ONTEU

The National Treasury Employees Union

TESTIMONY

OF

COLLEEN M. KELLEY

NATIONAL PRESIDENT

NATIONAL TREASURY EMPLOYEES UNION

ON

VETERANS ADMINISTRATION PHARMACEUTICAL POLICIES

JULY 25, 2000

10:00 AM

SUBCOMMITTEE ON HEALTH

HOUSE COMMITTEE ON VETERANS' AFFAIRS

334 CANNON HOUSE OFFICE BUILDING

901 E Street, N.W. Suite 600 Washington, D.C. 20004-2037 (202) 783-4444

Chairman Stearns, Members of the Subcommittee:

I am Colleen Kelley, the National President of the National Treasury Employees Union (NTEU). As you may know, NTEU represents more than 155,000 federal employees and retirees across the federal government.

NTEU very much appreciates the opportunity to provide testimony for today's hearing examining Veterans Administration pharmaceutical policies. As the Chairman is no doubt aware, one of the fastest growing components of health insurance premiums nationwide is prescription drug coverage. This is no less true for the Federal Employees Health Benefits Program (FEHBP). Prescription drug costs currently account for $1 of every $4 FEHBP dollars a ratio that has increased dramatically over the last few years.

NTEU's goal is to insure that the FEHBP provide the 9 million federal employees, retirees and their families who rely on it for their health insurance needs with the best coverage at the best rates. The average premium increase in FEHBP plans for 2000 was 9.3%. This was preceded by increases of 9.5% and 7.2% in 1999 and 1998. Prescription drugs account for a large portion of these increases. Thousands of federal employees

especially

lower paid employees are unable to afford even the least expensive FEHBP coverage. For these reasons, it is important that we explore more cost efficient ways to purchase drugs, ways that will both permit these individuals to afford FEHBP coverage for their families and that hold the promise of providing the federal government with the best possible prices for its health benefits plan.

Moreover, to the extent these lower paid public servants have to make the hard choice not to have health insurance, the government will continue to lose ground to the private sector as

the employer of choice. I am sure the fact that the federal government is experiencing an increasingly difficult time attracting and retaining the best employees in this full employment economy has not been lost on this, or any other committee of the Congress.

One avenue under consideration by the Office of Personnel Management is insuring that the FEHBP the largest employer

sponsored health insurance plan in the nation better use its buying power to negotiate discount rates and bring down costs and premiums wherever possible. To this end, NTEU strongly supports the efforts of one small FEHBP plan, the Special Agents Mutual Benefit Association's (SAMBA) request for access to the Federal Supply Schedule (FSS) for its mail order prescription drug program.

SAMBA requested this approval from the Office of Personnel Management (OPM) late last year, announcing that this one move alone would reduce its plan's premiums premiums that both the federal government and employees share by 3% annually. Savings from this one effort are estimated to be $2.4 million annually.

Because the federal government, in its role as employer, pays almost 75% of FEHBP premiums, the savings to taxpayers inherent in this proposal are enormous. As I pointed out earlier, prescription drug costs currently account for an estimated $1 of every $4 FEHBP premium dollars. With the annual cost of the FEHBP reaching $20 billion dollars, the taxpayer savings that could result from the federal government adopting a prescription drug schedule similar to the FSS must be considered.

A patchwork of drug purchase arrangements currently exists in the FEHBP. The SAMBA proposal represents a forward thinking approach to controlling health care costs and OPM has worked to insure that SAMBA's request be approved, limiting it to a two year pilot, after which time, OPM would review the advisability

of establishing its own, separate, schedule from which FEHBP fee for service health plans with cost-reimbursement type contracts with the federal government would purchase prescription drugs for their health insurance plans.

FEHBP providers have long been permitted to purchase other goods and services, such as hotel and travel rate discounts, from the Federal Supply Schedule for use in operating their federal health plans. Nonetheless, the idea that one tiny FEHBP health plan with only 17,000 enrollees would be permitted to purchase drugs from the FSS has ignited a controversy that has at least, in part, led to this hearing today.

The most vocal opposition to this pilot going forward, which most agree has the potential to save the federal government, federal employees and retirees, and equally important, the American taxpayer millions of dollars, has come from the pharmaceutical industry. They have employed scare tactics and hired pricey Washington law firms to do their bidding. They have attempted to scare the Veterans Administration, the largest purchaser of prescription drugs from the Federal Supply Schedule, into believing that should this one little 17,000 member FEHBP plan be permitted to purchase drugs at the discounted FSS rate, the prices veterans hospitals will pay will rise.

Why? Because it might cut into pharmaceutical industry profits profits that according to published reports, exceeded $26 billion dollars in 1998. It is difficult to muster much sympathy for an industry with profits that exceed the size of entire economies of some small countries.

According to the Health Care Financing Administration, prescription drug expenditures have grown dramatically in recent years. In 1997, for example, prescription drug expenditures grew 14% while the annual growth rate for all health care expenditures

was 5%. Unlike other segments of the economy, drugs always seem to be priced according to what people will pay. Those able to afford FEHBP coverage are lucky because they at least have medical coverage for prescription drugs, however, the elderly and others without prescription drug coverage must pay whatever drug companies demand. In 1998, the average price for a new drug (those coming onto the market in 1992 or later) was $71.49, a price more than double the average price of drugs previously on the market $30.47. It is difficult not to view this as price

gouging.

As this committee knows, the House has approved legislation allowing Americans to purchase prescription drugs abroad, legislation that for the first time would permit Americans access to the same drugs at discount prices that they pay dearly for in their own country. Furthermore, last week, the Senate approved similar legislation that will allow pharmacies and wholesalers to import low cost prescription drugs from foreign countries as long as they meet U.S. safety guidelines. This move would effectively allow pharmacies and wholesalers to negotiate for prices with drug manufacturers, because, for the first time, they would have the ability to purchase the identical drugs from foreign countries for less than they are available for in the United

States!

NTEU hopes this body will thoroughly examine these issues and demand answers. Questions such as why are pharmaceutical companies providing prescription drugs to foreign countries at a lower cost than to America's own citizens need to be answered. And, why is the industry so opposed to the federal government saving millions of dollars by purchasing prescription drugs for its FEHBP program in a manner consistent with the size of its 9 million member pool?