KEYNOTE ADDRESS
NAPM ANNUAL CONFERENCE
JANUARY 31, 2000

TOM RUSSILLO: NAPM CHAIRMAN
At this time it is my great honor to introduce to you our Keynote Speaker for this convention and for this lunch, Senator Tim Johnson from the State of South Dakota. Senator Johnson shares with us a common interest in lowering the cost of prescription drugs for American consumers. In June of last year, Senator Johnson wrote to President Clinton urging him to make generic drugs a part of any Medicare drug benefit. In November, Senator Johnson was one of two senators invited to join Vice President Gore when he unveiled his four-point plan to make lower cost generic prescriptions more accessible to consumers. The Senator went on to endorse Vice President Gore's generic drug plan. In short, I think it's fair to say that Senator Johnson is in the process of picking up the baton from Senator David Pryor, who retired from the Senate, to become one of our biggest allies and a leader in the United States Senate. Senator, I personally appreciate your making the effort to join us here today while most of your colleagues were probably in Atlanta enjoying the Super Bowl. I give you our Keynote Speaker Senator Johnson.

SENATOR TIM JOHNSON (D-SD):
Thank you, Tom. I appreciate the kind words and invitation from the National Association of Pharmaceutical Manufacturers to join you here today. As you said, I could have been at the Super Bowl; but on the other hand, I could have been in Elk Point, South Dakota, in a snow bank, too.

I think health care in general has grown to the point where I think there's bi-partisan recognition in Washington of the urgency of this issue. We all remember President Clinton's aborted health care efforts at the outset of his first term. But the issue is still there, has grown not only more complex but more urgent in the intervening years and within the context of health care costs and quality and access, we have seen the prescription drug issue become, I think, the paramount issue within that context of health care legislation and health care concern in the country.

When Medicare was created back in the mid 1960's as one of the Great Society programs, hospitalization was the principal cost that American seniors faced that needed to be addressed, and Medicare has its strengths and its weaknesses but it has largely done away with the worst of the hospitalization cost problems that American seniors faced in those days. But medicine has changed in the course of the last couple of generations and the role of prescription drugs has grown larger and larger. It's mostly good news. People are living longer and longer. People are healthier and are more active longer and longer in their lives and that is in large measure a consequence of increasing sophistication of pharmaceutical products available to them. And so we can see that as a very positive development that we've seen in our own lifetimes.

When social security was begun back in the 1930's under Franklin Roosevelt, the assumption was that you would die within a year or two after becoming eligible for social security. Now we find people routinely living a third of their lives into old, old age and expecting to live into the nineties, and the next generation will live still longer, and it's creating a wonderful thing for Americans and for the world at large but also is creating a demographic bomb for ourselves in terms of how we deal with the costs of sustaining a high quality life those many years, post career, and again, there are no sure fire answers out there. We have long term problems with social security, which right now is solid through about the year 2032, Medicare which is solid for less amount of time, and a clamor to do something about prescription drugs at long last.

My home state is South Dakota, one of those mostly square states out in the Great Plains. That's the balmy part of the Dakotas where it's warm. As I go around my state, every community I go to I can count on without fail that one of the principle issues I'm going to be asked about is concern about prescription drug costs. In our state we have a significant number of seniors. Seniors comprise about 12% of the population of the country as a whole, more than that in South Dakota; but in South Dakota if you are a senior you are not there because you enjoy February that much. You're there probably because you have modest financial resources and you've probably worked most of your life as many people do of that generation in farming, ranching, small business, self-employment. Seniors tend not to have a lot of financial resources either for health care or for retirement pension purposes, particularly widows living on social security benefits exclusively and Medicare.

I wish that you could join me in some of these communities to talk to some of these people who are living on $700-$800 a month, that's it, and have prescription drug costs running $300-$400 a month. And when we talk about people literally making choices between their health and their groceries or their rent, those are very real circumstances. These are not some sort of cooked up stories that someone dreamed up. In fact, they are very, very real and it can be almost heartbreaking to listen to person after person telling you about their situation; and then they all do what we all hear the stories about. They either don't refill their prescription or they take it only when they start to feel bad or they take every third pill and the consequence is of course then a decline in health care. They wind up at the emergency room and then Medicare and taxpayers pick up the cost at a time when their illness or their problem has become acute. It becomes more expensive. It diminishes the quality of their life. The taxpayers lose. It's a bad deal all the way around when you have those kinds of choices being forced on to many people.

Seniors make up 12% of the nation's population but consume about 35% -- more than a third -- of the prescription drugs in the country. That's not surprising because people get to an age when that kind of health care intervention is all the more necessary. Some people have Medigap coverage. About a third of seniors, however, have no health insurance coverage of any kind. Any kind of prescription drug cost they pay is strictly out of pocket. It's cash on the barrelhead and there is no other way around it for a lot of these people.

Now, the other stories that I hear are probably predictable; and I suspect that you've heard a lot of them as well from people who've talked to you about the cost of prescription drugs. But in South Dakota, not surprisingly, we get a lot of people who run up to Canada and come back with drugs purchased at about half the price of what they can buy in South Dakota or anywhere else in the country. In fact I ran into a new phenomenon in a small town in South Dakota not too long ago. These were seniors who are a little better off. They were snowbirding in the wintertime to Arizona and confiding to me that they normally wouldn't be able to do that. But they pay for the entire cost of their snowbird winter by going to Mexico to pick up their drugs at a savings. And I appreciate that there are certain risks inherent in doing your shopping in Mexico for some items. But for these particular individuals who shared their stories with me they were doing very well buying the same brand name product and making sufficient savings that actually offset the entire cost of their winter.

The House of Representatives has done a number of studies in recent years. Among them has been a finding that the cost of prescription drugs does run 40%-60% less not just in Mexico and Canada but throughout the EU and a great many places around the world. These are not simply anecdotal stories that are somehow are unreliable. People are actually having to make these kinds of very difficult choices. The good news, of course, is that these products are enabling people to live a longer, fuller life. But the bad news is, 35 years or so post-Medicare, we still have not come to a public policy conclusion about how to make access to high quality prescription drugs more realistic for more of our citizens.

I'd have to say that as I was listening to President Clinton's State of the Union address the other evening which went on at great length in the typical "Clintonesque" fashion, I was pleased that he and his Administration seems to be joining members of Congress in both political parties. I think it's important that we not get too carried away with the partisanship here even in an election year, elevating the problem not just of health care in general but of prescription drugs. Vice President Gore, candidate Bradley, have talked about generic drugs as a component of their strategy, about gaining access for more people to prescription drugs. In their debates that they've had in New Hampshire, I've noticed that the Republican leadership has been talking about coming up with a plan of their own within the coming weeks or months. And so we are finding almost everyone compelled to address the issue. Now whether they do so in a way that is likely to lead to results this year or not remains to be seen.

The backdrop of this is sort of interesting in a way, when you look at the legislation that is knocking around Congress. I think when you look at some of this legislation I think it's a reflection of immense levels of frustration in many ways. Some of this legislation is unlikely to go very far, but I think it has prodded more thinking and more coming together on the need to come to a bi-partisan conclusion. We have right now, for instance, the Prescription Drug Fairness for Seniors Act which would compel the pharmaceutical industry to sell drugs to Medicare eligibles at the same price as favored customers, sort of a bulk group purchasing theory in a sense. There's the International Prescription Drug Parity Act which interestingly enough would allow the United States in effect to piggyback onto a price control system that exists in other countries permitting pharmacists to re-import into the United States drugs that have been sold to Canada or other countries. And we see some growing debate about Medicare coverage per se of prescription drugs.

On top of all this there is an intense political fight going on. We've all seen the "Flo" ads with the tens of millions of dollars informing us how important it is to keep the government out of our medicine cabinet. The senior groups have united in opposition to these ads but the senior groups have no money to counter them. Last I saw they had a hundred thousand dollars they pooled to run national television ads to counter what? $50 million of "Flo" ads, and so we find ourselves outgunned in terms of political advertising, certainly in terms of the political action committee funding and certainly in terms of the intimidation that's directed towards individual members of Congress.

Representative Allen, for instance, is one of a dozen or so members of the House who, because of his willingness to sponsor the Prescription Drug Fairness for Seniors Act, finds himself targeted for attack ads in his District. Another eight or ten members just this past year already have been targeted. It is an intimidating experience for members of Congress, particularly House Members but for Senators as well. A couple hundred thousand dollars in a House campaign turns an easy campaign into a difficult campaign and members know that. And so we find sometimes that public policy is being bent and formed based on the dollars involved, more than by any profound feelings about where our public policy really ought to be going.

The Medicare Reform Commission that the President appointed came up short of a bi-partisan agreement on ways to reform Medicare this past year. It is both complicated and expensive, and dealing with Medicare reform, as dealing with health care reform in general, is a little bit like dealing with a Rubik's Cube that used to be popular a couple of years ago, where every time you get the colors right on one side you look in the back and find out that you've messed up the other side. You are continually dealing with unintended consequences of issues that have such an enormous impact on quality of life and on the economy. And so I don't know that it's totally likely that we're going to be able to reach a bi-partisan conclusion on Medicare reform this year. Presidential election years oftentimes don't bode well for the kind of bi-partisan agreements that are needed. More often than not in Presidential election years there is a particular emphasis on the two parties trying to draw apart from each other to draw lines in the sand to distinguish how they're not like the other guy and that doesn't help the kind of bi-partisanship that would be required for something this complex and this difficult.

On top of that it's going to be a short year. If you toss out Mondays and Fridays, which Congress generally spends doing more travelling than work, there are only 79 legislative days in the entire year until we adjourn for the Presidential elections and the Congressional elections. That doesn't bode particularly well either. But on the other hand, the urgency is growing. I think the public is getting more and more impatient about seeing something happen; and the financial picture, believe it or not, actually is better than it was that many of us thought we might see in our lifetimes. When I was elected to Congress some 13-14 years ago, the three things I thought I would possibly never see in my lifetime were the fall of the Berlin Wall, the collapse of the Soviet Union and that we'd ever be sitting around in Washington arguing about what to do about budget surpluses. But here we are.

Seven years ago we were running $300 billion a year in the red. This year we're $140 billion in the black and the OMB is projecting surpluses as far as the eye can see. They are in fact suggesting that we may wind up with a surplus over and above dollars attributable to social security of anywhere from around $750 billion dollars to $2 trillion dollars over the coming decade. Now, as a member of the Senate budget committee, I would caution that neither side ought to get too terribly giddy about how to expend these dollars. Making projections out ten years is very, very difficult. We typically miss a one-year projection wildly and a ten-year projection is almost beyond belief in terms of the difficulty of what is expected. But I'd have to say that the projections are somewhat conservative. They do count in some recessionary periods. They do assume lower GDP growth than we've had over the last decade and so the case can be made that some significant surpluses will, in fact, materialize. I think probably closer to the lower number than the higher number.

Well, in that context then we do have a debate about what to do about health care and prescription drug coverage; and it's conceivable that in the end the President, who is looking for a legacy issue, and Republicans, who are looking to prove that they can do something constructive on the health care front, could conceivable come together on a health care reform issue. We'll see. But with the difficulty of health care reform, Medicare reform is a reminder of why the generic drug issue is so important. This is one where we can make significant progress in expanding access for millions of Americans without waiting for the immensely complicated and expensive, comprehensive reform of health care in America. There are steps that can be taken short term, which would have a positive consequence whether we do comprehensive reform or not. And it also has the benefit of applying to the lives not just of seniors but to younger families as well.

One of the things I find when I go around my home state is while I do have a lot of seniors telling me heart rending stories about the problems they're having with the cost of prescription drugs, I also wind up with stories from a lot of young working families with both parents working, sometimes two and three jobs, and a couple of kids, oftentimes health insurance is the very first thing that goes and under those circumstances and I wind up with stories about the cost of prescription drugs for them as well.

The other positive thing I think we can look at in focusing on the generic side is that we know what kind of results we're going to get. This is not experimental stuff. We're talking about proven savings and proven quality. And that's why Representative Allen and I this past month sent a letter to President Clinton asking him to investigate the use of a generic preference within any Medicare prescription drug plan. I think the President is receptive to those ideas. Senator Harkin and I joined Vice President Gore at a press conference in the District late this last fall to talk about the Vice President's plans on generic drugs, which mostly had to do with reforms of the patent extension system, mandating that there be a review of cost implications ­ that any time a patent extension does come up it should involve free standing, well thought out, well heard and debated legislationŠ none of this middle-of-the-night "amendment on to something else" kind of approach, and that something be done about collusion between companies to buy out the potential for generic competition.

And to the Vice President's credit I would have to say that that press conference was held at the height of the Claritin debate going on in Washington at that time, and I thought was a reasonably gutsy thing for the Vice President to do given the other nationwide campaign consequences that clearly flow from running opposed to the Claritin extension. All this is coming at a time when the branded companies are making profits three times or more higher than the rest of the economy, it would seem to me that there's all the more justification for there being some intervention to make sure that we do, in fact, have a level playing field relative to generics.

Now, while we can talk about Medicare coverage of prescription drugs and I hope that ultimately that's where we'll wind up some day -- the sooner the better -- that ought not to be a blank check. If all that does then is say the taxpayers will continue to pay for record profits then I think we are misusing the dollars that are available to us. In these days of impending surpluses I think we do have some dollars that we can do some things with if we're careful with them and we get the maximum use out of each individual dollar that's available. But that should not be an excuse for an open-ended price tag on prescription drugs. It has to be in conjunction with cost minimization and certainly a full access to generics has got to be part of any kind of strategy that leads us down that road. Now your organization, I know, has been interested in a meeting with Vice President Gore. We need to be interacting with all the candidates of both political parties as well, as this process goes on and on. We need to educate other candidates. We can begin to lay the groundwork here fairly early and enforce some constructive steps in the right direction so that the American public can get the full benefit of the generic industry and taxpayers are treated right at the same time.

You find yourselves in the very happy circumstance where good business is also good public policy. It doesn't always happen. Sometimes a good business is contrary to where the country as a whole ought to go, but I think one of the things that ought to be satisfying to you is that while I appreciate that you do what you do because it is your profession, it's your business, the end consequence of what you do has very positive public policy.

I think if we remain focused, if we continue to educate leading players in the House, the Senate and among the candidates, with the merits of our arguments, I think that we're going to prevail in the end. And the only question, I think, is not so much whether the generic industry gets where they need to be or not, it is whether we get there this year or not. I think it's going to happen. I think it has to happen and I think in the long run the generic industry is going to continue to be a very, very important player in the delivery of high quality, affordable health care in America. The question is can we make that leap this year or is it going to take a little longer than that. But I think if we hang together this way I think that we're going to make it happen and I think that we're going to find ourselves with a very healthy industry but more importantly a very healthy American public.

Thank you again for this opportunity to share a few thoughts with you.