever in this circumstance. They patented aspects of 

the auto injector that deal with how the auto injector itself is used. 

They created unique instructions for use for their auto injector and 

then patented the aspects of their product that deal with those instructions for use. 

Senator PAUL. Maybe we should stop that—stop allowing a patent for that, because there is some discussion—like I remember in 

ophthalmology, some guy patented the frown incision. We used to 

do the smile, and he turned it upside down and it was a frown. Everybody made fun of it somewhat, but I think he actually got a patent. Maybe you shouldn’t be able to get a patent for—— 

Dr. GOTTLIEB. Just change the regulatory standard, because the 

regulatory standard right now is if it requires any retraining by the 

patient, then it can’t be a generic alternative. I would argue as a 

clinician, a little bit of retraining, if it’s self-explanatory to the patient, might be permissible and might be perfectly fine and isn’t 

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going to confuse the end user. Maybe we could provide a little more 

flexibility there. 

Senator PAUL. One other thing I’d like to say—and then we’re 

also open for a couple more questions and responses here—is that 

I’m a big believer in trying to figure out the problem. You don’t just 

get angry and put price controls on. You figure out the problem— 

and this is a complicated issue—and then we figure out how to fix 

it. 

All of you have taken the time to come and testify. I know many 

of you had to drive hours or come from other States, and I appreciate that. We want to find the solution. If any of you are willing 

to continue to work with our office—several bills were mentioned, 

and we know about some of those, and we will continue to look at 

those. 

Also, we’ll be looking at a solution. I’m going to work with Chairman Alexander to try to find a solution to this. As this comes forward, it may take 6 months, it may take a year, but we want to 

actually try to fix some of this stuff. Maybe we don’t patent labeling, maybe we define—if they tell us what they think sameness is, 

maybe we tell them, ‘‘No, this is what it should be,’’ and when they 

say there are manufacturing issues, we would say, ‘‘Have you 

pushed them out of the market?’’ Do we make it easier when 

there’s one supplier? If someone gobbles up all the suppliers, 

should we make it easier? 

Apparently, they do have a special route for drugs to come in, to 

be imported, if there is said to be a shortage, but they don’t have 

it for single supplier. Maybe we should do it for single supplier. 

Some of this has to do with drugs coming across foreign boundaries, which maybe we should enhance. We’re not the only civilized 

country in the world. Europe, Asia—there’s a lot of places that do 

testing. Should we not have a more international system of trying 

to approve drugs? 

Does anybody have another comment on any of the issues or 

want to make any other statement? 

Mr. WATERS. I’m concerned that we discourage the continuation 

of research and development with barriers. Part of our system is 

trial and error a lot of times. In the development of these drugs, 

sometimes you don’t always get it on the first swing. You don’t always hit it. The companies have to be encouraged to continue to 

research that, and maybe a lot of these regulatory barriers have 

been detriments to that part of the process that we don’t see. 

Senator PAUL. We’re going to conclude, but I talked to Courtney 

earlier. 

Would you mind just standing up and tell us who you are and 

a little bit about your kids and their problems? 

AUDIENCE MEMBER. My name is Courtney, and I have two children that have food allergies and require an EpiPen. I’ve been 

with—Laura Jackson’s e-mails. There have been many meetings, I 

follow this closely. The main concern is the unexplained price increase. We switched over to the Auvi–Q and it was great, because 

I have a teenager and he liked being able to carry it. It was perfect 

for him. 

Then right after the Auvi–Q was inexplicably recalled, the prices jumped. Before, it was costing us, with a co-pay, around $50. Then 

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we were without insurance, and we were on a bridge insurance for 

the summer, the Kentucky Connect health insurance policy, so we 

started paying about $250 for a set of EpiPens. I have two children 

and that was a cost of $500 that I couldn’t afford, and my parents, 

luckily, stepped in and helped me pay for that. Then my job started 

and I got insurance, and my co-pay was reasonable. 

Without insurance, right now, my EpiPens for one child would cost $802, and—as you said, it was lower. I’ve tried to find out why 

the Auvi–Q has been recalled, and there isn’t a lot of information 

about that. I understand what you’re saying about how the pharmacist is not given any information, because when I asked him, he 

said, ‘‘Well, it just says it was an insufficient supply or delivery 

method.’’ I don’t think there’s been any record of anybody finding 

any injury, any adverse effects from using an Auvi–Q. 

Competition is good, and if you could eliminate some of these 

barriers, maybe we would see that it’s helping competition. 

Senator PAUL. Thank you. That reminds me of one more question 

for Philip. 

The one that’s out there is Adrenaclick. Is Adrenaclick significantly cheaper for you at the hospital than EpiPen? 

Mr. ALMETER. The one we use at the hospital costs a few dollars, 

because we use a vial and we’re giving it in a code situation intravenously. 

Senator PAUL. You’re not using an auto injector? 

Mr. ALMETER. In the retail environment, we are buying the generic, as well as the brand. I guess it depends on the plan, the 

payer and what the patient—— 

Senator PAUL. It’s complicated to figure out whether the 

price—— 

Dr. GOTTLIEB. The list for Adrenaclick is $140, the list price. 

Mr. ALMETER. It’s about $400 for us to buy. 

Dr. GOTTLIEB. The Adrenaclick is $400? 

Mr. ALMETER. The Adrenaclick is about $400. 

Senator PAUL. Which gets to the whole other question—there’s 

10 different prices, and it’s so confusing, and then there’s rebates 

for big purchasers, et cetera, et cetera. For you, you say the price 

is not that much different? 

Mr. ALMETER. No, it’s about 8 percent cheaper for the generic. 

Senator PAUL. I think what’s happening is he’s a much bigger 

purchaser than you. 

Mr. ALMETER. Sure. 

Senator PAUL. EpiPen is probably offering a steeper discount to 

try to get you to use it. There’s not enough differential for you to 

even—if you have a differential in the hospital, will you try to encourage your physicians to order cheaper varieties if you think 

they’re equivalent? 

Mr. ALMETER. It’s really dictated by the plan. That’s really where 

it’s—— 

Senator PAUL. By the plan, more than the physician? 

Mr. ALMETER. Yes, it really is, and it’s a safety net provider 

when they can’t afford it. I will say this, that UK HealthCare— 

we’re a safety net provider. We have to get the drug to the patient, 

and if they can’t afford it, we will use our dollars to give it away 

for free. 

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Senator PAUL. Right. Some of the published material also said 

that Adrenaclick was not therapeutically equivalent to EpiPen. 

Does anybody know what that means? I know what it means, but 

why are they saying that. 

Mr. ALMETER. My understanding is it has to do with AB rating. 

If you look at the rating, it’s a BX rating, and they won’t say that 

they’re perfectly bio-equivalent. 

Dr. GOTTLIEB. It’s not substitutable, but it would have to do with 

the device, not the drug inside the device. 

Senator PAUL. Once again, sort of a distinction without a difference. It gives the same dose, and it probably works equally as 

well, and you could debate which one works easier or better. By 

saying that, what’s happened on some insurance plans is some insurance plans have listed it as a second tier, where they would 

rather you get the other one because it’s the gold standard and this 

is not therapeutically equivalent. 

Mr. ALMETER. Or they get a bigger rebate with that one. 

Senator PAUL. Exactly, and that’s another problem we’re going to 

look into as well. We’ve gotten a lot of answers today, and we’re 

going to keep looking into it. We want to keep in contact with you, 

if you’ll keep in contact with us, and we would appreciate any of 

your feedback. 

Thanks, everybody. I’m supposed to adjourn us here. 

I’m sorry. If you have any more comments, you can put them in 

writing, and we’ll put them in the record. What you’ve given us as 

your testimony today will be in, and you have 10 days to submit 

anything else. 

Thank you for being here today, and the committee will stand 

adjourned. 

[Whereupon, at 4:10 p.m., the hearing was adjourned.] 

Æ 

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