Mr. Chairman, Members of the Committee:
On behalf of Families USA, we are pleased to submit the following written statement on the Committee's important hearing on the issue of international trade and pharmaceuticals.
Families USA is a not-for-profit consumer advocacy organization dedicated to the achievement of high-qualify, affordable health care for all Americans. This has led us to work extensively on issues related to drug pricing, because without access to affordable prescription drugs, it cannot be said that individuals have access to the health care they need.
Our testimony speaks to Americans' struggle with high drug prices and the relief that importation might offer. We believe that the important technical issues of how to ensure safe trade in pharmaceuticals can be addressed, just as they have been addressed in food, chemical, aviation and other trade areas.
The Committee is well aware of the fact that, in this country, spending on prescription drugs is rising faster than any other component of health care costs. Drug price increases are responsible for a large part-over a third-of the increase in spending on pharmaceuticals. In 2002, prices for the drugs most frequently prescribed to seniors rose nearly 3-and-one-half times the rate of inflation. Drug prices in the United States are substantially higher than prices paid by citizens of other Western industrialized nations. The high drug prices that Americans shoulder, either directly or indirectly, are to a large extent the result of policies that favor the interests of the drug industry over the interest of citizens.
Unfortunately, the recently passed Medicare Prescription Drug, Improvement and Modernization Act of 2003, continues that trend. It does little to provide real price relief for Americans. The law expressly prohibits the government from negotiating for lower drug prices on behalf of Medicare beneficiaries, as it does now for the Department of Veterans Affairs. Negotiations will be left to the regional private drug plans delivering the benefit, plans that will not have Medicare's consolidated purchasing clout. As a result, costs to Medicare will increase year-over-year and by amounts greater than they would if Medicare could negotiate prices. The law ties changes in beneficiaries' out-of-pocket exposure to Medicare's costs, so as Medicare's costs increase, so will seniors'.
Within the existing Medicare program which spends about $8 billion a year on certain prescription drugs, the new law prevents CMS from considering therapeutic equivalence, thus blocking an important cost containment tool. The changes in Title XI of the new law designed to speed the entry of generic drugs to market provide a little help, but the CBO says those provisions will save only $0.6 billion over the same ten years that the Title I pharmaceutical benefit will cost $409.8 billion. Finally, but not least, the law (section 1121) blocks importation of cheaper drugs from Canada until the Secretary has certified that they are absolutely safe -- a certification the past Administration and this Administration have both said they would not make.
Because we do so little to moderate prescription drug prices, the Congressional Budget Office estimates 8.57 percent annual inflation in Medicare's drug costs under the new law. Families USA has calculated that the senior with average drug expenses as projected by CBO, who is living at the median income, will see the share of their total income consumed by prescription drug expenses rise from 8.8 percent in 2006 to 12.3 percent by 2013. The 2004 Report of the Trustees of the Medicare program notes that in 2010, the combined cost of the Part B and Part D prescription drug premiums, co-pays, and deductibles will consume a shocking 36 percent of the average Social Security benefit; this compares to last year's Trustees' Report which shows that the Part B only premiums, deductibles, and co-payments would consume 16.6 percent of the average Social Security check. These figures show that despite the new law and an expenditure of about half a trillion dollars of national treasure, seniors and people with disabilities -- particularly the near poor beneficiaries who do not qualify for extra help -- will be falling behind and will be increasingly unable to fill the prescriptions they need.
The new law is destined to fail if we cannot find a way to moderate this unacceptable rate of inflation. The 'doughnut hole' in the new drug benefit, costs entirely borne by the individual, grows from $2,850 in 2006 to $5,066 by 2013. A benefit leaving seniors exposed for such a large amount of their drug costs is politically unsustainable-and the sooner we address this problem, the sooner public trust in the new law will be possible.
Drug importation, particularly if limited only to Canada, is not a long-term solution to the problem of rising drug prices. It is not a substitute for the government negotiating prices. It is, however, a step toward injecting real price competition and some price transparency into the pharmaceutical market. Drug prices in Canada, as in other countries, are much more public than in the United States, where the actual prices paid by most purchasers are shrouded in mystery. This competition would put price pressures on the industry; that would result in some relief for Americans who are saddled with the highest drug prices in the world. Importation would help many to better afford the medications they need, particularly the over 43 million Americans with no health insurance who have no one to bargain for lower drug prices on their behalf. When examining importation, the Committee should keep the needs of these individuals in mind.
Much has been said about safety issues related to importation, and I am not here to negate those issues. There are safety issues with importation just as there are safety issues for sales within the US now, issues that have recently led to stepped safety requirements for drug wholesalers. As Americans continue to struggle with exorbitant and ever rising drug prices, counterfeiting that preys on low-, and even middle-income, Americans who have to choose between medicines and food will only increase. Until we have a system that makes medications affordable, counterfeiting will be a problem, with or without importation.
We manage right now to safely sell in the United States drugs made in other countries, such as Ireland and Germany; it is just that they are imported through the manufacturer and priced for US sale. We also manage to safely import a vast range of items such as vitamins, beverages, food products, chemicals, airplanes, etc., that are manufactured in other countries. If these products were tampered with, there could be disastrous public health and public safety consequences. While there are concerns specific to prescription drugs, the technology is there to ensure safety through such things as bar coding and tamper proof packaging. We are certain that the Congress can arrive at ways to adequately, and cost effectively, address safety concerns so that Americans can finally have access to drugs at prices on a par with those enjoyed by the rest of the industrialized world.
Families USA supports opening up importation to the pharmaceutical products of all advanced industrialized nations that have FDA recognized quality controls and manufacturing standards. Basically, these would be the core OECD nations. If importation is limited just to Canada, it will help individuals, but because of the ability of the huge pharmaceutical companies to control the price and quantity of product in a nation smaller in population than California, importation limited to Canadian will not be very useful in slowing the rate of prescription drug inflation in the United States. However, broader importation would bring us a de facto kind of parallel or reference pricing system that has worked well in so many other nations.
In addition, it is important to ensure that changes in the law are worded so as to allow Medicare Prescription Drug Plans and Medicare Advantage plans to buy in bulk and obtain billions and billions of dollars of savings for taxpayers and Medicare beneficiaries. Some of the new bills that have been introduced recently apply to individuals and 'wholesalers.' Any change in law should make it clear that a health plan or a State or local government seeking to obtain lower cost medicines can negotiate directly with a foreign supplier. The new law should not unnecessarily impose a new middleman step. If health plans and other large buyers can import directly, many of the safety, counterfeiting, and adulteration concerns will be moot-and the problem of millions of small packages of individual prescriptions swamping Customs and the FDA will be avoided.
Of course, importation should be regulated to ensure safety. In addition to reviewing manufacturing standards of other countries, we urge the Congress to review the safety practices of countries that engage in parallel trade in pharmaceuticals. We are, again, confident that the Congress can arrive at a feasible and cot-effective way to allow importation and finally bring some prescription drug price relief to Americans.
Having said all this, Families USA would like to make it clear that we believe the real answer is an American "home-grown" solution to the high price of pharmaceuticals. By urging importation and re-importation we are really urging the importation of other nations' political will to provide quality prescription drugs at reasonable prices. Families USA believes we should have our own political courage-our own political backbone -- to do what is right for American citizens.
There is, after all, something strange in a policy that encourages larger trade deficits at a time when we are running about half a trillion dollars a year in deficits. There is something Rube Goldberg-ish in seeking to encourage the export of U.S. -- made pharmaceuticals to another country, where they are opened, re-packaged, and shipped back. We know the Congress is smart enough to design a rational American prescription drug policy that finally serves the American public.
The industry will say that any reduction in its income will result in an end to research and medical advances. There are many responses to these claims--and it is important to address them. We urge the Committee to study (or ask groups like the GAO, the IOM, CRS, etc.) how certain foreign nations obtain good prices for their citizens and to identify methods by which those nations purchase drugs in a way to encourage new, truly breakthrough research and the use of effective drugs.
In spite of industry claims, we believe that, given the long-standing, extraordinary profits of the pharmaceutical industry, that it does not do enough research and development. On average, the industry's profits are much higher than its R&D. It spends too much on marketing and on the development of me-too and copycat drugs. Every prime time TV ad for a me-too, cosmetic drug is a dollar taken away from research and development of true breakthrough products. It is a shame that the industry spends almost twice as much on marketing and advertising as it spends on research. And of course, the industry spends way too much on lobbying, phony consumer front groups, and political contributions.
The enormous purchasing power of Medicare and Medicaid could and should be turned into a powerful tool to speed the development of new and breakthrough products, while paying less and less for old product and less effective products. We urge you to hold a separate hearing on ideas of how to use the purchasing power of Medicare/Medicaid/VA to obtain better prices for all Americans.
We also urge the Committee to reject the industry's pleas to raise the rest of the world's pharmacutical prices. Such proposals give no guarantee of lower domestic prices or more effective research and development. Rightly or wrongly, American popularity abroad is at an all time low. Many of our friends question our foreign policy and our stand on world environmental issues. To now tell the consumers of the rest of the industrialized world that we want them to pay more for medicines seems very unwise, to say the least.
Finally, the Senate Finance Committee is the key to finding a way to fund research on outcomes of health care items and services. One of the most promising provisions in MMA is section 1013, which authorized $50 million for FY 2004 and 'such sums as necessary' thereafter for medical effectiveness research. This section has the potential for enormous long-run savings by scientifically proving whether new drugs and medical devices are truly effective and worth paying more for. Time after time, we have found that new and very expensive products offered little or no new value. The only way we can slow the rate of medical inflation is to understand better what works and what doesn't. The very recent reports-many from foreign experts-about the relative danger and ineffectiveness of anti-depressants among teenagers, is just one example.
Unfortunately, $50 million is a woefully inadequate figure for this program. And even more unfortunately, it was not funded in the President's budget. We need to devote much more to this medical effectiveness research. The budget situation facing the United States over the next decade will make it nearly impossible for the Appropriators to fund this program. Therefore, we urge Senate Finance to find a reliable funding mechanism that will grow over time. A fraction of a percent fee on the sale (including the importation) of medical devices and drugs, dedicated to the type of research described in section 1013 will save hundreds of billions of dollars in the years to come and help slow today's unsustainable rates of medical inflation.
In addition to effectively funding U.S. research on these comparative effectiveness issues, other nations are already doing a fair amount in this area, and we encourage the Committee to urge an international program of cooperative medical effectiveness research. Each nation should not have to separately and expensively repeat other nations' studies.
Thank you, members of the Committee, for the opportunity to submit this statement on behalf of Families USA.
