turers offer to other purchasers like Federal Government agencies. Let's compare these discounted prices to Medicaid prices. You will be hearing from representatives of Glaxo. Glaxo has an incredibly effective antiulcer medication, zantac. Federal Government purchasers like Veteran's Administration pays 79 cents a tablet. Medicaid pays $1.18 per tablet, almost 50 percent more. Upjohn offers motrin-it is a popular antiarthritis drug-to the Federal Government, $6 for a bottle of 100 tablets. Medicaid pays $16 for the same bottle, the same number of tablets. That is 2.5 times the price. Pfizer sells Feldine, a very expensive antiarthritis drug. They sell to the Federal Government 87 cents per capsule. Medicaid, $1.68 for each capsule, twice as much. Making rough calculations, if Medicaid received just a fraction of the discount that the drug manufacturers offer to others, 20 to 30 percent in Medicaid, we could save $200, $300 or $400 million a year. There is simply no justifiable reason why Medicaid should not have access to these discounts. The manufacturers have an excuse. They say why each plan that we introduce will not work. They tried to defeat the original bill, S. 2605, by claiming it would provide second class treatment for our Nation's poor. Clearly, Mr. Chairman, and I say this as sincerely as I can, there is nothing further from the truth. They know it. I know it, and I hope and pray you know it. S. 2605 utilizes the same state-of-the-art negotiating system in place in hospitals and HMO's around this country. It requires States to cover all FDA-approved drugs. It would save $1.6 billion over 5 years. This is not second class treatment. What is second class treatment is when the drug manufacturers practice the art of charging our Nation's most exorbitant prices for a commodity that is so essential to the very life of so many American citizens. Today you know, and I know, in town meetings, the elderly poor stand up and say today they are having to make a choice of the drugs that have been prescribed to them by their physicians and the drugs that they can afford to pay. The manufacturers have candidly admitted recently that they are very concerned that other third party insurers will also want to negotiate better pricing by using the competitive bidding proc ess. The system in S. 2605 is based on a time-tested competitive practices system hospitals and HMO's use every day. They are using it today to buy drugs and obtain a fair deal for those who need the drugs. Some manufacturers are so concerned about the long-term impact of S. 2605 that they shocked the world recently by offering their own proposals for Medicaid drug savings. I appreciate this initiative. I appreciate this sensitivity, but there is one basic problem with all the plans. They do not achieve the savings that Medicaid needs and deserves. Under their plans, drug manufacturers could reduce or eliminate their proposed discounts at a moment's notice. That is like putting the fox in charge of the hen house. Unfortunately, the past actions of the drug manufacturers of this country do not leave me with any confidence. I wish I could say otherwise. However, we need only look at how the drug manufacturers tried to renege on their voluntary promise to give rebates to the Women, Infants and Children's Program, the WIC Program, for infant formula. The pharmaceutical manufacturers, Mr. Chairman, of this country, claim that the drug companies are entering into agreements right now without Federal legislation because of so-called "market forces". The truth is that the drug companies' sudden change of heart has been the result of one thing, that is Federal legislation that is now introduced in the House, now introduced in the Senate. It will take Federal legislation to insure that these companies do their fair share, that Medicaid receives the discounts it deserves. On Wednesday, Mr. Chairman, I introduced the Medicaid Antidiscriminatory Drug Price and Patient Benefit Restoration Act. I was pleased Congressman Wyden and Congressman Cooper introduced similar legislation here in the House. These bills require all drug manufacturers to provide Medicaid with the same discounts they provide other purchasers. If the manufacturer does not offer the best price, then that manufacturer will be denied access to the Medicaid market. I have a summary of that bill I would appreciate having included in the record. In conclusion, I am very confident that both plans that we have developed together will result in substantial cost savings to the Medicaid program. It is important now for this Congress to remain on track, not to be distracted, not to be misinformed, not to receive misinformation and have truths concocted by an industry that for too long has gotten away with a legalized form of robbing the poor in the United States of America. This is an era of extraordinary budget constraints. Savings from entitlement programs may be the only way to achieve the realistic deficit reduction practice. We simply cannot reduce Medicaid payments to physicians and pharmacists to cut Medicaid drug benefits while drug manufacturers continue to profit from an unreasonable pricing scheme. Today is the time for the drug industry to do its fair share. It is now time for the Federal Government to force them to act and only through Federal legislation will these companies act and act in a responsible way. Let me say it is not the fault of that local pharmacist out there that every day has to stand behind that counter and tell you and me and our kinfolks that their drugs have gone up once again. They are not a part of this scheme. In fact, Mr. Chairman, we might just see this additional chart: in the last year, in 1988, the pharmacists made basically 3 percent profit where there was a 15 percent profitability for the drug companies. We might look at what came from Forbes Magazine April 1990, on the most profitable of all industries in the United States. Look at the yellow graph line, Mr. Chairman, of the Median Fortune 500 companies, they are way down there. The blue line, the second highest profitable industries. The red line, guess who, the most profitable of the industries in the country, the pharmaceutical manufacturers. We have seen the chart with the 152 percent inflation rate. What you may not have seen is a local series of ads that have been run across the country by the pharmaceutical manufacturers. I have gathered these. They are available for your use. They are attempting to influence the American public on how much these firms spend for research and development. The truth of the matter is that when they spend research dollars, when they spend development dollars, what do we do? We give them a tax break. They write it off. We give them FDA protection. We give them a patent protection from the U.S. Patent Office. Most of the time then they go to Puerto Rico to manufacturer the drugs where they pay absolutely no State or Federal income taxes from their operations there. From every end of the spectrum, Mr. Chairman, the drug manufacturers have abused and taken advantage of a system. There is only one way that we can stop it. That is in Federal legislation. If you or this committee have suggestions to make about either of the proposals that I have introduced, I am open, I am willing to listen to change, but whatever the case may be, let's do something, Mr. Chairman, and let's do it now. Thank you very much. Mr. WAXMAN. Thank you, Senator Pryor. You have a reputation as the chairman of the Special Committee on Aging and as a member of the Senate Finance Committee of trying to make these Government programs more effective and improve their working operation. I think you have outdone yourself. By introducing S. 2605 last May, you set in motion a remarkable series of events that have brought concessions already from an industry that does not usually show much flexibility. It is not hard to understand why you are unopposed to reelection this November. I want to commend you and express my enormous respect for you and admiration for the leadership you have given to this issue. Senator PRYOR. If I may respond to the issue of not being opposed for reelection. I was asked that recently. One year ago in Leningrad they had the first public elections in 50 or 60 years. The mayor of Leningrad was unopposed and he was defeated for reelection. Mr. WAXMAN. I trust that would not happen to you. I want to thank you for your testimony. Mr. Wyden. Mr. WYDEN. I think the fact that we have the opportunity to work on the second bill shows that you have walked the extra mile to be reasonable. There are a number of concerns expressed about the first one. You and a group of us reached out to make these changes. I think just the fact that you take the second opportunity indicates just about as great a statement as you can make about being reasonable and wanting to work with people. I commend you for i Senator PRYOR. Thank you very much. Mr. WAXMAN. Thank you, Senator. We are pleased to have our colleague from the full Energy and Commerce Committee, a strong advocate for rural health and efficiency in Government programs, with us to testify. Congressman Cooper on Monday introduced H.R. 4181 with Congressman Wyden, the Medicaid State Share Protection amendment. He is here to further discuss the Medicaid Prescription Drug Fair Access and Pricing Act of 1990. STATEMENT OF HON. JIM COOPER, A REPRESENTATIVE IN Mr. COOPER. Thank you. Sometimes an idea comes along that is so simple, so powerful, and so compelling that people wonder why it hadn't been considered years before. Our colleague in the other body, Senator Pryor, has come up with such an idea, and my House colleague Ron Wyden and I are introducing legislation today in the House to implement that idea. The idea is simple. When the U.S. Government is a large purchaser of something, it should be able to negotiate to get either the lowest possible price, or at least as good a price as other bulk purchasers are getting. The U.S. Government should be run more like a business, which almost always bargains to get the best possible deal. The converse of that is the Government should never blindly pay the highest possible prices, thus wasting precious taxpayer dollars, because it forgets to ask for a discount. In many cases, the U.S. Government does get reduced rates. When the Federal Government purchases everything from automobiles to fountain pens, even renting hotel rooms, a substantial discount is available from the supplier. I think most Americans would be shocked to learn that the U.S. Government, through the Medicaid program, is the top purchaser of prescription drugs in America and yet rarely get the discounts that smaller purchasers get. In fact, we taxpayers usually end up paying top dollar. In most cases, Government hasn't even tried to get lower prices. We have let the drug companies tell us how much they would like to be paid, and we have paid them with no questions asked. The cost of this extravagance has been largely hidden, but it has been extraordinary. This unlegislated, unrecorded subsidy to the pharmaceutical industry has cost the Nation's Medicaid program, and thus the Nation's taxpayers and poor, an estimated $2.5 billion over 5 years, according to the Congressional Budget Office and the Office of Management and Budget. This vast amount of money has not reached the poor in America primarily because the Medicaid program did not get a better deal from U.S. drug companies. This is not to say that the U.S. pharmaceutical industry is all bad. Far from it. It leads the world in innovation and quality. Countless lives have been saved and improved as a result of the industry's research and product development. Being the world leader is not cheap. It takes money and lots of it. But the drug companies have found one way of getting lots of money from the Federal Government without the need for an appropriation or even an explanation. By simply refusing to bargain with the Federal Government, they have created a secret subsidy for themselves that is unfair to the taxpayers and poor of America. The U.S. pharmaceutical industry gives discounts to the vast majority of hospitals in America because they are smart enough to demand them. The industry also gives lower prices to the Veteran's Administration hospitals and to health maintenance organizations. Why not to their biggest customer, the U.S. Government's Medicaid program? Some States have caught onto this game and have begun the bargaining process. But they have often been forced to resort to formularies, restrictive lists of drugs that Medicaid patients may be prescribed, in order to gain a bargaining advantage with the drug companies. The Federal Government has the power and the responsibility to make sure that every State, every taxpayer, and every poor person, is protected from wasteful spending in the Medicaid program. The Pryor bill, which we are introducing today, achieves these savings without harming the legitimate interests of either poor citizens or drug companies. This bill should be distinguished from an earlier bill, S. 2605, which Senator Pryor introduced on the same subject but with a significantly different set of solutions. This bill we are introducing today assures access to the best prescription drugs on the market for our Nation's poor. No one need fear the creation of a system of second class drugs for our Nation's poor. In fact, the estimated budget savings of $2.5 billion over 5 years that this bill will produce should allow the Medicaid program to reach out to many more people in order to serve them better. Major companies in the U.S. pharmaceutical industry itself have shown that they can live quite well when they give discounts to their largest customer. Several leading drug manufacturers have offered voluntarily to treat the U.S. Government as they do their other large customers, instead of discriminating against it. Unfortunately, these voluntary industry initiatives, while commendable, do not go far enough and lack adequate safeguards. To be sure, the Pharmaceutical Manufacturers Association is still against the legislation, as you would expect a trade association to be. But I feel that it is losing more and more of its members on the issue. These companies expect discounts from their suppliers; the Federal Government expects discounts from its suppliers. The leadership of the pharmaceutical industry will be tested by the manner in which it wages this fight. Will it continue to sink to the lowest common denominator and fight to the last breath of the last company that wants to preserve this hidden and unfair subsidy or will it be thankful for its many years the U.S. Government has paid top dollar and instead argue for open and efficient subsidies that it is prepared to defend in public and on the merits? To be honest with you, the first skirmishes have not been encouraging. |