Statement of John M. Rector, Senior Vice President, Government Affairs, and
General Counsel, National Community Pharmacists Association, Alexandria, Virginia

Testimony Before the House Committee on Ways and Means

Hearing on Integrating Prescription Drugs into Medicare

April 17, 2002

Mr. Chairman, Members of the Committee:

I am John M. Rector, I serve as Senior Vice President Government Affairs and General Counsel for the National Community Pharmacists Association. 

The National Community Pharmacists Association (NCPA) represents more than 25,000 independent pharmacies, where over 75,000 pharmacists dispense more than 50% of the nation’s prescription drugs and related services.  Independent pharmacists serve 18 million persons daily.  NCPA has long been acknowledged as the sole advocate for this vital component of the free enterprise system.  For decades NCPA has been the only national pharmacy association with universal state association membership, including those of the Committee’s members.

The National Association of Retail Druggists (NARD), founded in 1898, has been the association representing the professional and proprietary interests of the nation’s community pharmacists.  To mark our centennial year, the NARD House of Delegates voted to change the Association’s name to the National Community Pharmacists Association (NCPA).

NCPA members are primarily family businesses. We have roots in America's communities.  The neighborhood independent pharmacist typifies the reliability, stability, yet adventuresome ness that has made our country great.

As owners, managers and staff pharmacist employees of independent pharmacies, our members are committed to legislative and regulatory initiatives designed to protect the public and to provide pharmacists a level playing field and a fair chance to compete.  We appreciate the opportunity to assist the Committee in fashioning a new benefit for Medicare beneficiaries to include drug product coverage and related pharmacist professional services.

Competition in retail pharmacies is alive and well.  Competition is an incentive for efficiency and the price competition in retail pharmacy is typically greater than can be found among other providers of health services and products.

The independent community pharmacist of today is simultaneously a health care professional and a small businessperson.  NCPA and its members vigorously support the American free enterprise system, which provides the only meaningful climate under which a small business can economically survive, have the opportunity to succeed through personal efforts, and provide an important and essential service to the community.

Community pharmacists are especially trained to assist you and your constituents with the proper use of medications.  Medicines, only when used properly, can save lives and improve the quality of lives, and only when medicines are used properly can consumers, employers and governments enjoy actual systemic savings.

The pharmacies and the 75,000 pharmacists that NCPA represents are interested in a wide range of health and business issues such as estate tax reform, ergonomics, small business tax relief, confidentiality of pharmacist-physician-patient communications and of pharmacy records, payment for pharmacists professional services and assuring that PBMs process claims but are not allowed to practice medicine or pharmacy, accountability for “managed care,” elimination of discrimination in favor of mail order, and internet sales tax collection.

The small business independent health care professionals we represent are the preferred choice of American consumers, including your constituents.  Our members function in the market in a variety of forms.  They do business as single stores ranging from apothecaries to full line high volume pharmacies; as independent chains (e.g. 100 pharmacies) and as franchises.  Whatever the form of business entity, independent pharmacists are the decision makers for the diverse NCPA member companies.

The most in-depth consumer pharmacy preference survey to date, was published by Consumer Reports, in October of 1999.  They surveyed 18,000 consumers and found that consumers, especially seniors, preferred independently owned pharmacies for several reasons:

The 1200 plus independently owned pharmacies in the Medicine Shoppes franchise were ranked second; the supermarket drugstores (7,800 stores) were third, the mass merchandisers (5,300 stores) were fourth; and last were the big corporate run chains (19,300 stores).  No preference was expressed for mail order.

Numerous studies have documented the cost savings of comprehensive community pharmacy services.  When properly utilized, community pharmacists services including compliance and persistence programs, for example, can save the health care system billions of dollars by reducing the need for much more costly medical services, including emergency room visits, hospitalization, and nursing home admissions.

The failure by the insurers/PBMs to provide incentives for full pharmacist services has led to unnecessary and inappropriate prescriptions; to uncounseled prescription drug use; and to reduced patient compliance with appropriate drug regimens.  In the long run, this devaluation of professional pharmacists services and the adoption by the insurance industry of a "commodity only" approach has increased total annual health care expenditures by billions.  In summary, there is less payment for less care.  Consequently, we believe that the Committee should be very skeptical of so called "managed care" which has declined to acknowledge or pay for professional community pharmacist services.

Consumer choice of provider is the life-blood of competition.  Limits on consumer choice inhibit competition.  In our view Medicare beneficiaries should be entitled to choice of plan, pharmacist provider, and prescription products.

Consumer choice means cost effective prescriptions.  The average cash price in a community pharmacy for an Rx drug is $40.47; if insured $44.61; and if mail order $52.42.  While NCPA members dispense 55% generic Rxs, the mail order generic rate is 28%.

If pharmaceutical products and pharmacist services are to become a basic core benefit under Medicare, it is essential, as we stressed to the National Bipartisan Commission on Medicare Reform in September 1998, that:

(See Exhibit 1).

It is important to understand that the pharmacy benefit managers (PBMs) not only dictate unilaterally what pharmacies will be paid, but PBMs directly compete with our small businesses through their mail order pharmacy subsidiaries or through contracts with other mail order companies.

Today the marketplace for insured prescription coverage is dominated by so-called "managed care" companies (a.k.a. PBMs).  The dominance of such companies has created additional barriers to competition, it has not enhanced competition.  Those attempting to "manage" our market seek to reduce the number of viable competitors and to steer unwilling consumers to a few select competitors often including, as noted, their own mail order companies.

It is important to understand that your independent pharmacists are not engaging in idle speculation when they express concerns that unrestricted PBMs would shift consumers away from their local pharmacy to the PBM's own mail order companies with their characteristic high profits and under utilization of generic drugs.  It is estimated by Wall Street PBM analysts that the PBM makes 2 to 4 times as much profit on an insured mail order prescription than on an insured prescription dispensed in a community pharmacy.

For the past several years the major PBMs have aggressively attempted to switch patients to their mail order programs often switching them to a prescription drug not based on the patients health care needs but based on rebates from the highest bidder.  Often the patient is switched to more expensive drugs and denied access to appropriate generics.

The impact of their "so-called" care has been equally negative:  reduced quality control and reduced quality of providers to which consumers have access, including providers unlicensed in the consumer's state.  In fact, the trend for the past decade for insured prescriptions has seen PBMs focus exclusively on the prescription drug product and eliminating payment for traditional professional community pharmacist services.  Among the consequences of this "commodity only" approach has been a significant increase in non-compliance with the drug regimen prescribed by physicians and as a consequence diminished quality of life for covered consumers and their families.

NCPA members are forced to accept whatever payment the insurance industry and its PBMs dictate.  Simultaneously the insurance industry and its' allies brazenly characterize such payments as discounts "negotiated" by pharmacies.

Experts on the insurance industry and their PBM's practices know that to characterize the payment for pharmacists fixed by the insurance industry and its PBM intermediaries in "take-it-or-leave it" contracts as negotiated by the pharmacists is akin to characterizing the victim of an armed robbery as having donated cash to the assailant's favorite charity.

PBMs refuse to negotiate with independent pharmacies and it is unlawful for several independent pharmacies to collectively negotiate prescription drug contracts with PBMs.  In the last Congress the House of Representatives voted 276 to 136 for H.R.1304, the Quality Health Care Coalition Act, which would have authorized such small business contract negotiations.  It is enlightening to recall that the PBMs, represented by Express Scripts, unsuccessfully urged the House Judiciary Committee to deny independent pharmacists and their consumers, including seniors, economies of scale regarding products and services achievable through fair negotiations.

Rather than further erode the small business pharmacy infrastructure through the dictates of our "managed care" competitors, the Committee should guarantee Medicare beneficiaries protections similar to those provided by H.R.1304.  Allowing pharmacists to negotiate would help put an end to the present ability of the insurance industry and its PBM intermediaries to unilaterally fix pharmacy payments and to reduce the quality of care.  Negotiations would help to put an end to the tying of prescription insurance coverage to the mandatory or coercive use of mail order pharmacy, which denies consumers equal access to neighborhood pharmacies and the services of independent pharmacists.  Incidentally, this bipartisan legislation has been reintroduced as H.R.3897, by Representative Bob Barr (R-GA) and John Conyers (D-MI).

We also recommend that the Committee carefully review the growing number of lawsuits against PBMs brought by patients, health plans, employers, and others alleging PBM violations of their fiduciary duties.  The PBMs have countered by claiming that they are not obligated to fulfill a fiduciary duty and are only obligated to lookout for their bottom line interests.  Would this be the case with Medicare?

Regarding the affordability of prescription drugs for all Americans, including Medicare eligible persons, we recommend two steps:  First, the full implementation of the Medicine Equity and Drugs Safety Act (MEDS) P.L.106-387, which would allow the importation by pharmacists of FDA approved drugs from select countries, principally, Canada, United Kingdom, and the European Union.  Secondly, the enactment of Representatives Cliff Stearns (R-FL) - H.R.1127, which would restore, for federal tax purposes, the first dollar deductibility of prescription drugs.

On behalf of the members of the National Community Pharmacists Association, we thank the Committee for the opportunity to provide our views on Medicare reform.

(Exhibit 1)

Assuring a Quality, Cost-Effective
Pharmacy Benefit for America's Seniors
A Unified Agenda for American Pharmacy

Academy of Managed Care Pharmacy (AMCP)  (Withdrew Support)

American College of Clinical Pharmacy (ACCP)

American Pharmaceutical Association (APhA)

American Society of Consultant Pharmacists (ASCP)

American Society of Health—System Pharmacists (ASHP)

National Association of Chain Drug Stores (NACDS)

National Community Pharmacists Association (NCPA)

National Council of State Pharmaceutical Association Executives (NCSPAE)

As policymakers discuss a comprehensive Medicare outpatient pharmacy benefit, we encourage Congress and the Administration to carefully consider the views of the nation's pharmacists — the third largest, most accessible, and consistently most trusted group of health professionals.

Who We Are

Our organizations represent the entirety of the practicing pharmacist and corporate business communities that comprise American Pharmacy — independent and chain community pharmacists and pharmacies; hospital and health-system pharmacists; clinical pharmacists in academic health centers, medical group practices, and clinics; pharmacists practicing in managed care organizations; consultant pharmacists in long-term and senior care facilities; home health care pharmacists; and virtually every other type of pharmacist and setting where patient care and medication use occur. Our collective memberships span the breadth and depth of the entire profession of pharmacy. And we are unified in our core beliefs concerning an outpatient pharmacy benefit for Medicare beneficiaries.

 What We Believe

• Medicare Should Provide a "Pharmacy Benefit" — Not a "Drug Benefit"

Medications are safe and effective only when they are used appropriately. Inappropriate medication use leads to hospitalizations and other unnecessary medical costs for which Medicare is already paying a substantial price. Seniors need and want pharmacists to help them understand how to take their medications appropriately so that medication—related adverse events are avoided or minimized. That's because the public recognizes that pharmacists are the most qualified health professional to provide this level of care and service to them. Consumers should have the choice of and access to the pharmacist and pharmacy that best meet their specific health care needs.

 For that reason, proposals to modernize Medicare need to provide for the addition of a "pharmacy benefit," not simply a "drug benefit." Pharmacists who work together with patients and their physicians are seniors' (and Medicare's) best ally for ensuring that the medications being used are as clinically appropriate, cost—effective, and free from preventable side effects, drug interactions, and other medication—related problems as they possibly can be. Any "benefit" from adding outpatient prescription drugs to Medicare will only be realized if we can assure their proper and effective use. That is the professional expertise, and value, that pharmacists bring to patient care and the health care system.

• Medicare Must Provide Appropriate Payment to Pharmacists and Pharmacies for their Services

A Medicare pharmacy benefit must recognize that the nation's pharmacists and pharmacies are the individuals and entities that actually provide the drug products, professional services, and medication therapy management (MTM) programs that are essential to assure that medications are optimally used. Payment to pharmacists and pharmacies for providing these products and services must be reasonable and adequate to cover the professional, administrative, and business costs of providing these services and products — as well as a reasonable return on investment — in every type of pharmacy practice setting in which the care and services are provided.

Our Key Concern

None of the legislative proposals introduced to date in the 107th Congress adequately address our two core beliefs: access to and coverage of both medications and pharmacists' medication therapy management services. In reviewing the bills currently being considered, one would conclude that Congress believes that it will have served Medicare beneficiaries well if it can simply find a way to help Medicare buy medications at the reduced prices currently being paid by other federal purchasers and then turn the administration, management, and delivery of services over to 91 private sector" entities sometimes referred to as prescription benefits managers (PBM's).

For example, under several existing proposals, PBM's are charged with "managing care," "developing drug formularies," "increasing generic drug use," "negotiating discounts with pharmaceutical manufacturers," "placing price controls on community pharmacies," and "providing medication therapy management programs to seniors."

While we believe that PBM's can and do have an important role in performing many of the administrative tasks associated with providing the pharmacy benefit to seniors, we have serious reservations about the nature and scope of "patient care and cost management" tasks that many of the current proposals would assign to PBM's. In fact, some evidence suggests that PBM's are not effective in performing these latter activities. Pharmacists and pharmacies are the real "private sector' providers of care and service to patients. Pharmacists and pharmacies provide services and work with patients at their point of care to accomplish appropriate medication use and accurate dispensing. It is pharmacists and pharmacies, our members, upon whom senior citizens and the Medicare program will ultimately rely to achieve the outcomes we all seek for a successful Medicare pharmacy benefit.

What Should Be Done

Our organizations are jointly committed, prepared, and able to work with the 107th Congress, the Bush Administration, the pharmaceutical industry, HCFA, physician organizations, senior advocacy groups, and other interested parties to help design a Medicare outpatient pharmacy benefit that improves medication use, helps control overall health care costs, and enhances the quality of seniors' lives. The pharmacy, medical, and health care literature all provide ample evidence that these goals are compatible, not mutually exclusive. But we have to work together to achieve them.

We therefore encourage HHS Secretary Tommy Thompson to establish a national panel of all of these stakeholders to assist the Bush Administration and Congress in designing a Medicare pharmacy benefit framework that achieves these important objectives.

A Medicare outpatient pharmacy benefit will be the single most substantial and important addition to the program since its inception 35 years ago. We must not only do the right thing — but we must do it the right way. Beneficiaries, taxpayers, and the public at large deserve nothing less than our best effort.

ADDENDUM

1.  Examples of misrepresentation that our members negotiate with PBMs include:

a)  The PCMA testimony to the Committee on June 13, 2002 at page 5, where they stated:  "Any legislation that does not empower us as PBMs to negotiate discounts and other pricing concessions from drug manufacturers and pharmacies - as we do today in private plans - will not be able to deliver the anticipated cost savings.  Our members are strongly united on this point."

b)  The 3/22/00 GAO presentation to the Committee and to the Senate Finance Committee entitled Prescription Drug Benefits:  Applying Private Sector Management Methods to Medicare at page 6:  "Similar to their negotiations with manufacturers, PBMs negotiate with retail pharmacies to obtain prices that are well below pharmacies' usual price for customers without drug coverage."

c)  The PhRMA 6/12/00 ad in National Journal's Congress Daily AM at page 7, which states "For 150,000 Americans with a prescription drug insurance benefit, their private health plans have had considerable success negotiating meaningful price discounts on pharmaceuticals.  However, 12 million senior Americans now have no prescription drug insurance coverage.   As a result, most of them pay full price for their medicines.  That's because they don't have the market clout that comes with a drug insurance benefit.  If all seniors had access to private market discounts, the medicines they need, on average, would cost 30% to 39% less."

As noted in 2000, H.R.1304, which would allow our members to negotiate with health plans and PBMs was approved on 6/29/00 by 276 to 136.  Committee members voted 19 to 37 (9 R's and 10 D's) for H.R.1304.

2. Regarding the PBM corporate strategy to shift patients to their highly profitable mail order businesses the following references are enlightening:

Page 3 of the report under Investment Merits states that "mail order sales are roughly 2 times to 3 times more profitable on a per adjusted script basis than retail script."

Page 2 of the report notes "PBM mail order script margins are 4 times higher than retail scripts.

Page 3 "In 2002 the company, implemented a program designed to encourage its' customers to refill prescription which were originally filled in its' retail network through its automated mail service pharmacy."  The company also operates a network of 17 smaller mail service pharmacies.

3.  According to IMS Health (See enclosed bar graph), the PBMs under utilize generic drugs.  We believe that the Committee should help assure that any new Medicare benefit provide seniors with no fewer than the 50 to 55% level of generic prescriptions made available currently to seniors and others through independents community pharmacies.

A related issue is the pricing of generic drugs.  PBMs seem not only to under utilize generics but also  reportedly charge significantly higher prices for generics.  For example, earlier this year, a Merck-Medco plan for Connecticut state retired teachers entitled "Prescription Drug Server" mandated mail order coverage.  One consequence of eliminating local pharmacies as a choice for retired teachers was prices for generic drugs three times greater than the change in independent community pharmacies in Connecticut.  (For example, the charge for a community pharmacy of $34.23 and for Merck-Medco mail a order charge of $100.38 for a 90 day supply of 300 tablets of the same generic drugs).  Fortunately, on April 1, 2002, this Merck-Medco mandatory mail order program for Connecticut retired teachers dropped its' mandatory mail order requirement in response to protests about the Merck-Medco generic drug overcharges.  Unfortunately, the retired teachers plan still discourages the teachers from using their community pharmacy through discriminatory co-payments that favor Merck-Medco's mail order business.

Initially, the AARP mail order pharmacy business was synonymous with generic drugs.  Since IMS Health data does not capture the marketing practices of our non-profit competitors, such as AARP, we can only speculate as to whether AARP may also under utilize generic drugs.

4. Numerous studies, as noted, underscore the systemic value of coverage and payment for pharmacist care services.  On such study is entitled "The $76 Billion Dollar Question" funded by our foundation; the National Institute for Pharmacist Care Outcomes; and Merck.  Interestingly, the former director of health benefits at GM, Mr. Beach Hall in 1992 observed in this study, "that pharmacist care is the most critical quality and cost controlled vehicle we have in the entire health care system." 

As Committee member, Representative Portman observed rather than $76 billion, our health care system is now wasting $150 billion annually due to inappropriate prescription drug use and unnecessary hospitalizations and nursing home placements.  In other words, a dollar wasted for every dollar spent annually on prescription drugs.  Appropriate payment for pharmacist professional services could significantly reduce these unnecessary expenditures.

It is important, in our view, that the Committee is aware of the joint statement on prescription drug benefit under Medicare announced by our group and Pfizer on 6/11/01.  It stresses the value of pharmacist care services, including, persistency, patient compliance, and appropriate counseling.

It is noteworthy that the 1988 Medicare catastrophic law established per prescription payment for a participating pharmacy as AWP + $4.50 indexed.  In today's marketplace, fourteen years later, had the bipartisan law signed by President Ronald Reagan not been repealed, the payment would be $10.94.

Representative Nussle raised a question regarding the ability to retain pharmacists in rural areas.  Senate legislation, S.10 has an incentive provision for payment for independent pharmacists in rural areas.  Importantly, H.R.3626 by Representatives Emerson and Ross recognizes the value of pharmacist professional services for a new Medicare benefit.

5. Regarding Representative Foley's expressed enthusiasm for the Administration's "so-called" discount card, the Committee should carefully review the 12/01 GAO report stating an average savings of approximately 11%.  This percent did not reflect the monthly fees, (for example, $9.95 for an individual and $19.95 for a family) charged for the cards.  Savings, if any, were somewhere between 1 and 5 percent.

Regarding Mr. Foley's expressed intent to legislate the Administration' s proposed card, it is important to recall the Federal Judge Paul Friedman on 9/6/01 in NACDS/NCPA v. HHS  enjoined the plan because HHS had no authority to undertake an endorsement plan and had proceeded unlawfully.  The bottom line, however, was that the Court found that implementation of the plan would cause irreparable harm, especially to the small business pharmacies that we represent.  Enacting legislation would only institutionalize the irreparable harm to small businesses.

6. Mention was made that allowing Medicare to negotiate with drug makers could "distort" the marketplace.  The independent pharmacy marketplace where pharmacists are not able to negotiate has been totally distorted by one sided contracts dictated by PBMs.  Assuring pharmacists, the ability to negotiate would help ameliorate the distortion.

Please see the enclosed 4/02 article in America's Pharmacist entitled "The Tug of Wars with PBMs", which

highlights the various facets of PBM distortion of our marketplace.

Once again, we especially appreciate the opportunity to assist the Committee and staff as you revisit the subject of Medicare pharmacy benefit.