1. National State Attorney General Program at Columbia Law School Pharmaceuticals Conference May 11, 2007

2. Director Policy & Strategy John Rother, JD

3. Rx Drugs in Context

4. Costs for National Health Expenditures Billions Overall Medicare Costs compared to Overall Health Costs Projections Source: CMS, National Health Accounts

5. Rx Drug Increases in 10 years (1995 thru 2004) Big Portion of Rising HC Bill Source: Calculations by PPI AARP using Centers for Medicare & Medicaid Services, Office of the Actuary, CY 1960-2004 National Health Expenditure Data Hospital Care Rx Drugs Physician & ClinicalServices 27% 21% 15%

7. U.S. Total Drug Expenditures as Percent of National Healthcare Expenses: 1988 to 2010 % of NHE Source: Compiled by the PRIME Institute, University of Minnesota from data found in Pharmaceutical Benefits Under Medical Assistance Programs, National Pharmaceutical Council, 1975 to 2002 and in HCFA Form 64. Doubled share in 10 years Projected Will have tripled share 22.1% Today

8. Average Rx Manufacturers’ Price Increases Far Outpacing Inflation Years refer to change from previous year. Source: AARP Public Policy Institute April, 2007 Average % Change Inflation 20.3% 53.6%

9. Distribution of Gross Revenues for U.S. Drug Companies by Expense Type Net Profit Taxes & Other Costs Cost of Production Research & Development Marketing, Advertising, & Administrative Costs Source: Compiled by the PRIME Institute, University of Minnesota from data found in DHHS, CMS, Jan 2003, and from Bloomberg, analysts models, & corporate annual reports. Presented by AARP Rx Watchdog Forum February 2005 $6

11. Generic Substitution Rates in USA, 1984-2006 More than half of Rx drugs dispensed in USA are GENERIC Yet they account for only 13% of total Rx costs Percent of Rx Filled

12. USA in a Global Context

13. Excesses, Gaps in US HC Spending ESAW = Estimated Spending According to Wealth Source: OECD; MGI analysis McKinsey & Company 28% 40% 36% 27% -57% -70% 82% 15% Below ESAW Overall Rx

14. Lessons from Europe Price transparency - a precondition for good policy and fair competition U.S. prescription drug pricing now takes place in a black box

15. The “Black Box” of U.S. Pharmaceutical Pricing

16. U.S. Pharmaceutical Supply & Payment Drug Manufacturer Consumer Pharmacy

17. Pharmacy Benefit Manager (PBM) Employer/ Plan Sponsor or Health Insurer Wholesale Distributor U.S. Pharmaceutical Supply & Payment Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation Drug Manufacturer Consumer Pharmacy

18. Pharmacy Benefit Manager (PBM) Employer/ Plan Sponsor or Health Insurer Wholesale Distributor U.S. Pharmaceutical Supply & Payment Drug Manufacturer Pharmacy M.D. Advertising RxRxRx Consumer Payment for Marketingand Advertising Source: AARP---Based on work of The Health Strategies Consultancy (now Avalere Health) for the Kaiser Family Foundation

19. Lessons from Europe (con’t) Comparative Effectiveness information held by the industry and by other governments; using effectiveness as a basis for pricing has been successful in Europe. Truly innovative medicines should receive high reimbursement; “me-too” drugs required to show cost savings

20. State & Federal Strategies to Lower Rx Drug Costs

21. State Strategies Large purchasing pools Comparative Effectiveness [Oregon Evidence-based Practice Center] Transparency [e.g. NY program requiring that pharmacies post prices online] NH court case on physician profiling

22. Federal Strategies Secretarial negotiation for Medicare –Very narrow rejection in Senate – needed 60 votes –With no formulary – CBO estimates no savings –Veto threat

23. S. 1082, the Prescription Drug User Fee Amendments sponsored by Senator Kennedy –Reauthorize Prescription Drug User Fees that help fund FDA –Also includes some Rx drug safety provisions and other amendments –Currently on the Senate floor (and will likely pass by today) S. 316 – the Kohl-Leahy bill –Would prohibit generic manufacturers from accepting anything of value as part of a patent settlement with a brand name company –Offered as an amendment to PDUF –Unclear whether will pass as part of that measure Federal Strategies

24. S. 1088 – the Stabenow-Lott bill –“Lower Prices Reduced with Increased Competition and Efficient Development of Drugs” Act –Many of its provisions on PDUFA, offered as part of a “managers’ amendment” –Expected to pass S. 623 – the Clinton-Schumer biologics bill. –As part of PDUFA, there was a “sense of the Senate” amendment that essentially said that the Senate HELP Committee should report out a generic biologics bill by June 13 –Key players are working on proposals Federal Strategies

25. HR 1038 – –Waxman-Emerson biologics proposal - identical to the Clinton-Schumer proposal - issue moving more slowly in the House, though two hearings already held HR 380 – –Emanuel-Emerson importation proposal –This is the House companion to Dorgan- Snowe Federal Strategies

26. PDUFA Reauthorization in the House –The House moving more slowly than Senate; hasn’t drafted language yet, just starting process –Expected to move in the House, get conferenced with the Senate bill over the summer –Unknown at this time whether the House will try to include Rx safety and other measures on the PDFUA reauthorization or whether it will simply move a “cleaner” piece of legislation. Federal Strategies

27. HR 1902 – the Rush-Waxman legislation –similar to the Kohl-Leahy bill –Energy & Commerce Committee held a hearing on this issue last week –Unknown at this time whether sponsors will try to attach this to PDUFA HR 2184 – Comparative effectiveness research –Monday, Rep. Allen (D-ME) introduced legislation to expand comparative effectiveness research (including a significant increase in funding) –Senator Clinton working on similar legislation Federal Strategies

28. S. 242 – the Dorgan-Snowe importation legislation –Co-sponsored by 33 Members of Senate –Allows for safe importation of Rx drugs from abroad –Offered as amendment, the measure passed by voice vote Monday –However, “poison pill” amendment sponsored by Senator Cochran also passed by a vote of 49-40 Requires that before any importation system can be implemented the Secretary of HHS must certify safety of imported drugs Similar provision already part of current law Stronger political support possible if Canada does industry negotiating for us Unlikely to produce much in short-term savings Plays off of public anger in being played for fools

29. Longer-Term Agenda Generic biologics Continuing Comparative Effectiveness studies Focus on marketing costs –DTC advertising –Physician detailing –Payments to physicians “Date certain” patent expiration policy

30. Consumer Strategy Consumer campaign for “Wise Use” –Counters detailing, DTC and other questionable marketing –Promotes use of generics –Fosters full compliance Continue taking full prescription until finished Continue on with maintenance drugs –Encourages shopping around for price –Has patient proactively inform physician about every health and Rx substance taken –Focuses patients on knowing side effects to watch for

31. Pharmaceuticals Only Part of Reform Rx pricing, patent, advertising, and detailing practices only one component of broader health reforms needed

32. Future Agenda The AG’s nationwide have great opportunities to influence pharmaceutical pricing by creating: –Better market rules –More effective consumer protections

33. National State Attorney General Program at Columbia Law School Pharmaceuticals Conference