europe and the professor may disagree with that, i don't believe there's a right to be forgotten with respect to credit report information. there is guidance in the e.u. that i believe would not permit consumers to delete wholesale information because of the vital role they play in managing safety. >> i disagree, that's not correct. the regulation the new european law speak specifically of the right to raise your credit agencies a personal data. there subject to that. also consumers have a right to next donation of the basis of the decision. if a company has an automated process to decide if someone gets a loaner job, under the

european law consumers get to know what the factors were that made that determination. i think we need to move to that approach. the make companies more accountable than decisions about american consumers fairer and more transparent. >> you do have requirements that when you take adverse action based on consumer report you notify the consumer. and were credit scores used you have to have key factors that affected the score. >> one more question and i apologize. if the bill were kept liabilities in the past how much would hundred 45 million americans, how much would those victims of equifax problem been

entitled to? >> first, here's to me there are be a cause of action and right now based on news reports there'd be no cause of action under the fair credit reporting act because it was an credit report. were there to be a breach of a consumer reporting database, i believe the figure was a million. the cap was either 500,000 are million. was consistent with the other consumer protection statutes. >> it sounds like that loophole to close. thank you members of this committee may have questions for you. we encourage them to get them in writing to quickly and please answer as quickly as you can. the meeting is adjourned. [inaudible]

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will please come to order. senator murray and i will each have a statement and we will introduce witnesses. after the testimony senators will have five minutes of

questions. there is a vote scheduled for 10:30. i think we will continue right -- 10:45. until 10 4 and then we will alternate going back to vote. i think we will have time for all the witnesses testimony before we have to leave for the vote. we are holding the second in a series on prescription drug costs in response to a bipartisan request led by senators cassidy, senator franken, along with senators sanders,white house, and warren, as well as other senators who are interested in this object. not only was the request for these hearings bipartisan, but both his hearing and the first hearing on drug prices were bipartisan, which means senator murray and i agreed on the witnesses. despite this, our first hearing

in june went so far off track that i delayed this hearing , instead oftors talking about drug prices, wanted to talk about other issues, specifically the affordable care act. nowledge their deep feelings, but we have been stuck in a stalemate over what is a small part of health care. the individual health insurance market, where 7% purchase health insurance. senator murray and i have been working to see if we can find within the senate a limited consensus, bipartisan agreement to stabilize the individual market in the interim. but there are many other issues that have caused health care spending in this country to grow from consuming 9% of the gdp in 1980 to nearly 18% in 2015 and a predicted 20% in 2025.

we need to look at all aspects of health care spending. the 15% or so we spend on prescription drugs, including retail and prescription drugs administering hospitals, and the other 85% of health care spending, which includes doctor visits, surgery, and medical devices, and ways to get these costs under control. we are having hearing on thursday to discuss wellness and healthy lifestyle changes. -- how they can discrete decreased serious illnesses and bring down health care costs. while they are free to say and do whatever they wish, i would hope we can focus on the cost of prescription drugs while we have these excellent witnesses before us. there will be a third hearing to consider a report norm augustine is issuing from the academy of sciences. the study,ult of ensuring patient access to affordable drug therapies.

set a good example of bipartisan success in the fda user agreement. this committee worked with our counterparts in the house to update and past user fee agreements. it included agreements for many senators on both sides of the including additional staff and resources to the fda. generic drugs provide more competition and lower drug costs. committee worked together on 21st century cures, to spur the development of new drugs and treatments. ingoal is to continue these a bipartisan way to learn the facts about what goes into the price patients pay when picking up prescriptions and what steps we can agree on to lower the prices. we are at the middle of a remarkable time in producing amazing discoveries for patients. we have drugs that can cure hepatitis c, keep cancer at bay, and stop a stroke.

with this innovation comes new challenges. we need to make sure all patients can benefit. the cost of new drugs are often too much for them to afford. we need to make sure any action we take does not jeopardize the innovation and the breakthroughs. the prescription drug delivery system, how it drug gets from the manufacture to the patient, is complicated. more than 4.4 billion prescriptions are written for drugs each year for americans who then pick up these prescriptions at 60,000 drugstores, or receive them from doctors or hospitals, or online pharmacies. those 4.4 billion prescriptions and $50d to cost four billion, paid for in a similarly, located way, what you will hear about today. in addition to private insurance, many are subsidized. 340b, medicare part b and d.

patients often pay a set amount, called up co-pay. or coinsurance. have tos, patients cover the whole cost, if they have not met their deductible. what amount of the cost of the prescription drug may take as determined by what health insurance they may have. today willwitnesses help us understand the drug delivery system and how their role in the system affects the pay. patients eyewitnesses recommend the brand manufacturers who take and norma's risks, who have grown to make up 89% of all prescriptions. lowering costs. drug wholesalers who purchase drugs for manufacturers and deliver them all over. managers who use buying power to leverage lower prices on all drugs, but also make decisions on drugs to offer patients at what cost.

and of course, pharmacists, on the front lines of helping patients find that the cost of their medications at the drugstore, and having it meet within their budgets. we hope to adjust the fundamental cause of health care, hope we can continue to do this in a bipartisan way. senator murray? senator murray: thank you for having these hearings. i think i'll examples sides of the aisle for their commitment to address the critical challenge before us today, the increasing burden and soaring prices of prescription drugs. ont like our last hearing the devastation caused by the opioid crisis, this is truly an urgent discussion. from so many families forced to choose between high-priced medication and paying their bills, between filling a prescription or putting food on the table, and between getting the care they need, or paying the mortgage or putting gas in the tank.

this is clearly a challenge we need to meet and need it quickly. fortunately we have taken some steps in the right direction. working tod we are increase transparency and foster competition in the generic drug market in the fda reauthorization act. from bothgestions sides, we were able to accelerate the review of relieve that can anti-competitive markets, improve the process for bringing a generic market, by increasing transparency, between fda in manufacturers, encourage new companies to compete, and prevent gaming of the orphan drug act. competitiongeneric alone will not address the high prices paid by so many patients and families with out of -- out-of-pocket costs and high premiums. we have to get rid of the problem facing patients, which is the high prices set by drug

manufacturers. that is why i am glad democrats to demandorward ideas transparency from pharmaceutical companies about what is behind drug prices, allow medicare to negotiate fair prices for prescription drugs, prevent manufacturers from engaging in price gouging, and crack down on the various anti-competitive practices that keep prices high. these measures would make a real difference for bringing down prices. this administration has to be our partner, not a hindrance. as resolve saw last week, president trump continue to take unilateral steps to increase premiums and undermine protections for people with pre-existing conditions, and cause chaos in our health care system. that pattern of governing by sabotage is reckless and it, iing, and only makes believe, mark critical that congress shows patients and

families we can work together to undo the damage caused and move on to doing good when it comes to families and health care. like so many other issues, president trump talks a big game on twitter but has not taken any action to lower drug prices. the little we have seen from this administration, a leaked executive order order in july, barely scratches the surface. instead, many of the plans would do little to target drug prices. some have actually targeted that programs like 340b, support hospitals and clinics serving communities that cannot afford the drugs they need to stay healthy. i hope the administration chooses a different path. i would note that president trump could start by nominating a secretary of health and human services who would put families first when it comes to prescription drug prices. i expect a thorough and rigorous nomination process when that comes. they have a very important role to play.

we have a lot to cover and the one i think our witnesses for joining us. we are looking for to your testimony. i want to thank chairman alexander and our colleagues for their efforts to tackle this pressing challenge to make sure prescription medication and life-saving treatments are not just available, but accessible and affordable. workhopeful our bipartisan on stabilization can lay the groundwork for serious actions under prices, given we all agree this is a priority. patients and families we serve cannot wait much longer. thank you for: creating a bipartisan environment where we can work ahead on trying to stabilize individual health insurance market and begin to move away from health insurance, to the larger issues affecting health care, such as drug prices. we think the witnesses for

coming -- thank the witnesses for coming. i ask you to summarize your statements in the five minutes, that gives senators time to ask questions. pharma.t is riley at phrma. thatthe trade association has distributors and suppliers. the senior vice president for government affairs in general counsel, representing prescription -- drug wholesalers. welcome, to you. and chiefesident executive of the national group that represents america's pharmacy benefit managers. and thomas is the executive director and chief executive of

the largest association of pharmacists in the united states. ms. reilly, let's begin with you and then hear from each witness. lly: thank you for having me here today. , theyhe past 20 years have approved more than 500 new medicines to market. through innovation, the hiv-aids death rate has dropped 86 preset in this country, from the mid-1990's. progress that has been made in the face of oncology has been heralded

drug spending growth is actually declining from its peak in 2014. in fact, last year restriction drugs bending cost rose 3%-5% according to public and i experts in line with all other terms of spending growth. in nonretail and physician 14%nistered drugs remains of what we spend in terms of total health care dollars in this country. when people talk about that 14%, there is a presumption that all of that comes back to the brand name manufacturer. in fact, less than half of that percent, about 6.8 is it what we spend on total health or in this country comes back to the brand name industry. the rest goes to the generic history and others in the supply chain. of the supplypart chain that is not here with us today is the hospital sector. just this morning we released a paper that looked at 20 of the commonly most prescribed medicines and hospital and outpatient settings.

on average, host it'll increase our -- hospitals increase in a theyursed 2.5% cost purchase medicines in this country. i hope we talk about that more later today. going outward over the next decade, netizens are protected to remain at around 14%. for many questioned how they can possibly be the case, we know it's in the pipeline. over the next 10 years were likely to have 40-45 medicines approved every single year. the reality is we have some of the most stringent cost-containment across the entire health care sector. pharmacy benefit managers use the fact that there's a great deal of competition within therapeutic areas to limit formularies to place medicines on high cost-sharing tears and to use a host of utilization management techniques to keep costs under control. over the next five years, over $100 billion worth of medicines will become an off patent and

those will become generic and cheaper for americans going forward. about three pharmacy benefit managers today by on behalf of 75% of all prescriptions in this country. because of the leverage they can exert, in 2015 they were able to secure over 100 and dollars in rebates and discounts. unfortunately, what's happening today is those rebates and discounts often are not making their way back to patient at point-of-sale. compounding the problem is today an increasing number of patients have high cost sharing for their medicines, either because they have a deductible, today 50% of commercially insured patients have a deductible for their medicine. they are asked to pay a list price, a non-negotiated price for their medicine. there are solutions we think could be put forth to address some of the cost challenges we face. the first one is the fact that

$100 billion of discounts and rebates should find its way back to patients at the retail pharmacy level. those discounts should be passed back to patients to lower their health care costs. we also need to do more to reform government rules around how companies can contract today . there is a desire to move our health care system for contracting for now you but today because of government rules and regulations it makes it harder to have sensible contracting. third, we need to look at program like the 340b that provided important benefit in hospital we know sector often hospitals are increasing the price of their three times and are getting reimbursed three times as much as the manufacturer is getting reimbursed with a medicine. last company just be the approval of new and generic medicines to the marketplace. competition is the best edison to lowering costs over the

long-term equity to build on the work is committee passed to continue to modernize the fda to have efficient and safe delivery of new medicine and new generic medicine. future progress is needed in patients are waiting for the kind of innovation our sector can deliver. thank you very much. riley.k you, ms. mr. davis, welcome. >> thank you, members of the committee. thery much appreciate invitation to testify here today. the association for accessible medicine is the nation's leading trade -- association for men acting. our members actually manufacture more than 90% of all the generic pharmaceuticals dispensed in the united states, providing tens of thousands of jobs in over 100 empty facilities throughout the country and manufacture more than 61 billion doses of medication every year herein the united states. the core mission is to improve the lives of patients by .dvancing timely access

on behalf of our members, let me begin by thanking the committee are convening today's hearing to examine the critical challenge of rising drug prices and your leadership in reauthorizing the programs earlier this year, most our programs.or generic medicines currently 89% of all prescriptions dispensed in the u.s.. we account for only 26% of all expenditures on prescription drug. saving patients and payers nearly $5 billion every week. last year use of generic medicines say 200 $83 billion to the u.s. health care system. that translates into meaningful patient access. generics operate currently in a anlationary market, not inflationary market, and that's an important context. consider that in the past month, prescription brands have gone down by seven cents while revenue has a slightly.

by contrast, generic prescriptions have gone up 2% year over year while revenue has declined by 13%. easy to recognize the significant difference between generic and brand name prescription drug when it comes to prices that we often the at the pharmacy counter. the dramatic difference in how brand and generic drug market operate is not as widely understood. when generics inter-to provide competition to a brand monopoly, payers typically shift away on the rebate model of reimbursement you often hear about and rely on distribution channels to actively lower the price of edison. generics therefore compete for sales because the products i didn't, commonly the only leveraged generic manufactures have is the ability to lower price and guaranty volume. this creates there's competition in the marketplace amongst our members which in turn causes prices to decline. the reality is that markets for brand and generics are very different, monopolize versus

and these create vastly different incentives for all stakeholders in the supply chain. this reality was most recently examined and affirmed through a report issued by the university of southern california center for health policy entitled the the of money through pharmaceutical distribution system. among the findings, they capture significantly more revenue spent on generic sound brands. for every $100 spent on dispensing a generic medicine, promptly $65 goes to .istribution in today's market, consolidation in the wholesaler and has ledtor market generic manufacturers with a small number of large-scale. essentially prepurchase and they account for 90% of all sales all generic any factors. that hasy a market

three large-scale purchasers is going to see sickness compression and consolidation on the supply side, which is our site. your generic manufacturers running the risk of marketing smaller portfolios can easily translate into less competition, not more, while simultaneously increasing the risk of drug shortages, a scenario none of us want to see happen. as this committee has identified in acted in the title of this hearing, how does this affect what patient pay and what does it mean for them moving forward? we know there was a remarkably strong system designed to balance innovation and access. only function if there is robust competition among buyers and sellers. the system can only work if generic companies can get the drug samples they need to start the fda application and approval process which this committee has spearheaded efforts to accelerate and reform. that system only works when generics have the ability to into the market and patents and other protections are actually

supposed to expire. ultimately the system works when polled -- with public policy does not favor one side of the act as an innovation equation at the ends of the other. in closing, we all know that something must be done about prescription drug rices. given the fact that the new fda commissioner is characterized drug costs as a public health concern, we submit that congress has yet opportunity consider policies to enhance generic and bio similar competition. we provided those in a written testimony and i look forward to answering your west and as we move over. >> thank you, mr. davis. >> good morning, chairman alexander, ranking member murray , and members of the committee. thank you for the opportunity to participate today. i'm senior vice president and general counsel for the health care distribution alliance. where the national trade association representing primary reciprocal wholesale distributors.

the expertise streamlines the supply chain and serves over 200,000 pharmacy settings across the country while achieving cost savings for our nation's health care system, about $40 billion annually. the u.s. health care supply chain is a complex one. each day, or 35 primary distributor members who purchase directly from authorized manufacturers 50 million products daily from about 176 warehouses across the country, a relatively small but highly efficient and effective network. most pharmaceutical sales in the network flow through our members, nearly 94%. distributors are unlike any other supply chain participants. they do not prescribe medicines are dispensed to patient. they took a significant resources on the safety and security of the supply chain. these efforts made the most important service distributors provide. for thengly advocated

drug supply chain security act would set the framework for unit level traceability of medicines by 2023. on a daily basis, pharmacies and other providers lease orders with distributors or medicines they need to serve their patients. without distributors they would have to carry weeks of inventory and placed daily orders with each and every manufacturer. in addition, primary distributors often provide credit terms, or receipt management systems, and inns or resales work. with regard to the upstream supply chain, the work of hda members enables manufacturers to concentrate on developing and producing medicines without the addicts into challenge of getting those medicines to every single the hunting side across the country. while hda members are primarily supply chain operations experts,

this is no longer an industry focus solely on moving points from point a -- moving products from point a to point the. they provide a wide array of sub orting services delivering value to both ends of the supply chain integration. include receiving and accurately processing orders, shipping pharmaceutical product safely, inventory management, and processing returns and chargebacks. in exchange for these services write it to manufactures, distributes charge on provide service these which are not passed on to the customer and represent a fair market value or itemized service performed on behalf of the manufacturer. the manufacturer would otherwise have to form of themselves. the distribution industry is high-volume let -- yet low profit margin industry. moreover, recent berkeley research group study noted the distributor profit on overall branded drug caused is just under 1%. distributors have little impact

on overall drug pricing and traditional pharmaceutical distributor's purchase from manufacturers based on wholesale acquisition cost in charge manufacturers service fees. this represents the manufacturers list price and does not include adjustments in resulting from proprietary negotiations between the manufacturers and distributes, payer groups or other cost. distributors are not privy to how such pricing decisions are made. on the other side of the equation, distributes typically sell branded drugs to downstream customers based on those established by manufacturers. they may also price generic drugs bill to customers in response to the market, for example, when there's more than one generic drug. will sell distributive do not control the prize but rather price is dictated by manufacturers and market forces. including generic competition. primary distributors sold as a

simple one, add efficiency, security, and timely delivery so that providers can concentrate on patent care and ensure that patients have access to the medicines they need here at historically, hda distributor members have had a positive effect on the supply chain, helping to make u.s. apply chain one of the safest and most efficient in the world while taking cost out of the system and having minimal impact on the overall cost of drug. thank you, and i would be happy to answer any questions you may have. you for inviting me to discuss drug icing and the delivery system drug makers used to bring their products to market. i would start by providing a brief topline overview of a very collocated that the. anger about is such drug pricing, especially now. the role supply chains play and reducing overall costs. there are several reasons why

drug pricing has become such a concern in recent years. worse, drugmakers recent shift in producing blockbuster drugs that make cost three dollars a day to other drugs which cost $1000 a day. these are great drugs, but not everybody is prepared to pay $1000 a day for a new drug, even if it is a great drug. all this came on the heels of a decade that all very little brand inflation thanks to it wave of competing generics that hit the market at that time. the second recent fork learn the recent high-profile scandals involving three drugmakers, specifically the epipen price hike and the discovery that two companies had built a entire business models around buying rights to low-cost drugs in order to resell them at much higher prices. there were many hearings on the issues and i testified at a u of m. third is that many health plans try to restrain premium increases by raising deductibles in the face to fire caused. not just of drugs -- in the face of higher costs.

some patients had grown accustomed to paying $25 co-pays and came face to face for the first time with the actual price of drug, which can run hundreds or even thousands of dollars. and the scandals emergence of high deductible plans has converged all-in-one time to raise real visibility on this issue. i'd like to offer of three thoughts on the drug supply chain. first, supply chains are routine part of how can immerse act is not just wrote but almost any product in the marketplace. they are a normal part of american business, not something -- there used all caps america. it should be noted that supply chains have nothing to do with my manufacturers raise prices. demands of supply and in , not supply chains, determine how drugmakers and other manufactures set prices. in the simplest terms, the

prescription drug marketplaces like any other, a of sellers and buyers. sellers that causes -- set prices according to what the market will bear. likewise the buyers want to pay as little as possible. pbm's do a number of things to reduce costs. they design benefits that encourage patients to use generics and less expensive brands. they create networks of affordable pharmacies reduce costs for consumers. they negotiate rebates and other rise to sessions from drug companies. you should be noted that rebates are simply discounts paid after sales have been made instead of at the point-of-sale. toy welcome drug companies offer alternatives to rebates including simply lowering the list bars of drugs -- list price of drugs. 90% of rebates are passed through to plan sponsors and of large employers

require 100% of rebates to be passed through. once they are pass-through, plans can decide what to do with them. typically they are used to reduce premiums, deductibles and co-pays, but it's up to every plan to do with they want. evolving onace is the issue. it should be noted that drugmakers set and raise prices regardless of rice as they negotiate with pbm's. we were able to bring prices and costs way down. lower than a lot of price control countries in your. all in all, pbm's reduce drug costs by 30% and play a major role in the success of medicare part d and have restrain the growth in overall spending to 3%-percent year, despite rising list prices. there are market-based policy lesions that can reduce costs. i would like to thank senators collins and franken for guarding on sudden price hikes on decade-old drugs. we urge congress to accelerate

approvals for brand drug that face limited competition and do whatever possible to bring bio similars to market after. these debts will foster competition which is the key to reducing overall drug prices. i look forward to answering any questions you might have. >> thank you, mr. merritt. mr. monegan. alexanderou, chairman and ranking member murray for the opportunity to discuss a very important topic for our nation's patients, families, and pharmacist. it's an honor to be here. i am the american pharmacists association ceo. apa is america's largest, oldest, and most diverse pharmacist organization. for qualityoverage patient care services. our members contribute to health care in a wide variety of settings, including physician offices, specialty and community

offices, senior care, and latorre care and health systems. for many years as a practicing , i share pharmacist challenges with patients facing financial choices between food and medicine. today's topic is up turned to america's 300,000 pharmacist, the professional on the front line informing patients about medication cost and explaining complex insurance coverage policies. as the organization representing pharmacists and all practice settings, we support policies that increase patient access to order one cost-effective medicine. decisions among the entire supply chain impact patient medication cost, including arrangements among many factors holes dollars, insurers, and pbm's. pharmacies or where millions of americans are first confronted with complex pharmaceutical pricing policies and changes in coverage, deductibles, copayments, many of which they don't know or understand.

instead of helping to address the nearly 300 billion u.s. pence annually on medication used problems, fixing the problems of medication use, or mrs. spend much of their day on the phone pursuing appropriate, covered, affordable treatment. to address this challenge we support a transparent pricing framework that would eliminate or identify mechanisms like an post point-of-sale price fees imposed on pharmacies. these policies generally result in higher point of sale prices to consumers and consequently, higher beneficiary copayments. we also encourage policies that allow any willing forms to enter into contracts with insurers or pbm's to increase patient access and choice which can improve adherence and health outcomes. we request the committee to look e.on the drug price spent in isolation. policy should consider the

relationship between effective medication use and lower medical costs, rather than scoring them in silos. full value in health care will come from integrating these silos and their related cost and outcomes. extensive,come more complex and personalize, the need to optimize their impact and value should increase, to get the greatest benefit from medications, patients must understand how to use their medication safely and effectively. can assistr mrs. patients in optimizing the medication use and decreasing patient cost of providing services focused on tape and appropriate use. for example, pharmacist provide medication management service is, is wesley important for patients who take multiple drug or have chronic conditions. we address hospital readmissions by helping patients transition between care settings. unfortunately, medicare does not cover our service. many of our nation's seniors are

medically underserved, despite 91% of americans living within five miles of a community pharmacy. or mrs. are well-trained and underutilized health care resource which can positively affect beneficiaries care and the entire medicare program. we ask your support today for s 109 and urges swift passage to provide this to underserved seniors. not only will access increase, but the act will help improve beneficiary outcome, particularly those impacted by medications. but we have to be on the team. finally we support a safe and secure supply chain. america's pharmacist and patient should not have to worry about diversion and counterfeits. we believe proposals to legalize importation will do more harm than good. we have great concern regarding importations impact on patient and continuity of care. we believe it is in direct conflict with recent efforts by congress to secure the u.s.

supply chain secure and improve patient safety. in summary, and q4 including armistice day, the medication experts on the patient's health care team in this discussion. ultimately, the most expensive medicine is the one not purchased, not taken, abandoned, or not used correctly by patients. pharmacists stand ready to help. i look forward to answering any questions on the positive role we can play and do play in reducing patients prescription drug costs. iq. >> thank you very much to all the witnesses. we will now begin a five-minute round of rest. i will begin, then we will go to senator murray. then we will even go vote and come back, but we will continue to hearing so that senators can ask questions. ms. riley, did i hear you right? i think you said that three of the pharmacy benefit managers negotiate rebates for 75% of

sold? ms. riley: that's correct. in 2015, over $100 billion was negotiated on behalf of commercial health plans as well as some government and dated. , that a rebate is simply means the pharmacy benefit managers in -- the manufacturers get less money. thenacy benefit managers decide in their negotiations where that $100 billion goes. it lowers right, so the net price to the manufacture. that money either get sent back to the insurance company, a portion of which is cap by the pharmacy benefit manager. >> i believe he said that we don't need rebates. is that when you said? >> what i said is we need more transparency in the system so that we know where they are coming from. at the end of the day, when a patient walks up to a pharmacy

in the pharmacy presents them with the cost of the medicine to them, the impact of rebates is not really felt until after -- toms. riley was saying people who go into your pharmacies don't really see the direct -- or don't necessarily see the direct benefit of the rebate negotiated by the arms. senator murray and i and others of us have been working on health insurance, which we find to be very complicated. where the money goes in prescription drugs is more complicated. i have yet to figure out exactly where it goes. why do we need rebates at all? i mean, wouldn't it increase transparency if the drug manufacturers just established a list price and then they negotiated with the pharmacy benefit managers or whomever else they sold to a reduction in that price if they wanted to, and then we wouldn't have some

mystery about who is getting the benefit of a rebate. >> without commenting on the need for rebates, -- >> why wouldn't you comment on it? >> are used to drive market share. often time in our view that's not necessarily to the benefit of the patient. when pharmacists are trying to manage medications -- >> my question is, why do we need rebates? why don't we just get rid of rebates and let you negotiate directly with the manufacturers, take that $100 billion a year, and just reduce the list price. wouldn't that make it simpler for us to understand where the money goes? >> rebates were around before pbm's ever came on the scene. they want to keep one eye price cut lower volume clients will pay that price but then when

they have bigger volume clients, they will offer a bigger discount, which is all a rebate is. >> i would argue that high pharmacyre things that benefit managers like because they get a big check at the end of the day and they can use those rebate dollars to do what they would like with them. >> would you like to rebate -- eliminate rebate? >> we like to see those get passed back to the patient at point-of-sale. i just eliminate rebates? option, tothat's one have a lower list price. i will tell you today, plans up pbm's tend to favor products, they prefer to have a product with high list price and a high rebate because that money goes back to them for them to decide what to do with. >> do we need rebates at all? >> to be candid, wholesale roleibutors don't have any

in this rebate. >> but you have a nice view of the prescription drug business. you think of be more transparent and easy to follow and consumers might get more benefit if direct rebate were eliminated? >> i think that's something to be explored. .ext that is what we are doing mr. davis, what about you? >> it's a good example of the branded and the generic market. a wholesalesetting acquisition cost is generally directly to the wholesalers. we will have 20-25 generic any factors competing for the business ofthat usually leads tt negotiation on price, which forces the deflationary aspect of industry. we are seeing increased level of involvement between pbm's as branded products come close to and in aniration

effort to maintain market share that will inhibit a generic getting to market. ultimately the rebate model is not as commonly used on the generic side. >> senator murray. >> let me start with you. do you agree that our current system of brand and generic drugs is designed to strike a careful balance between protecting the market share of innovative drugs for a limited andod to recoup costs driving competition to bring prices down after that time? yes or no. >> i do believe that is the intent of our system. >> i do, too, but here is my concern. member companies are taking action to deliberately disrupt that balance to get the longest market monopoly possible. in order to benefit the bottom line. bve recently settled in court to extend the market monopoly for humira for 20 years. biogen extended its monopoly on the ms drug to 15 years by

getting additional patents that cover only the drug's dosage amount. allergan sold its patent for restasis to the mohawk indian tribe to shield it from challenge, protecting a monopoly , and recently settled with a generic challenger to keep it off the market for seven years. are those isolated incidents or part of a larger trend in which companies use the patent system to actually block competition that could bring down prices? >> those were a lot of examples. let me try to address each one of them. in the case of patent settlements, companies are given patents by the patent and trademark office. they believe they have every right to defend those in the court of law. in the case of the adve and allergan settlement, there was no exchange of money for the pat patenttlement -- for the settlement. the product will be coming on the market 10 years prior to when the patents truly expire for that product.

i understand there are other companies also trying to get on the market to challenge that particular product. we have a system that was by the hatch act to encourage generic manufacturers to get on the market before patents expire. it is a system that has worked incredibly well. in 1984 there were 19% of prescriptions that were generic, today nearly 90% are generic. the patent settlement is one way to get products to market well before the patent would actually have expired. oftentimes, there are anecdotes pointed out. i would argue that patent settlements and the system have served to the benefit of patients in getting those medicines to market sooner than they would have been otherwise. >> i would like you to comment on that. there are other tactics that play that keep drug prices high. when congress passed the

biologics innovation act as part of the aca, a cleared the path for products to compete with pricey biologics. the cbo estimated that increased competition could save patients $17 billion just through 2019. even though the fda has now approved several, we are not seeing great savings. why is that? combine it with an answer to the first question. >> if there are three things that are having an and norm's impact on the generic side of the pharmaceutical ecosystem that are threatening its continued viability moving forward, one is the market in balance. that was created in the market. it will take some time for the market work that out where you have essentially three buyers in control of 90% of the generic drugs. two others are directly related to policy and your question. the second is that there have been a series, both here in washington and at the state

level, of well-intentioned but misguided policy provisions. things that look like generic manufacturers operating in a deflationary market. they are only 26% of the total costs but not focusing on the increasing cost of branded and specialty drugs. the application of a medicaid rebate on the past as for the 2015 budget agreement is an example, in addition to bills in maryland and california. the third area is we are absolutely, unequivocally seeing an increased effort on the part of certain branded manufacturers with respect to the anti-competitive behavior designed to keep generics and bio similars off the market. i think the reality is overall the reason we are seeing this is because there are companies doing the business and political math and thinking they can get away with it. when theosimilars, bill passed, the federal

government began scoring estimated savings as early as fiscal year 2014. the first biosimilar did not get to market until december of 2015. seven have been approved, three on the market, four tied up in litigation. >> thank you. i think it israel that in order that innk it is real order for competition to bring down costs, we have to make sure the market is working. >> in the absence of other senators, i will ask a question. when they come back, i will defer to them. with the exception of drugs compounded in pharmacies, each drug sold -- pharmaceutical drug sold in the united states requires a careful review by the food and drug administration before that drug can be sold in the united states. we call that the fda gold standard. there are 4.4 billion prescriptions a year.

most of us when we go to our local pharmacy or doctor's office don't worry about the safety of those prescriptions, because we rely on the fda gold standard. sometimes when the cost of drugs comes up, there are proposals that we should import drugs from ther countries and sidestep careful fda review and approval of each drug sold in the united states. i would like to ask each of you, starting with mr. madigan and going across, whether you agree that we should allow drugs approved by other countries to be sold in the united states without careful review and approval of each drug by the food and drug administration. >> the short answer is absolutely not. while a pha appreciates congressional efforts to address

medication costs, we don't believe importation is a solution to the issue of drug pricing. importation of non-fda approved medication threatens patient safety and conflicts with congressional efforts to increase the integrity and security of the supply chain and drug supply chain security act and disrupts continuity of care and value-based payment and delivery. we are concerned that savings would be short-term and implementation would result in long-term costs to patients. >> thank you. mr. merritt. >> i will give the short answer, we oppose that. >> we would absolutely oppose importation, as it would threaten patient safety in this country. we have done a lot of work on the drug supply chain security act currently in implementation phase one. is of the things it requires a product by all manufacturers in this country -- there is no

global standards for serialization. it also involves data exchange for each transaction from the manufacturer to distributor to pharmacy by 2023 at the unit level. there is also no global standard for that data exchange. we have done a lot of work to protect the u.s. supply chain and make it as safe as possible. we don't think that allowing foreign imports will do anything to keep that level of security. >> sen. collins:'s returned. i am going to turn the chair over to her. i would like mr. davis and ms. riley to answer my question about drug importation. >> we share the concern you have heard from the other witnesses today relative to safety. the secretary of health and human services has the ability to certify importation, whether they determine as an official that it is safe and cost effective. no one has been willing to do that. there is an additional element related to generic smut practical perspective, --

related to generics as a practical perspective. they are less common than they are in developed markets, so it begged the question why he would want to be importing something that is more expensive to begin with. mylet me add something that panelists have said previously. opening importing medicine risks the safety of americans. if we open the borders, we are subjecting americans then safe medicine. we adamantly oppose. >> thank you for your response. let me say that i love having the gavel in my hand. [laughter] ,ven if it is only temporarily because of the need of other members to go vote. i voted early so that i could relieve senator alexander's of

the chairman could go vote. last year, the senate aging committee did an extensive investigation into the spiraling cost increases of certain prescription drugs. it has been mentioned this morning. we looked at touring, valiant. what we found was the pattern of certain -- what i call hedge buying the companies rights to a drug and then overnight increasing the costs 5000%,uch as literally in the case of daraprim. these were companies that played absolutely no role in the development of the pharmaceutical, so there wasn't that wouldent in r&d

justify that kind of increase. so i am particularly pleased that the chairman is holding this hearing today, because i think that we have a lot of work to do. one of the issues that really troubles me is the lack of transparency in the system. the mac price is not what most people pay. prices vary depending on what pharmaceutical benefit managers negotiate. to,es vary according obviously, whether a generic can be substituted. but there is just a lack of transparency in the entire system. i would like to go across the

panel and have each of you comment on how we can increase transparency into the pricing. because until we do that, it is going to be very difficult for us to get a handle on whether these cost increases are justified. ms. reilly. >> thank you for the question and the work you have done on the issues you raised, such as with the daraprim and valiant pharmaceuticals. we share the concerns that you thatd about the fact companies can buy and engage in regulatory arbitrage knowing that approval through the fda may take years. there are number of solutions we have talked about that we think merit some consideration, whether the fda can fast-track

reviews of medicine to compete with these reviews of medicine to compete with these products, whether they can list on their website suppliers and names of companies that may be able to

>> rather than go down the line, i'm going to switch to another question. mr. merritt, i'm going to a directed -- going to direct it to you. last night, nbc nightly news ran a story about an investigation which found that a wide variety of prescription drugs on certain insurance plans are actually cheaper when the consumer pays out-of-pocket. that makes no sense to me. least inearned that at some negotiations in some contracts there is a gag order

that prevents pharmacists from telling patients that they would be better off paying out-of-pocket than using their health insurance. i would like both of you to answer the question of how common is this practice and how can this occur? how can it occur that a prescription benefit manager, whose very job is to negotiate prices, is negotiating a price that is actually higher than the consumer would pay out-of-pocket? mr. merritt? >> it is a really good question, and it is not something that should be going on in the marketplace. it is an outlier behavior. i'm not sure if it is a pbm or insurer behavior, but it is not something we support. we think the person who goes to the pharmacy ought to pay the lesser amount. if it is a generic that costs

five dollars with a $20 co-pay, they should pay five dollars, they should not pay that. i agree it is a practice that we don't support, it is an outlier practice that we hope goes away. >> thank you, senator collins. first i should say that i did not handle an earlier question about rebates. we oppose rebates in all their forms. with regard to the questions you just asked, pharmacies are incredibly frustrated -- pharmacists are incredibly frustrated with their inability to help patients. providing patient care should not be this difficult. my members feeling credibly frustrated with their lack of connectivity, their lack of communication with plans. essentially they have no negotiating power and they are told what they have to do and they can take it or leave it. they can either be in a network or not, typically not. if they are in the network they

are told how to perform. >> is it an outlier? >> it is not an outlier. it is common. >> thank you. senator kaine. andhank you, madam chair, thank you to the colleagues and witnesses for their testimony. i want to ask a couple of questions. mr. menighan, if i can start with you at the front line with pharmacies and dealing with patients. commonly i hear, as i travel around virginia, about how high prices affect financial decisions. your last line was great, the most expensive drug is the one that somebody does not get, often for a financial reason, or they don't use it correctly. who takeur americans prescription drugs report they have difficulty affording them. these high costs lead to lack of access. that disproportionately affect the most vulnerable people in my population. talk a little about your customers.

how do you see this high-priced challenge affecting your customers? of the firstnt end purchase of a medication, oftentimes patients do have to make hard choices. pharmacists aren't a great position to help with those choices if given the latitude. oftentimes we spend our time administrivia when we should be coaching patients on effective use of medicines, which they so desperately need. patients won't make lifestyle choices, won't be better nurse, won't -- won't be better nourished, won't increase their activity without better support. when they faced these barriers, oftentimes they say, i can't do it, it is too hard, and they go back to their old ways and don't manage their disease. at its core, these front-line decisions that patients have to make and the limited resources and lack of transparency that

affects pharmacists' ability to understand the reasons behind why pbm's they say this drug is available, this one is not, and the conflict that occurs when a physician says, this is the drug i want, i think it is best for that patient, the pharmacist says, i would like to give that to you, but it will cost you $500. the patient says, i can handle that, i give up. pharmacists are really challenged with that. to the degree that we know the reasons behind those formula choices, we can be better advocates for our patients. to the degree that we can insert lower-cost options in collaboration with our physician colleagues, we can help our patients. but we need the time and transparency and better understanding of the information behind those decisions that are often made far above us and without any transparency. >> i would like the records reflect that mr. menighan's use of the phrase administrivia is a

new word that should be included in the dictionary. i like it and i'm going to use it and say i thought of it. >> it is yours, senator. >> my next question is for mr. davis. you are written testimony has a really nice thing that i love. congress must support generic and biosimilar's and you give us three things. one, the creates act i understand. there are two i want to make sure i understand. first repealing the misguided medicaid penalty on generic drugs. describe the penalty and why does myth started -- widest misguided. >> in the fall of 2015 as part of the budget agreement in october, a rebate penalty that has long been associated with the branded industry -- in medicaid you pay a baselevel rebate and if your price increases exceed medical inflation, there is an additional penalty. that was instituted in the early 1990's in an effort to constrain

monopolist company's ability to take price increases above the rate of inflation. through weekend deliberations around that budget agreement, there was a decision made between the house and senate that quite frankly had languished for several years that ultimately decided -- that was ultimately included in an effort because it included saving $10 billion over 10 years. the net effect is that it market in a commoditized and can impact a generic manufacturer when they don't take a price increase. that felt he has now gone into effect earlier this year. we have heard from our members that some 40% of their generic portfolio is impacted by this additional penalty. this is when they did not take a price increase. >> it is a county that affects generics in a different way than branded? >> yes. we have an added expense from

the government that is not tied to when companies actually take a price increase. >> then second, you want to ensure that biosimilars medicines have a level playing field and medicare. could you describe that? >> there is two components. one is that our members would actually like for biosimilars to be included in the 50% discount the medicare part d coverage gap, to make sure there is not an inverse incentive to make sure that a patient stays on the higher cost biologic if it is appropriate to be on the biosimilars. we actually have to be exposed to the same 50% discount in the coverage gap, so that is something we have supported and would urge congress to consider that. , and cms isa looking at the reimbursement policies that came out relative to how they were going to treat biosimilars -- we think there is

more opportunity to encourage the marketplace, not distinguish the originator biologic and group all biosimilars in a separate j code. we are optimistic cms will continue that evaluation, but that is going to be critical to making sure we have a more conducive environment for biosimilars moving for -- moving forward. >> sen. cassidy. >> i think a lot about drugs and it turns my head. i'm going to focus on two different areas. ms. reilly, if we speak about some of our insulin products, they are increasing at 20% per year. the wall street journal had an article and 2016 about 2015. at that point they referred to the role of pbm's. if i look at 2015, there were no rebates appreciably being given

to pbn's, but prices are going up anywhere from 10% to 23% per year. this is towards the end of the monopoly. theirably they recouped expensive new drug development, but costs are going up 20% per year so that from 2010 to 2015, something goes from $114 to $228. patients can't afford this. you make a good case that we are ,nvesting in development, etc. but when costs are going up 20% per year, presumably those costs have been recouped. americans with diabetes and all americans are upset. what do you say about that? >> thank you for asking that question. the diabetes marketplace is often confusing. today it is i would argue one of if not the most competitive marketplaces -- >> the specific period from 2010 to 2015, or 2011, when people were basically price hiking, 20%

increases per year even though presumably be recouped their cost of investment. >> i would argue rebates were occurring well before 2010. 2014, quartern four year-to-year, the price was 22% with a rebate of 1.2% increase. percent of the. 20.8% andincrease 26.4%. i'm not sure i am seeing that, at least in that. -- at least in that period up to 2014. >> what i can tell you is that today the rebates and discounts publicly reported average between 60% and -- >> i'm not speaking of today, i'm speaking of that period in the early part of this decade. those drugs have now had a new competitor. frankly, when there is new competitors, pbm's dropping her rebates. i have a question -- pbm's draw

bigger rebates. if you are an american looking at the insulin price -- there is a guy from lafayette, louisiana texting me about how his daughter cannot afford insulin and the price increase it has had, coupled with her high deductible premium. he is a republican, pro-business , but this is about his daughter's diabetes. what do we say to her? >> there are a couple of important things that have happened prior to 2012. most patients that took medicine did not have a deductible for their medicine. when they showed up at the pharmacy counter, the price they paid was often a co-pay and pretty modest. for diabetes medicine, often $20. complaint 12 design 15, there has been a dramatic increase in the patient's that have a deductible. >> one at a time. you are addressing the fact that the individual may not have seen the price hit, but somebody is paying, either indirectly

through the premium or directly through a co-pay. somebody is paying. >> i would argue that when companies price their products, they are not just looking to get reimbursed for the prices they spend on getting the product to market. companies are investing in the next generation of treatments. those costs also have to be recouped. there have been many advances in the space of insulin since they first began many years ago. some of the newer insulins are longer acting -- >> to counter that a little bit, there has been more emphasis on raising prices on established drugs than new drugs. i don't have that statistic in front of me, but i have read that. >> last year price increases on all drugs was at 2.5%, so they have certainly moderated. while that may have been the case several years ago, we are not seeing the kind of price increases -- >> me go to mr. merritt. i'm sorry, i did not mean to be rude. i have learned to say what i have been told, not what i know.

this wall street journal article to which i refer points out that in 2015, insulin prices did moderate. prior to that it is kind of like -- in 2015, and actually flattened but the price increased dramatically because they had to pay high rebates to pbm's a competitor had entered. so to pay the rebate, they jacked up their price in order to pay for the rebate. the ceo of mylan came to speak to me. she said their price was relatively flat. then a competitor came -- pbm said, there is a competitor, we will only carry you if you give us a big rebate. they had to increase our price to pay the rebate. she said it is paradoxical in the world of pbm's when there is no competitor, your prices are lower and competition increases the price. i have heard that from the ceo of mylan and from the wall

street journal. your thoughts regarding that? >> i would disagree with that. mylan raised the price of epipen 400% just because it felt like it. >> they would counter and say they had to because there was a competitor for a short time, and they were told they would not carry the epipen, they would carry the competitor unless we carried the rebate. >> i don't think that happened. i think the reality is if they lower the price, that would make a great, because all we want is the lowest net cost. >> i'm looking at this wall street journal article from october 2016. they say at that point the net price going back to the manufacturer remains flat, even though the price increased the price increased dramatically and they were paying the pbm for this with a delta between this net price and their list price. are you disagreeing with that, too? >> the simplest thing is to lower their prices.

typically the rebate goes up because the price goes up. if the price goes up our clients are going to demand we get more discount. that's how it works. what we want is lower net cost. that can be done several ways. to chairman alexander's point, rebates, there are ways to work but prices simply to go down. >> i'm way over, but i'll do it for the record and ask you to direct the response directly to the article of "wall street journal" which disagrees with that a little bit. i'm sorry for being way over. i apologize to my colleagues. >> senator hess. >> thank you, senator collins and i wan to add to add my thanks to the senator for holding this hearing and thank you to the witnesses for being here today. miss riley, i hear from ian granite-staters who struggle to afforf their medications, and they are so frustrated. choosing medicines or heating their homes. choices they have to make too often because of the brazenly anti-competitive behavior that bad actors in the drug industry engage in.

most recently, allergen, who makes the blockbuster dry air drug restasis. restasis brought in sales of $1.5 billion last year alone, which is on average $4 million per day. allergan has had a market monopoly on this multi-billion dollar drug since approval in 2002 and boy is it working to keep it that way. on september 8 of this year, just one week before its patents were set to be the subject of a hearing at u.s. patent and trade mark office, they announced it cut a deal with native american tribe in order to shield restasis from review by excluding the doctrine of tribal sovereign immunity. in this outrageous first of its kind deal, english just yesterday a federal district court judge court called a ploy, it signed patents it over to the tribe and basically licenses back the patents from the tribe and continues to sell the blockbuster drug.

so allergan is using tribal sovereign immunity to shield restasis patents from review, maintaining its market monopoly, preventing generic competition and keeping prices and profits high. meanwhile, patients who need restasis are struggling to afford it. the behavior here is unacceptable. if other drug companies follow its lead, the problem is only going to get worse. i'm very concerned about the potentially devastating implications about the deal for our entire patent system, for the delicate balance struck in the hacks waxman act. most importantly offer patient's access to affordable drugs. miss riley, your organization has a role to play. in may 2017 pharma approved new membership criteria to, quote, tackle the biggest challenges facing patients. and pharma expelled 22 member companies which was seen as a response to public concern over the rising cost of prescription drugs and to remove bad actors.

so miss riley, you are head of membership for pharma. what i want to know, yes or no, is whether you believe allergan 's actions are consistent with the mission of your organization. >> thank you very much for the question. i want to make clear a few things. today our member companies are asked to defend their patents. >> miss riley, i have very limited time and another question to ask. yes or no, is it consistent? >> i believe the ipr process which is in play here is a process that needs significant reform. our company -- >> that's fine. but to exploit tribal sovereign immunity to avoid competition as opposed to dealing with the patent system in my view is unacceptable. i'm sorry but because i have limited time i'd like to move onto my next question. i want to discuss with you my serious concerns about the "washington post," "60 minutes" report this weekend on a bill from last year your organization lobbied for aggressively. the dea had the power to

immediately stop distributors from supplying opioids and other prescription drugs to pill mills and other corrupt sources. but according to the dea chief administrative law judge, last year's law makes it much harder for dea to use that power. under the new law, the agency must provide substantial evidence that a distributor's actions makes death or serious bodily harm considerably more likely. and the dea needs to do so before any witnesses are produced or any evidence is admitted at a hearing. as a result, the judge writes hisappears to -- this is quote -- completely eliminate the dea's ability to ever impose an immediate suspension. yet your organization spokesperson told "the washington post," quote, to be clear, this law does not decrease dea's enforcement against distributors. that's a direct contradiction from what the judge is saying and it's his job to interpret

the law. doesn't that make your organization's statement pretty misleading? >> thank you for the question, senator. the opioid epidemic in general is a very serious concern and a complex issue that we are also very concerned about as distributors. and we work with our supply chain partners daily to try and find solutions to that. >> miss gallengagh, i understand that. but here's the point -- the point is your organization which lobbied aggressively for this law last year claimed that it does not decrease the dea's enforcement against distributors. and the dea chief administrative law judge says you're wrong. the law eliminates the ability to take certain enforcement actions. it's his job to interpret the law.

so is the judge wrong, or was your organization's statement misleading? >> in net sense i believe the judge's statement was misleading, and i stand behind our organization -- >> i suggest you read the judge's article which has now been published. because what he points out, among other things, is that for all this time when there wasn't a statutory definition of immediate harm that constrained the dea the way the bill was passed last year does, over many, many years, the industry didn't challenge the dea's actions because very often there's almost no case law on it. so i suggest you go read it. there's a lot of us extraordinarily concerned. >> a minute over. >> i thank you for your time and thank you chairman alexander. >> thank you, senator haas and senator young. >> thank you, chairman. miss riley, congressional research service tells us u.s. spends more for prescription drugs than other wealthy countries.

in europe drug prices set by governments not by pharmaceutical companies. there's a recent study by mckenzie which indicated on average the price -- difference between the price of one drug in the united states and the same drug in france, uk, germany, italy, and spain was 50%. so u.s. consumers, by my reading, are subsidizing the world's research and development. i'm not the first one to divine this insight. research and development magazine said u.s. accounted for 46% of global life sciences r&d, the vast majority of that going to biopharma. so the challenge is even if europeans or wealthy countries were to raise their prices and reduce the extent to which they are free riding, that wouldn't automatically lead to a decrease in prices here in the u.s. for our consumers. instead, a company would be punished by their investors and by their stockholders for

lightening the burden on rank and file americans who are trying to obtain pharmaceuticals. so i guess my question is two-fold. the first part should be an easy yes or no, as i would see it. am i correct that foreign country's pricing and reimbursement systems actually affect our prescription drug costs? >> i would definitely say the u.s. does bear the burden for the world in terms of supporting research and development. i think the numbers you gave are much higher than i've seen in terms of price differential s between u.s. and other companies. they often rely on list prices and not net prices paid. >> go back and look at the study and see where you disagree with their premises and findings. maybe we can engage offline in a dialogue about that. the second part of the question is since you've acknowledged there is an impact on foreign reimbursement systems and foreign pricing on the price to u.s. consumers, how might we mitigate the extent to which

americans are innovators, are consumers, are shouldering the burden of financing the world's medical innovation. >> one thing i think is important to make clear, we do have a different system in the united states. we reward innovation, companies that bring their products to market. and we pay more up front and we pay significantly less on the back end. >> your giving me a lot of background. are there strategies we might use as policymakers to change this dynamic or mitigate the extent to which we're shouldering the burden like through free trade agreements? >> absolutely. stronger trade agreements could go a long way to ensure other countries are paying more of their fair share. i would note a comment that mark said with regards to recent help c medicines, pbm's here on record said patients here paying less than what was being paid abroad in part because of considerable market consolidation we have in the pbm market, many on behalf of more

people than entire foreign countries in the eu. >> are there other strategies we might employ to reduce the price to consumers in the state of indiana? >> again, we have to look at what our insurance market system looks like today. oftentimes we treat from his two vehicles very different than other aspects of the health system. based on individual biology, if you need a medicine you're being asked to pay significantly more out of pocket as opposed to if you needed to go into a hospital setting. i think we do need to examine if it's fair to say to a patient with rheumatoid arthritis you need to pay 40% and if i go into the hospital i need to pay 4% of the cost. >> one possibility to lower prices and increase value, as i understand it, is the use of outcome-based contracts increasingly being piloted by pharmaceutical companies. can you explain how these work in summary fashion and their potential to lower drug costs for patients, and then perhaps elaborate on any policy

initiatives we here might engage in that might be standing in the way of moving these pilots to scale? >> great question. i think there are a number of innovative arrange mention produced. the goal instead of historic, volume basis, we'll pay for what we buy. a movement toward saying we will pay for those medicines at differential rates depending if they need the outcome the payer and pharmaceutical company can mutually agree to. there's lots of potential benefits of moving in this direction. first of all, our companies are putting money where their mouth is. we might be paid less or nothing depending on if our medicine produces as we believe it should. that is helpful for the health care system for the ability to lower cost and helpful for patients, too, because the goal again is also if patients aren't being helped by them, then their cost sharing should also be lowered. they are in their infancy stage in part because there are

government rules like the anti-kickback statute, price reporting that need to be addressed to make these become much bigger than they are today. >> follow up with you and your organization to see if there's specific ways we might be helpful to empower our companies to make use of these contracts. thank you so much. >> appreciate it. >> thank you, senator young. senator warren. >> thank you, mr. chairman. so, the high cost of prescription drugs is a huge problem. let's talk about the best way to tackle this public health crisis. miss rilley, your association, which is called pharma, represents brand name drug companies. you said in your testimony that, quote, the competitive market is the engine that drives the drug industry. so i take it you think that market solutions are the most effective way to deal with the rising price of drugs. >> i do believe that markets lower costs, yes. >> good. i love markets and i also believe in marked-based solutions.

so let's talk about one of the best market-based solutions and that's competition. if the restrictions that prevent purchasers from importing the exact same drugs at lower prices from places like canada were removed, we'd see some real competition and we'd see some lower prices. another market solution is negotiation. if the federal government were allowed to negotiate competitive drug prices for medicare beneficiaries, then prices would come down. so miss rilley, you've already said that pharma opposes importation of drugs from canada. let me ask about letting the federal government negotiate with drug companies over medicare prices. these two market-baced solutions. >> i would argue price controls are not a market-based solution. >> i'm sorry, i didn't ask about market controls. i asked about bringing in drugs with prices here.

>> bringing in drugs with other countries that price control their products is not a market-based way to get drug prices. >> so you would be in favor of drug importation from any place that's not doing what you call price control? >> i would argue almost every country outside of the u.s. artificially limits prices -- >> so it's from where you import from that satisfies your requirements. how about the federal government competing and actually having some competition and saying we're going to negotiate prices? >> i think there's often a fallacy that because the federal government is not setting prices in medicare there's not negotiation, and that couldn't be further from the truth. as we've seen in medicare part d program there's been robust negotiation. rebates are over 35% on average in part d. >> so you are -- let me stop you there. i want to make sure i understand the point of the group that you represent here and lobby for. and that is, is it that the federal government ought to be able to negotiate all drug prices? >> no, we don't believe the federal government is in the best position.

we have rapid market consolidation in the pharmacy manager space that excerpts significant pressure to the tune of over $100 billion in rebates last year. >> i understand you have other concerns. but you know, drug competition from canada, price negotiation are market solutions, they are not government mandates. and i would have thought if you believe in market solutions you would have embraced them. >> i don't believe that price controls are market-based solutions. i also think you need to look at the down sides that happen in those countries, which is patients don't get the kind of access they get to therapies they get in the united states. >> i realized that you can call it is control that this is a real question of whether or not there is any place else for consumers to go to purchase drugs or whether or not the federal government can negotiate on a drug by drug basis every time taxpayers are picking up the tickets. the organizations who are testifying here today spent a

combined total of $30 million lobbying congress last year. pharma. your organization is responsible for almost three quarters of that total. a lot of that money that is spent lagering -- lobbying congress is to keep drug prices high. here is what i think is really wrong about this. you talk about wanting market solutions but your industry is not based on competitive markets. it is based on totally artificial taxpayer granted monopolies. companies invent new drugs in the government hands the companies the exclusive right to manufacture and sell those drugs at whatever prices they want for decades. i just have a little bit of time left but i want to ask, do you know the average length of a government granted monopoly for top-selling drugs in this country? >> 10 to 12 years. >> yes.

we law says five years of exclusivity. but drug companies gamed the system according to an analysis at harvard. companies and up with a monopoly that less immediate length of 12.5 years. >> 20 years. that is how long a pharmaceutical patent is. >> i'm sorry, the law says five years of exclusivity on the basic drug. you think the harvard study, they don't know how to do it? to study how long you have exclusivity? >> i am simply saying companies have five years of data exclusivity. immediately after that a generic company can do to market and a try very hard to get to market as soon as they can. >> you are seeing the drug companies do not game the system at all to expand exclusivity to an average of 12.5 years? >> patterns are 20 years long. >> try the story on someone else

who is willing to listen to it. thank you. >> you can finish. >> no, i just wanted to say taxpayers watch when we have granted exclusivity to these companies and they watch the prices go up and is not a darn thing taxpayers can do about it. this is just fundamentally wrong. >> thank you, senator born. >> -- warren.. >> i want to follow up quickly on what you are talking about with the latest news with the weakening of the dea enforcement authorization, the big expose a this weekend. who has nowrugs are effectively withdrawn from his position. the president himself saying we need to look into it.

when of our colleagues on the other side of the aisle has already introduced legislation that would repeal it. there have some less suggested needs to be modified. you indicated that you think the judge misinterpreted. but do you think that what was passed in 2016 is actually good and sound, or do you believe that, in fact, given what we know today that it might need to be modified or amended in some way? >> thank you come a senator. , they starteday their work very closely with the dea to make sure the bill did not inhibit the ability to speak action. the dea did not oppose that bill. regarding the article

which was a draft, i understand, not involved in issuing immediate suspension orders. they recommended by staff and issued by a deputy administrator. >> d think that something needs to be done to address what aearly has come out to be limitation within the dea authority that we might need to address through legislation? >> i think it should be explored as to what the dea's limited actions were and are limited involvement with collaborating with industry and talking about defining the terms that under.ants operate we have pages of questions that we has admitted that have gone unanswered. this bill from our understanding is sound and we supported it. but we are open to talking

through those issues more closely with you. >> i do think it is an issue that has really risen to perhaps a higher level, given what we are seeing around this country with regards to just the easy availability of opioids that are ravishing parts of our country. this is something that needs to be continued and addressed. listened to the testimony from each of you and have read through your written comments. and i just have to express the frustration that i think the general public feels in just being so limited in their ability to understand why. all they know is the most expensive part of their health care that they can see is what is going on with the cost of their prescription drugs. all ween we talk about, need is transparency, but if you

look to try to understand it, you have a manufacturer who sets a list price but a most nobody pays that. that negotiates different prices. differentt negotiate prices. one hospital might charge differently from a hospital across the street. they may be risk -- there maybe discounts come other pricing things. there is no way that anyone can follow this. for the average consumer, if you all are talking transparency, it doesn't mean anything to them. so, i look to ways that we might be more transparent, that actually could translate to something. on -- we put on the back of any product with the ingredients are and how that is allocated out. when alaskans get a permanent

voucher, it's on that if you will, where all the associated costs are attributed to. re: crazy to think that we could be doing more with actually accounting for the cost so the consumer could better understand and make it legible? because right now, it is impossible to understand. and even those of us who are listening to you as supposedly experts, it is all greek, and we are not doing anything to help the consumer. maybe it's a rhetorical question here, but i challenge you all to translate how the pricing discount,-- who gets who doesn't, why's it fair for one hospital to charge for something another doesn't. in no other industry that i can think of do you have this

latitude for a discrepancy in justng, and the ability to said it and be done with it -- set it and be done with it. i am over my time, so perhaps if you can respond to me with some concrete examples of the ways that we can be more transparent, because i think ultimately that can help us. but right now it is impossible to discern. >> witnesses are welcome to respond to the senator in writing with concrete examples. i think that would be helpful to her and all of us. >> thank you. ofot to be the chairman connecticut general assembly's health committee when i was 29 years old because i was the only one who took the time to try to figure out how a drug was priced, what awp and amp meant, what the dispensing fee meant.

it was the most open take market that existed in our state's health-care system and i think they're only a couple legislators in connecticut who understand how a drug is priced. it does not behoove us when we thatabout transparency when you layer transparency on a pricing system today that has 1000 different prices it is really difficult. i have just one question because i know we have to sneak in the other senator before the bell. the trump administration recently announced it wants to expand association health plans and something called limited duration insurance plans. that was part of last week's executive order. the risk is you are going to set up one kind of care for healthy people who can get into those plans which do not require you to price without respect to medical acuity. and one system for sick people

who will then state in the marketplaces under the affordable care act where insurance plans cannot discriminate. your ceo said on television last week that the executive order was a good idea because we need to be trying everything that can lower cost for patients. but the fact of the matter is, when you review these short-term limited duration plans, by and large, they do not cover prescription drugs. when you look at the best-selling plans sold on e-health, they exclude pre-existing conditions, mental health, prescription drugs, and maturity expenses. -- maturity expenses. expenses.ty why is pharma taking a position to support the executive order when the extent that the short term duration plans become available to more and more

americans it will exclude the very product you sell in addition to ulcerative other coverages that people desperately need? >> thank you for the question. two ppoints. was asked the question before the executive order was released. i would note that. the second, some of the words we heard coming out prior to the release had to do with how do we increase competition, how do we address consolidation happening in the marketplace. i think those are principles that many people espouse. i think the details in terms of how this ultimately gets worked out, the devil is in the details. we will look anxiously as various agencies look to implement that. sure, our goal is to make patients have access to care. >> let me access -- ask that more specifically. i understand with the rhetoric is of the president. is order will dramatically

expand access to a limited duration plan, is that something that pharma would support? >> existed before, our goal is to make sure our patients have access to medicine. we will be looking in earnest as the agency's work on this to ensure that patients continue to have access to medicine. >> i would argue now would be to time to weigh in and make your feelings known. thank you. today we have heard many --peting i continue to believe that we should start from the beginning of the story. i have a bipartisan bill with senator mccain and it is pretty simple. it would give us more information as policymakers by establishing a sick transparency for drug companies when the increase the price of drugs.

that's it. california just enacted with bipartisan support a new law similarly requiring transparency for drug price increases. while many changing factors contribute to a price that a patient pays, one factor has remained constant. we now see drug companies systematically increasing list prices of existing drugs every year. in justg to reports, the first quarter of 2017 there were 40 increases of drug prices, which is more than the first quarter of provides anst price inaccurate picture, then i'm not sure why we shouldn't ask drug companies for accurate information and explain why we are seeing these prices increase , which my bipartisan bill would do.

you noted that revenues for asnded drugs have increased a result of price increases. can you please briefly elaborate and describe what your industry is seeing when it comes to list price increases. please be brief and concise. , brands orfy generics? >> branded drugs. >> what we have seen, and this is how different the markets operate. expensing deflation year-over-year. prescriptions for going out and revenues are going down. that is the out the sit of what we are seeing on the branded side. there can be a host of economic reasons for that. one we submitted is we are

seeing an increasing level despite the communications about supporting competition, and increased level of activity, some referenced earlier around outsourcing to native american tribes, these behaviors making it more challenging for generics to get to the market. like my colleagues have it in their comments and questions. i way to often hear concerns about the impact on drug price increases on their lives from often tearful discussions because health and the ability to treat health conditions is deeply personal. i hear about the insulin list prices that have continued to increase since 2002, about top selling drugs that have increased almost every year for 10 years, and about the 14 drugs

that havele sclerosis increased since 2004 to an annual average of $83,000. froman named diane webster, wisconsin talked about a heartbreaking conversation she had with her husband earlier this year when they decided she would stop taking her ms medication after 23 years because of it reaching $90,000 a year. reportsame time, indicated that most of the big drug companies spend more on marketing than on research and development. affairs health study show that earnings from charging high drug prices exceeded global spending in research and development. your trade association updated membership criteria to stipulate branded companies

spend in research and development at a certain level to join. drug companies making their research and spendingent more public, including when they increase the list price of a drug? yes or no. >> absolutely. i believe our companies make that information public. our company spends significantly on research and development than marketing. >> you disagree with the conclusion of the health affairs study? >> i do. with regards to transparency, a couple of things are important. it needs to be holistic and applied to the entire supply chain. we are half of what we spend on brand-name drugs. a lot of price change have a piece of this equation. >> let's start at the beginning.

let's get transparency throughout, but start at the beginning. the fair drug pricing act would be a good start. list prices are not indicative of net prices and what is paid in the marketplace. you, senator baldwin. i will need to go vote. i need to thank each of you for coming today. you have helped us to put a spotlight on drug prices. we have one or two senators who want to ask questions. i will ask senator franken to chair in my absence. senators come back, he will call on them and then adjourned the hearing. thank you for coming. senator franken, thank you. leaving,u are

i would like to thank you for calling this meeting and the important negotiations you are involved in, so thank you. i just wanted to do that. not been here for the whole thing. i had some other stuff to do and then i ran back to do this, so you will excuse me. back,ly i did not run this is such an exciting hearing. [laughter] >> it seems like from your like everyone of way or another is responsible for getting prices down. that is what it seemed like from your testimony. i think senator young touched on this, but i want to go over it a gym for myself. spends more on

prescription drugs than any industrialized country. in part because drug prices are higher in the u.s. than in any other country. backrug industry pushes and say these price comparisons don't taken to account the discounts the manufacturers give to insurers and other actors in the system. i would like to ask you some questions. which is ane drug, asthma inhaler example. where is it? it is produced in north carolina. since the drug is produced in riley,ted states, ms. what is the list price for it in the united states? how does it compare to the cost in canada, france, and germany\/ >> i honestly don't know the

list price off the top of my head. i would have to get back to you on that. >> sure, sure, very understandable. i want to ask you the price of every drug and see how you do. no. a bloomberg news report found $309.60 inice was the united states. discount, for a 50% and the price would be $154 $.80. the pricing than canada, which in 2015 was $74.12. $37.71,e in germany was and the price in france was just $34.52. higher inices so much

drugnited states for a produced in the united states, for drugss true produced and not produced in the united states. why are they so much higher? i think americans want to know this, and they want to know this because you guys talked about research. americans pay for a lot of the basic research, write? through nih. >> and our industry, yes. >> but much of it through the taxpayer pays directly to the nih to do the basic research. most of the research you do is not in your industry. >> we do a fair amount of basic research. >> most of it is not basic research. i will give you the figures on that and call that up in a second.

these higher prices in the united states support high level profits and some research and development costs, but also because of the way our system is structured. the loss we set in the clout of the drug industry, for example, congress passed a law that prohibits the federal government from negotiating with drug manufacturers for lower prices for medicare. that is the single largest payer for prescription drugs. countries, you have the government able to bargain the pharmaceutical company -- with the from suitable company. all of you present yourself as the part that keeps the price down. why are the prices so much , assuming ais case

50% discount from the list price , in a number of cases twice as high, four times as high canada, france respectively, and four times as high as in germany, why? americans want to know why. i am happy to start. we do have the differences to him in the u.s. relative to european countries. companies for the innovation and value of the medicines they bring. in many european countries, the prices are artificially depressed. they tended to pay more when a medicine goes generic and they use fewer generics. if you compare on average how much we spend, yes, they probably spend less. would argue our country

incentivize's new therapy sent innovations to come to market, and when a patent expires and exclusivity is gone, 95% of the market shifts overnight to low-cost generics. in that system we have, we are able to support a broader innovation ecosystem. have 90% generics, and in most european countries it is 50% because they don't incentivize entry and dropping of price. we do so in a way that additional resources can fuel the next generation of therapies. >> i would suggest it is a very small comfort for minnesotans i visited around my state who can't pay for their pharmaceuticals, and i would this is a you that , but americanson

, why doask, why do we americans pay more, two times as much, four times as much, for our pharmaceuticals, many of which we produce, many of which we have done the basic research for the nih? pay, why does to the american consumer have to pay more than the canadian consumer for the same drug? more than the german consumer, the french consumer? ok, go ahead. needere is a case for the for stronger trade agreements to ensure other countries, particularly european countries are paying more of their fair share. >> the answer is to just make them pay more? >> it would permit prices here to fall and more money to go

back into research and development, which over time lowers the cost of therapies. >> anybody else on the panel? >> if i could reinforce a comment previously made to say that all drugs are more expensive in the united states fails to recognize the distinction ms. riley talked about the tween brands and generics. it has been a carefully balanced ecosystem, where as a country we made a decision in the 1980's to make the investment to bring novel therapeutics to market sooner rather than later, then ultimately get the utilization rates and lower-cost generics. so to a question asked earlier, why should we not consider importing generics, they are more important generics. and approve ofea the idea to import, to import

the drugs that are cheaper. that's just my guess what consumers might do. i almost, i don't know, i used to be in comedy and i almost there was answer tab absurd, which is not saying we need the right to import the same drug that is more expensive in the other country. do you understand the absurdity of saying that? to look attion was policy and understand the markets operate fundamentally differently. the largest market in the united states is what drives generic prices lower. that was my only point. >> thank you. i want to say if you look at the whole universe of drug price, we pay more, a lot more, and you are acknowledging that. talking about.am

i will go to senator whitehouse. >> let me ask the panel to focus , whichry specific issue is the question of monopoly. second theside for a licensed monopoly that people their intellectual property is protected by a patent or trademark, ok? let's set that aside. we are not talking about that approved monopoly. we are talking about other kinds. does everybody can agree that we have seen circumstances recently in which a drug manufacturer has an effective monopoly with respect to one or more of their products? this anybody dispute that phenomenon? everybody agrees with that phenomenon?

we have seen it. yes, everybody agrees. that you are a have taken aou particular drug for many years and it is not under any trademark or patent protection, but somebody not even in the pharmaceutical industry, and sees ar, comes in and monopoly, buys it, and jack's , just cause by 500% they can. we know that has happened also, don't we? yes, from everybody. have,e is the problem i which his that in that circumstance the question then is, where do you go? thato people respond to

particular problem? and the thesis that i have is in those circumstances, which we all admit are true, ,hat there is a clear monopoly and further, we see price manipulation consistent not with any market, but with monopoly power. my thesis is there is no place for anybody to go. entity in the united states government that has the authority to say, hold it. that is a monopoly. you are extracting monopoly rents and you have to knock it off. you may be able to get a lawsuit antitrust, price

fixing violation, but we have not seen a lot of that. nibbles around the edges of the problem and does not have authority to step in at that point. shouldn't there be some place in government where it is clear once a monopoly exists and there is no doubt about that and it is clear that monopoly rent extraction is being done, nothing related to market pricing, and that narrow circumstance, shouldn't there be somebody able to act? let's go right down the line here. >> thank you, senator. we share your frustration. we often serve as uncompensated insurance agents for those who have to navigate complex insurance regulations and coverage issues and copayments and insurance. partnt desperately to be of the team that helps people navigate -- >> you heard me say they have no

place to go. >> other than perhaps compassionate use programs at some companies, but not all companies provide that. it is a frustrating part of the marketplace. extracting monopoly rents isn't viewed by any economist has legitimate economic behavior. >> we did not like it when mr. shkreli bought of the drug -- >> nobody is saying no you can't do that. >> one thing that we did in the marketplace was when prices were , he bought the drug injected up several hundred dollars, if you look at that from a price control perspective, maybe would be

great if you just cut that in half, or maybe you shouldn't charge more than a was originally, but we found a compound pharmacy in san diego that would do it for one dollar, then we said everyone can have the drug for one dollar, so there are some things we can do in the marketplace, but that is not to imply it is not a challenge. it takes time to overcome. >> i just want some quick responses. members areow, unique, but we support anything that supports increased competition in the marketplace. >> mr. davis? >> senator what you have been talking about is of the fact of monopoly. analysises before individuals go in there. i do think some of the things thenew fda commissioner in

drug competition action plan and legislation this committee was part of a listing of like drugs, so there is more visibility in an effort to minimize the risks associated with the circumstances. to the credit of the fda does he have all the authority to address that himself, no. >> miss riley? companies took advantage of regulatory arbitrage to dramatically increase the price. >> there was no regulator on the beat whose responsibility it was to look for a cleared a factor address the excess rice extraction. -- price extraction. in that case, and a

handful of others that mimic the same pattern, it is exactly right. there is more to be done. we have lots of ideas on how to address that. >> thank you for letting me go chairman frank and. an en. >> a drug company has a patent , the patentcomes up runs out, the generic has it, the company has said, and they paid the generic not to bring it to market. what you think of that practice? >> we oppose the practice. there is an interesting economic question. i have heard both sides on it. gosh, it is so hard to break through patent, if i can get a settlement, we will try to get a generic to market.

>> thank you. will remainrecord open for 10 days. members may submit additional information for the record within that time if they would like. againmmittee will meet tomorrow, october 18, at 9:30 a.m. for an executive session. thank you all for being here today. the committee will stand adjourned. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [captions copyright national cable satellite corp. 2017]

>> this morning senator lamar alexander, bill cassidy and tim kane discuss healthcare policy in a bipartisan proposal for health insurance markets watched live on c-span2 and 8:00 am eastern on c-span.org and the