But I want to play the devil's advocate, no disrespect, because I appreciate veterans. I come from a family of veterans, Marines and soldiers and the whole thing. They're all over the place.

But why was the VA chosen, given that you've admitted that these are mostly men, that you are examining the prescription drugs that are used for men, when in fact if you had used another agency you would have gotten more of an inclusive kind of understanding of the drug cost, prescription drug costs? Because women sometimes have situations that are unique to being women.

Mr. POWELL. I would suggest, at least from my perspective, we never discussed it one way or the other. I think the issue of why we were chosen had more to do with our roles as keepers of the schedule itself. To your point, SAMBA actually has a more diverse population because of the family aspect. They would have children as well as spouses that we don't necessarily cover. Obviously we have female veterans, but we don't treat children. There would be a more diverse group in SAMBA than what VA normally see as patients. Now, whether SAMBA is representative of the other plans, in terms of their membership and that sort of issue, I just don't know.

Mr. FLYNN. Ms. Carson, if I could just add to that for a second, there's nothing-Mr. Powell's absolutely correct. Our approach to the Department of Veterans Affairs had to do with the fact that they administered this prescription drug contract. The availability of prescription drugs to members of the SAMBA health plan is not limited in any way to just men, but in fact includes their spouses, many of whom will be female, and their children, who are going to be male and female. I also don't know how representative of the population as a whole SAMBA is, but I suspect it's more closely representative than it is unrepresentative. So we will have the opportunity to see drugs made available to a broad, diverse group of federal employee program participants.

Ms. CARSON. Okay, so then I misunderstood. Your pilot project deals with veterans? The VA? Exclusively?

Mr. POWELL. Well, VA is involved. However, the pilot is actually for the SAMBA agents and their families. VA is already involved in the FSS. SAMBA happened to be a small group that we can manage within the context of what we were trying to discover: whether or not a separate schedule would be effective. It isn't necessarily that we looked out for SAMBA because we wanted to find a group that represented a certain type of employee of the Federal Government. It was just their size.

Mr. FLYNN. And I might just add to that by saying that actually the SAMBA health plan, which is an independent, private-sector health plan, is the group that came to us and requested this access on behalf of its 16,000 members. But its membership, with the single exception of the fact that they are mostly law enforcement personnel who work for a small number of federal agencies, is a membership which consists of federal employees, federal retirees, and their spouses and members of their family-just as if you were a member of the National Association of Letter Carriers health plan that is predominantly postal employees, or others like that.

Ms. CARSON. Is there a problem with allowing a look at the federal supply list by others, other entities that are not presently hav

ing access, to looking at it? Does that preclude any competitiveness or opportunities to further examine the cost factors in these schedules? Isn't this pilot project sort of limited in terms of who gets to have access to looking at the federal supply list and what the cost factors are, et cetera? And that's generally what this is, when you're doing a pilot, so you can examine the whole cost of it. Why then do you deny others to look?

Mr. FLYNN. Um, that's

Ms. CARSON. I like to ask confusing questions, because I don't know what I'm asking.

Mr. POWELL. I just want to make sure I answer your question correctly. Actually, my understanding is that, by statute, we have to limit. And so what we do in our schedules is public knowledge. People, when-I assume when you say "look at," you mean "use." Obviously when looking at our pricing and how we do it, that's available to anyone. In terms of being able to utilize those prices, we are limited by statute.

Ms. CARSON. Thank you very much, Mr. Chairman.

Mr. STEARNS. I thank my colleague. I understand, Mr. Flynn, that you have an 11:00 a.m. appointment, so we appreciate very much your staying over and being here this morning.

We have a copy of a letter from Blue Cross/Blue Shield, which is the largest participating organization, FEHBP, in which of course they're concerned about price controls and the fact that there would be cost-shifting if this moved to something, to the FEHBP. So I'd like you, if you'd be so kind as to answer this letter to us. And we'll give you a copy. It would be helpful for our record, and all my colleagues here, to understand what your argument is relative to the argument they are making.

Mr. FLYNN. We'll be happy to do that, Mr. Chairman.

Mr. STEARNS. All right. And-well, thank you. And now we'll call the second panel-

Mr. GUTIERREZ. Mr. Chairman?

Mr. STEARNS. Yes, Mr. Gutierrez?

Mr. GUTIERREZ. Mr. Flynn and Mr. Powell, I just have a question about the federal supply schedule. Now, the federal supply schedule, could you just tell us quickly why is it we're getting these prices, these unique low prices? Is it because they want to be-who gets-who has access to the federal supply schedule right now, why is it that they have this wonderful arrangement?

and

Mr. POWELL. Well, there are a number of reasons. There are some things VA does that make it unique. We have a committed volume, which is very helpful to the manufacturers. It helps them set their-

Mr. GUTIERREZ. So volume is one of these?

Mr. POWELL. Volume is very important-committed volume. In other words, we give them very definite production schedules. Coming from a manufacturing background, I can tell you, having a committed volume is close to nirvana.

Mr. GUTIERREZ. Good volume?

Mr. POWELL. It's very important.

Mr. GUTIERREZ. Okay.

Mr. POWELL. We also, as Mr. Krump said, we have the formulary, which allows us to get somewhat away from, if you will,

branded drugs, so that we are in the generics realm. That allows us to-

Mr. GUTIERREZ. You're using generics? And a committed—— Mr. POWELL. Well, I think it's important, VA has a formulary. Generics are not exactly the same. The formulary and committed volume are the primary drivers.

I would also say, I think my staff are particularly good negotiators, and I do think they deserve credit for that skill. There are some other technical aspects. These issues are the ones being addressed by the pilot because it's not entirely clear whether or not, say, something like the formulary would be acceptable in a SAMBA environment. This is what we're trying to discover. Whether or not we can bring a formulary to bear, because SAMBA is an entirely different customer, if you will-although we don't think of veterans per se as customers. But there's an entirely different process by which drugs are prescribed. That's one of the issues we're trying to get at in this pilot.

Mr. GUTIERREZ. Let me just say that, then-because I know you have an appointment, Mr. Flynn-it just seems to me that if we're going to that number one, I think to paraphrase what Mr. Flynn said, if there's a problem, you'll quit, you'll stop. If it has an adverse effect on the federal supply schedule and what veterans are getting today in terms of their prices, right? In this endeavor, you'll just stop and say-you'll say "uncle" and walk away from it.

But I just want to say that I hope that when that happens, you would inform this committee immediately. I mean immediately, so that we could call a hearing right away, because I think we need to be balanced in our approach. It's okay, and I think very fair and important, to say, God, this could have a detrimental impact on the veterans, and it's something that we should be concerned about, and say, be careful.

On the other hand, I think we should also say to you that we're going to be supportive. That is, as you enter this venture, we should say to you, you know, shame on the other side if, for reasons unexplainable or logical or reasonable, they decide to increase the federal supply schedule and the prices on the federal supply schedule. And that we would then call the pharmaceutical companies before this committee, and we would ask them-I guess a hypothetical question: why is a veteran in a foreign country getting a better deal on drugs produced here in the United States of America, many times because of the subsidy we as a Federal Government give institutions, hospitals and other research institutions— why are they getting drugs cheaper than we did because we tried to include 16,000 additional families? If we kept the committed production, and we kept the formulas the same, why did you do it?

So I just wanted to say that, you know, I think it should bethere should be a duality. That is, yes, be careful, we don't want to-we might not have money; it could have a detrimental effect on veterans. And on the other hand say, move forward and understand that there are those of us who fear what the pharmaceutical companies could do to our veterans and the detrimental effectthere are those of us that will take them on for you. Not for you; that's wrong, this word-with you, in order to achieve a cost savings and benefit to the American people.

Thank you very much, Mr. Chairman.

Mr. BILIRAKIS. Mr. Chairman, we didn't intend to go a second round, but if everybody wants to make an editorialized comment, that would be helpful.

Mr. STEARNS. I did

Mr. GUTIERREZ. You know, it was really a question, Mr. Chairman. And you know, I think it's fair to, you know, First Amendment rights for us to be able to express ourselves, in terms of-and I'm sorry if you want to-you know, take this conversation that we're having, and this dialogue, and all of a sudden-was it editorializing? Ahh, it's editorializing. That's what the Congress of the United States does a lot of. Yesterday we were passing resolutions in the House of Representatives to make sure that the motto of the nation is-you know, and that got real scary.

And you know what was interesting, though, was when it came to a vote whether or not we should promote "In God We Trust" across the nation, for 15 seconds there was a silence. And I said, God has intervened. He's really angry that we're using his name in vain in the Congress of the United States. That's how I felt yesterday.

So yes, do we editorialize? Yes, we editorialize. I think that's why the people in our congressional district send us here to be their voice.

Mr. BILIRAKIS. Okay. Mr. Chairman?

Mr. GUTIERREZ. And in this situation, where I am not the voice of the people of my congressional district-and I don't want you to put another little thing in there. Phil and I already got our whacks

Mr. BILIRAKIS. We're apt

Mr. GUTIERREZ. Just the same, Mr. Chairman

Mr. BILIRAKIS. Mr. Chairman?

Mr. GUTIERREZ (continuing). In the whole thing of bipartisanship, that we should be able to speak and talk. No, I don't want an additional 5 minutes. It gets me a little upset that I never have how would I say this? Because I want to be very precise. I have never described or attributed words such as "editorializing" to the comments made of other members of this committee. I allow them the free rein to say what it is they feel. And I think that's the best way to go about it so that we can have the kind of comity we need in this committee in order to assure the American people the best representation possible. I like everybody here.

Mr. STEARNS. Good point.

Mr. BILIRAKIS. Mr. Chairman? Not in the way of a second round, Mr. Chairman. I just merely would like to request in writing—and this is ordinary, I think, in all hearings-from the VA the scenario of your negotiations. How do you negotiate? Mr. Powell, you've commended your people for their great negotiating jobs and that sort of thing.

I always have been very curious how that takes place, and in what way you do it, and what companies you're negotiating with. Mr. POWELL. Would you like to have the individuals involved meet with you and your staff?

Mr. BILIRAKIS. Well, that may not be a bad idea. I'd like to get it-I think I'd like to get it, maybe the committee get it in writing

first. And possibly that might be a worthy idea, either come meet with our staffs or possibly have them come here sometime.

Mr. POWELL. I will encourage the meeting if you think it would be helpful.

Mr. BILIRAKIS. Absolutely. And in all probability, it's a very commendable process, so I think we should learn more about it. So I would ask unanimous consent, Mr. Chairman, that that be requested.

Mr. STEARNS. By unanimous consent, so ordered. Mr. Doyle, you're welcome to pass here.

Mr. DOYLE. I would just end by expanding on what Mr. Gutierrez said by saying, you know, you asked how we got this special deal for the VA. And the 1992 law is how it happened, and I think Mr. Stearns in his opening comments said somewhat diplomatically that the drug manufacturers were reluctant at first. They were brought kicking and screaming into this deal. But it's here now, and I think we should realize that the reason this existed, in addition to the good work that gets done by VA in negotiating these prices, was that Congress wrote the law.

Mr. BILIRAKIS. Well, if the gentleman would yield, this goes to what I requested. You say they're brought screaming and—if that were the case, then I think that would be reflected when we learn more about how negotiations take place.

Mr. DOYLE. Excellent. Thank you, Mr. Chairman.

Mr. STEARNS. Mr. Doyle, Mr. Gutierrez, Mr. Bilirakis, I appreciate your comments. And Mr. Flynn, we appreciate you staying over another 15, 20 minutes at this point to hear us out.

And now we'll call on the second panel.

Mr. GUTIERREZ. You can blame us. You should claim you have the best excuse for being late ever.

Mr. STEARNS. Our second panel will be Richard Wannemacher, a representative of a key veterans organization, Disabled American Veterans. Mr. Wannemacher is DAV Assistant National Legislative Director. And also we have as a witness on panel number two Dr. Robert Betz, Executive Director of the Health Industry Group Purchasing Association. Let the record also reflect to my colleagues that Mr. Dennis Cullinan, the National Legislative Director of Veterans of Foreign Wars, was scheduled to testify but was unable to do so because of illness. He indicated to the Subcommittee staff that the VFW would be submitting a written statement which, without objection, will be made a part of the record of this hearing. So at this point, we'll let you folks start for your opening statement. Mr. Wannemacher, welcome to our panel. Nice to see you again.

STATEMENTS OF RICHARD A. WANNEMACHER, JR., ASSISTANT NATIONAL LEGISLATIVE DIRECTOR FOR MEDICAL AFFAIRS, DISABLED AMERICAN VETERANS; AND ROBERT B. BETZ, EXECUTIVE DIRECTOR, HEALTH INDUSTRY GROUP PURCHASING ASSOCIATION

STATEMENT OF RICHARD A. WANNEMACHER, JR.

Mr. WANNEMACHER. Thank you, Mr. Chairman. Nice to see you.