[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] MAKING HEALTH CARE MORE AFFORDABLE: LOWERING DRUG PRICES AND INCREASING TRANSPARENCY ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS COMMITTEE ON EDUCATION AND LABOR U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION __________ HEARING HELD IN WASHINGTON, DC, SEPTEMBER 26, 2019 __________ Serial No. 116-42 __________ Printed for the use of the Committee on Education and Labor [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: www.govinfo.gov or Committee address: https://edlabor.house.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 37-859 WASHINGTON : 2021 -------------------------------------------------------------------------------------- COMMITTEE ON EDUCATION AND LABOR ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman Susan A. Davis, California Virginia Foxx, North Carolina, Raul M. Grijalva, Arizona Ranking Member Joe Courtney, Connecticut David P. Roe, Tennessee Marcia L. Fudge, Ohio Glenn Thompson, Pennsylvania Gregorio Kilili Camacho Sablan, Tim Walberg, Michigan Northern Mariana Islands Brett Guthrie, Kentucky Frederica S. Wilson, Florida Bradley Byrne, Alabama Suzanne Bonamici, Oregon Glenn Grothman, Wisconsin Mark Takano, California Elise M. Stefanik, New York Alma S. Adams, North Carolina Rick W. Allen, Georgia Mark DeSaulnier, California Lloyd Smucker, Pennsylvania Donald Norcross, New Jersey Jim Banks, Indiana Pramila Jayapal, Washington Mark Walker, North Carolina Joseph D. Morelle, New York James Comer, Kentucky Susan Wild, Pennsylvania Ben Cline, Virginia Josh Harder, California Russ Fulcher, Idaho Lucy McBath, Georgia Van Taylor, Texas Kim Schrier, Washington Steve Watkins, Kansas Lauren Underwood, Illinois Ron Wright, Texas Jahana Hayes, Connecticut Daniel Meuser, Pennsylvania Donna E. Shalala, Florida William R. Timmons, IV, South Andy Levin, Michigan* Carolina Ilhan Omar, Minnesota Dusty Johnson, South Dakota David J. Trone, Maryland Fred Keller, Pennsylvania Haley M. Stevens, Michigan Susie Lee, Nevada Lori Trahan, Massachusetts Joaquin Castro, Texas * Vice-Chair Veronique Pluviose, Staff Director Brandon Renz, Minority Staff Director ------ SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS FREDERICA S. WILSON, Florida, Chairwoman Donald Norcross, New Jersey Tim Walberg, Michigan Joseph D. Morelle, New York Ranking Member Susan Wild, Pennsylvania David P. Roe, Tennessee Lucy McBath, Georgia Rick W. Allen, Georgia Lauren Underwood, Illinois Jim Banks, Indiana Haley M. Stevens, Michigan Russ Fulcher, Idaho Joe Courtney, Connecticut Van Taylor, Texas Marcia L. Fudge, Ohio Steve C. Watkins, Jr., Kansas Josh Harder, California Ron Wright, Texas Donna E. Shalala, Florida Dan Meuser, Pennsylvania Andy Levin, Michigan Dusty Johnson, South Dakota Lori Trahan, Massachusetts Fred Keller, Pennsylvania (VACANT) C O N T E N T S ---------- Page Hearing held on September 26, 2019............................... 1 Statement of Members: Walberg, Hon. Tim, Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions............................ 4 Prepared statement of.................................... 5 Wilson, Hon. Frederica S., Chairwoman, Subcommittee on Health, Employment, Labor, and Pensions.................... 1 Prepared statement of.................................... 3 Statement of Witnesses: Garthwaite, Mr. Craig, Ph.D, Associate Professor of Strategy Northwestern University Kellogg School of Management....... 62 Prepared statement of.................................... 64 Holt, Mr. Christopher, Director of Health Care Policy American Action Forum...................................... 51 Prepared statement of.................................... 53 Isasi, Mr. Frederick, J.D., MPH Executive Director Families USA........................................................ 7 Prepared statement of.................................... 9 Mitchell, Mr. David, Founder, Patients for Affordable Drugs.. 91 Prepared statement of.................................... 93 Socal, Dr. Mariana P., MD, MS, MPP, Ph.D, Assistant Scientist, Johns Hopkins Bloomberg School of Public Health, Department of Health Policy and Management................. 28 Prepared statement of.................................... 30 Talente, Ms. Bari, J.D., Executive Vice President, Advocacy, National Multiple Sclerosis Society........................ 17 Prepared statement of.................................... 19 Additional Submissions: Levin, Hon. Andy, a Representative in Congress from the State of Michigan: Letter dated September 25, 2019 from the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW)..................... 135 Ms. Wilson: Letter dated September 19, 2019 from AARP................ 137 Prepared statement from the Alliance for Retired Americans.............................................. 140 Prepared statement from the California Medical Association............................................ 141 Letter dated September 24, 2019 from the American Medical Association (AMA)...................................... 142 Letter dated September 26, 2019 from the American Federation of Teachers (AFT)........................... 143 Press Release: Lower Drug Costs Now Act Promises to Bring Down Prescription Drug Prices.......................... 145 Press Release: Working People Deserve Affordable Prescription Medicines................................. 149 Questions submitted for the record by: Mr. Levin................................................ 153 Schrier, Hon. Kim, a Representative in Congress from the State of Washington.................................... 155 Stevens, Hon. Haley M., a Representative in Congress from the State of Michigan Underwood, Hon. Lauren, a Representative in Congress from the State of Illinois Levin, Hon. Andy, a Representative in Congress from the State of Michigan...................................... 153 Responses to questions submitted for the record by: Mr. Isasi................................................ 161 Mr. Mitchell............................................. 165 Dr. Socal................................................ 168 Ms. Talente.............................................. 170 MAKING HEALTH CARE MORE AFFORDABLE: LOWERING DRUG PRICES AND INCREASING TRANSPARENCY ---------- Thursday, September 26, 2019 House of Representatives, Subcommittee on Health, Education, Labor, and Pensions Committee on Education and Labor Washington, D.C. ---------- The subcommittee met, pursuant to call, at 2:01 p.m., in Room 2175, Rayburn House Office Building. Hon. Frederica S. Wilson [chairwoman of the subcommittee] presiding. Present: Representatives Wilson, Norcross, Morelle, Wild, McBath, Underwood, Stevens, Courtney, Fudge, Harder, Shalala, Levin, Trahan, Scott, Walberg, Roe, Allen, Banks, Taylor, Watkins, Wright, Meuser, Johnson, and Keller. Also Present: Representatives, Davis and Foxx. Staff Present: Ilana Brunner, General Counsel; Emma Eatman, Press Assistant; Daniel Foster, Health and Labor Counsel; Carrie Hughes, Director of Health and Human Services; Ariel Jona, Staff Assistant; Stephanie Lalle, Deputy Communications Director; Jaria Martin, Clerk/Assistant to the Staff Director; Max Moore, Office Aide; Merrick Nelson, Digital Manager; Veronique Pluviose, Staff Director; Banyon Vassar, Deputy Director of Information Technology; Joshua Weisz, Communications Director; Cyrus Artz, Minority Parliamentarian; Courtney Butcher, Minority Director of Member Services and Coalitions; Cate Dillon, Minority Staff Assistant; Rob Green, Minority Director of Workforce Policy; Jeanne Kuehl, Minority Legislative Assistant; John Martin, Minority Workforce Policy Counsel; Hannah Matesic, Minority Director of Operations; Alexis Murray, Minority Professional Staff Member. Chairwoman WILSON. I note that a quorum is present. The subcommittee on Health Employment Labor and Pensions will now come to order. Welcome to everyone. I note that the subcommittee--for the subcommittee: Mr. Grijalva, Ms. Davis of California, Mr. Castro of Texas, and Ms. Jayapal of Washington and Ms. Schrier of Washington are permitted to participate in today's hearing with the understanding that their questions will come only after all members of the subcommittee on Health, Employment, Labor, and Pensions, on both sides of the aisle who are present and have had an opportunity to question the witnesses. The subcommittee is meeting today in a hearing to receive testimony on making health care more affordable, lowering drug prices and increasing transparency. Pursuant to rule 7(c), opening statements are limited to the Chair and the Ranking Member. This allows us to hear from our witnesses sooner and provides all members with adequate time to ask questions. I recognize myself now for the purpose of making an opening statement. Today, we are gathered to discuss policy solutions to reduce prescription drug prices for consumers, businesses and taxpayers. Prescription drug prices are out of control. More than $450 billion or about $1,100 per person is spent across the healthcare system every single year. Pharmaceutical companies are charging American prices that are three, four, or in some cases, dozens of times higher than what they charge for the exact same drugs they sell in other countries. As a result, Americans across the nation are struggling to afford the medication they need to maintain their health. In fact, in the past three years, in ten adults decided--in the past year, three in ten adults decided to forego taking their prescribed medications because of the cost. We must act on behalf of people like Azima, a social worker in my home state of Florida who struggles to make monthly co- payments for her prescription drugs which cost more than her rent, electricity, cell phone bill and car payment combined, and Jesimya David Scherer-Radcliff who tragically died from rationing the lifesaving insulin he needed to treat his diabetes. As our witnesses will share, exorbitant drug prices place a significant burden on workers and their families. Employer health plans spend nearly $84 billion annually on drugs alone. As drug companies continue to raise prices with no end in sight, seniors, taxpayers, workers and our economy are all footing the bill. That is why we must take bold action by passing the Lowering Drug Cost Now Act, an ambitious plan to lower drug prices and increase transparency in five key ways. First, the bill ends the ban on Medicare negotiating directly with drug companies to get a fair deal for American consumers. Second, the bill makes the lower drug prices negotiated by Medicare available to all Americans, which will cut costs for both employers that provide their workers healthcare and workers covered by employer provided healthcare. Third, the legislation caps negotiated drug prices at prices charged in similar countries so that drug companies stop ripping off Americans while charging other countries less for the same drugs. Fourth, the bill creates a new out-of-pocket limit, on drugs for Medicare beneficiaries and ends unfair annual price hikes by prescription drug companies for 8,000 drugs. Finally, the Lowering Drug Cost Now Act reinvests the savings from negotiated drug prices in research and innovation to make new medical breakthroughs. My Republican colleagues have responded to this proposal with the same tired rhetoric, labeling it a socialist takeover of our healthcare system but the central provisions in this proposal have been endorsed by President Trump himself. We even put together a few video clips of the President promising to negotiate prices and align the prices Americans pay with what consumers in other countries pay. Play the video. [Video plays] Chairwoman WILSON. On the day the Lowering Drug Cost Now Act was introduced, the President tweeted: ``It is great to see Speaker Pelosi's bill today.'' My Republican colleagues claim cutting the cost of drugs will stifle research and innovation, but nine out of ten big pharmaceutical companies spend more on marketing, sales, and overhead than on research. Each of us has a responsibility to serve our constituents and address the unsustainable cost of prescription drugs. Today's hearing is an important step towards that goal, and I want to thank each of our witnesses for being with us to discuss this comprehensive solution to one of our nation's most pressing crises. I now recognize the distinguished Ranking Member for the purpose of making an opening statement. Mr. Walberg. [The statement of Ms. Wilson follows:] Prepared Statement of Hon. Frederica S. Wilson, Chairwoman, Subcommittee on Health, Employment, Labor, and Pensions Today we are gathered to discuss policy solutions to reduce prescription drug prices for consumers, businesses, and taxpayers. Prescription drug prices are out of control. More than $450 billion across the health care system or about $1,100 per person is spent every year. Pharmaceutical companies are charging Americans prices that are three, four, or in some cases dozens of times higher than what they charge for the exact same drugs they sell in other countries. As a result, Americans across the nation are struggling to afford the medication they need to maintain their health. In fact, three in ten adults decided to forgo taking their prescribed medications in the past year because of the cost. We must act on behalf of people like Azima, a social worker in my home state of Florida who struggles to make monthly copayments for her prescription drugs, which cost more than her rent, electricity, cell phone bill, and car payment combined. And Jesimya David Scherer-Radcliff, who tragically died from rationing the life-saving insulin he needed to treat his diabetes. As our witnesses will share, exorbitant drug prices place a significant burden on workers and their families. Employer health plans spend nearly $84 billion annually on drugs, alone. As drug companies continue to raise prices with no end in sight, seniors, taxpayers, workers, and our economy are all footing the bill. That is why we must take bold action by passing the Lower Drug Costs Now Act, an ambitious plan to lower drug prices and increase transparency in five keyways. First, the bill ends the ban on Medicare negotiating directly with drug companies to get a fair deal for American consumers. Second, the bill makes the lower drug prices negotiated by Medicare available to all Americans, which will cut costs for both employers that provide their workers health care and workers covered by employer- provided health care. Third, the legislation caps negotiated drug prices with prices charged in similar countries so that drug companies stop ripping off Americans while charging other countries less for the same drugs. Fourth, the bill creates a new out-of-pocket limit on drugs costs for Medicare beneficiaries and ends unfair annual prices hikes by prescription drug companies for 8,000 drugs. Finally, the Lower Drug Costs Now Act reinvests the savings from negotiated drug prices in research and innovation to find new medical breakthroughs. My Republican colleagues have responded to this proposal with the same tired rhetoric, labeling it a socialist takeover of our health care system. But the central provisions in this proposal have been endorsed by President Trump himself. We even put together a few video clips of the President promising to negotiate prices and align the prices Americans pay to what consumers in other countries pay. On the day Lower Drug Costs Now Act was introduced, the president tweeted, `` . . . it's great to see Speaker Pelosi's bill today.'' My Republican colleagues claim cutting the cost of drugs will stifle research and innovation, but nine out of ten big pharmaceutical companies spend more on marketing, sales, and overhead than on research. Each of us has a responsibility to serve our constituents and address the unsustainable cost of prescription drugs. Today's hearing is an important step toward that goal. I want to thank each of our witnesses for being with us to discuss this comprehensive solution to one of our nation's most pressing crises. I now recognize Ranking Member Walberg, for an opening statement. ______ Mr. WALBERG. I thank you, Chairwoman and I appreciate the opportunity today to have a hearing on this bill. Also to make it very clear that the President hasn't yet called upon us to support it and his statements were that he was glad to see a bill talking about doing things we all want to do. He did not say that he supports this bill as written and I would think that he, as he said, in one of the videos up there, together we will stop it. Together--there has been no togetherness in putting this bill together, even from my Democrat colleagues in working with the speaker who put it together. I just wanted to make that notation as well. There is no question that healthcare costs are at the top of the minds for many Americans--most Americans and the cost of prescription drugs are a concern for workers and families. According to a recent report on medicine use and spending in the U.S., patients paid 61 billion dollars in out of pocket drug costs in 2018. So it is not surprising that a recent poll found 1 in 4 Americans worry about affording their medication. Sadly, individuals and families are being let down by Democrat leadership. Instead of working on this serious issue in a bipartisan manner, Speaker Pelosi's radical, partisan bill was drafted in secret, I think for a purpose, without member input or the regular committee process. The public leader McCarthy accurately described H.R. 3 as a ``Step towards nationalizing the drug industry and opening the door to a one size fits all government-controlled rationing of prescription drugs.'' This bill is a political ploy that will not be considered in the Senate or become law. When asked about the bill, Senate Majority Leader Mitch McConnell said, and I quote: ``Socialist price controls will do a lot of left-wing damage to the healthcare system and of course we are not going to be calling up a bill like that.'' We shouldn't be surprised that once again, Democrat leadership is pushing far left politics over policy. From taking over all student lending to mandating wage hikes, Democrats are pushing an agenda that strips hardworking taxpayers of their rights. H.R. 3 is just the latest in this string of aggressive socialist policies introduced by Congressional Democrat leadership. Over half of the Democrat Conference supports Medicare for all. A government-run single payer healthcare system that would eliminate private health insurance, including employer sponsored coverage, something that is admired by most everyone who has that opportunity and ought to be expanded. This is a jurisdiction of our committee. Congressional efforts to bring down drug prices for American people have been and should continue to be a collaborative and bipartisan effort. In 2016, a Republican Congress passed the 21st Century Cures Act. Bipartisan legislation, I might add, that was signed into law by President Obama, which accelerated discovery and development of new cures and treatments. Additionally, we reauthorized a generic drug user fee program and last year, the FDA approved a record number of generic drugs, driving up competition and giving consumers more affordable choices. And this year, and I know this for a fact as I sit on the House Energy and Commerce Committee. This year's House and Senate Committees have worked together on bipartisan bills to address the cost and transparency of prescription drugs. Two of these bills, bipartisan bills have become law and others are awaiting further action in both chambers. There is a common thread there in bipartisan efforts. Governments don't negotiate, they dictate. The radical approach taken by H.R. 3 includes troubling and unprecedented government interference in private market negotiations which will eliminate choice and competition and jeopardize innovation investment and access to future cures. Countries that have adopted drug pricing systems like those included in H.R. 3 face decreased access to innovative new medicines, increased wait times for treatment and supply shortage for in demand drugs. H.R. 3 will negatively impact investment and research and development of future treatments putting breakthrough cures for diseases like Alzheimer's, cancer, sickle cell anemia, and others at risk. Instead of holding a hearing on this socialistic agenda drug pricing scheme that will hurt the development of money saving treatments and more importantly, people's lives. The committee's time would be better spent finding bipartisan solutions to our Nation's problems. Republicans stand ready to work with Democrats to push for legislation that promotes competition, lowers out of pocket cost for consumers, and establishes transparency and accountability in drug pricing and might I add, that has a chance for a two-chamber solution that would get to the President's desk. With that, I yield back. [The statement of Mr. Walberg follows:] Prepared Statement of Hon. Tim Walberg, Ranking Member, Subcommittee on Health, Employment, Labor, and Pensions ``There's no question that health care costs are at the top of the minds for many Americans, and the cost of prescription drugs are a concern for workers and families. According to a recent report on medicine use and spending in the U.S., patients paid $61 billion in out-of-pocket drug costs in 2018. So, it's not surprising that a recent poll found one in four Americans worry about affording their medication. Sadly, individuals and families are being let down by Democrats. Instead of working on this serious issue in a bipartisan manner, Speaker Pelosi's radical, partisan bill was drafted in secret, without Member input or the regular Committee process. Republican Leader McCarthy accurately described H.R. 3 as `a step toward nationalizing the drug industry and opening the door to a one-size- fits-all, government-controlled rationing of prescription drugs.' This bill is a political ploy that will not be considered in the Senate or become law. When asked about the bill, Senate Majority Leader Mitch McConnell said, `Socialist price controls will do a lot of left- wing damage to the healthcare system. And of course, we're not going to be calling up a bill like that.' We shouldn't be surprised that once again Democrats are pushing far-left politics over policy. From taking over all student lending to mandating wage hikes, Democrats are pushing an agenda that strips hardworking taxpayers of their rights. H.R. 3 is just the latest in this string of aggressive socialist policies introduced by Congressional Democrats. Over half of the Democrat Conference supports Medicare-for-All, a government-run, single-payer health care system that would eliminate private insurance, including employer-sponsored coverage, which is in the jurisdiction of this Committee. Congressional efforts to bring down drug prices for the American people have been, and should continue to be, a collaborative and bipartisan effort. In 2016, a Republican Congress passed the 21st Century Cures Act, bipartisan legislation signed into law by President Obama which accelerated discovery and development of new cures and treatments. Additionally, we reauthorized the generic drug user fee program - and last year the FDA approved a record number of generic drugs, driving up competition and giving consumers more affordable choices. And this year, House and Senate Committees have worked together on bipartisan bills to address the cost and transparency of prescription drugs. Two of these bills have become law, and others are awaiting further action in both chambers. Governments don't negotiate, they dictate. The radical approach taken by H.R. 3 includes troubling and unprecedented government interference in private, market negotiations, which will eliminate choice and competition, and jeopardize innovation, investment, and access to future cures. Countries that have adopted drug-pricing systems like those included in H.R. 3 face decreased access to innovative new medicines, increased wait times for treatment, and supply shortages for in-demand drugs. H.R. 3 will negatively impact investment in research and development of future treatments, putting breakthrough cures for diseases like Alzheimer's, cancer, sickle cell disease, and others at risk. Instead of holding a hearing on this socialist agenda drug-pricing scheme that will hurt the development of money-saving treatments and-- more importantly----people's lives, the Committee's time would be better spent finding bipartisan solutions to our nation's problems. Republicans stand ready to work with Democrats to push for legislation that promotes competition, lowers out-of- pocket costs for consumers, and establishes transparency and accountability in drug pricing.'' ______ Chairwoman WILSON. Without objection all other members who wish to insert written statements into the record may do so by submitting them electronically to the committee clerk in Microsoft Word format by 5:00 pm on Wednesday, October 9th, 2019. I will now introduce our witnesses: Frederick Isasi is Executive Director of Families USA. Welcome. Bari Talente is Executive Vice President of the National MS Society. Welcome. Dr. Mariana Socal is Assistant Scientist at Johns Hopkins University, Bloomberg School of Public Health. Welcome. Dr. Craig Garthwaite is Associate Professor of Strategy at Northwestern University's Kellogg School of Management. Welcome. Christopher Holt is Director of Health Care Policy at the American Action Forum. Welcome, Mr. Holt. David Mitchell is Founder and President of Patients for Affordable Drugs. Welcome. We appreciate all of you coming today and look forward to your testimony. Let me remind you that the witnesses--let me remind the witnesses that we have read your written statements and they will appear in full in the hearing record, pursuant to Committee Rule 17 and committee practice, each of you is asked to limit your oral presentation to a five minute summary of your written statement. Let me remind the witnesses that pursuant to Title 18 of the U.S. Code, section 1001, it is illegal to knowingly and willfully falsify any statement, representation, writing, document or material fact presented to Congress or otherwise conceal or cover up a material fact. Before you begin your testimony, please remember to press the button on the microphone in front of you so that it will turn on and the members can hear you. As you begin to speak, the light in front of you will turn green. After four minutes, the light will turn yellow to signal that you have one minute remaining. When the light turns red, your five minutes have expired, and we ask that you please wrap it up or I will have to wrap it up for you. We will let the entire panel make their presentations before we move to member questions. When answering a question, please remember to once again turn on your microphone. I will first recognize Mr. Isasi. TESTIMONY OF FREDERICK ISASI, J.D., EXECUTIVE DIRECTOR FAMILIES USA Mr. ISASI. Chairwoman Wilson, Congressman Walberg, Members of the subcommittee, thank you for the opportunity to testify today. I am Frederick Isasi, the Executive Director of Families USA, a non-partisan, non-profit that for nearly 40 years has served as one of the leading national voices for the health care movement in Washington D.C. and on the state level. Thank you very much for holding this hearing on lowering drug costs. We are meeting at an extraordinary time for our Nation's family. Do you realize that about 1/3rd of Americans report not taking their prescription drugs because they are too expensive? Of these, more than 2/3rds are engaging in the terrible gamble of either skipping doses or cutting their pills in half. Think of the life these Americans are living. In last fall's Congressional elections, the American people sent a strong signal to all of you. An astounding 82 percent of Republicans and 90 percent of Democrats said taking action to lower the price of prescription drugs should be a top priority for this Congress. Despite all the conflicts, legal and economic discussions and the alarmist and false arguments of the drug industry, at its core, the problem of out of control drug costs is very simple. Congress created a system that provides a government- granted monopoly to drug makers, and many within the industry are abusing Federal law. Let me explain what I mean. Over time, so much of the industry's focus has shifted from creating innovative drugs that can save lives to doubling down on high-powered lawyers to help find loopholes, sue competitors and generally abuse the spirit in which Federal prescription drug laws were created. It is time for Congress to reexamine and rewrite patent exclusivity laws to stamp out these abuses and actually incentivize innovation. In the absence of this wholesale reform, we at Families USA are strongly supportive of the committee acting to mark up and move forward H.R. 3 the Lowering Drug Cost Now Act. It represents bold Congressional action that would require the government to defend our families and negotiate directly with drug manufacturers to curb abusive practices and price increases. These are policies supported by more than 2/3rds of Americans. The bill uses savings and reduced drug costs to invest in research and development for new cures as well as capping out of pockets costs for Medicare beneficiaries. It also could support much needed improvements in Medicare, such as dental, hearing and vision benefits and support for low- income Medicare beneficiaries. We also recommended several critical improvements to strengthen the bill, such as expanding the selection of drugs that are subject to negotiations, expanding mandatory price hike protections to private payers and allowing uninsured patients to get negotiated prices. So what will the fate of this legislation be? You are all up against one of the most profitable industries in the world with revenues in access of $1 trillion and half of its profits are generated in the U.S. and Canada alone. And industry spending, at least $133 million to lobby Congress, all of you, with over 800 lobbyists in D.C. Members of the committee, I ask you, does our democracy work? Will this committee, will Congress, will the President act to support our Nation's families or will the drug companies win yet again? Let me tell you about one person, perhaps, who can steady your resolve to get this legislation enacted. Her name is Katherine from Wheeling, Illinois. Her story tells her own struggle but also the struggle of millions of other Americans. Katherine worked very hard. She had a career as a secretary and then in her late 50s, she developed a cough. It wasn't going away. Within three months of going to the doctor for a cough, however, she was told she had a rare lung disorder and that without a lung transplant, she wouldn't live to see the end of the year and then her condition worsened. Her doctors prepared her to die and Katherine prepared herself to die, and then she got the call. A new lung had been found and she was going to live. This all happened about five years ago. This incredible gift and a new chance at life, but unfortunately her experience has turned into something else. Katherine takes 36 pills every day, including anti- rejection and pain medications. Each year, the cost of her medication overwhelms her. Katherine has to ration her medications to make them last. She spends an astounding $1,000 each month on her medications, despite being a Medicare beneficiary, which is exactly half of her monthly income. Think about what this means. Katherine, after living through the experience of almost dying, receiving a lung transplant, fighting for her life is left to spend half of her income to pay for medications. You won't be surprised to know that Katherine sold her home, moved in with her parents, her mom is 86 and her dad died this year at 89. She lives an extremely frugal life but as her drug costs escalate year over year, she moves closer and closer to financial ruin and deep poverty. At the end of each year, she finds herself thousands of dollars short. She lives each day with the anxiety of wondering how will she find the money to pay for her drugs. Despite being one of the wealthiest nations in the world, despite spending two or three times more than the rest of the world, this is the life we give to Americans. Thank you for holding this hearing, thank you for considering this legislation. [The statement of Mr. Isasi follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairwoman WILSON. And thank you. We will now recognize Ms. Talente. TESTIMONY OF BARI TALENTE, J.D., EXECUTIVE VICE PRESIDENT, ADVOCACY, NATIONAL MULTIPLE SCLEROSIS SOCIETY Ms. TALENTE. Thank you. Good afternoon, Chairwoman Wilson and Ranking Member Walberg. Thank you for the opportunity to participate in this hearing on lowering drug prices and increasing transparency. My name is Bari Talente and I am the Executive Vice President of advocacy with the National Multiple Sclerosis Society. The Society works to ensure that the nearly 1 million people with MS in the United States have what they need to live their best lives. People with MS are typically diagnosed between the ages of 20 and 50, making MS a disease that hits people during their prime employment years. In fact, nearly 60 percent of people living with MS have employer-sponsored health insurance. We hear from people with MS who are reluctant to disclose their diagnosis publicly because they feel their job may be in jeopardy or they don't want to be that person with their coworkers, the one who is responsible for driving up health insurance costs. There are now more than 15 FDA-approved disease modifying treatments, referred to as DMTs, that help manage disease progression for relapsing forms of MS. No single DMT is best for all people living with MS so these treatments are not interchangeable. The first--unfortunately, the price of these DMTs has dramatically increased since the first treatment was approved in 1993. That DMT came to the market at approximately $11,500 and now has a list price of more than $98,000. Imagine how this has felt for someone who has been on this treatment since it first came out. In 2013, the annual median price for the MS DMTs was less than $60,000 dollars. Today, in 2019, that median price for brand MS DMTs is over $88,000 dollars. We have seen escalating prices for products already on the market, some for a considerable amount of time. In fact, a recent study by Health Affairs shows that price increases of brand name drugs are largely driven by year over year price increases of drugs already on the market and not by new products. We have recently asked people with MS about the impact of the cost of these DMTs on them. 40 percent of those who took our survey shared that they have altered their use of their DMT because of costs. They are stopping treatment, skipping or delaying filling a prescription or not taking the medication as prescribed to try and make it last longer. Due to the price, people with MS often face prior authorization and step therapy in their health insurance, which can delay care. Each time a person with MS experiences a gap in care or fails on a medication, they are at risk for a relapse, disease progression, and worsening of symptoms from which they may not fully recover. Here are just two of the direct experiences people with MS have shared with us. Jenna from Massachusetts is worried about affording her DMT. Her husband's insurance currently covers it, but not all insurances will. Jenna says, ``we are terrified for him to change jobs because we cannot afford my medication if it is not covered. He has had to turn down a better paying job with better hours in order to keep our insurance.'' Over the last decade, Keysha from Pennsylvania has tried many DMTs. She has commercial insurance through her employer and receives financial assistance through a manufacturer sponsored program, but she notes ``If I am on super-expensive meds, I am hurting my company's bottom line in the end. I would choose a different medicine if there was one that was significantly lower in price.'' Medications cannot change lives if people cannot access them. We must look at solutions across the entire prescription drug supply chain. Additional information about legislation we support is in our written testimony. We do support the goals and many provisions of the Lowering Drug Cost Now Act of 2019 and applaud this effort to lower drug costs. We appreciate this legislation does not establish a formulary and includes an out- of-pocket cap in Medicare part D. We believe the bill could be strengthened by beginning the out-of-pocket cap earlier and expanding competition to be more than one single generic. I would like to conclude with a message from Keysha to all of you and your colleagues: ``Do something to help with the cost. It is not a selfish thing to want to be well. To want to contribute. All people deserve a chance to be contributing members of society.'' Thank you, and I look forward to your questions. [The statement of Ms. Talente follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairwoman WILSON. Thank you, Ms. Talente. We will now recognize Dr. Socal. TESTIMONY OF MARIANA P. SOCAL, MD, MS, MPP, PH.D., ASSISTANT SCIENTIST, JOHNS HOPKINS BLOOMBERG SCHOOL OF PUBLIC HEALTH, DEPARTMENT OF HEALTH POLICY AND MANAGEMENT Dr. SOCAL. Good afternoon. Thank you, Chairwoman Wilson, Ranking Member Walberg and Members of the Committee. It is a great honor and It is a great pleasure to be talking to you today. For over a year, I have been researching America's largest employers and trying to help them improve the drug benefit that they offer to their workers. In one of these initiatives and partnering with the Pacific Business Group on Health, a coalition of more than 50 large public and private employers to identify and remove wasteful spending from their drug formularies. I am also leading a research project in which I partnered with ERIC, the ERISA committee. This committee represents nationwide self-insured companies with more than 10,000 employees. In this project, I am examining the prices that some of the largest U.S. corporations are paying for their drugs. The first thing I learned in my research is that employers want to provide their workers with the best benefits that they can. Companies want to attract and retain the best workers in offering good benefits is key for that. The second thing that I have learned is that companies are spending a lot of money hiring specialists to help them manage their drug benefit, but they are not always getting the best deals that they can. Typically, employers hire pharmaceutical benefit managers, a PBM, to negotiate drug prices on their behalf. The PBM also designs the drug formulary that goes to the employer's plan. So here is how the negotiation works. The PBM offers to cover a drug on the formulary in exchange for lower prices. When the PBM has a choice and can pick between a few drugs, which one will go into the formulary, then the market can work. The problem occurs when a drug has no competition. If the PBM cannot say no to a certain drug and then choose a different one, then the PBM cannot negotiate a lower price, and there is no incentive for manufacturers to lower the price. As a result, for certain drugs without competition, the U.S. pays three to four times more higher prices than in other countries. For these cases, a different type of negotiation is needed. In the absence of product to product competition in the U.S. market, the price comparison between the U.S. and other countries can offer an alternative pathway for this negotiation. My colleagues and I examined the 79 top spending drugs in the Medicare part D program, and we found that if the U.S. paid the average price of the countries that we studied, Medicare part D alone could have saved $73 billion in 2018. If employers adopted the same approach, the savings would be similar. H.R. 3's proposal of having the secretary negotiate on behalf of all Medicare beneficiaries and those covered by private insurance is likely to succeed in lowering drug prices because of two main reasons: first, because it includes everyone in the negotiation. The more people included in the negotiation, the greater the negotiating power and the greater ability to lower prices. Second, because it incorporates a transparent benchmark into the negotiation, the prices paid in other countries. U.S. companies, especially the very large employers, they like to think that they are getting the best possible deals in drug pricing, but we found that sometimes, the employers don't even have the information that they need to understand if they are getting the good deal or not. It is very hard, for example, for an employer to know how much they are paying for a drug. The net price, after the rebates and discounts can be only known sometimes weeks or months after the drug bill was paid and there is very little transparency in this process. The negotiation proposed in H.R. 3 would benefit employers by providing them with a transparent maximum price. It will also allow employers to opt out of the price so that they can choose what's the best deal for them. For patients, lower and transparent prices will help reduce cost-sharing. Patient's cost-sharing is typically calculated over a drug's list price. Having a transparent and lower drug price available to all patients will allow them to benefit directly from the negotiations. This is also very important for the 30 percent of American workers who are currently enrolled in high-deductible health plans. These patients pay the drug's full cost. Today, over half of all Americans obtain health coverage through their employer, most of them through self-insured employers which the employer will pay the drug's bill. In response to rising drug costs, many companies are pushing more of the cost of prescription drugs onto the employees, either in the form of high deductibles or by charging a percentage cost-share, especially for high-cost drugs. This is one of the reasons why many Americans are not able to afford the drugs they need, even if they have health insurance. Thank you so much for your time, and I look forward to your questions. [The statement of Dr. Socal follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairwoman WILSON. Thank you, Dr. Socal. And we will now recognize Mr. Holt. TESTIMONY OF CHRISTOPHER HOLT, DIRECTOR OF HEALTH CARE POLICY AMERICAN ACTION FORUM Mr. HOLT. Thank you, Chairwoman Wilson, thank you Ranking Member Walberg, Members of the Committee. I very much appreciate the opportunity to speak with you about this issue of complex drug prices. The legislation before you, H.R. 3 aims to bring down drug costs across the U.S. Healthcare system without harming innovation or creating barriers to access for patients. These goals are laudable. I do not believe however, that the policies in H.R. 3 can achieve the lower drug costs sought without negatively impacting the development of future cures, as well as patient access to existing medications. In the face of rising demand and increasing prices for drugs, the way to reduce prices without harming innovation and access is to increase supply and heighten competition. Unfortunately, the policies proposed in H.R. 3 are likely to have the opposite effect. Title I of H.R. 3 proposes to create a process whereby the Secretary of Health and Human Services will negotiate directly with drug manufacturers over the price of specific pharmaceuticals and then make that price available to all third-party payers in the United States. This in and of itself is an extraordinary market intervention by the Federal government. The proposal of direct government negotiation is predicated on the notion that the prices that the Federal government currently pays for medications are completely at the whim of manufacturers and that market forces or negotiation have no impact. In reality, however, prices for the drugs and the Medicare part D program right now are already determined through a vigorous negotiation process that involves plans, sponsors, PBMs and manufacturers. In the Medicare part B program, which covers physician administered drugs, we do not have the same benefit from the competitive nature and structure of part D but even here, market forces do play a role. While the formula for determining what Medicare pays for part B drugs can and I think should be reformed, it does include most if not all privately negotiated rebates and price concessions in the group market. In other words, private competition and negotiation are driving down the government's price in part B as well. Still, there are increasing calls for the Secretary to negotiate drug prices directly. The process that H.R. 3 would establish, however, cannot accurately be described as a negotiation. Instead, this bill would import foreign governments price controls through an average international market price based on the average volume weighted sales of the price of the drug in six foreign markets. This price, which U.S. policy makers would have no role in determining beyond selecting the countries to be referenced would serve as a target price in the negotiations and would be used to set both the maximum price that could be charged and a de facto floor as well. The negotiation would be limited to a range of not more than 120 percent of the average international market price and in effect, not less than 99 percent as the Secretary would be required to accept any offer below the average international market price. Within that limited range, the manufacturer would have no leverage in the negotiation process. The secretary would have carte blanche to require any proprietary data, details of the company's business practices with civil monetary penalties for non-compliance. Most important, the manufacturer would be required to reach an agreement and if they do not, would face a tax on the gross receipts of their drug of up to 95 percent. There is no requirement on the secretary to reach an agreement. Offering the choice between a lower price or an excessive tax cannot be described as a negotiation. Rather, it is government dictated price controls; but because of the centrality of the average international market price to the process, the resulting price will not consider the full therapeutic needs of U.S. patients or their views on value. Policymakers in the U.S. will ultimately have little control over the prices of drugs or the determination of value. The bill includes these heavy-handed provisions because the government has very limited leverage in a true negotiation. As detailed in my written testimony, the Congressional budget office has consistently found that the Secretary could not obtain lower prices in part D through negotiation without eliminating planned choice for beneficiaries or impeding their access. The process outlined appears likely to eventually encompass nearly all branded drugs and biologics sold in the U.S. and will certainly restrict the flow of capital to pharmaceutical companies leading to a decreased capacity for future research and development. I appreciate this opportunity and I look forward to your questions. [The statement of Mr. Holt follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] WILSON. Thank you. We will now recognize Dr. Garthwaite. TESTIMONY OF CRAIG GARTHWAITE, ASSOCIATE PROFESSOR OF STRATEGY NORTHWESTERN UNIVERSITY KELLOGG SCHOOL OF MANAGEMENT Mr. GARTHWAITE. Thank you, Chairwoman Wilson and Ranking Member Walberg and Members of the Committee for inviting me to testify today about H.R. 3, the Lower Drug Cost Now Act. While this bill has a number of features, in my testimony today, I will primarily address the proposed pharmaceutical price controls in the legislation. While supporters of legislation hope to characterize it as introducing Medicare drug price negotiations, that is not accurate. Instead, the bill gives the HHS Secretary unprecedented power to set market prices for the entire healthcare economy. Under the bill, the prices for the most expensive drugs that lack competition would be limited to 1.2 times the price in a set of six developed markets. Firms that don't comply will be fined up to 95 percent of the drug's revenue. Economics is a simple term for this proposal. It is a price control. This is particularly true in the case where the mandated price will then be passed along to the commercial market, which already has a robust system of negotiations. While I understand that calling these price controls a negotiation might be more politically palatable, that doesn't make it accurate. Now those in favor of price controls argue they're necessary because the higher prices decrease access to potentially lifesaving products. They often characterize those high prices as serving no other purpose than satisfying the greed and unending pharmaceutical profits. The reality is far more complicated than this simple caricature. High prices are part of a necessary tradeoff to provide the incentives for firms to invest the capital required to develop lifesaving drugs in the first place. At its heart, drug development involves a difficult tradeoff of reduced access today for increased innovation tomorrow. I don't say this lightly. I understand that high prices can decrease access to potentially lifesaving medications but frankly, there are no easy answers here. The economic evidence is clear, if we institute price controls of the nature discussed in this bill, we will see fewer investments in the development of new drugs for conditions that don't currently have treatments. Such decreases in innovation create their own access problems. While It is clear that patients today paying high prices can suffer decreased access for medication, and this is not an optimal outcome, those patients have a significant benefit that shouldn't be overlooked. They, through their PBMs have the luxury of negotiating the price of their drug. If you are sick with a condition today for which there are no treatments, a drug is not available at any price. This is the access problem that is so often missed in these discussions. Those who claim innovation won't be affected by price controls, simply misunderstand or deliberately ignore the economic evidence. In a modern market, a large share of biotech products result from venture capital firms, making substantial and risky investments to commercialize basic science into products that improve people's lives. The incentive for those investments come from the high prices and profits earned by today's successful firms. The venture capital firms at the heart of this process are not beholden to the pharmaceutical industry. They can invest in any sector of the economy. If you lower returns, capital will follow out of this sector into other more profitable sector, therefore it doesn't matter how much pharmaceutical firms spend on marketing, and it doesn't matter if someone believes a pharmaceutical company earns too much money and therefore can withstand the lost profits. While people like to mention these facts, the claim that innovation won't be affected, the basic economics and a number of empirical studies demonstrate that firms invest in products based on the expected return. The question then becomes how much do we value the innovation that would disappear because of these price controls? After all, an optimal innovation policy is one where the benefits of innovation outweigh the costs of reduced access today. It is possible we are currently getting this balance wrong. It might be that we provided too strong of an incentive in favor of new products at the cost of people not being able to access products today. We must remember that everything about the existing parameters of our tradeoff is ultimately a policy decision. There is nothing magical about a 20-year patent life. The very fact that it is constant, across both products and markets suggests that It is not the result of some finely-tuned calibration that weighs these costs and benefits. That said, while there is nothing magical about this parameter in our current policy, it is clear that moving away from this existing policy will decrease investments and innovation and the important thing to realize is that might be okay. The extra innovation we are getting may not be worth it, but that is the debate that Congress should be having. Instead, legislation such as H.R. 3 and the Trump administration's international pricing index effectively outsource this debate to foreign governments. This is not a profile encouraged by our policymakers. Why should access to new innovation for Americans be determined by policy decisions in London, Paris and Berlin? Simply because It is too hard for us to have the conversation about what products we want to say no to today in order to have a true price negotiation? In contrast to other developed economies who may have lower prices for the same drug, the United States relies far more heavily on markets because we are a large and diverse economy and market forces are better for allocating goods and services than central planning but we must recognize that markets can fail and when they fail, there is a role for the government to step in. There are many features of H.R. 3 that do that. [The statement of Mr. Garthwaite follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairwoman WILSON. Thank you. Thank you, Mr. Garthwaite. I will now recognize Mr. Mitchell. TESTIMONY OF DAVID MITCHELL, FOUNDER, PATIENTS FOR AFFORDABLE DRUGS Mr. MITCHELL. Chairwoman Wilson, Ranking Member Walberg, Members of the Committee, I am honored to be here. I am David Mitchell, I am founder of Patients for Affordable Drugs. More importantly, I have an incurable blood cancer and prescription drugs are keeping me alive. Every two weeks I spend half a day at a clinic getting infused drugs, which unfortunately are slowly failing, so last week, my doctors added an oral chemo drug. I am now taking four drugs. Now that my drugs carry an annual list price of $875,000, I have relapsed twice. Eventually I am going to run out of options so the importance of innovation is not theoretical for me; it is literally life and death. But my experience as a patient taught me one irrefutable fact and that is drugs don't work if people can't afford them. To address out of control prices, however, we really must come to grips with some larger facts. Despite what drug companies tell us, and the general point that was made just now by Professor Garthwaite, sky high prices are not all about innovation. Multiple studies show there is no correlation between the cost of R&D and the price that is assigned to a drug. Taxpayers front a huge portion of the bill for the basic science that leads to new drugs. Every single drug approved by the FDA from 2010 to 2016 was based on funding from taxpayers, science brought forward through the NIH. Meanwhile, independent analyses show that 9 of 10 drug companies spend more on advertising and marketing than on R&D. Why do drug companies charge so much? Because they can. Yes, drug companies should make a profit when they develop innovative drugs, but our current system is broken. And it is costing us all and our family finances, our health outcomes and lives. H.R. 3 would ensure drug companies charge a fair price to patients while protecting access to lifesaving drugs and innovation. I want to run through some highlights of H.R. 3 that I believe enjoy bipartisan support. First, it brings our prices more in line with what other wealthy nations pay using an international price index, very much like the Trump administration proposal. Second, it stops drug companies from increasing prices faster than the rate of inflation, just like the bipartisan Grassley-Wyden bill. Finally, it caps seniors' out of pocket costs for prescription drugs at $2,000 a year. Grassley-Wyden has a slightly higher cap. Now I want to mention three other provisions important to patients. H.R. 3 ensures that Americans with public and private insurance have access to lower price drugs. As an employer myself for 30 years, it is important that this bill gives 150 million Americans and their employers access to lower drug prices. Second, savings can go to new drug research and innovation at NIH. Finally, it protects access to all drugs unlike in the private sector, H.R. 3 does not rely on a formulary and drugs are covered by Medicare just as they are today. Now we all know the bill is under attack. Here is what people are saying. I heard some of it today. It is socialism. Well, competition and negotiation are cornerstones of capitalism. The truth is taxpayers negotiate on everything from aircraft carriers to printer paper. The only reason we don't negotiate for drugs today is because pharma inserted the prohibition into law in 2003, otherwise we'd be negotiating. It'll kill innovation; Dr. Garthwaite just made that point. Well, nobody cares more about innovation than me. As a patient, however, I find this to be a scare tactic and I find it offensive. HHS Secretary Azar refutes it best. He says: ``It is a tired talking point. The idea that if one penny disappears from pharma profit margins, American innovation is going to grind to a halt.'' And finally, it is going to lead to rationing. Well, my Lord, we already have drug rationing in this country. People are skipping doses, cutting pills in half, choosing between food and paying for their drugs. People are dying because they can't afford their insulin. H.R. 3 will stop rationing by lowering drug prices. Now right now, there's a fundamental question drug companies want us to ask about drug prices: what are we willing to pay to save a life? And I can tell you, that is easy. When It is your child's ability to breathe, when It is your cancer, the answer is anything, but that is the wrong question. We should be asking what is the right amount of money the drug companies should make on these drugs? With hundreds of clinical trials underway right now for new gene therapies that are currently priced at a half a million dollars or more, we cannot pay just any price the drug companies demand. Neither American families, nor our system can afford that. I feel incredibly grateful to be here today speaking on behalf of patients. I do believe the moment is at hand to address this problem, and with bipartisan support, we will. Thank you. [The statement of Mr. Mitchell follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairwoman WILSON. Thank you, Mr. Mitchell. Under Committee Rule 8(a), we will now question witnesses under the five-minute rule. I will now yield myself five minutes. I want to thank all of you for your testimonies, thank you so much. Mr. Mitchell, you mentioned that you started a new oral chemotherapy drug last week. Can you repeat the list price for that drug and tell us what your out-of-pocket expenses are? Because we have five Members of Congress that I know of that take oral chemotherapy today. Mr. MITCHELL. So, this is the drug I started taking last Wednesday night. It is called Pomalist. It is 21 capsules. It carries a list price of $17,200. I have to take it this way every four weeks. The first fill was $2,758. My out of pocket, under part D, and I will be paying $850 dollars every four weeks out of pocket for this drug. Chairwoman WILSON. Ms. Talente, in your testimony, you share the stories of several of the patients whom you worked with at the National MS Society. You point out that the patients always struggle with the fear that they are contributing to overall health care in their workplace, health plans, and they don't want to be perceived as that person who is responsible for making everyone else pay. This is very troubling to me. Can you talk a bit more about the stigma that MS patients face and how does it present barriers to employment, to access, and to care? Ms. TALENTE. That is probably more than we have time for today, but I will touch on some of it. Health care cost is certainly a big part of that. So, the MS disease modifying treatments are about 75 percent of the cost of treating someone with MS. And as I highlighted, the median price of those brand treatments is more than $88,000 today, and so that is definitely a drain on employers' health care cost and health care burdens, and I have talked with people with MS who are the employee. I have talked with people with MS whose spouses are the employee and many of them are guilt-ridden about the cost that they are bringing to bear on their employer and their coworkers, and many of them are afraid and when people do lose their job for whatever reason, many of them, rightly or wrongly, attribute that loss of employment to being that health care burden. Chairwoman WILSON. Thank you. Many on the other side of the aisle and in the insurance industry often say that patients need to have more skin in the game to keep costs under control. To me this seems like an excuse for plans to raise deductibles and increase cost-sharing for patients. And we are talking about medications, this notion of skin in the game can have troubling consequences for patients. Mr. Isasi, what effect does requiring patients to pay more out-of-pocket have on their ability to access care, including prescription drugs? Mr. ISASI. Well what we know right now is a third of Americans who are trying to access prescription drugs to stay healthy or to get healthy are not taking that medication as directed because they can't afford it. And some of those people, the majority of them are actually cutting their pills in half, or skipping doses, some are just not taking them at all. We hear stories all the time about patients who end up becoming seriously ill or dying because they can't take the prescription so as we heard earlier, these very high costs don't actually allow people access to the innovation that the pharmaceutical company is promising. It is actually rationing. Chairwoman WILSON. Okay. Now we expect this bill to have-- to greatly reduce cost for patients and tax payers and I believe it is important that we use savings to improve crucial health programs for American people, so I am going to ask the witnesses. Perhaps Mr. Isasi and Ms. Talente. Are there any programs such as the NIH or Medicare in which you believe Congress should invest these savings? We will start with you, Mr. Isasi. Mr. ISASI. Absolutely, I think that what we know for sure is right now it is seniors and Medicare beneficiaries across the country have spoken--they are desperately in need of an oral health care benefit. In Medicare there is none. They are desperately in need of a hearing benefit in Medicare. There is none. They are desperately in need of a vision benefit. There is none. So there is a lot of need right now to make the Medicare benefit comprehensive so that we are giving folks who are receiving it the best chance at living their best self- actualized life and in addition, we also know that all of these innovations that the drug industry is profiting from, almost all of them--all of the ones that are currently being approved in the last five years started with NIH research, so let's invest in the place where the innovation actually occurs which is our public and private institutions that receive NIH funding. Chairwoman WILSON. Thank you. Ms. Talente, you have a couple of seconds. Ms. TALENTE. We know that for every MS treatment on the market today, you can tie back some critical understanding of the biological function of the mechanism of action of the understanding of MS back to research that was done at the National Institutes of Health so investments there, at NIH is probably one of the best ways to spur the future innovation and bring cures in the future. Chairwoman WILSON. Thank you so much. I remind my colleagues that pursuant to committee practice, materials for submission for the hearing record must be submitted to the committee clerk within 14 days and now we will have questions from Mr. Walberg, Ranking Member. Mr. WALBERG. Thank you, Madam Chairwoman and thanks to the panel for being here. Mr. Holt, when Medicare's prescription drug program was implemented, it included a non-interference clause that prohibited the Secretary of HHS from intervening in negotiations between private firms or private plans. Has this model been successful in driving down costs and increasing competition with Medicare beneficiaries and second, would the direct negotiation provision in H.R. 3 destabilize these efforts? Mr. HOLT. Yeah, so when part D was first developed, the idea was to get as many plans competing as possible but there was concern that the negotiation wouldn't work so there was a Federal fallback plan that would have had a premium of, I think, 35 dollars at the time. Today it would be at about 44 dollars. In reality, the negotiations between the manufacturers and the plans and PBMs have led to a situation where the premium, I think next year is expected to be about 30 dollars on average per beneficiary, so we've definitely seen that the negotiation in part D has been very effective. That is not to say that there aren't reforms that could be made to part D and I think this bill at least starts to address some of that but yeah, we've seen very effective negotiation in part D. Mr. WALBERG. Would we see destabilization of these efforts by direct negotiation as proposed in H.R. 3? Mr. HOLT. Yeah, and particularly early on where some drugs would be having their price set by the Secretary and the others would still be part of this negotiation would be really difficult to predict how that would affect the overall benefit. Mr. WALBERG. Mr. Holt, when talking about the high cost of prescription drugs, Sivaldi, the cure for Hepatitis C is the poster child. Although the drug cost 84,000 dollars for a full course of treatment at the time of its launch, within two years, competitors introduced rival treatments and the price came down by 46 percent, which I hasten to say is still too high for many people. In your opinion, was this an example of market failure? Mr. HOLT. No, I mean this is an example of how markets should work. Competitors come in and we see concessions as a result. Mr. WALBERG. Would it be considered a market failure under H.R. 3? Mr. HOLT. Under H.R. 3, Sivaldi would be considered to be a drug that does not have competition. Mr. WALBERG. Thank you. Mr. Garthwaite, Dr. Garthwaite, you explained in your written testimony that development of pharmaceuticals is a long and risky process and that firms rely on some degree of regulatory and market predictability when deciding to invest. How would H.R. 3 undermine the predictability and the willingness of firms to take chances for the sake of innovation? Mr. GARTHWAITE. On the predictability side, you'd be a bit at the whim of the Secretary of HHS as to whether you're going to be one of the drugs that is picked to have your price negotiated. In addition, we would be targeting our negotiation on those drugs that generate the most unique value in the market, those that don't have competition and therefore are the only choice. Now that might seem positive to some people but I would note that is the very nature of drugs that we would want to see people invest in so we would be sending a signal to the private market that drugs that meet unmet demand, that provide truly new treatment options are going to have their price severely capped and while Mr. Mitchell mentioned the Secretary Azar's comment about one penny of profit, that is not what we are talking about here. We are not talking about marginal changes to profitability and I am sorry that Mr. Mitchell thinks it is a tired talking point but the trouble with the truth is it doesn't change. The truth is if you decrease the return to innovation, you will get less innovation and I am happy to have a debate about whether we want less innovation. I am not happy to sit here and say that won't be the response. It is personal to me as well. I have lost very close family members to cancer because they didn't have the drugs that you have the ability to pay for. That is an access problem that we have to take very seriously. There are a lot of conditions for which we don't have access today because there is no drug and we have to keep those people in the debate as well because sadly they can't be sitting at the table testifying because they are no longer here. Mr. WALBERG. Thank you. Let's go to some case history, Dr. Garthwaite in countries that have enacted price control similar to the ones included in H.R. 3. Do their patients have the same access to new therapies as patients in the United States, and second, do patients in those countries face increased wait times, drug shortages or denial of coverage for lifesaving drugs? Mr. GARTHWAITE. This varies a bit by countries. We often talk about the idea of European healthcare or developed country healthcare. There is no one system that we want to talk about or that we can point to and say they are all the same. In the UK, for example, where NICE is the committee that negotiates this. Yeah, patients have reduced access to drugs. Patients with cystic fibrosis don't get access to Vertex' products there and that is a choice that they've made. In Germany, they pay higher prices, they get more access, but they don't get access to some drugs that we get here because they deem that they are not worth the money that is being paid and that is all fine. There is no secret to how Europeans get lower prices. They are not better negotiators than us. They'll just walk away. They are willing to walk away from drugs. We don't want to do that here. We don't want to face the hard choice in that H.R. 3 so what do we say? You're going to give us the price we want, or we are going to take all of your money as a drug company. That is not a negotiation. Chairwoman WILSON. Thank you. Mr. WALBERG. Thank you, I yield back. Chairwoman WILSON. Mr. Norcross of New Jersey. Mr. NORCROSS. Thank you, Madam Chairwoman for having this hearing and it certainly is long overdue to have some real conversations that lead to both the continuation of innovation but at a reasonable price. I can tell you the folks in my district, nothing twerks them up more as to find out their great country spent somewhere close to $40 billion a year in NIH funding which means we had skin in the game. That money does not magically appear from somewhere. It is those taxpayers we represent and yet the stories that I hear from a young man who goes for his insulin and what he pays a year and if they can go right across the border into Canada, 1/10th the price. So, Ms. Talente, I'd like to ask you a couple of questions. When we talk about negotiations going beyond where we have historically been to where this bill puts us, we spent $40 billion on NIH and it is not all for one particular area. There's a lot of research there and you say they bring this great intervention. Do you see that America gets a discount on some of the pricing from those innovative drugs that come from NIH? Are we getting that special break? Ms. TALENTE. No, not that I have seen. Mr. NORCROSS. So, we pay for it and under many cases we pay substantially more than other countries? Ms. TALENTE. Yes, that is true. Mr. NORCROSS. This is the thank you we get for putting that research. I really appreciate that. But can you walk me through the negotiations that Medicare has? Can you directly say because we pay this much more for our pharmaceuticals in this country, that we are getting more breakthroughs across the board but particularly in MS? Ms. TALENTE. Generally, what we see is that the breakthroughs in innovation hop in and then those products go through the drug approval process in other countries as well, so they are not just coming to the U.S., they are going to other countries around the world. Mr. NORCROSS. You find it somewhat distressing that we make the greatest investment and pay the greatest prices? Ms. TALENTE. I find it disturbing that people are going without their medication because they can't afford it. Mr. NORCROSS. Thank you. I want to talk about some of the issues with the PBMs. Having spent the better part of my private career dealing with health plans, pharma plans, the PBMs that came into existence some time ago were the greatest thing since sliced bread. They were out there fighting for us, but now they are part of the problem. So when we see negotiations, we the end users, even though we buy a large plan, don't see the direct negotiations that take place. In other words they are being done behind closed doors. So, Dr. Socal, how can we ensure those PBMs are pricing, those price savings are passed on to the end consumers? Dr. SOCAL. There are two ways that we could do it. We could try to capture every single change in the negotiation process and make that known, which I don't think is feasible and I don't think it helps to the negotiation process or we can have a benchmark and we can show this is the benchmark that other countries are paying and you as an insurance plan, you have something that you can compare your price to. So you don't really know all the working mechanisms that are happening behind the curtain but you have a very clear benchmark that you can take a look at to know if you are getting a good deal or not. Mr. NORCROSS. The rebates, that is part of the area that we don't see anymore, and you might get the savings but you might not. What do you think the most effective way, other than to open up that process, and to some degree I agree with you that it is very difficult to follow everything, that is why they are doing so well. The confusion that the average person doesn't have the time to go but rebates see to be a real issue that they are not making to the end user. Dr. SOCAL. And I would add it is not only the fact that there is a rebate, it is the fact that the rebate is intertwined with the revenue source for the PBM. So, if PBMs were to pass on fully all rebates, all fees, everything to the payers, that possibly would generate less distortions to the market. But PBMs' revenue depends by in large on rebates and that generates a series of distortions and oftentimes higher prices for the payers as well. Mr. NORCROSS. I am out of time. Thank you, I yield back. Chairwoman WILSON. Thank you, Mr. Norcross. Dr. Foxx? Mrs. FOXX. Thank you, Madam Chairwoman. I want to thank our witnesses for being here today. Mr. Holt, what current regulatory guardrails exist in the pharmaceutical industry to give incentives to companies to undertake financial risk associated with developing new drugs? Would H.R. 3 impact the current patent system and exclusivity periods that attract investment? Mr. HOLT. I don't know that H.R. 3 would directly impact the patent system. I think clearly H.R. 3 has serious implications for capital to continue coming to drug development. Mrs. FOXX. Mr. Holt, H.R. 3 would allow the Secretary of HHS to negotiate the prices for up to 250 drugs per year. In your opinion, does HHS have the necessary access to data and regulatory review capacity to undertake this process and what are the consequences of granting HHS this information? Mr. HOLT. So currently no. the legislation does grant HHS really unlimited power to demand any and all information from manufacturers in order to in theory facilitate the negotiation although it is not clear to me that HHS needs any of that information since the Secretary can basically just wait out the manufacturer during the discussion; but I have real concerns about the proprietary data being handed over to the government. Mrs. FOXX. Thank you. Dr. Garthwaite, you note in your testimony the important role of the National Institutes of Health and other government entities in funding scientific research that contributes to product development. You explain further, however, that NIH is focused on basic scientific research and not the start to finish pipeline of pharmaceutical trials and production. What role does private investment play in bringing innovations to the market and how would H.R. 3 undermine this process? Mr. GARTHWAITE. So private market basically commercializes the basic science that the NIH does and so it helps to think a bit why we have the NIH in the first place. The NIH solves what economists call is a public goods problems. So you generate a bunch of basic science, anyone can use it. You can't protect it, and because you can't protect it, you can't appropriate the value. No private firm is going to ever do that research because they can't get their money back, so that is where the very valuable role of the NIH comes in. In fact, as tax payers, we should be happy that the NIH is being used in all drugs because we are getting the most bang for our buck on the share of the 30 billion dollars that goes to drug development. So if you want to use savings from this bill to then get new drugs to market, you are going to have to really change the function of the NIH in some way to really start to focus more on commercialization, which is not something they've done before, and it is not clear it is going to be something that they are very good at. I would note that this is in many ways a centralization of the research process with NIH, but they are going to act like they are their own little venture capital company. At the same that the private market is choosing to decentralize research to a large number of small biotech companies and so you would really have to change the nature of what the NIH is to get that to work and it is going to be sort of a competition between taking away the incentive for the private market to invest commercialization dollars, how much innovation will you lose there compared to how much you think you could get by having the NIH serve this new and untested role. That is the--you have to think about that. I don't know if we have a good answer as to which of those would dominate. Mrs. FOXX. Thank you. Dr. Garthwaite, proponents of H.R. 3 argue that implementing an ``international price index'' would force foreign countries to pay their fair share of the pharmaceutical research and development cost that are largely borne by the United States. Would this proposal result in other countries paying more for research and development or everyone paying for less research and development? Mr. GARTHWAITE. The answer is kind of both, I guess. Foreign countries are going to pay a little bit more. We are going to pay a lot less, a net will meet somewhere in the middle from that so we will get a little bit more money out of the foreign countries and I share Mr. Norcross' frustration. I would like it if the other countries paid more of this than we currently do. That would be the first best, right? Every country sort of pays its fair share. Unfortunately, what's probably going to happen is they'll pay a little bit more, we will pay a lot less and we will get less innovation and that is unfortunately where we are going to be. Mrs. FOXX. Well we've always been the leaders in many, many, many things and to me this is a small price to pay for the access that our citizens have to the drugs that are developed. Thank you very much. I yield back. Chairwoman WILSON. Now, Mr. Morelle, New York. Mr. MORELLE. Thank you, Madam Chair for holding this important hearing today. I will start out by saying I am a capitalist. I believe in investment and innovation, new products, new development cycle. I think it has benefitted Americans tremendously over the years but I am struck by the issue of innovation in pharmaceuticals because I have met with pharmaceutical companies, I know the talking points, but I find it interesting and I will just use an example which is probably not entirely analogous but if you think about what's happened in the development of personal computing over the last 30 or 40 years, there's been massive innovation, massive investment, and yet the price of these devices has continued to drop despite the fact that there is more and more investment in innovation. I think back to my old social studies books about Henry Ford who priced the Model Ts when they were coming off the assembly line so that individual workers could afford them so he would help build a market. The difference in pharmaceuticals, I understand is you didn't have to buy a car if you didn't want to. You could find other ways to exist. Mr. Mitchell and people like him don't really have an option of not buying the car in the analogy. They have to buy the drug because it is lifesaving, so I struggle to understand exactly why the innovation cycle works in just about every other industry, but it doesn't seem to work very well in the pharmaceutical industry. Particularly in the advent of supercomputers, mapping of the genome and more and more information available to pharmaceutical companies but let me--so I will just use that as sort of a sense of where I come from on this and I am happy to talk to others and by the way, Dr. Garthwaite, I thought you said at one point, and I don't have time unfortunately but I'd like to get into it with you, perhaps offline. You mentioned something about the advertising costs and salaries don't affect return on investment for investors but actually all costs go into it unless I misunderstood--did I misunderstand you? Okay, I apologize. I only have three more minutes but I will look at the testimony, but I do apologize if I mischaracterized that so thank you for clearing it up. I did want to talk about insulin. In my district, insulin prices have skyrocketed as I assume it is everywhere else but in Rochester alone, where I represent, the 50 most popular diabetes medications cost the Medicare program and beneficiaries approximately $24.7 million in 2016 dollars. The monthly cost of a widely used insulin would be 74 percent lower Australian prices, 70 percent lower UK prices and 52 percent lower Canadian prices. We talked about cost setting in those countries as a reason for that, but it is important to know. Studies show manufacturers could charge as little as $7 to $11 per month for insulin and still make a profit. The average monthly--I'm sorry yearly price--annual price of insulin nationwide is $450 which is a considerable multiple of that number so Dr. Socal, if you might, in your testimony you talked about the role competition plays in controlling health care costs and when there is no competition, prices tend to rise and I would just be curious about what barriers there are. Insulin, in particular does not have--first of all it has been on the market for a long time so could you talk to me about how--is there innovation? Is that what is driving the price of insulin because it doesn't seem for something that is been around so long that is the issue. Dr. SOCAL. Well it is a combination of multiple factors but I would first start by highlighting yes, it is an older drug, it has incurred changes and innovation over time, especially in the sense of new application mechanisms, new tweaks to the length of the effect, faster effect, longer effect and things like that but most importantly, the prices for insulin, it is a quite good example of what I mentioned before. PBMs cannot say no to insulin. You cannot say no. It is a drug that you really need, and you need right now. It is similar to a situation where you have a very serious infection and you need an antibiotic. You cannot wait a week or a month to get your antibiotic. It is the same way with insulin, but people with diabetes, they need the same urgency of access every single day, every single time. Mr. MORELLE. And is the innovation that you talked about, is that what is driving the price of insulin? Dr. SOCAL. No, that is not driving the price of insulin. It is really distorting a little bit the competition between the insulins that do exist in the market so before when it was brought up, the fact that well there are some therapeutic classes where you do see branded drugs available in the market and they compete against each other, yes but we have to think about the clinical aspects of that and I am a physician, I am very familiar with what patients feel and they feel I am used to my insulin, to my application mechanisms. If I was going to change, it is not going to control my disease as effectively so those clinical aspects also play a lot in terms of being able to say no and negotiate effectively for that. Mr. MORELLE. Thank you so much. Thank you, Madam Chair. Chairwoman WILSON. Thank you. Thank you so much. Dr. Roe? Dr. ROE. Thank you, Madam Chair for having this and I hope we will continue to have these hearings. I am going to go on a little history tour. I graduated from medical school this December 49 years ago and I graduated from medical school there was one cephalous borne antibiotic and now there are--I call them self- acknowledging. There are so many of them. There were five anti- hypertensive. Three of them made you sicker than the hypertension did, and we didn't use them much. Now there are 50 at least. My first pediatric rotation in medical school was at St. Jude's children's hospital. I can still remember seeing some of those kids. 20 percent of them lived, 20. Now It is 83 percent I believe is the last number I saw from St. Jude's and Mr. Mitchell, you are getting the benefit of some incredible research that is been going on and I hope it continues to go on. I have struggled with this for 40 years, seeing patients as a private practice doctor and a teacher in medical school. The innovation that we have, these new medications and then patients being able to afford them. If you can't take it, as Mr. Mitchell said, it doesn't do you any good and Mr. Morelle, I could not agree with you more, insulin was discovered in 1921 by Benning and Best in Toronto, Canada. There is no reason for it to be 10 times as high in Canada as it is here in this country and you look at these countries that--that this international pricing is going to be and of the 270 new global medicines lost in the United States since 2011 to 2018, 100 percent of them are available in the United States. 41 percent of them are available in Australia, so one of the ways you do is no question, the CBO is correct. You limit--when you limit how much somebody would pay, you are going to limit what's available for people to take and that is the dilemma I have and I think Ms. Talente, I think one of the things that we can do and Mr. Mitchell, there is no question that there are diseases out there and new innovations that are going to come along that are going to be expensive and I think we have to take those patients that are in these very high risk situations and put them in a high risk pool where their costs are no greater than anybody else and we are going to continue to find cures. I will run through very quickly. Dr. Lemial Diggs was my hematology professor in medical school. He lived his entire life trying to cure sickle cell disease for African Americans. His entire life. I can remember sitting by bedsides of pregnant women and taking out the sickle blood and transfusing normal hemoglobin into that woman for 35 weeks so she could get through her pregnancy and we could deliver her baby safely. Now, at NIH, some of the basic science research. It looks like we are going to be able to take an intenuated HIV virus, put the right genetic code and cure sickle cell disease. That is remarkable, but it is not going to be inexpensive and we as a society have to decide are we going to have the innovation and we're going to help the people that have MS--numbers of patients, a million patients in the United States have MS and these treatments are incredibly expensive, so what we have to do is I want the innovation but I don't want, as a doctor, 41 percent of the new drugs that I have access to and especially, I have said this all along. I don't care if your case is one in a million. If it occurs in you, it is 100 percent. Just like Mr. Mitchell's is 100 percent for him, in that patient, so I am going to ask Dr. Garthwaite just a couple of questions. In 2018, the FDA approved 58 novel drugs. In 2017, the pharmaceutical industry spent 97 billion on research, development and so forth and a typical R&D, we know It is somewhere between 800 million and 2.7 billion to bring molecule to market so that I can write a prescription for it. Do you think that the elimination, effectively the elimination of the private industry and R&D by 2023 under this bill will adversely impact patients 10 years from now and do you think the NIH will be able to offset that loss through their budget, even though It is only a third of private spending? Mr. GARTHWAITE. So I have doubts on whether the NIH will be able to offset it, even if we gave them a lot more money. As I said, it is not just about giving the NIH more money, It is about them doing an entirely different set of activities than they currently do and we know that private firms partner with the NIH based on their ability to get returns. We know that in 1995, we used to say that the NIH would have a fair pricing clause attached to their partnership with private firms. We took that away. We said there are no more pricing constraints on the partnerships, the number of these partnerships skyrocketed in the years after that, so we need to have a respect for the fact that the private market are the people who commercialize drugs. We could try to make the NIH that entity, but it would be vastly different than they currently do. Dr. ROE. That is not what's going on in Switzerland or other places--or France. They have a robust market. The private companies do that research there and It is not done by the government of France or the government of Switzerland. Mr. GARTHWAITE. But they do it to sell it to the United States. Global firms do research and sell to us. Dr. ROE. Well I do want to continue. Madam Chair, I really do appreciate this hearing and I hope we continue this discussion. Chairwoman WILSON. We will. Dr. ROE. We don't have enough time. Chairwoman WILSON. Thank you, Dr. Roe. Mr. Courtney of Connecticut. Mr. COURTNEY. Thank you, madam chairwoman and thank you for hosting this hearing. Last November, this country experienced a historic moment. It was the largest voter turnout in a midterm election since 1914. We elected a new majority with a plurality of 10 million votes which shattered all records in history of this country and if you looked at the exit poling, health care cost was the number one concern of voters and more particularly the cost of prescription drugs so holding this hearing on this bill is in my opinion keeping faith with the loud strong message that came out less than a year ago through our democracy. Yesterday, we got more validation about this issue. Kaiser Family Foundation released its annual health benefits survey of employer-sponsored health insurance. The study found that the average premium for family plans has increased 22 percent since 2014 which has been a very low inflation environment and last year to this year, it was a 5 percent increase, again, far surpassing the rate of inflation. According to the Americas Health Insurance Plans, 23 percent of private health insurance premiums go towards prescription drugs. The largest share of healthcare costs, larger than doctor services, office visits and hospital stays. In addition, we have seen the trend toward high deductible coverage as a way, a desperate way of trying to moderate the increase of a premiums so again, there's an additional layer of cost which patients and workers have been experiencing. So Dr. Socal, when we talk about the brave new world of high-deductible health insurance, lowering the list price of drugs, which as you pointed out in your testimony is really where the rebates are worked off, but they are not shared with workers so could you kind of talk a little bit more about the way that all transpires. Dr. SOCAL. Absolutely. First of all, let me just mention that from an employer perspective, you want to offer the best benefit you can to your workers so an employer, if possible, they would choose to offer the best plan they can and the offering of these high-deductible health plans, more and more-- the more frequent offering for those plans, it already reflects how companies are struggling to pay for their bills and they are sharing these agreements with patients. The real problem is that once you are enrolled in a high-deductible health plan, automatically, there is some sort of parallel mechanism to save money like a savings account, for example. Patients believe they are going to be protected like an insurance agreement, however the price that they are going to be faced with is going to be the list price so you cannot save your way to pay for the list prices that the insurers are negotiating down. Mr. COURTNEY. That was on page 7 of your testimony, which again, basically says list prices before rebates determine America's cost-sharing amounts so again, the patient and the worker again is really sort of excluded from all the-- Dr. SOCAL. Absolutely, they are always faced during the initial deductible, even for somebody who is fully insured, doing the cost-share and cost-sharing--percentage cost sharing is more frequent for the highest cost drugs, so patients are always paying over the list price, never over the negotiated price. Mr. COURTNEY. Thank you. And Mr. Isasi, again, AHIP, which, you know, maybe hasn't always been aligned with your organization in the past but I mean do you see any--do you disagree at all with their analysis that prescription drugs now are sort of consuming the highest percentage of premium dollars? Mr. ISASI. Prescription drugs are 25 percent of premium dollars at this point. They have gone up exponentially which means if any of us aren't on prescription drugs, we are still paying for them. Mr. COURTNEY. So again, if we are looking at a strategy both public sector and private in terms of just how we moderate and hopefully reduce premiums. I mean that sort of trend just sort of screams out for Congress to act, is that right? Mr. ISASI. That is exactly right and just on this innovation question that keeps coming up. A couple of points: Sovaldi, which was raised before. Gilead bought the drug from the researcher at the VA and then their analyst said enter the market at this price and we will make a ton of money and then they quadrupled it. And then the patients in the VA couldn't afford to get the drug. That is innovation. MS, we have talked a lot about MS. In the last five years, the drug went from $60,000 to $90,000. In five years, same drug, that is not innovation. That is not about innovation. In fact, what we know right now is 75 percent of the drugs that are coming to market are coming to market because they are especially drugs that can get the Medicare beneficiaries in a catastrophic coverage where they only pay 5 percent. The government pays 80 percent, the plan pays 15 percent. Think about what it would mean if we had iPhones where 80 percent of the cost was government subsidized, 15 percent was paid by the iPhone retailer and then 5 percent was paid by us. That is what we are living with right now. That is not innovation; that is why we don't have low cost drugs. Mr. COURTNEY. And that is why we need to move on H.R. 3-- Mr. ISASI. Absolutely. Chairwoman WILSON. Thank you. Mr. Johnson from South Dakota. Mr. JOHNSON. Thank you, Madam Chair, I appreciate it. So Mr. Garthwaite, I understood your comments. They made sense to me that venture capitalists and for that matter other capital contributors, they could invest in any industry and so that doesn't offend me that the pharmaceutical companies would need to have a certain return on investment that need to earn that return on investment to attract that capital. It seems like from the data we have looked at and from the testimony we've heard today, the pharmaceutical companies are not earning anywhere close to that necessary return on investment and the European markets, so where do the pharmaceutical companies make up that shortfall and the target return on investment? Mr. GARTHWAITE. The United States. Mr. JOHNSON. I mean obviously that is the answer. I mean I do find myself more and more affiliating myself with the comments of the President that in that environment it looks like Europeans are really taking advantage of us. That may not be their intention but that is certainly the effect. Dr. Foxx, I thought had some good questions about and also kind of where do we go from here. Your response that yeah maybe we would come down a bunch and they might come up a little bit but that means that yes, we are paying less but we are getting a lot less innovation. I get that is logical; it seems fatalistic, it seems like we are putting ourselves and the rest of the world in a box. Is there any other way? Is there any way to better balance this European versus American contribution to the return on investment? Mr. GARTHWAITE. I think if you are looking for optimism, you shouldn't have invited an economist here to testify. That is not really what we do. I mean listen, It is unfair. What's happening is that the Europeans are free riding off of American dollars and I think that is bad. I think the only thing worse is that no one is providing this innovative money. I mean sometimes if we want to get so caught up in the idea of fairness, we are going to cut our nose to spite our face. We are going to stick it to the Europeans, right? They are going to have to spend more and we are going to win in that sense, but what are we going to win? We are going to win lower prices, okay? And fewer drugs in the future. This is all dictated by returns and while I understand Mr. Isasi's example that Gilead didn't make the drug itself, a company named Pharmasset made Sivaldi. Why did they do it? So they could sell it to Gilead. In the end, the venture capitalists are looking for an attractive exit from their innovation and Pharmasset. They sold it and then Gilead priced it and took it to market and that is what people are looking for in this. The return is what dictates this. Mr. JOHNSON. So I do understand the value of paying more for a drug so that a country, like America, can get a preferred access to that drug but I found myself being struck by Ms. Talente's comment, her testimony that in most years, most of the increase in drugs, the price that Americans pay for drugs come from year over year increases of drugs that are already on the market rather than new market entrance. Does that comport with the knowledge you have got about what drives pharmaceutical inflation? Mr. GARTHWAITE. Unfortunately, I am well aware of the health--the article she is citing. It is a tragically flawed article. It uses bad data. It doesn't understand how drugs are priced. It uses non-rebate data, and older drugs have bigger rebates, so by construction, if you don't take rebates into account, it will look like the price increases are coming from older drugs, not newer drugs, and so I mean I don't know what else to say other than the article is wrong. Mr. JOHNSON. So what suggestions, Mr. Garthwaite, if H.R. 3 is not the right approach, because I do find myself believing wholeheartedly that the system--that this balance that you very articulately and logically laid out for us--I believe in that balance. Cost and innovation, there's a tension between those two. I do get the sense that maybe we haven't balanced that properly so if H.R. 3 isn't the right solution, give us some thoughts about where we should go from here. Mr. GARTHWAITE. Absolutely. First, let's do things that make the market work. Some of the reasons it doesn't work is because of decisions that Congress has made. We have the catastrophic program that Mr. Isasi is talking about where the government pays 80 percent of the cost of high-priced drugs. That is ludicrous. That doesn't provide insurers the strong incentive to negotiate, so let's flip that, let's put 80 percent on the back of the insurer. All of a sudden, they are going to get a lot more interested in negotiating the high price of the drug. We have protected classes that say you have to cover every drug in the category. You don't have to come to Kellog and take our wonderful negotiations classes to know that if they have to pay your price, you can just sit there and wait. We have generics that have very small markets and therefore can't attract multiple competitors. There, we've already paid for the innovation. We might want to think about regulation for those products, things like the Daraprim product that Martin Shkreli raised the price on that sort of got everyone upset. Maybe that is where we need regulation. It is not that I am opposed to regulation in any setting, I want to be clear. We want regulations when markets failed but a high price is not a market failure if that price is generating the incentive for the innovation we want and so targeting the places where the market isn't working, provide insurers with the incentive to negotiate and vigilantly monitor the competition. Don't allow people to gain patents, don't allow people to exclude their competitors. Have robust anti-trust authority for people who are breaking the rules and then if all that happens and we are still at this position, then let's talk about a failed market but we haven't even given the chance for the market to work yet. Mr. JOHNSON. Thank you very much. Madam Chair. Chairwoman WILSON. Thank you. Ms. Shalala of Florida. Ms. SHALALA. Thank you very much. I am interested-- obviously you have described the cost-shifting that is going on from the Europeans to us. It is been going on for a long time and it is not so easy to get at that and during the time that I was the HHS Secretary, I begged for an opportunity to negotiate because I was opposed to the importation, which I thought was unsafe and I still believe it is unsafe. But explain to me and all of you can comment on this, how the Europeans can negotiate directly, have a more limited list of drugs and get better outcomes than we get in whatever you want to describe the market for because I don't see analysis that tells me that large numbers of Europeans are dying from certain diseases because their health administrators are negotiating are tough negotiators on the price of drugs. Mr. GARTHWAITE. So I mean what we can do is we can do what the Europeans do and start saying no to some drugs on our own. So we talked about insulin. Why is one reason insulin is expensive? Yes, it is an old drug but it has evolved a lot over time and there are two categories you might want to think about. We have human and analog insulin, analog insulin being a newer insulin. Caramore, which is a Medicare Advantage provider in California, they put a bunch of their type II diabetics, a large fraction on them on human insulin, the older kind and then they monitored for any adverse events. They had no increase in hypoglycemic events and they had a big decrease in savings. Ms. SHALALA. So basically what you're saying to us is that where there are more than one drug that will treat the patient, we have not seen different outcomes necessarily for most patients but we are not prepared to do that? Mr. GARTHWAITE. The gentleman left, Mr. Morelle but in tech what happens is we take slightly worse products that have meaningfully lower costs. In the U.S., healthcare we are unwilling to do that. Right? We want--we will never take a slightly worse product, even if It is thousands of dollars less. We will, however, take a slightly better product and pay thousands of dollars more and until we are willing to say we won't do that, that you have got to give us the return for our money, we are not going to get any savings. Ms. SHALALA. Madam Chair, this is a very important point because what we are describing is--we have not focused on outcomes. I am interested in outcomes. I am interested in whether we can make Americans healthier, and if we can use a negotiated process to do that, are there any circumstances or will any of you--would you propose any different ways of organizing the negotiation other than using an international price index? For example, the VA negotiates now, the prices are online. You can actually see the contracts online. I mean we do have American government officials that now have experience in negotiating prices, whether it is on Medicaid or whether it is VA or whether it is for Tricare, we have had a lot of experience. Mr. ISASI. Well I was going to say absolutely and we know that, for example, what Mr. Garthwaite is talking about in so much of his testimony is this hypothetical world in which if only we could do this and if only we could do that but the truth is we live in a world where there is a Medicare benefit, cash off of coverage that pharmaceutical companies are pricing to that coverage, there has been a 96 percent increase in price only in that coverage. They are playing a game with us, but he is in this hypothetical world. To your point, in particular with launch prices, we should be able to understand what is the real value of this drug? Does it really provide a benefit? How does it compare to what is on the market currently? We are not doing that as a country. You are describing that occurring in other countries, Mr. Garthwaite is as well. We are not doing that as a country so we just put it on the market, they market it to doctors, doctors bring it to their patients and now we are spending $6,000 for something that should probably cost 5 cents. Ms. SHALALA. The head of Eli Lilly came in to see me before they dropped their price for insulin and they actually had the nerve to say to me he could have dropped the price lower. I mean-- Mr. ISASI. They tripled--insulin tripled between 2003 and 2012 and it went up 10 times faster than all the drugs since then. Ten times faster, meanwhile they are suing other competitors to make sure they can't come to market with a biologic similar. Ms. SHALALA. Mr. Holt, just one small point. I am an academic and normally when we testify or publish articles, we identify if our organization takes money from--in your case from pharma. I didn't see that acknowledgement on your testimony. I would hope that you would disclose whether your organization does take any money from pharma or has in the past taken money from pharma. I yield back. Chairwoman WILSON. Mr. Holt? Mr. HOLT. Our organization is a 501C3 and we don't disclose our donors. I am not allowed contractually to do that, and I also don't have anywhere near the knowledge of our donor situation to do so. Ms. SHALALA. It is actually online, the IRS reports. Mr. HOLT. Not ours. Maybe people who give money to us but ours are not. Chairwoman WILSON. Thank you. Mr. Allen of Georgia. Mr. ALLEN. Thank you, Madam Chairwoman and thank you for this expert testimony today. Obviously, I think every district in the country, when we go home, healthcare is number one. No question about it. What I have been able to observe is nobody in healthcare is happy. Patients, Mr. Mitchell, are not happy, providers aren't happy, and the government has thrown trillions of dollars at this. The cost is skyrocketing and yes, we've got--we are developing great drugs. We are--I think, again, in a free market environment. There is no question that free markets drive innovation. The government doesn't innovate anything. Yes, we can do studies, we can pay people to do studies but still to be able to raise the capital to invest, to be able to come up with these things that save lives is critical to this whole process so here is the question. And again, we do believe that this thing needs to be fair throughout the world. In other words, we should be able to sell your technology. I mean we have this problem in China. Why is the President negotiating with China? Because they are stealing all our intellectual capital and then turning around and competing against us and dumping those products in here. In fact, how much of our drugs today are made in China? Because they have stolen our capital and they are selling the elements to develop these drugs back to us. Mr. GARTHWAITE. A lot are made in China. I don't want to sign on to the second part that they are made in China because they are stealing our intellectual property. They are made there because we outsource manufacturing to China and India for lots of products so-- Mr. ALLEN. They aren't proprietary. Mr. GARTHWAITE. We outsource to them to make the drug. It is a contractual arrangement between us and them. It is a perfectly legal arrangement. Mr. ALLEN. I see. And they are using our technology to do that? Mr. GARTHWAITE. Our technology on how to manufacture drugs? Mr. ALLEN. Yeah. Mr. GARTHWAITE. That is--India has been the drug store to the world for decades. Mr. ALLEN. Okay. Mr. GARTHWAITE. It is not--that technology on how to make a small molecule product isn't proprietary technology unless you--you have a lot more access to information than I do so you might know something about them taking technology, but I am not sure what you are getting at. Mr. ALLEN. Well, I just--again, this is a worldwide problem, I guess what I am trying to say as far as whether it is Europe or anybody else and the fact that in Canada you can buy insulin for much less than you can buy it here in this country, we've got to fix that, and in other words, we've got to fix it to the extent that whatever we are able to develop here and sell here, if somebody else is going to use the same-- use our intellectual capital, they need to pay for that and again, I still don't understand why is it that they can sell their insulin for less than we can do it. I mean-- Mr. ISASI. Because their government negotiates price. That is why. That is literally the reason. Mr. GARTHWAITE. It is also--I'm sorry. It is because they are willing to walk away. I know you want to talk about me living in a fantasy world, but it is not hard. They are willing to walk away, and we are unwilling to tell our seniors, in particular, that lower prices might mean less access to drugs. Mr. ISASI. And that is why H.R. 3 is so brilliant because it actually doesn't walk away; it forces a manufacturer to either give it a reasonable price or they end up paying an excise tax. Mr. ALLEN. I'd like to reclaim my time. Mr. ISASI. So, they don't walk away. They make sure the drug is available. That is what we care about. Mr. ALLEN. I'd like to reclaim a little bit of my time, Madam Chair. Well listen, I got a little something going here, right? Now, so the last questions. So if a--the drug Mr. Mitchell is taking and I don't know how that is being paid for but say it is Medicare, okay? Mr. GARTHWAITE. I mean I guess, yeah. Mr. ALLEN. And so Medicare is going to negotiate the price of this drug and they are saying we are going to pay this much for this drug for Mr. Mitchell and that is all we are going to pay. The company says we are not going to sell it to you for that and they walk away from the deal, what do we do then? Mr. GARTHWAITE. So the hard part is that we have required-- so that is an oral chemotherapy drug so I believe it is in the Medicare part D. we've required that the oncology products in Medicare part D, the insurer must cover every single one so it is the decision--that is a government decision because we didn't want seniors to not have access to every oral oncology product and that is a decision that we've made and that is why--It is not about the government negotiating it. The government negotiating it under those rules, it is the same thing that is going to happen and so-- Mr. ISASI. That isn't what would happen under the bill. Mr. ALLEN. I am not addressing you, sir. Chairwoman WILSON. Great discussion. Mr. ALLEN. Can he finish his answer? Chairwoman WILSON. Finish your answer if it is a minute. Mr. GARTHWAITE. A whole minute? We have to decide whether we are willing to walk away. There is no secret to the drug pricing. It is not about the government negotiating, it is about the government saying they'll walk away. Creating that outside option. What we are going to do under the H.R. 3 is just under H.R. 3, you will still get access to the drug because we have said we will take all the company's money away if they don't give it to us so where is the access problem going to come? It is not going to come today. It is going to come in 10 years. There are no easy answers here. Chairwoman WILSON. Okay, thank you so much. And now our esteemed Chair, Mr. Scott. Mr. SCOTT. Thank you. Mr. Mitchell, you know what portion of R&D is done by the private sector and what portion is done by the Federal government? Mr. MITCHELL. The budget for NIH this year is $39 billion. Pharma claims to be spending about $90 billion, but a tremendous amount of the spending by taxpayers through the NIH is on early high-risk, basic science that is the platform that leads to these new drugs. In addition, increasingly, NIH is doing drug development right now, is running clinical trials on the sickle cell drug inside its walls and in fact the NIH paid for most of the clinical trials for this expensive CAR-T drug which was brought to market by Novartis, so NIH is doing a tremendous amount of research not just basic science but increasingly drug development. Mr. SCOTT. And is there any potential in revisiting the decision that was made in 1995 to limit the prices for drugs that are partially developed with Federal spending? Mr. MITCHELL. Yeah and with all due respect to Dr. Garthwaite and he can look at this document too, the fact is that the number of cooperative research and development agreements did not skyrocket in the wake of the elimination of the reasonable pricing clause in 1995. NIH had a standard CRADA and then it created something called materials CRADAs which did not exist in 1995. Subsequent to 1995 and the elimination of the reasonable pricing clause, the increase in the number of comparables, standard CRADAs was 14 percent over the ensuing 15 years and today the number of cooperative research and development agreements has gone up by only 45 percent, while the budget of NIH has gone up 400 percent so you need to understand what actually happened in 1995 when they created a different category of CRADA and you have to compare the original CRADA and see what happened in those ensuing years. Those are the numbers. Mr. GARTHWAITE. What is NIH's position on doing this? Mr. MITCHELL. The NIH made their decision back in 1995 when drug companies used to have much bigger R&D departments and today, the drug companies are increasingly reliant on the NIH for the basic science that leads to these incredible breakthrough drugs, kind of like the ones that I am taking. Mr. GARTHWAITE. But the NIH has said they don't want to do any pricing clauses. Mr. MITCHELL. The NIH are scientists and they want to pay attention to science. We need to look after taxpayers. So, I am with them on that. Mr. SCOTT. Mr. Mitchell, the question was should we revisit that proposal? Mr. MITCHELL. Absolutely. Mr. SCOTT. Dr. Socal, is there any evidence that if we reduced our prices to what other countries are paying, that prices would go up in those other countries? Dr. SOCAL. Not necessarily, no. So the big difference is that our country, with our market-based system, we are paying the price especially for drugs that have been in the market for a long period of time. These prices are going up where everywhere else they are going down and they go down everywhere else because of two reasons, one is because the research and development costs, they are sunk costs, they are not involved in the cost of producing every new pill. It is minimal change for every new production cost so other countries, they have recognized and they have mechanisms, after the drug is on the market to control and prevent these cost increases over time so it is unlikely that costs would increase everywhere else just because we changed the price here. Mr. SCOTT. Okay, Mr. Isasi, did you want to say something about the last discussion? Mr. ISASI. Absolutely. Thank you. Really quickly just to say that what was being described as what the legislation does is incorrect. The legislation would not have the government walk away from drugs that our seniors need. We at Families would not support that; that is not what the bill does. What the bill says is let's negotiate. Let's negotiate and come with a fair price and if we can't reach agreement, the upper limit is 120 percent of what the rest of the world is paying so we are still going to pay more and if we still can't agree, then you go sell your drug and we are going to take the money back from you because you are trying to rip off America's families and American taxpayers. That is what the bill does, it does not do what he says it does which is walk away from the drug and take the drug away from seniors. That is not what the bill does. It protects access and also protects the taxpayer from this extortion that is happening from drug companies. Mr. MITCHELL. And Mr. Chairman, could I just add that one of the key reasons that drugs are available first here in the U.S. is because we are the largest market and we pay the highest prices and at 120 percent of those referenced countries, we will still be the largest market paying the highest prices. It is very difficult to see how a CEO is going to walk into his ward, as Secretary Azar said to me, and tell his board I am walking away from the biggest market with the highest prices in the world. Chairwoman WILSON. Thank you. Mr. SCOTT. Thank you, Madam Chair. Chairwoman WILSON. Mr. Taylor of Texas. Mr. TAYLOR. Thank you, Madam Chair. If I remember my economics correctly, if you want to lower prices, you increase supply. I mean dirt cheap is cheap because there's a lot of dirt, right? So if you make more of something, prices will go down. Government price controls, tempting as they may be to try to deal with the problem, I generally haven't seen that work out very well. Generally. they have to be undone at some point because they just didn't pan out but just going to this particular government price fixing system, do you have any comments with regard to how this particular government pricing system works in your mind or how it wouldn't work in your mind. Where would it ultimately end up being a problem? I think you have alluded to this a bit in terms of research. Mr. GARTHWAITE. Yeah, I mean I was pretty clear before, I thought, that this is not about the government walking away from drugs despite being mischaracterized by another witness. The government isn't going to walk away from the drugs today because the government could just effectively take the drugs today, it doesn't have to. Where it is going to show up is an investment to innovation for new drugs 5, 10, 15 years for now which responds to the return on it. And again, as I have tried to be very clear, we might as a society want to have fewer drugs in the future in order to get more access today. There is no purely economic sort of platonic idea about what that is. That is a decision we should be debating. Do we want to slow the pace of innovation in order to get lower prices today? And let's have that conversation. Let's not let the officials in London and Berlin and Paris and Sydney have that conversation. Mr. TAYLOR. Sure. And I think what I will say is a common bind here--what binds us together is a common point as I think everybody in this room wants to see lower drug prices, right? That is something we can all agree on. I hope we can agree that the best way to go do that is again to increase supply through a series of bills that came out of energy and commerce committee unanimously that were then amended in such a way that made it unacceptable to Republicans that basically were sent to the senate to go die so those are not affected bills. I would hope that we would revitalize those bills, take them up as separate bills, send them back over to the Senate so that they can actually pass them and actually help our constituents lower drug prices so there are opportunities in front of us. They are here in this chamber, in the House of Representatives. We know what to do, we know some of the actions we need to take. We just need to be legislatively inept at getting them through in such a way that is actually go on to the President's desk. Just speaking about research and development, which we have talked about a little bit. I see there's an estimate that R&D will be cut by 200 billion dollars over the next 10 years if we were to go into this government price fixing mechanism that is in H.R. 3. Does that strike you as broadly correct, is that-- can you speak to that estimate? Mr. GARTHWAITE. I'd say It is the first one. I don't think our goal should be about lowering prices. Our goal should be about increasing welfare or making people better off now and in the future, and figuring out what the price of an access tradeoff is there. If our goal is simply to lower prices, we can do that. That is actually not hard. The government is a very powerful force. It can come in and say let's not make it 120 percent. Let's make it 80 percent of the foreign price so we are trying to improve welfare. Where that welfare comes in is this effect on research and development, how much would it be. I haven't run the number of whether it is 200 billion that would go down, partly because it is a pretty complicated question because it is about how is the venture capital company going to respond and so I don't--is that in order of magnitude correct? Maybe? Mr. TAYLOR. So then also going staying on this topic of research and how important it is for the future of creating the next innovation, I think you correctly pointed out that it is not about the present prices where your real worry is. Your real worry is about future innovations including the United States which has been a tremendous leader on that. It comes at a price. So we are--NIH is conducting research and you are looking at the private industries estimating they are doing 97 billion dollars of R&D every year, which is a tremendous sum of money to find the next generation of drugs. If we were to go on a price fixing scheme, it seems to me that you're saying that 97 billion would go down. Mr. GARTHWAITE. I mean economic logic would dictate that if you are going to earn less money from your investment, you'll find the next best use for that dollar, particularly true for venture capital companies where literally that is what they are supposed to do. They are supposed to get a return for their investors. Mr. TAYLOR. Well I appreciate what you are saying here today. I will just say that I am certainly here to try to lower drug costs. As I go across my district, one of the top 3 complaints I hear is the cost of healthcare and we know that drug cost is a natural component of the cost of healthcare. And again, I am focused on trying to increase the supply. To me, price fixing is a lazy legislator's answer to fixing a particular economic problem and I would challenge anybody here to tell me hey, price fixing worked great here. This is the best because I think when they are borne out over several decades, they generally just fall apart completely and are completely undone. I don't know that this Congress has done price fixing in the past, but it has not panned out. With that, Madam Chair, I yield back. Chairwoman WILSON. Okay. Ms. Wild of Pennsylvania, welcome back. Ms. WILD. Thank you, Madam Chair. I apologize for stepping out. I had to attend an Ethics Committee meeting, which is an internal committee governing ethics, but I think It is an appropriate subject to sort of lead off this discussion because to me, this is an ethical issue. This is a problem that our country is having. We have people dying because they cannot afford their prescription drug prices and that to me is unethical for the richest country in the world. It seems to me that we are just consistently putting profits over people and Mr. Taylor, I have the utmost respect for my colleague across the aisle. He and I have worked on a bipartisan basis on other matters, but I will tell you, I don't think we are legislatively inept as I think you have termed it. We are, as a body, the government is far too influenced by the pharmaceutical lobby. That is at the heart of this problem. So with that said, let me just say that Dr. Garthwaite, you said a couple of minutes ago, venture capitalists' job is to make money for their investors. Well we know that in 2016, Turing Pharmaceuticals CEO raised the price of a newly acquired drug from $13.50 to $750. In response to this, J. Michael Pearson, the CEO of Valeant said his company's responsibility was to its shareholders, not the customers who rely on the drugs to live. In fact, we know that shareholders can bring suit for an officer's breach of fiduciary obligation owed to shareholders through shareholder derivative lawsuits so Mr. Pearson, the CEO, was right. His first duty is and was to make as much money as he can for his company. I would respectfully submit to you that should not be our priority in saving lives, in making people healthy again. We cannot continue to have profits over people as the most important thing governing this discussion. So, I know that you, Mr. Holt and Dr. Garthwaite--first of all, do either one of you have any formal medical background or training? Formal. Mr. HOLT. I don't. Mr. GARTHWAITE. No, as my wife says, I am not that kind of doctor. Ms. WILD. I didn't think so. I know you both have serious reservations about government negotiation of drug prices or tying drug prices to those of other countries, but I want to talk about something else. I want to talk about something that matters to my constituents that I hear about almost every single day. I want to talk about diabetes and the price of insulin, and you said, Dr. Garthwaite, market competition will drive down costs. Well guess what, we have a whole lot of competition for insulin. We have a whole lot of demand for it. It is been around forever. There have been no new formularies in decades and yet the price of insulin continues to go up, so there's no market force that is influencing that other than the fact that a whole lot of people need insulin and the manufacturers know that and so what they do is they keep raising the price on it. It is unconscionable and I can't believe we're even sitting here having this discussion. I have constituents who are dying because they don't take their insulin, or they can't afford to get it, or they are rationing it. I don't even--I can't even believe we are having this conversation. Do either one of you, just the two of you that I am talking to know what happens physically within a diabetic patient's body when she doesn't have access to insulin or has to ration her insulin? Do you know what ketoacidosis is? Do you know what the symptoms are? I will tell you: confusion, excessive vomiting, dehydration, shortness of breath, loss of consciousness, organ failure and death and I have constituents who themselves are rationing their insulin, whose family members have died because they rationed or didn't have their insulin available to them because of the price and I am not about to go back to them and say let's leave it up to the market to determine what the price of your insulin should be because you know what, the market has completely failed them and that is why we are here now. That is why this bill is coming before the House because we, as a country, and pharmaceuticals as an industry have completely failed the American people and we can't let it continue. I yield back. Chairwoman WILSON. Thank you very much, Ms. Wild. And now, Mr. Watkins of Kansas. Mr. WATKINS. Thank you, Madam Chair. Dr. Garthwaite, we hear heartbreaking stories of patients in other countries who are denied access to new treatments that could improve their lives. Earlier this month, news outlets cover the story of two sisters battling cystic fibrosis in Scotland. A breakthrough drug that treats the disease isn't currently covered by the United Nations' National Health Service because the government determined that the drug is too expensive. While one of the sisters was able to receive treatment for free from the manufacturer's compassionate care program, the other was told that she was not sick enough to qualify. Under H.R. 3 with access to these potentially lifesaving drugs be threatened for America patients? Mr. GARTHWAITE. I think It is unlikely that access to existing drugs would be threatened for Americans because as Dr. Socol said, the cost is sunk, so there is profit to be made selling it. Where the access restriction is going to come and we can't avoid an access restriction, it is going to come on drugs in the future. That is where It is going to come, less innovation so while Ms. Wild is right, not having access to diabetes drugs today causes that to happen, causes ketoacidosis, I would submit to ask her, do you know what happens to a cancer patient who doesn't have access to oncology that treats their cancer. You sit next to their bed and you watch them die like it happened to my family members. So that access mode happens no matter what. It is a question of whether we are going to pay attention to it, or we are going to pretend it doesn't exist. Mr. WATKINS. Mr. Holt, your testimony denotes that ``the cost of successfully bringing a drug to market has been estimated at approximately 2.87 billion dollars.'' And that establishing an international price index similar to the one included in H.R. 3 would lead to 9 billion dollars in lost revenue for drug manufacturers per year. If this index is expanded to the entire United States market, how many fewer drugs could we see approved by the FDA per year? Mr. HOLT. So the 9 billion figure was looking at the President's IPI proposal specifically limited to part B. Part B is about 10 percent of the U.S. market so you would see that increase by that--so roughly about 30 drugs per year, the amount that it cost to produce roughly 30 drugs per year would be lost. Mr. WATKINS. How does this impact the pipeline and the development of new medicines? Mr. HOLT. So on average, FDA approves about 33 new drugs a year so that is a big chunk of the pipeline. Mr. WATKINS. Thank you. Madam Chair, I yield the balance of my time. Chairwoman WILSON. Thank you very much. And now--oh, Mr. Keller, Pennsylvania. Mr. KELLER. Thank you, Madam Chair and I'd like to thank all the members of the panel for being here today. Prescription drug pricing is an issue. We've been hearing it from everybody. I have been in my district and there are a lot of things I think go into it and a question, I guess I just want to have for Dr. Garthwaite, I know you talked a lot about the return on investment and all those kinds of things and when we look at who this impacts and who the pharmaceutical companies are, they are basically owned by shareholders, is that correct? Mr. GARTHWAITE. It is a variety of organizational structures. Mr. KELLER. And it would be public pensions and all that kind of stuff. Mr. GARTHWAITE. Probably yes. Mr. KELLER. So a lot of the times, the motivation is to make sure they get a return on investment and then we as public sector employers invest in those drug companies too so if we want to point the finger at people making money, I think we need to look at all of us and I think we need to look at all things that we can do to help this and instead of pointing the finger at one person or another, look for actual solutions which I think would be in some kind of patent reform, things that would make drugs accessible rather than trying to point the finger of blame. I guess the one thing I'd like to ask you about and I know you mentioned it, you talked about drugs or people walking away--or making certain drugs because of the innovation and so forth, that would be that the company would just stop manufacturing or might not invest money in the future. In other words, if we weren't going to let them develop drugs, somebody said the government would walk away. It wouldn't necessarily be the government, it would be that the companies wouldn't invest in R&D? Mr. GARTHWAITE. Yeah, I mean we talk about the innovation tradeoff, it is not getting new drugs in the future. Drugs that have already developed, that we have already developed, people will make and sell at that price. Mr. KELLER. Right, but that might not get innovation for future drugs and treatments. Mr. GARTHWAITE. You would see a--it is not that you would get none-- Mr. KELLER. You wouldn't get as much because when you look at some of the other countries where that is happened, there's not as much R&D in Germany or other countries as there are in the United States, would that be-- Mr. GARTHWAITE. No, I wouldn't think of it that way. It doesn't matter where the R&D happens. We get lots of good drugs from Germany, we get drugs from Israel, we get an emergent Chinese biotech market. It is about where the profits can be earned, that is what dictates the investment. Mr. KELLER. Okay. Another question I guess I would have. Part of the consideration, would that also be any kind of tort reform? Would that be helpful in this discussion? Mr. GARTHWAITE. I mean if I started making a list, I am not sure that would get to the top 10. Mr. KELLER. Not the top 10 but probably a portion of it. I mean-- Mr. GARTHWAITE. Honestly, I have never thought about tort reform in this context right now. There certainly are liability issues. Mr. KELLER. There was a Columbia science and technology article in the law review between December of 2009 and June of 2010, just one company paid 3.36 billion in claims for cases, class action suits so I think there's some room--I guess my point is if you could make a list of things to do, it is just more than one thing other than just having the government negotiate prices. Mr. GARTHWAITE. I would just say that if a company does something wrong, they might have to--I don't know the case of the 3.6 billion but just because it is a big fine, doesn't mean that it is a wrong fine. Mr. KELLER. Right. I get that. Mr. GARTHWAITE. Yeah, I mean we want a tort system. Mr. KELLER. Right, I get that, but again, some kind of reform might be helpful in order to keep things in check. Mr. GARTHWAITE. You have to point to me where the tort system is failing, I guess. I can understand the medical malpractice side-- Mr. KELLER. I get that too. I get that too. Mr. GARTHWAITE. I just don't know what the reform you are looking for is, I guess. Mr. KELLER. I guess we need to just look at all avenues I guess is my point. We shouldn't look at just one thing. Mr. GARTHWAITE. I would agree that we should be comprehensive at everything we do. Mr. KELLER. Yes, absolutely. I guess that is my point. I just don't know that this bill gets us there. This is just one of negotiating government prices rather than looking at all the solutions. Mr. GARTHWAITE. Yeah, but we should be clear. This bill has a lot of good parts. The stuff they want to do for Medicare at part D, the stuff that the other witnesses talked about. I mean that is good. Creating an out of pocket cap, if we expanded it to think about getting rid of coinsurance, which doesn't really make a ton of sense, fixing the catastrophic but let's focus on the things that we can do that are going to make the market work more efficiently. I'd love to be comprehensive in that, but I wouldn't say that this bill is not just about the price control. There are a lot of things in there that are analogous to what Republicans in the finance community are talking about as well. Mr. KELLER. And again, I think those are things to look at but having the government just be the sole negotiator of price I think is--in this bill, one person, the Secretary would be the person that would select the drugs that we are going to talk about and look at negotiating the prices on that group of drugs, which I think is controlled by one person. Mr. GARTHWAITE. That feature of the bill causes me pause, yes. Mr. KELLER. There are some things that I think would be pretty dangerous and limit choices and so forth for people that need to help. Thank you, I yield back. Mr. GARTHWAITE. Thank you, Ms. Davis? Ms. DAVIS. Thank you, Madam Chair, thank you to all of you for being here. We have just very few minutes, but I wanted to give Mr. Holt, Mr. Garthwaite that chance, if you'd like to respond to my colleague because we are very passionate about this, and I have to tell you that this is not a partisan issue. Everybody is passionate and I will have a question for Mr. Mitchell as well so if you could just quickly respond if you'd like. Mr. GARTHWAITE. I would say, Ms. Wild, I understand you're passionate. You brought up Turing Pharmaceuticals and Valiant. I was pretty specific in my testimony about those two companies, that those are examples of behavior that I believe there's a role for the government to regulate their prices. In fact, a big chunk of my testimony refers specifically to that instance and why I think for small market generics, that is something that we should regulate. We've already paid the innovation tradeoff. This idea about profits versus life. I mean there are economic realities in life. Ms. DAVIS. Thank you I am going to--is that enough of a response? I am sorry. We are just in such a hurry. Mr. Holt? Mr. HOLT. I also referenced the Turing Pharmaceuticals situation in my testimony. I do think that is an egregious breach and I think the single search generics are a real problem. I also am concerned about patients. My mother has diabetes. I have seen her off her insulin, so I am very sensitive to that. I think the reality is that we see the pipeline that is coming. We are seeing biologics, gene therapy, we can negotiate 90 percent discounts and individuals aren't going to be able to pay for these so what we have to talk about is how the system is going to pay for drugs so that patients do have access. Ms. DAVIS. Right, and that issue of access--and so I wanted to turn to Mr. Mitchell and Mr. Mitchell, I wanted to thank you for being here. I am very familiar with multiple-myeloma, it is very personal to me and I understand what you are going through so one of the questions that I have often have, I come from San Diego and so we work with pharmaceutical companies all the time but for a long period of time, patients weren't really spoken to, frankly. They weren't engaged, they weren't at the table. They weren't really encouraged to participate and provide the kind of input that I think is important to our researchers, to the companies as a whole. Mr. Mitchell, do you feel that situation has changed? Do you feel that people feel as if there is something that they are being able to offer in this discussion? Mr. MITCHELL. I think there is not enough of an opportunity for policymakers to hear from independent patient groups. Most of them are funded by the drug companies and that is okay. They use that money for good purpose, patient education, patient support but on drug prices they are constrained. I do want to make a couple of quick points. I agree with Professor Garthwaite that we should be maximizing welfare and the way to do that is we are going to have to lower drug prices so people can get access to the drugs they need. There is enough spending in the system to reduce crises and not impact R&D, in fact the money U.S. based drug companies made in 2015 by charging American side prices was nearly double what was needed to fund their total global R&D and so if we are going to be making decisions about where to invest based on returns for venture capitalists, instead of the needs of people like me and everybody along this table who knows someone they love, then we are making a big mistake because we are not putting the public welfare first. We are saying we are going to provide for the needs of VCs in order that we get the investment we need and the final thing is, when drug companies say we are not going to--what they are saying to me is we want to be able to set any price we demand and you pay it or you won't get the drugs you need. We can't do that. We do have to strike the balance that folks are talking about here. Ms. DAVIS. Yeah, well thank you. I appreciate your comments. I mean one of the areas in H.R. 3 that we haven't focused too much on is how we get to that. If there is a sweet spot, I am not sure we'd call it that in negotiating with drug companies and we talked about the average international market price but in that, and I don't want to go into more detail of it, there also is this question, this concern about access. Access in other countries. Again, whether people feel like they are able to get multi-myeloma drugs elsewhere, obviously have-- it doesn't mean that we have more patients of any one cancer here in the United States than anywhere else in the world so obviously they are getting some of that, I think. The other issue is patents and we haven't talked a lot about them, but you focused a lot on the fact that we should have more competition, yes, but you can't have competition if you have one company that has the monopoly on multiple, multiple drugs in any one country. Mr. ISASI. That is the exact point that has not been said in this entire discussion about competition and worrying about squelching innovation. These companies are operating with a government-granted monopoly. This isn't a free market, it is non-efficient, it is distorted, and they are abusing the government-granted monopoly and what we should do is negotiate price in that environment. Ms. DAVIS. Thank you very much. I know my time is up. I hope that at some point we are going to be tasking drug companies to find the cures that we need upfront. Chairwoman WILSON. Thank you very much, Ms. Davis. I remind my colleagues that pursuant to committee practice, materials for submission for the hearing record must be submitted to the committee clerk within 14 days following the last day of the hearing, preferably in Microsoft Word format. The materials submitted must address the subject matter of the hearing. Only a member of the committee or an invited witness may submit materials for inclusion in the hearing record. Documents are limited to 50 pages each. A document longer than 50 pages will be incorporated into the record by way of internet link that you must provide to the committee clerk within the required timeframe but please recognize that years from now, that link may no longer work. Again, I want to thank the witnesses for their participation today. What we have heard is very valuable. Members of the Committee may have some additional questions for you, and we ask the witnesses to please respond to those questions in writing. The hearing record will be held open for 14 days in order to receive those responses. I remind my colleagues that pursuant to committee practice, witness questions for the hearing record must be submitted to the majority committee staff or committee clerk within 7 days. The questions submitted must address the subject matter of the hearing. Before recognizing the Ranking Member for his closing statement, I ask unanimous consent to enter the following materials into the record. These are letters in support of prescription drug pricing legislation from AARP, Alliance for Retired Americans, AFSCME, AFL-CIO, American Federation of Teachers, American Medical Association, and the California Medical Association. I now recognize the distinguished Ranking Member for his closing statement, Mr. Walberg. Mr. WALBERG. I thank you, Madam Chairwoman and appreciate the hearing today. Thank you to each of the panelists for being here. Dr. Garthwaite, I'd be wrong to forget the fact that I have my oldest grandson turn 13 last week. He was born at 24 weeks at Northwestern Hospital. The result of all sorts of wonderful, wonderful care in that neonatal ICU unit as well as medications, et cetera. He's 13 strong, healthy and smarter than me. At least he would believe that so thank you, Northwestern. Madam Chairwoman, this was a good discussion. I think in my opening comments, I tried to make it clear that this is a type of discussion that we should have. We don't disagree about everything in this legislation but there are some major glaring problems in this legislation that had we had discussions like this as opposed to a very closed, closed operation of the speaker of putting together a piece of legislation without consultation with appropriate committees, ours included, I think we might have had the opportunity for a better outcome. As I have said, I have seen that take place in Energy and Commerce Committee. I have seen it take place in some major piece of legislation. I think we could do it. Instead of holding a hearing on this socialized drug pricing scheme, the committee's time would be better spent on finding bipartisan solutions to our nation's problems. Governments don't negotiate, they dictate. We want negotiation. How is that done? I think there are means to do that and I would hope that this committee's leadership, as well as other committees that are involved with this would put a slowdown on it to bring together something that indeed can pass out of this House and chart the course even for the Senate for something they could vote on and pass as well and the President could sign, so again, thank you for the time and with that, I yield back. Chairwoman WILSON. Thank you to our witnesses for joining us today and today we heard compelling testimony on the urgent need for the Federal government to reduce the cost of prescription drugs for consumers, businesses, and taxpayers. Americans across this country are struggling to access the prescription drugs they need to be healthy. They are forced to pay inflated prices that are far higher than those charged for the same drugs sold by the same pharmaceutical companies in other countries and they are hit with annual price hikes that far exceed the rate of inflation. But our witnesses shared prescription drug companies are not charging these exorbitantly high prices because of natural market forces, and the evidence is clear that they are not inflating prices because they are investing in research and development as some of my Republican colleagues may argue. By contrast, prescription drug companies are artificially inflating prices so that they can pay for marketing and sales, executive bonuses and stock buybacks. We cannot allow this to happen in the pharmaceutical industry. We cannot allow them to get richer while Americans across this country risk their health under the weight of unaffordable drug prices. They are truly drug dealers, and this is criminal. Simply put, medicines are of no use if those who need them cannot afford them. That is why it is imperative that we pass the Lower Drug Cost Now Act. As our witnesses made clear, this legislation would lower drug prices, increase transparency at pharmaceutical companies, and align our drug pricing system with the rest of the developed world. By adopting the Lower Drug Cost Now Act, Congress can take a long overdue step toward empowering all Americans, whether you get your healthcare through Medicare or your employer, to access fairly-negotiated drug prices. I look forward to working with each of my colleagues to pass this legislation and improve the health and lives of Americans for generations to come. If there is no further business, without objection, the committee stands adjourned and thank you. [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [Whereupon, at 4:21 p.m., the subcommittee was adjourned.] [all]