<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:34446.wais]
PHARMACEUTICAL SUPPLY CHAIN SECURITY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIMINAL JUSTICE,
DRUG POLICY, AND HUMAN RESOURCES
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 11, 2006
__________
Serial No. 109-227
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
BRIAN P. BILBRAY, California
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Criminal Justice, Drug Policy, and Human Resources
MARK E. SOUDER, Indiana, Chairman
PATRICK T. McHenry, North Carolina ELIJAH E. CUMMINGS, Maryland
DAN BURTON, Indiana BERNARD SANDERS, Vermont
JOHN L. MICA, Florida DANNY K. DAVIS, Illinois
GIL GUTKNECHT, Minnesota DIANE E. WATSON, California
STEVEN C. LaTOURETTE, Ohio LINDA T. SANCHEZ, California
CHRIS CANNON, Utah C.A. DUTCH RUPPERSBERGER, Maryland
CANDICE S. MILLER, Michigan MAJOR R. OWENS, New York
VIRGINIA FOXX, North Carolina ELEANOR HOLMES NORTON, District of
JEAN SCHMIDT, Ohio Columbia
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Marc Wheat, Staff Director
Michelle Gress, Counsel
Kimberly Craswell, Clerk
Tony Haywood, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on July 11, 2006.................................... 1
Statement of:
Catizone, Carmen, executive director, National Association of
Boards of Pharmacy; Susan C. Winckler, esq., vice
president, policy and communications, American Pharmacists
Association; John M. Gray, president and CEO, Healthcare
Distribution Management Association, HDMA; and Rick Raber,
project manager, Northern Apex, RFID....................... 64
Catizone, Carmen......................................... 64
Gray, John M............................................. 90
Raber, Rick.............................................. 99
Winckler, Susan C........................................ 79
Lutter, Randall W., Acting Associate Commissioner for Policy
and Planning, Food and Drug Administration; and Kevin
Delli-Colli, Deputy Assistant Director, Financial and Trade
Investigations Division, Office of Investigations, U.S.
Immigration and Customs Enforcement........................ 8
Delli-Colli, Kevin....................................... 45
Lutter, Randall W........................................ 8
Letters, statements, etc., submitted for the record by:
Catizone, Carmen, executive director, National Association of
Boards of Pharmacy, prepared statement of.................. 67
Delli-Colli, Kevin, Deputy Assistant Director, Financial and
Trade Investigations Division, Office of Investigations,
U.S. Immigration and Customs Enforcement, prepared
statement of............................................... 47
Gray, John M., president and CEO, Healthcare Distribution
Management Association, HDMA, prepared statement of........ 93
Lutter, Randall W., Acting Associate Commissioner for Policy
and Planning, Food and Drug Administration, prepared
statement of............................................... 11
Raber, Rick, project manager, Northern Apex, RFID, prepared
statement of............................................... 101
Souder, Hon. Mark E., a Representative in Congress from the
State of Indiana, prepared statement of.................... 4
Winckler, Susan C., esq., vice president, policy and
communications, American Pharmacists Association, prepared
statement of............................................... 81
PHARMACEUTICAL SUPPLY CHAIN SECURITY
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TUESDAY, JULY 11, 2006
House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and
Human Resources,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2154, Rayburn House Office Building, Hon. Mark E. Souder
(chairman of the subcommittee) presiding.
Present: Representatives Souder, Gutknecht, Foxx, Cummings,
Ruppersberger, and Norton.
Staff present: Marc Wheat, staff director and chief
counsel; Michelle Gress, counsel; Scott Springer, congressional
fellow; Kimberly Craswell, clerk; Tony Haywood, minority
counsel; and Jean Gosa, minority assistant clerk.
Mr. Souder. The subcommittee will come to order. Mr.
Cummings is going to be a little late, and we will have Members
in and out, but I want to get the hearing started on time.
Good morning, and thank you for being here today. This is
the second hearing conducted by the subcommittee to investigate
the threat of counterfeit drugs within the United States.
Today's hearing is focused on measures to prevent
counterfeits from entering the pharmaceutical supply chains and
to improve supply chain security. This hearing comes in the
wake of FDA's recent update from its Counterfeit Drug Task
Force which recommends ending the multi-year stay on
implementing the pedigree rule required in the Prescription
Drug Marketing Act, an act that was signed into law in 1988.
A pedigree shows the drug's chain of custody, tracking the
product as it flows through the supply chain. States such as
California and Florida already have tough pedigree laws, and
other States are moving forward with their own legislation. The
FDA's decision to implement the pedigree requirement is a
welcome, if overdue, effort in the national fight against
counterfeit medicines in a pharmaceutical supply chain.
Pedigrees can be paper or electronic, also known as an
ePedigree; ePedigree can be accomplished through what is known
as radio frequency identification [RFID], where a small RFID
tag on the drug package is read and tracked from seller to
seller providing, an electronic record of all transactions for
the drug. Nonetheless, the pedigree is only one tool in the
tool box for creating and maintaining a secure supply chain.
Counterfeit pharmaceutical drugs are illegal, generally
unsafe and pose a serious threat to the public health.
Moreover, despite some sensational media segments on the
prevalence and danger of counterfeit drugs, the American public
is generally unaware of the program.
The illegitimate business of creating, distributing and
selling counterfeit pharmaceutical products is an unregulated,
criminal and growing part of the global economy. There is one
major difference between pharmaceutical counterfeiting and
other underground industries: lives are at stake. It has been
estimated that, globally, counterfeit pharmaceutical commerce
will grow to become 16 percent of the aggregate size of the
legitimate industry, a 6 percent increase from 2004. This
illegal business will generate $75 billion in revenue in 2010,
a 92 percent increase from 2005.
The counterfeit industry is also growing at a much faster
rate than the legitimate pharmaceutical business. Some
estimates indicate that counterfeit drug sales will grow 13
percent annually through 2010, compared to just 7.5 percent
estimated annual growth for global pharmaceutical commerce.
Many of the products sold via drug traffickers contain
ingredients that could be harmful, and these products are
coming from illegal operations with very poor controls. The
U.S. supply chain has become increasingly vulnerable to a
variety of threats. Counterfeit drugs often travel through a
distribution network of wholesalers, distributors, pharmacies,
online shelf companies and criminal organizations buying,
selling and reselling through unofficial channels with little
product integrity. The FDA has confirmed that the large
majority of known instances of counterfeit drugs have entered
the supply stream through what is known as a secondary market,
where drug diversion takes place. Drug diversion is the
principle method by which counterfeits consistently enter the
legitimate drug market. This happens because the pharmaceutical
supply chain is not regulated by any single entity, private or
governmental. The pharmacies within the State are monitored by
the State Boards of Pharmacy which enforce the standards of
care within each State. However, the State Boards of Pharmacy
lack police power, and many are limited to only a handful of
inspectors. Drug manufacturers have to comply with the FDA for
the safety, effectiveness and labeling of their drugs. The drug
manufacturers typically exercise no control over their drugs
once they are shipped out of the manufacturing facility.
Rather, the drugs are bought and sold by distributors and
frequently pass in and out of the secondary market, where they
may be bought and sold dozens of times, passed among several
hands, repackaged, mishandled or relabeled.
Distributors like retailers and physicians are licensed by
the States which must only meet the minimal standards set by
the Prescription Drug Marketing Act. In order to obtain a
distributor's license, some States' licensing requirements are
more lenient than others. Although some States have toughened
their licensing standards for distributors, this leaves a
patchwork of inconsistent standards across the country.
Unscrupulous distributors can exploit the lowest standards of
some States to insert counterfeit or adulterated product in the
legitimate drug supply chain.
When unscrupulous middlemen resell pharmaceuticals, they
sometimes relabel them to reflect higher and more valuable
doses, mishandle them to contaminate or degrade the drug, or
substitute fake products for the legitimate goods. The
counterfeits can be indistinguishable from the legitimate
product. For the patient, there is no commercial transaction
like this. The patient has virtually zero ability to inspect
the drug's packaging or compare it to other samples. The
patient who goes to a pharmacy to have his or her prescription
filled is as helpless in determining the quality of the drug
and completely dependent on a system that has experienced some
tragic breaches. Moreover, it is impossible to measure the
scope of the problem, and we cannot say with any degree of
certainty how many or which counterfeit drugs make it to the
pharmacy shelves because a health indication or ultimate death
may be attributed to the patient's underlying illness rather
than the drug.
I look forward to hearing from our witnesses an assessment
of the current threats and available protective measures to
strengthen the supply chain.
Our first panel today consists of Mr. Randall Lutter,
Associate Commissioner for Policy and Planning at the Food and
Drug Administration; and Mr. Kevin Delli-Colli, Deputy
Assistant Director, Financial and Trade Investigations,
Division, Office of Investigations, U.S. Immigration and
Customs Enforcement [ICE].
Our second panel consists of Carmen Catizone, executive
director of the National Association of the Boards of Pharmacy;
Ms. Susan Winckler, vice president of policy and communications
at the American Pharmacists Association; Mr. John Gray,
president and CEO of Healthcare Distribution Management
Association [HDMA]; Rick Raber, project manager with Northern
APEX-RFID and a fellow Hoosier from northeastern Indiana.
Welcome to each of you, and I look forward to your
testimony.
Mr. Gutknecht, do you have an opening statement?
[The prepared statement of Hon. Mark E. Souder follows:]
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Mr. Gutknecht. Mr. Chairman, I don't so much have an
opening statement, I just want to thank you and congratulate
you for holding this hearing. This is an issue that I've had an
interest in for a long time. It all started--this opening
statement may get a little longer than I originally intended,
but I want to just make a few points.
First of all, it started at a town hall meeting that I had
many years ago where seniors began to question why it was they
were treated like common criminals for buying their
prescription drugs from Canada. And the argument that has been
consistently proposed by the FDA and their fellows in the
pharmaceutical industry is that we cannot guarantee the safety
of drugs coming in from industrialized countries like Canada.
The truth of the matter is, there is technology available today
at low cost, and I've got some examples that I brought with me
if you want to see audio visuals. In here, I have 50 RFID
computer chips, and you can barely see them. But this
technology is not futuristic. It's not pie-in-the-sky. It is
available today. And we have the ability to protect the
integrity and the safety of the drug supply not only here in
the United States but from other industrialized countries. And
so I think this hearing is a very important step I think on
that path toward making certain that the pharmaceutical drugs
that Americans take are safe but, more importantly, more
affordable for all Americans.
So I really do want to thank you for having this hearing,
and I'm delighted to be here.
Mr. Souder. I thank the gentleman. He's been very active
and outspoken on this for some time, and I'm glad we can
continue to progress with this.
I ask unanimous consent that all Members have 5 legislative
days to submit written statements and questions for the hearing
record, and any answers to written questions provided by the
witnesses also be included in the record. Without objection, so
ordered.
I also ask unanimous consent that all exhibits, documents
and other materials referred to by Members may be included in
the hearing record, that all Members be permitted to revise and
extend remarks. Without objection, it's so ordered.
As the witnesses know, it's our standard procedure to ask
witnesses to testify under oath. If you will raise your right
hands, I will administer the oath to you.
[Witnesses sworn.]
Mr. Souder. Let the record show that both of the witnesses
responded in the affirmative.
We thank you for coming today.
Dr. Lutter, is that correct? Did I say that correct? I look
forward to your testimony. I'll have you start.
STATEMENTS OF RANDALL W. LUTTER, ACTING ASSOCIATE COMMISSIONER
FOR POLICY AND PLANNING, FOOD AND DRUG ADMINISTRATION; AND
KEVIN DELLI-COLLI, DEPUTY ASSISTANT DIRECTOR, FINANCIAL AND
TRADE INVESTIGATIONS DIVISION, OFFICE OF INVESTIGATIONS, U.S.
IMMIGRATION AND CUSTOMS ENFORCEMENT
STATEMENT OF RANDALL W. LUTTER
Mr. Lutter. Good morning, Chairman Souder, members of the
subcommittee. I'm Dr. Randy Lutter, Associate Commissioner for
Policy and Planning at the U.S. Food and Drug Administration.
Thank you for the opportunity to testify about FDA's efforts
regarding counterfeit prescription drugs.
Counterfeit drug products and illicit drug diversion are
major concerns to FDA. While the U.S. drug supply is among the
safest in the world, we believe threats from drug
counterfeiters have become increasingly sophisticated.
Organizations and individuals who peddle fake medicines put
unsuspecting patients at risk by exposing them to unknown
contaminants and denying them medicines known to be safe and
effective at treating their medical ailments.
Our mission is to protect and promote the public health,
and today I will discuss measures FDA has taken and continues
to take to fight phony medicines.
First I'd like to clarify what FDA considers counterfeit.
The definition in the True Drug and Cosmetics Act focuses on
fraud and deception toward the consumer as when persons falsely
believe they are receiving a genuine FDA-approved product. It
generally does not include products that are marketed as being
similar to or a foreign version of an FDA-approved drug. Those
types of products are also illegal but referred to as
unapproved new drugs, not counterfeit drugs.
My written statement contains details of FDA's enforcement
efforts to combat prescription drug counterfeiters; today,
however, I'd like to highlight some of the work of FDA's
Counterfeit Drug Task Force, and some of the recommendations
made in the recently issued 2006 report.
The Task Force was established in 2003 and consists of
senior FDA officials. Our mission is to develop recommendations
for steps that FDA, other government agencies and industry
could take to minimize the risk to the public from the
introduction of counterfeit drugs into the U.S. distribution
system.
In 2004, the Task Force issued a report outlining a
framework for public and private sector actions that could
further protect Americans from counterfeit drugs. This
framework called for a multi-layered approach to address the
problem and stated among other things that widespread use of
electronic track-and-trace technology would help secure the
integrity of the drug supply chain by providing an accurate
drug pedigree, which is a record of the chain of custody of the
product as it moves through the supply chain from manufacturer
to pharmacy. Radio frequency identification is a promising
technology to achieve electronic pedigree.
The third conclusion was that widespread adoption and use
of electronic track-and-trace technology would be feasible by
2007. And finally, the effective date of certain regulations
related to the implementation of the Prescription Drug
Marketing Act should be delayed until December 1, 2006, to give
stakeholders in the supply chain time to focus on implementing
widespread use of ePedigree.
In 2005, the Task Force issued an updated report which
assessed FDA's and industry's progress toward implementing the
2004 recommendation. The Task Force found, among other things,
that progress had been made in many areas, but progress toward
widespread use of ePedigree was slowing, and the goal might not
be met by 2007. This year, to evaluate progress toward
widespread use of ePedigree by 2007 and to solicit public
comment on the implementation of certain PDMA related
regulations, we held a public meeting on February 8th and 9th.
Subsequently, on June 9th, the Task Force issued its most
recent report based on this extensive fact-finding effort. I'll
focus my discussion on this 2006 report on the status of the
stayed provisions related to PDMA and electronic track-and-
trace technologies.
As you know, FDA published five regulations related to the
PDMA in December 1999. The provisions in those regulations
define the phrase ``ongoing relationship'' as used in the
definition of authorized distributor of record set forth in the
requirements regarding pedigrees and define the fields of
information that must be included in the pedigree.
FDA had delayed the effective date for these provisions
several times because of significant issues raised by
stakeholders. Based on our recent fact-finding effort, we can
no longer justify continuing the stay. A large majority of
supply chain stakeholders told FDA that the regulations should
be allowed to go into effect. Allowing the stay to expire will
provide clarity in the prescription drug supply chain by
distinguishing clearly authorized distributors of records who
are exempt from providing drug pedigrees from non-authorized
distributors of record, who must provide a pedigree.
While the regulations do not provide for a phased in
approach for pedigree implementation, FDA has issued a draft
compliance policy guidance for public comment that reflects the
risk-based approach that FDA will use to focus its enforcement
efforts regarding the pedigree regulations. The focus will be
on prescription drug products that are most vulnerable to
counterfeiting diversion based on factors such as high value,
prior history of counterfeiting or diversion, reasonable
likelihood of counterfeiting for new drugs, and other
violations of law.
The 2006 report also states that FDA continues to believe
that RFID is the most promising technology for implementing
electronic track-and-trace in the prescription drug supply
chain and that stakeholders should move quickly to implement
this technology. FDA recognizes that implementing an RFID-
enabled drug supply chain is challenging and urges
manufacturers to take a risk-based approach to implementation.
The 2006 report also considered several technical issues
related to adoption of electronic track-and-trace technology
that were perceived as obstacles to implementation and are in
need of resolution. These include mass serialization and unique
identification of each drug package, universal pedigree,
covering all drugs from all manufacturers to the dispenser,
national uniform information, and privacy issues and the need
for consumer education about RFID and the labelling of RFID tag
drug products in order to help prevent unauthorized disclosure
of personal information.
FDA's vision of a safe and secure prescription drug supply
chain is based on transparency and accountability for all
persons who handle the prescription drug throughout the supply
chain. With the pedigree regulations taking effect in December
2006, FDA expects that supply chain stakeholders will move
quickly to electronic track-and-trace technology. Ultimately,
we believe that the public health would be better protected if
all stakeholders work cooperatively to enable all distributors
to pass pedigrees.
FDA is doing its part to effectively enforce the law in
conjunction with other Federal, State and local entities, to
protect Americans from criminals who attempt to undermine the
public health by introducing counterfeit and diverted
prescription drugs into the U.S. drug supply.
I'd like to thank the subcommittee for the opportunity to
testify today on this important issue. I'd be pleased to
respond to any questions.
[The prepared statement of Mr. Lutter follows:]
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Mr. Souder. Thank you.
Mr. Kevin--is it Delli-Colli?
Mr. Delli-Colli. Yes, thank you.
Mr. Souder. He is Deputy Assistant Director for Financial
and Trade Investigations at ICE. We welcome you back to our
committee.
STATEMENT OF KEVIN DELLI-COLLI
Mr. Delli-Colli. Good afternoon, Chairman Souder and
distinguished members of this subcommittee. My name is Kevin
Delli-Colli, and I am the Deputy Assistant Director for
Financial and Trade Investigations at U.S. Immigration and
Customs Enforcement [ICE].
I am pleased to appear before you today to speak about
ICE's role in combating the trafficking of counterfeit
pharmaceuticals. I have a statement which I will submit for the
record and will make a brief oral statement.
In January 2004, ICE and FDA in San Diego began a multi-
agency investigation targeting various Web sites, Internet
payment networks and pharmaceutical supply chains. The targets
utilized more than 650 affiliated Web sites to distribute more
than $25 million in counterfeit or unapproved pharmaceuticals
within a 3-year period.
The distribution network extended throughout all of North
America, and the source country, India, was disguised by trans-
shipping the product through other countries. To date, this
investigation has resulted in 20 indictments, 18 convictions
and the seizure of $1.4 million. The primary violator was
sentenced in January 2005 to 51 months imprisonment.
Prosecution of other defendants is ongoing. This case
highlights many of the challenges confronting U.S. law
enforcement in combating the trafficking of counterfeit
pharmaceuticals.
As the largest investigative arm of the Department of
Homeland Security, ICE plays a leading role in targeting
criminal organizations responsible for producing, smuggling and
distributing counterfeit products, including counterfeit
pharmaceuticals. ICE investigations focus not only on keeping
these products from reaching U.S. Consumers, but also on
dismantling the criminal organizations responsible for this
activity.
ICE smuggling investigations have shown that the Internet
has become the primary tool used by organizations engaged in
the trafficking of counterfeit pharmaceuticals, whether for
advertisement, direct sales or as a communication tool.
Individuals who previously would have purchased controlled or
prescription pharmaceuticals through an underground supplier
now use the Internet to locate a source for the drugs, place
orders, arrange shipments, and make payments all from the
comfort of their own home. Thus, traffickers have been able to
create an illicit unregulated supply chain which is filled with
counterfeit, adulterated, misbranded and unsafe drugs that are
distributed directly to consumers who in most instances are
drug abusers.
The problem is global. China and India are the most
prolific source countries; however, Mexico, Thailand and Brazil
are also sources of these drugs. Other countries host Web
service, conduct payment processing or act as trans-shipment
points.
ICE addresses this threat in several ways. ICE is a cadre
of dedicated and trained special agents assigned to domestic
field offices who specialize in investigating counterfeit
violations. ICE special agents are also deployed to 56 overseas
attache offices, making it possible for ICE to effectively
conduct global investigations. ICE agents in the field and
overseas work closely with the ICE Crime Center to combat
pharmaceutical violations over the Internet. ICE also hosts a
National Intellectual Property Rights Coordination Center,
which serves as the primary point of contact for law
enforcement referrals and conducts industry outreach.
Another way in which ICE combats pharmaceutical smuggling
is through targeted operations such as Operation Apothecary.
Operation Apothecary concentrates its efforts at international
mail facilities and express courier hubs to examine and
identify packages containing falsely declared or undeclared
pharmaceuticals. ICE, FDA and other Federal law enforcement
agencies use the information obtained from these examinations
to target foreign sources, domestic organizations and
recipients engaged in smuggling and distributing commercial
quantities of illicit pharmaceuticals.
Since 2003, ICE has initiated 178 criminal investigations
targeting pharmaceutical smuggling. To date, these
investigations have led to 86 arrests. Millions of dosage units
of counterfeit, adulterated, misbranded and unapproved
pharmaceuticals have been seized, and where appropriate, assets
attributed to the illegal proceeds have also been seized and
forfeited.
To combat the supply side, ICE has actively engaged the
Chinese Ministry of Public Security to conduct investigations
of mutual interest. This dialog led to the first two joint
U.S.-China enforcement actions ever to take place in China. One
of these investigations began in February 2005 when the ICE
attache in Beijing received information that Richard Cowley of
Shelton, WA, was linked to groups of individuals involved in
the Internet sale of pharmaceuticals in the United States and
Europe. This investigation led to the initiation of Operation
Ocean Crossing. ICE special agents acting undercover met with
Cowley and learned the identity of his supplier in China. The
information from this investigation was shared with Chinese
authorities, who then took action against the largest
counterfeit pharmaceutical operation in China. Twelve Chinese
nationals were arrested, and three illicit pharmaceutical
facilities were shut down during joint enforcement actions
which took place in December 2005. Cowley was arrested in the
United States. He has since pled guilty and is currently
awaiting sentencing.
This case is an excellent example of the value of
cooperation and information sharing in combating transnational
pharmaceutical trafficking, and ICE believes that this need for
cooperation will continue to produce significant results.
ICE will continue to aggressively apply our authorities in
combating the transnational organizations that traffic in
counterfeit pharmaceuticals.
This concludes my remarks, and I would be pleased to answer
your questions. Thank you.
[The prepared statement of Mr. Delli-Colli follows:]
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Mr. Souder. I thank you both for your testimony.
Let me ask kind of a side question first that came up at a
hearing we had last week in Colorado on meth.
When Congress passes a new law that is about to take
effect, for example, on September 30th, on--it's a legal drug
if it has pseudoephedrine in it, but we're restricting the
quantities and requiring people to register, and this will now
become national.
Has there been any discussion of what the logical market
reaction is going to be? It appears in Oregon that they've gone
to the Internet to bring in the pseudoephedrine for the so-
called mom-and-pop labs. Oklahoma just appears to be bringing
in crystal ice. Those were the first two States with
pharmaceutical regulations. But does what you're talking about
here, how would that be handled with a legal product that we're
trying to control the dosage, in effect?
Mr. Delli-Colli. Well, from ICE's perspective, with
responsibility for the meth, it's a different division than the
counterfeit division.
Mr. Souder. But this is the pseudoephedrine that's legal.
For example, many headache medicines that would now--now the
quantity is handled differently.
Mr. Delli-Colli. I'm not familiar enough with the
legislation to know how the implication of that drug would be
affected. I believe it would be similar to an anti-
pharmaceutical; it's going to be prohibited unless it's brought
in by a manufacturer.
Mr. Lutter. Maybe I can expand on that a little bit.
Pseudoephedrine brought in across the border would be treated
as an illegal, unapproved drug because it has not been reviewed
by FDA.
Mr. Souder. But I'm not talking about raw pseudoephedrine,
or ephedra, which we already control; I'm talking about the
pills. Any headache medicine that 37 States are going through
that process as of September 30th, the Federal regulation will
put it behind a counter with people having to sign in, and you
can only get a certain amount of it. Now the way to get around
that law is to do what you do with other prescription drugs and
try to move around the border. And I'm wondering, when we pass
major legislation like this that's going to slam down in 50
States, whether there's been any discussion, because the
logical market reaction is going to be sort of trying to move
around the legal distribution. And whether or not some of the
ways you're trying to address tracking and so on would be a way
to do that? I'm just wondering whether you've had any
discussion about meth, because this is a new change that could
result in a big bump up in what you're dealing with. But there
hasn't been a discussion, I take it.
Mr. Delli-Colli. Any time you restrict the domestic sale
of--if the drugs that have the active ingredient that could be
used to manufacture meth are put behind the counter and make it
a little more difficult to obtain, anybody that wanted to do
something inappropriate with those drugs would, I believe,
resort to the Internet to find a supplier for that ingredient.
Mr. Souder. And your agency hasn't begun to look at that
impact?
Mr. Delli-Colli. Other than the fact that we would
anticipate that we would see an increase.
Mr. Souder. What currently--if I may move to Dr. Lutter--
what currently are some of the major drugs that you would be
dealing with in the range of what you're trying to control
here?
Mr. Lutter. With respect to counterfeit drugs generally, or
with respect to----
Mr. Souder. Counterfeit drugs generally. In other words, to
give just kind of an initial layout here, are we talking mostly
people who are--are they common medicines? Are they
prescription drugs? Are they illegal drugs?
Mr. Lutter. There is a variety of similarities among the
drugs that have been reported counterfeited in the past in the
United States. First, they are typically high value. Some of
them are lifestyle drugs. And third, some of them are
relatively easier to counterfeit in the sense of being liquids,
clear liquids rather than pills, which are difficult to
counterfeit because they have to be manufactured in a manner
that closely resembles the authentic product.
In terms of the products that we've actually seen
counterfeited in the past, recent cases that have been closed
include Lipitor, anti-cholesterol drug, Viagra and Cialis,
which are well known from advertisements, Zyprexa, and also
other products for HIV and for AIDS. Procrit was also listed as
a counterfeit drug according to recent accounts.
So the common theme here is that they are drugs that are
high value in the United States in terms of the market as a
whole, and also relatively--some of them are relatively easy to
produce in a manner that deceives trained pharmacists and
physicians.
Mr. Souder. As I understood your testimony, you were
moving--you said you felt they could move forward in December
with the process?
Mr. Lutter. A key announcement that we made on June 9th of
this past year is that we would allow the stay of the PDMA
regulations to expire in early December of this year. An
implication of the expiration of that stay of the regulation
and a discontinuation of the stay is that there would be
additional clarity to stakeholders in the drug distribution
chain about who is supposed to provide pedigrees and what
exactly the pedigrees are supposed to contain. The PDMA itself,
as you know, mandated that stakeholders in a drug distribution
system pass pedigrees to whoever the buyer is, unless they are
authorized distributors of record, the term of art in the
statute. And an authorized distributor of record in the statute
is someone who has an ongoing relationship with the
manufacturer. What the regulation that we issued in 1999 does
is it defines further what is meant by an ongoing relationship.
As you can imagine, many stakeholders have asked us what is
actually meant by that. So what our 1999 regulation does is
stipulate that an ongoing relationship which makes a wholesaler
exempt from having to pass a pedigree under the Prescription
Drug Marketing Act is a written agreement with the manufacturer
designating that wholesaler as an authorized distributor. And
under those circumstances, the authorized distributor would not
have to pass the pedigree.
Mr. Souder. Is that authorized distributor list going to be
published?
Mr. Lutter. I'm sorry?
Mr. Souder. Is the authorized distributor list going to be
published?
Mr. Lutter. Yes. Our regulations make the--ask the
manufacturers to make visible upon request the list of
authorized distributors of record.
Mr. Souder. So that's available to you?
Mr. Lutter. And to anyone else who asks. They're also
directed by our regulations to update it continually.
Mr. Souder. Could secondary distributors claim they had
been purchased from an authorized distributor when they really
haven't been?
Mr. Lutter. Well, a secondary distributor who is not an
authorized distributor of record would have, as mandated under
our regs and the statute, to pass a pedigree. So the pedigree
would stipulate where they acquired the drugs and allow for
anybody who buys the drugs from them an additional assurance
that it is a pharma legitimate source and has been handled by
known entities.
Mr. Souder. One of the things that I was confused when you
were finishing your statement and I was reading it as well, my
understanding--I thought I heard you say that the focus should
be high value, and you repeated that a minute ago, things that
are easier to counterfeit and so on. Does this mean this isn't
going to apply to all drugs? This is a phase in? Are you
providing a list of what the process will be in December?
Mr. Lutter. The decision that we announced in June is to
allow the stay to expire in early December, and as of that
point the regulation takes effect. We also issued----
Mr. Souder. For everything?
Mr. Lutter. Yes. We also issued a draft compliance policy
guidance, which is now open for public comment. And we intend
to issue that in final form before December. The key purpose of
the draft compliance policy guidance is to articulate for
stakeholders how we will use our enforcement resources for the
first year during which the stay--after which--during which the
regulations have taken effect. And there are four basic
criteria in the compliance policy guidance that articulate how
we will use our enforcement resources. They are essentially
that we will focus efforts on pedigrees for drugs which are
high value, and that's because we believe that----
Mr. Souder. Are you going to specifically define what high
value is? Are you going to name the different drugs or----
Mr. Lutter. We have in the compliance policy guide listed
examples of high value drugs, but not provided a definition.
We've also listed drugs which have previously been
counterfeited. And the reason that these are higher risk is
that there is a track record. Counterfeiters have shown
themselves to be interested in counterfeiting these drugs in
particular for whatever reason.
The third criteria is that for new drugs there needs to be
a reasonable expectation that they're likely to be
counterfeited, such as, again, expectations of high value or
ease of creating a drug which is very similar to the genuine
FDA approved article. And then the fourth one would be for
other violations of law.
Mr. Souder. And taking an example that you referred to say
of Lipitor; so what you're saying is that would be one that
they would be expected to have a tracking. Are you saying that
they would have to have RFID tracking with it, or paper
tracking would be sufficient at this point? A pedigree.
Mr. Lutter. The regulation and the compliance policy
guidance are silent about the particular technology to be used
in providing the pedigree. The pedigree must be passed by
certain entities, and it must contain certain information. We
believe that RFID technology would offer a relatively cost-
effective way of ensuring proper pedigrees. We think it offers
substantial advantages to many stakeholders who believe it's
the most promising electronic pedigree available based on the
discussions that we had with stakeholders in our public meeting
on February 8th and 9th. A variety of technologies presented at
that meeting, other examples which were other than paper
include a bar code, even a two-dimensional bar code, and very
interestingly from the perspective of many stakeholders were
hybrid technologies, technologies that would couple, if you
will, RFID and paper or RFID and a bar code. And the purpose of
these technologies was it reflected a need to meet stakeholders
needs, given that the transition to an RFID world, which many
people believe is where the industry will ultimately end up,
will not be instantaneous but will instead involve a certain
period during which there would be a demand for a variety of
products to provide pedigrees using different technologies.
Mr. Souder. Mr. Gutknecht.
Mr. Gutknecht. Thank you, Mr. Chairman. And again, I want
to thank you for holding this hearing.
Let me first of all quote from the Center of Medicines in
the public interest. They predict that counterfeit drug sales
will reach $75 billion globally by 2010, an increase of more
than 90 percent. And so this is a real issue. And it's not just
about the United States; it's about the world.
Second, I want to point out, I have in my hands here 50
RFID tags. These are available today at relatively low cost.
And so the technology exists today.
I also have counterfeit proof packaging, which is available
today. This is not something we're talking about 10 years from
now, 5 years from now; it's available today.
More importantly, a lot of this technology is being used
today. Unfortunately, it's being used mostly in Europe. And I
don't think the Europeans are intrinsically any smarter than we
are. If they can do that, certainly we can do that.
Dr. Lutter, I want to read from your testimony, and I will
quote, ``The FDA stated in the 2006 Task Force report that
although significant progress has been made to set the stage
for widespread use of ePedigree, this goal, unfortunately, will
not be met by 2007. The FDA is optimistic that considerable
momentum and interest in widespread implementation of ePedigree
continue and remains committed to working with the
stakeholders--and I want to underscore stakeholders--to make
this happen. Stakeholders urged FDA not to mandate RFID in
order to give the private sector time to continue with
developing standards that build the appropriate and necessary
infrastructure. We listened to their concerns, and did not
require RFID use at this time.''
Dr. Lutter, I understand that the stakeholders are not
particularly interested in doing this, and my sense is they
have their own reasons for that. But I want to come back to, I
understand that the conclusion was that this would be too hard
to implement against all of the prescription drugs that are out
there, which is why Mr. Burton of Indiana and myself have
introduced H.R. 4829. And we would essentially phase in the
implementation of this technology in the drug supply, starting
only with the 30 most easily or most commonly counterfeited
drugs in the United States.
Dr. Lutter, why wouldn't you just start small? I mean, you
don't have to do this globally. Why don't we begin somewhere? I
mean, the journey of a thousand leagues begins with a single
step, and I think the first single step is to say, OK, this is
the biggest problem, let's scratch where it itches. Why didn't
you do that?
Mr. Lutter. With respect to starting small, that approach
is actually very similar to something that we've adopted in the
compliance policy guidance that we've put out for public
comment. In that sense, we're using our resources to focus
attention on pedigrees for the drugs which are most likely to
be counterfeited during the first year after the red will take
effect.
With respect to RFID more generally, I think the question
there is really the maturity of the technology and its
readiness for immediate adoption on a widespread basis.
According to the testimony that we heard in the public
meeting on February 8th and 9th, a variety of issues pertaining
to standards had not yet been resolved, and these included
questions such as the frequency, how to characterize the
serialization, in other words, a unique number for each
individual product, and what to do, for example, with privacy.
That is not to say at the same time that RFID isn't very
promising. What we were told at that public meeting is that
they were very successful pilot projects done by several drug
companies with wholesalers, and these pilot projects had been
so successful that they were not ended or discontinued when the
original completion date arrived. Instead, they were seen as so
successful that they were continued in a realtime production
and distribution environment that allowed the manufacturers and
the wholesalers information about inventory and the location of
all the products for business reasons, in addition to providing
information about the pedigree that would be useful in
complying with the PDMA.
Mr. Gutknecht. OK. I'll let you off on that. I'm not sure I
completely agree. Because as I say, if you wait for all the
stakeholders to agree on this, I think it's going to be a long
wait.
Mr. Delli-Colli--and I hope I'm pronouncing that close to
the right way--over the last year, we have read about--and I
received a number of calls and e-mails and letters from folks
in my district about prescriptions that they had ordered via
the mail from pharmaceutical supply houses in Canada that have
been intercepted by your office. Can you tell us about that,
and can you defend that?
Mr. Delli-Colli. First of all, by way of explanation, my
organization is Immigration and Customs Enforcement, and we
conduct the criminal investigations that are associated
oftentimes with seizures that are made by Customs and Border
Protection. So what you may be referring to is that drugs are
being ordered over the Internet from Canada and coming in
probably through mail facilities or courier hubs and being
intercepted by CBP and subsequently seized. CBP is doing that
because currently there is no legal way to import drugs over
the Internet. The only way you can bring in prescription drugs
personally is if you accompany the drugs into the United States
and present a prescription at the border.
As far as my office, we would only get engaged with an
investigation if we believe that those drugs were being
imported for criminal purposes to be illegally distributed, and
not specifically for just an end user.
Mr. Gutknecht. But if a senior citizen in Winona, MN, is
ordering their Prilosec from Canada, do you consider that a
criminal act?
Mr. Delli-Colli. It also depends. First of all, when you
order something over the Internet, how do you know it's coming
from Canada? I mean, just because there's a Web site that
indicates that the site is in Canada, we find often times that
many of these organizations are trying to disguise their
existence----
Mr. Gutknecht. Let me interrupt that. When you say
oftentimes, you mean most of the drugs? I mean, often is an
interesting word, but words have meaning. We're talking about
drugs that actually are being distributed by Canadian
distributors that have been doing this for many years, that are
well respected, and we have had no problems either with
counterfeit drugs or with adverse reactions by the consumers.
So when you say often, that's a misleading word, isn't it?
Mr. Delli-Colli. Oftentimes meaning within the context of
the investigations that ICE conducts. And again, CBP is
enforcing the regulations that currently exist. So the
investigations that we conduct again are geared toward
individuals that are illegally distributing drugs over the
Internet. So I may be looking at, you know, a different cross-
section of what we're dealing with because I am a criminal
investigator.
Mr. Gutknecht. OK. Well, my time is expired, but we're
watching this very carefully. And I think our own government is
overstepping its legal responsibilities to American consumers.
And the Congress, just for the record, has gone on record
several times making it clear that we believe that law-abiding
citizens who are buying drugs from--prescription drugs--from
established sources that have demonstrated that they are
responsible and are distributing the exact same FDA-approved
drugs, the Congress has gone on record several times saying
that is not, in the opinion of the Congress, the right or the
responsibility of the Custom agents to do. And I wish--and I
want to thank the chairman for having this hearing, and I wish
we could have more hearings on this because I think American
consumers are being abused, and I think law-abiding citizens
are being treated like criminals for no reason. And I just want
that in the public record. Thank you.
Mr. Souder. Thank you.
Mr. Delli-Colli, in your testimony you said that ICE
investigations have not revealed instances in which smuggled
counterfeit pharmaceuticals were destined for the legitimate
supply chain. However, you state in Operation Apothecary that
you dismantle organizations involved in the illegal importation
of commercial quantities of the pharmaceuticals. Where were
they destined?
Mr. Delli-Colli. The people associated with the
distribution, we're referring to illicit importation, the
ultimate end use of these drugs is, in the cases that we've
investigated, are going to people that either can't--that would
not be able to get a prescription for the drugs, are drug
abusers, or just don't want to go to a doctor and apply for a
prescription. We haven't had any--our investigations lead us to
drugs that are being provided to wholesalers or distributors to
be entered into the brick and mortar pharmacies in the United
States; these are individuals that are using the Internet to
acquire drugs that they wouldn't legally be able to obtain or
choose not to bother going to the doctor or a physician, or are
just looking for cheaper drugs without any concern as to where
they're purchasing the drugs from. And then there are people
then obviously involved in the distribution process that are
involved in smuggling drugs into the United States, traditional
ways, bringing them in trunks of cars, hand-carrying them
through the airports, and then set up Internet sites in the
United States and ship those drugs via the mail, via DHL,
FedEx, things of that nature.
Mr. Souder. So you haven't seen any instances of the
equivalent of doctor shopping in the sense of certain
pharmacies? We had one pharmacy in my district that actually--a
group of meth users had sent somebody to a school, then opened
up a pharmacy that became a major distribution point for meth.
In Florida, in a hearing on OxyContin, the Orlando Sentinal had
published, and we had quite a discussion that all the OxyContin
abuse had come from just six places in the whole State of
Florida. You haven't seen that kind of set up type operations
where----
Mr. Delli-Colli. Again, because we're ICE, we're focused at
the border in the interdiction capacity. So there are probably
things that are occurring domestically which would fit in that
nature. And there are--we have some cases that are somewhat
ongoing that involve, you know, actual physicians that are
licensed to practice that write illegal script, but again, we
just have not had the type of case where some unsuspecting
person would walk into CVS and hand a prescription over, and
drugs that we intercepted were destined to be put into that
chain as if part of the real supply chain. However, our
investigations are increasing, and I think the vulnerability is
definitely there for that to occur in the future.
Mr. Souder. We are obviously having a hot political
discussion in Congress and across the country about what to do
with legitimate Canadian pharmacies and whether they should
ship in the United States, but anybody who has visited Mexico
knows and is on the Internet that there is not security. Have
you looked into or do you have any idea or do you work with the
RCMP to see about trans-shipment, and in fact whether there are
people working with the Canadian address who are not in fact
Canadian pharmacies, do they have licensed pharmacies that they
actually know? We know how much they bring in and how much they
move out, and the quantity of goods coming in from Canada
exceeds the amount that they have in their supply chain. So the
question is, is ICE looking at this mismatch, and do we
actually know whether there is trans-shipment, or is this
occasional or frequent?
Mr. Delli-Colli. Again, we believe that there is trans-
shipment occurring via Canada as well. Again, what we're seeing
and what we're getting--where our investigations are taking us
is oftentimes we will either begin a case on the Internet or
we'll find a package that is seized at the airport, and to
defend my brothers at CBP a little bit, most oftentimes when
they are seizing pharmaceuticals coming into the United States,
they're falsely declared. They're not declared as drugs.
They're declared as documents. They're not contained in the
original packaging of the drugs. They've been removed from the
blister packages, and they're inserted inside books and things
of that nature.
So a lot of what we're seeing are blatant attempts to
circumvent the regulations at the port. We don't necessarily
know at the time we make those seizures who the supplier is;
oftentimes we have to followup with interviews of people, not
intending to necessarily prosecute them because it's just a
personal use situation, but to ask them how they acquired it
and then try to work those cases back. But we're seeing again
that most of what we're seeing is the Internet is the primary
tool for the distribution network.
Mr. Souder. When you find counterfeit drugs from China or
India, which are two of the countries that you mentioned in the
question--some from Mexico--who are they selling through? If
it's predominantly Internet means, what kind of name would you
look in the Internet to find it under? Is it pretending to be
an American pharmacy, a Canadian pharmacy? What is the
masquerade that they're using to ship the drugs in? Are they
selling it on street corners through Lipitor gangs? I mean, I'm
trying to sort----
Mr. Delli-Colli. Probably the least of those would be
standing on the street corner. Those days are sort of behind us
because of the Internet. It could be any of those. Oftentimes,
obviously, if you're gearing toward the U.S. market, you're
going to have an Internet Web site that is all done in English.
It doesn't necessarily mean that--the site may purport to be in
a foreign country, and it will just have information on there
which makes it--purports to be tied to a legitimate brick and
mortar pharmacy somewhere. It will indicate that it accepts all
forms of credit card purchases, MasterCard, Visa, Discover.
They will frequently ask questions, talk about how--with
respect to the question they have about the drugs. They may
even have a consult with a physician, but you just don't know
who necessarily you're dealing with; that is the biggest
problem.
We had one site--this is going back a few years, the end of
1999--we had a Thai site that, by all appearances, the site
looked really legitimate, except it turns out that the person
that was filling the prescription was buying the drugs out of
the back of a brick and mortar pharmacy in Thailand and then
was himself a hepatitis patient who just recently, when we did
the enforcement act, had just recently got released from the
hospital. And his assistant that was helping him fill the
prescription was a Thai prostitute. So there's no controls over
the quality or how these drugs are coming in. And I think
that's the dilemma that you get into, you know, who is
regulating all these sites all over the world with respect to
accounting for the legitimacy of those drugs.
Mr. Souder. Dr. Lutter.
Mr. Lutter. If I could elaborate a little bit on the lack
of controls. I have an example here of counterfeit Tamiflu that
was purchased by--it was seized by Customs, who is not with us
today, in April 2006 and turned over to the FDA Office of
Criminal Investigations for investigation. OCI determined, the
Office of Criminal Investigations at FDA determined that this
had been purchased over the Internet by an NBC Dateline
producer and was part of an order of 500 total capsules that
was shipped from China. These products, as you see, are very
similar to authentic Tamiflu. The labelling in fact is not so
close to U.S. Tamiflu as to confuse trained U.S. physicians or
pharmacists.
OCI is continuing its investigation into the source of this
counterfeit, but the analysis of our forensic chemistry center
confirmed that the packaging and capsules are counterfeit. And
the capsules have no active ingredient. So aspects of this
investigation, such as the source of the counterfeit Tamiflu,
are still under investigation by OCI field offices, and for
that reason the numbers on the blisters on the boxes are
concealed here. But this is an example of how counterfeit
products are available on Internet sites that Americans have
access to.
Mr. Souder. The big question that I am still kind of
wrestling with here is that, because the distribution system
question is critical, because if that had an RFID or a tracer
on it, it wouldn't really matter because that is not going to
have one and it is not moving through regular tracking
procedure. What is this pedigree? How is the pedigree going to
affect the elicit market?
Mr. Lutter. There are probably three related issues on
that. In this instance, the U.S. purchaser was attempting to
buy large quantities as if he were in fact a wholesaler, trying
to sell to retailers and not for personal consumption. However,
the Web site could be available also to individual citizens who
would be buying Tamiflu, which is known to be safe and
effective when used as directed not only against seasonal flu,
a very important ailment that affects millions of Americans
annually, but also against pandemic, which is a very serious
threat that concerns the administration and many informed
people in the public health community.
So the availability of the counterfeit Tamiflu for sale
poses, either at a wholesale level----
Mr. Souder. But getting back to the question, that Tamiflu
is already illegal, right? Is that package you just held up
illegal?
Mr. Lutter. I'm sorry?
Mr. Souder. Is that illegal?
Mr. Lutter. Yes, this is illegal because it is counterfeit.
Mr. Souder. And if I as an individual went to the Internet
to try to buy that, am I going to have a way to tell whether
it's got a pedigree if I buy it off the Internet and it's not,
because that's already illegal, having a pedigree isn't going
to affect that?
Mr. Lutter. A pedigree would not protect you. A pedigree is
for the purposes of ensuring integrity of the wholesale
distribution scheme.
Mr. Souder. And these people are outside that.
Mr. Lutter. And these people are outside that. The pedigree
provides an opportunity for U.S. wholesalers all the way
through to dispensers, pharmacies or hospitals to verify that
the product in question had an appropriate and valid chain of
custody going all the way back to the manufacturer.
Mr. Souder. So in the 16 percent that I referred to in my
opening statement, how much of that potential 16 percent or
whatever the current figure is--that was a 2010 projection--
that 16 percent is outside the chain of legitimate
distribution, that we're not going to----
Mr. Lutter. The number I think you referred to is 16
percent from mail order in the United States currently, and
that reflects all sources, including Internet and old-fashioned
mail order where people may not use the Internet. I don't know
what percent of that is from foreign-based Internet pharmacies.
We reported, HHS reported in a drug importation report to
Congress in December 2004, that the total volume of imported
parcles containing unapproved foreign pharmaceutical products
was 10 million in calendar year 2003 and that contained
approximately 25 million prescriptions. But these are rough
estimates at best based on the experience that our staff have
at international mail facilities.
Mr. Souder. Mr. Gutknecht, do you have any more questions?
Mr. Gutknecht. Mr. Chairman, not so much a question but I
think there is what I would describe as almost a convenient
conspiracy here. On one hand, you have the pharmaceutical
industry who wants to hold American consumers captive.
Counterfeiters don't counterfeit $1 bills. It is mostly $100
bills they counterfeit because it is worth doing.
The reason we have created this counterfeit industry is in
large part because drugs in the United States are far too
expensive. And what we have heard here is the Internet has
become the instrument. Well, what is the Internet? It is the
information age. And until American consumers knew how much
more they were paying for the same drugs, they weren't
interested in buying their drugs over the Internet. But once
they began to know, once the information age--you can't hold
American consumers hostage, and that is the fact. You can try,
but it doesn't work and so now you have created a monster. And
the answer, the technology that has existed now for a number of
years, the FDA continues to decide, well, yeah, but we really,
yes, it might work, but we don't want to use it yet.
And so now you have part of the conspiracy is the custom
agents who are literally, for senior citizens who are dealing
with pharmacies that they have dealt with for several years and
bought their prescription drugs and they're completely
satisfied and they believe and everybody believes they are
getting exactly what they requested--incidentally, Governors
are now on the other side.
Our own Governor of Minnesota, the Governor of Illinois,
other Governors are saying, to save money, they want them to
buy from certain prescription drug suppliers that they have
screened. They have literally gone up and met with the people
and looked at their operations and so forth and they have given
them their seal of approval. But we have created this monster.
And until or unless our government understands that you cannot
hold American consumers hostage in the information age, this
problem is going to get worse and worse and worse. And the
responsibility for that problem rests with the FDA, with
Customs and with us.
So I want to thank you for coming to testify, but we won
World War II in 3.5 years. We have been working on this issue
of figuring out ways that Americans could have access to
affordable FDA-approved drugs from FDA-approved facilities, we
have been working on this for 5.5 years, and we won World War
II in 3.5 years. And for me and I think for a lot of American
consumers, this is totally unacceptable.
I yield back.
Mr. Souder. I thank you each for your testimony. We may
have some additional written questions. Thank you for coming
today. Thank you for your work. We will continue to track to
see how this implementation works.
If the second panel could come forward.
The second panel is Carmen Catizone, the executive director
of the National Association of the Boards of Pharmacy; Susan
Winckler, vice president of policy and communications, American
Pharmacists Association; John Gray, president and CEO of the
Health Care Distribution Management Association; and Rick
Raber, project manager, Northern Apex RFID.
It is our standard practice as an oversight committee to
swear in each of the witnesses. Mr. Catizone, you are sitting
in Mark McGuire's seat, so we do expect you to talk about the
past anyway. Will you each raise your right hands?
[Witnesses sworn.]
Mr. Souder. Let the record show that each of the witnesses
responded in the affirmative. Thank you for agreeing to
participate in today's hearing.
Mr. Catizone, is that the correct?
STATEMENTS OF CARMEN CATIZONE, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION OF BOARDS OF PHARMACY; SUSAN C. WINCKLER, ESQ.,
VICE PRESIDENT, POLICY AND COMMUNICATIONS, AMERICAN PHARMACISTS
ASSOCIATION; JOHN M. GRAY, PRESIDENT AND CEO, HEALTHCARE
DISTRIBUTION MANAGEMENT ASSOCIATION, HDMA; AND RICK RABER,
PROJECT MANAGER, NORTHERN APEX, RFID
STATEMENT OF CARMEN CATIZONE
Mr. Catizone. Yes, sir.
Mr. Souder. We will start with you.
Mr. Catizone. Thank you, Mr. Chairman, good morning.
Good morning, Representative Gutknecht.
Thank you for the opportunity to appear before you this
morning.
I am pleased to report that significant progress has been
made to combat the threat of counterfeit drugs. However, as far
as we have progressed, there is still much to do before we can
rest and maintain the confidence we have in the integrity of
the medication distribution system for U.S. patients. The real
threat of counterfeit drugs at this time is not the limited
breaches which have occurred but the potential catastrophe that
could result if the U.S. medication distribution supply system
is compromised.
A recent incident that just came to our attention happened
yesterday, where investigators in Indiana discovered
counterfeit drugs that made their way into Indiana pharmacies
from a wholesale distributor in Cincinnati. As we speak
investigators are trying to track those sources and determine
how widespread that counterfeit breach is.
If the U.S. medication distribution system is compromised,
every medication that travels from the pharmaceutical
manufacturer to the wholesale distributor to the pharmacy to
the patient will be in question. If that is allowed to take
place, no patient will be safe. In order to prevent that from
occurring, the State Boards of Pharmacy and States have passed,
are continuing to pass and implementing legislation that
tighten the laws and regulations for the licensure and
regulation of wholesale distributors. This concentrated and
concerted effort is closing avenues for the introduction and
diversion of counterfeit drugs and has already resulted in the
end of operations for a number of wholesale distributors that
were dangerous and seeking to corrupt our distribution system.
What has also propelled this effort is the shared desire of
the pharmaceutical manufacturers, primary source wholesale
distributors and technology vendors to work with the State
Boards of Pharmacy and FDA to stop the influx of counterfeit
drugs. Everyone involved in all aspects of dispensing and
distributing medications to patients accepts the seriousness of
the challenge and the crises or problems that could lay ahead.
I am also pleased to report that NABP's accreditation
program for wholesale distributors is fully operational and is
required to recognize by an increasing number of States. VAWD,
verified accreditation of wholesale distributors, certifies
that the wholesale distributor is legitimate, duly licensed in
compliance with State and Federal laws, and adhering to
criteria for the wholesale distribution of medications that
protect the integrity of the system and patients receiving
medications. NABP will accredit all wholesale distributors,
licensed or seeking licensure in the State of Indiana. And
since an overwhelming majority of wholesale distributors
conduct business in multiple States, that accreditation system
required by Indiana is fast becoming a uniform and national
standard.
Some recommendations and considerations we ask of the
subcommittee at this time to support the efforts of the States
and sustain the progress being made are as follows: one, a
uniformed pedigree system or auto tracking system must be
established. It is a travesty that we can track the ingredients
in the pizza prepared by our local pizza parlor better than we
can track prescription drugs in the distribution supply system.
Two, paper pedigrees are not a solution for counterfeit drugs.
The counterfeit drug dealers are far too savvy and technology
sophisticated to allow for much confidence in the paper-based
system. The answer lies with the electronic track-and-trace
technology, and we request support for the FDA to assume a
leadership role in this area and use its expertise and
influence to cause the development of the uniform standards and
implementation of track-and-trace technologies and RFID as
quickly as possible.
Third, we ask support for the implementation deadlines for
RFID technology that the States are now enacting. Without a
uniform standard, without a uniform implementation date, the
States are fast creating a patchwork of deadlines that are not
supporting a uniform system. We need assistance. We need some
uniform or national standards.
Thank you again for this opportunity. NABP and the State
Boards of Pharmacy take the threat of counterfeit drugs very
seriously and are doing all we can to maintain the integrity of
the U.S. medication distribution system. We are working as hard
as we can to help the States protect the health and welfare of
U.S. patients. Thank you.
[The prepared statement of Mr. Catizone follows:]
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STATEMENT OF SUSAN C. WINCKLER, ESQ.
Ms. Winckler. Thank you, Mr. Chairman and the subcommittee
for the invitation to appear this morning. We have heard
already the foundation of data and statistics and numbers about
the scope and problem and the threat of counterfeit medication.
For pharmacists, however, we don't consider counterfeit
medications in terms of numbers. We consider them in terms of
faces, the faces of patients with cancer, with asthma, with
diabetes, our patients and the thought that our patients could
receive a product that is at best of questionable effectiveness
and at worst poison stops us in our tracks and raises the
importance of what it is that pharmacists do to protect our
system against counterfeit drugs to be of prime importance.
Pharmacists serve as the last line of defense in protecting
patients from counterfeit medications. Recognition of this role
however is not consistent. Our role and the impact of anti-
counterfeiting initiatives on pharmacy practice is not always
considered. We support enhanced efforts to combat
counterfeiting, including advanced technology and coordination
of efforts by all interested parties. Our support is tempered,
however, by the need to minimize impact on our patients and
recognizing the reality of the costs of these systems. Any
anti-counterfeit initiative must include assessments of both
the costs and benefits of those interventions.
As Congress seeks to close gaps in our system, it must
assess the impact of any proposed solutions on pharmacists and
our ability to serve patients. A little bit about the
pharmacists role in this arena. We play three essential roles:
the first as prudent purchaser; the second as an educator; and
the third as a reporter of counterfeit products.
As a prudent purchaser, that's inherent. We have to be
careful in whom we choose to purchase our medications from. But
being able to do that well requires a licensure process and
administration of that licensure process that is more than a
paper fig leaf. We have to have confidence that the licensure
process is more than making sure that the credit card or the
check used to pay for that licensure process is valid. Our
regulators need strong, clear regulations. They also need the
authority to enforce those.
The pharmacist's role as educator may appear to be a little
different, but this is where we help patients understand their
role and what they need to do should they be presented with a
counterfeit product and the risks that they in fact face.
Pharmacists help patients understand that they need to report
certain information to their doctor and to their pharmacist
that might help us identify that counterfeit drug that has
evaded all of us and unfortunately realized our worst
nightmare, actually made it to a patient's medicine cabinet.
And so we have to have that information about those counterfeit
drugs in order to work directly with our patients.
An often overlooked side effect of counterfeit medications
is the effect on legitimate medication use. As news of
counterfeit medications emerges in the media, some patients
stop taking their legitimate product because of fears about the
product. For someone on blood pressure lowering medication or
asthma medication, stopping that therapy could prove deadly. So
we must also understand when we talk about counterfeit
medication that we put it in the right context and get
information about that to the patients who may have been
affected but help other patients understand the value of
continuing their medication.
Pharmacists also have an important role in detecting
counterfeit products, in noticing that the packaging may not be
quite right or there is a difference in the appearance of the
products and report that to the regulators so that we can
protect those patients.
To do all three of these roles, we need some things. We
primarily need access to information. We have to know when
there have been counterfeit products, what are the risks? What
is it patients should do? Because we translate the information
that appears on CNN for the individual patient to help them
understand what they need to do if they need to take any
action.
We also need to have a consistent nationwide electronic
pedigree. We support the FDA's recent recommendation to
implement the relevant sections of the PDMA regarding the
pedigree on December 1st of this year. As that implementation
takes place, however, we do need to have consistent input and
sufficient input from the stakeholders to make sure that
implementation supports the eventual adoption of an electronic
pedigree. And in this arena, PHA supports a strong national
standard for the pedigree out of concern that having different
State standards, while they may be intended to put a higher
level of protection at the State level, may actually create
loopholes that the unscrupulous operators would use to
penetrate the system.
We also ask the subcommittee to consider the costs and
liability of all of these systems and understand the roles that
when we talk about anti-counterfeiting measures, it is not just
the manufacturers, the wholesalers, but there are the
manufacturers, pharmacists, wholesalers and, at the end of the
day, the patients.
Mr. Chairman, as you mentioned, counterfeiting is often
described as an economic issue, but we are stealing money from
legitimate providers. Counterfeiting of drugs is so much more.
It is stealing money. It is stealing health, and it is stealing
our patients' confidence in our health care system, and we all
must do whatever we can to stop that. Thank you.
[The prepared statement of Ms. Winckler follows:]
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Mr. Souder. Thank you. Mr. Gray.
STATEMENT OF JOHN M. GRAY
Mr. Gray. Thank you, Mr. Chairman. Thank you for the
opportunity to provide some perspective here on behalf of HDMA
and my 40 primary full service distributors.
We represent large national as well as numerous regional
family owned companies. Our members deliver over 9 million
health care products a day to about 142,000 locations which
include pharmacies, hospitals, nursing homes, clinics and the
like. HDMA and the members of our organization have
particularly in the last 4 to 5 years begun working extremely
closely with all our supply chain partners, from manufacturers
down to pharmacies. We take the mission to work together
cooperatively seriously. And we are supporting all the efforts
to make sure that the U.S. medicine supply chain remains
secure.
There is no greater concern I know, particularly in my term
here from our board of directors, no greater concern among them
as a group of companies, about the threat of counterfeit
medicines and what they represent to the supply chain. In
response to that concern, we have begun to look at this problem
through four key areas that we think as an organization, as an
industry need to be addressed: No. 1, strict regulation and
enforcement of laws regarding counterfeit drugs; No. 2, current
and emerging technologies and making sure those get employed;
No. 3, business and government alliances to track and report
the counterfeit drugs, and No. 4, developing and implementing
industry best practices.
This morning, I will just address the first three of those
four. The fourth is laid out in my detail in my written
comments.
First and foremost on the regulation and enforcement arena,
we have fully supported the implementation of the final PDMA
rule as of December 1, 2006. We think it is time for this
industry to move on and get that accomplished. We think it is a
key part of any anti-counterfeiting strategy the industry
employs going forward. But our position is, it is just one
aspect of it.
In addition, we have worked extensively over the last years
with the NABP, and we have worked and developed a model State
licensure bill for the States to establish uniform tough
standards on licensing wholesale distributors in the United
States. We have been working with NABP and manufacturers,
particularly this past year, in a number of States. I am here
to report there are 16 States already enacting standards,
including your State, Mr. Chairman. And there are bills pending
in 18 other States currently. Our goal here is to make sure
that no criminal ever gets a wholesale license to distribute
drugs again in this country.
The final area, in regulation of the penalty enforcement,
our belief is currently the current Federal penalties are
inadequate and outdated. We are advocating for strong criminal
penalties for counterfeiters. I believe there is legislation in
the Congress today addressing that matter.
Then moving on to current and emerging technologies. We
believe anti-counterfeit technologies are the most important
tool we have available to try to secure the supply chain. No
single technology would work. We think it is a layering of a
variety of technologies. We hold the most promise out for this
EPC RFID. We think that is the way the industry can go and
probably likely will go to track and trace and authenticate
products in the supply chain.
The ability of EPC to tie unique electronic ID to an item
to track it and trace it throughout the supply chain we believe
is critical. My personal past experiences come from the
consumer goods industry. I can tell you the progress being
made, although it may appear to some to be slow, having lived
through the development of linear bar coding from 1970 and on,
we have made lightening speed with EPC technology. I think the
industry is moving along well in that effort.
As far as HDMA is concerned, specifically what we are doing
in this organization, we are partnering with NACDS, our chain
drug partners again for the second year in a row, and providing
an RFID summit to bring all the industry leaders together to
make them more clearly understand how to implement this
technology and get those chips that Mr. Gutknecht has on these
products and get them operating.
We are also working, our members are involved in a number
of the pilot projects currently going on that have been
announced publicly. Our education and research foundation I
believe has taken on the crux of the issue as far as EPC, and
that is data management. Having lived thorough this world
before, it is one thing to employ technology; it is another to
also manage the data that comes from that technology.
We are engaged with PHARMA as an organization and Rutgers
University to look in-depth at how this industry will manage
the data. Where is it going to go? Where is it going to reside?
How will it be shared? How will law enforcement have access to
it? Because all those rules, all those issues are terribly
important, particularly when it gets into privacy issues with
the consumers. So data management is critical as well as the
technology. That is why I say it is a multi-layered approach.
Finally, I would just say that as far as any of these
things, patience is obviously required, but I think the
industry is moving in the right direction. And I would agree
with my other panelists here that, as far as uniform pedigree,
one impediment to EPC right now is the lack of uniformity. If
the industry gets bogged down in EPC and attracting not only
all the data going beyond pedigree, all of the data that will
be encompassed in EPC will be almost unbearable for the
industry to deal with if we do not have uniform pedigree.
Finally, an alliance between NACDS and PHARMA, and we are
working with the FDA in our counterfeit alert network, and we
have also joined the RX Patrol which is a device by which we
can report theft directly to customers and to members
throughout the supply chain.
In sum, I will tell you, in my short time, we understand
more than anybody the public trust placed upon our members to
do this, to make sure the supply chain is authenticated and
safely managed. We have zero tolerance as an organization as a
philosophy for counterfeiters, and you have my pledge that we
will remain constantly vigilant as a group of companies--that's
40 wholesale distributors--to make sure that this supply chain
is as secure as the American consumers need it to be. I am
available for questions. Thank you for your time.
[The prepared statement of Mr. Gray follows:]
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Mr. Souder. Thank you.
Our last witness today is Mr. Raber from Huntertown, IN.
You are at the forefront of some of this technology, and I look
forward to your testimony.
STATEMENT OF RICK RABER
Mr. Raber. Thank you Chairman Souder, Mr. Gutknecht and
subcommittee members. It is a great honor to sit before you
today.
From childhood it was ingrained in my life that Godly
character was vital to success in life. Part of that character
was to fulfill my civic responsibility. So I want to thank you
today for the privilege of serving here today by testifying
regarding the security in the pharmaceutical supply chain.
I am before you today as one with close to a decade of
experience integrating radio frequency identification [RFID].
Our team at Northern Apex has utilized the technology in many
areas in addition to pharmaceutical. We are an experienced
stakeholder by virtue of the customers for whom we have
integrated RFID onto their drugs. As project manager for
Northern Apex, I led what many consider to be the world's first
pharmaceutical production use of RFID. We worked with Purdue
Pharma to place smart labels on produced popular pain
medication Oxycontin.
The solution identified bottles on the production lines at
speeds greater than two and a half bottles per second. Once
packaged in the sealed tamper evident case, 48 individual
bottles could be verified in less than 5 seconds. Since that
initial project, I have been directly involved in designing
several pharma implementations.
The discussion at hand regarding the security of the drug
supply should not be about how bad the existing system is but
rather ways for us to improve the already reliable process. The
relative number of incidents to overall production of
prescriptions is low but clearly increasing.
As we examine options which can be utilized to enhance the
chain of custody, there are many things to consider. First, are
there technologies that exist today which could bolster the
security of drug supply? Second, are the technologies under
consideration being used today? Finally, is there cause to
implement further technologies?
Today millions of electronic transactions are being
utilized around the world. They allow us to determine the chain
of events related to a Web site visit or a trade on Wall
Street. The FDA has already proposed using this technology in
its prescription of an electronic or any pedigree.
This electronic transaction records the chain of custody
for a drug and is a significant improvement over the paper
pedigree of today. There are, however, additional technologies
which could complement this electronic pedigree. Consider
having the trackability based on a unique serial number being
associated with every bottle, every case and every pallet. As
each item is assembled into the next larger shipping unit, they
are automatically associated, recorded through a data base and
used to enhance the electronic pedigree. This is the basis of
the RFID schemes presently being used by GlaxoSmithKlein on
Trizivir, Pfizer on Viagra and Purdue on Oxycontin as well as
others.
Complimentary technologies, such as 2-D barcodes,
biometrics, telematatics and GPS could also be implemented at
key spots in the supply chain. Technologies like RFID and
others can change the effectiveness of the supply chain.
Ladies and gentlemen, these are not things from a Star Wars
movie. As Mr. Gutknecht replied, they are real. This is an
American version that exists and is being done.
The Department of Defense and Wal-Mart and others have
mandated their suppliers use the technologies for incoming
shipments to their receiving locations.
There are some obstacles to seeing rapid widespread
adoption though. Within the Pharma and RFID industry, there is
an ongoing debate over the modes and frequencies of RFID
technology and its operation. There are data base, interface
and privacy concerns. Even with these issues, industries have
teamed together to successfully implement item level track-and-
trace technology.
While some States have moved to implement pedigree
legislation, these efforts have produced confusion on the parts
of some of my friends sitting next to me today, drug
manufacturers and distributors, in trying to accommodate just a
few that exist today. Imagine 50 different ones.
For this committee to consider enhancing the present
pedigree legislation to include a set of the described
technologies in my opinion is prudent. Does the risk warrant
the effort to change? There is no question that people's lives
have been greatly affected by the issue at hand. The cost to
some has been their life.
With the instances of breach which have already occurred,
it is not out of the question to see this supply chain as a
means for hostiles to suddenly attack the populous before even
being discovered. In the same way some have misused the drugs
created to help and heal, nefarious individuals will use and
pervert the technologies and solutions we're even talking about
today.
The enemies of the safe drug supply chain are clearly
getting smarter. They are leveraging ever increasing
technologies and levels beyond what we can imagine, and the
good guys should pursue doing the same. The risk is growing and
shouldn't be ignored.
Mr. Chairman and subcommittee members, again, thank you for
the privilege of testifying here today, and I am open to any
questions you might have.
[The prepared statement of Mr. Raber follows:]
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Mr. Souder. I thank you.
Let me start with you Mr. Raber and try to startup in the
questioning.
We heard several witnesses say we need some sort of a
uniform approach to this. As you've worked with this product
and you've just alluded to the fact that it's very confusing,
could you kind of explain what that means? Does it mean you
have different readers, different frequencies? What is a
practical--helping me and others understand what is necessary.
Mr. Raber. Within the RFID industry, sir, there are several
different primary technologies. Without getting really, really
technical here before you, there are two primary that are
existing today. An HF at 13.56 megahertz and UHF in 868 to 915
megahertz. There is clearly a part of the technology sector
that are trying to advance their technologies, and for good
reasons. And I believe it is a good competitive factor. And
otherwise, there are things related to what kind of products
that some of the technologies have been able to be used on in
the past. How does one of the technologies perform in a case,
environment where you have 100 cases of Oxycontin a pallet? Are
you able to read all 100 cases while they are there? And short
range versus long range, there are clearly instances where
short range is more desirable so that singulation is not an
issue. If I have all these bottles sitting on a desk here today
and I have certain versions of 900 megahertz technology, I
could see that they would all be present here. However, I could
not tell you which one was present before each witness here
today depending on how that technology is utilized. So,
therefore, some of the near-field communications and some of
the things that are related to short-range technologies can
present some desirable things.
Clearly the chain of custody and the way that electronic
transaction occurs, RFID is a subset of that. It allows it to
tie in better as has already been said multiple times today.
How that transaction occurs certainly can take place without
RFID ever playing a component in it.
What RFID does is allow us to scan bottles as they are
going down the line, scan them as they are put into a multipack
of 12 and shrink wrapped, scan them again as they are put into
a tamper evident case of 48, scan them again as they go into a
vault, scan them again as they are received at a health care
distributor, scan them again as they are shipped out to another
wholesaler. Those kinds of things.
RFID and other technologies could significantly change the
way that looks. But the technologies themselves, they are real.
They are working today. They will continue to advance, but to
hold off and say that the RFID technology will be adopted by,
as Mr. Gutknecht implied, that there will be people that may
avoid doing it until they are made to do it. It was the same
way that has happened with the Wal-Mart mandate. Wal-Mart
several years ago initiated that their top 100 suppliers from a
dollar perspective start shipping in case level, scanning them,
and pallet level. Many of those people didn't do it until the
deadline showed right up.
I think the health care distributors really have seen value
though when, as you talked about, 16 percent, if they are able
to close the security of the supply chain and eliminate some of
the counterfeit, there actually can be a very legitimate case
made for the value coming back to them in increased sales
because their products are really truly making it to the field
rather than otherwise. So, hopefully, I have answered your
question there related to some of the mix up about what the
technologies are.
Mr. Souder. When I visited your facility and you talked
some about the Wal-Mart, didn't you say they also have the
ability to take it down to the very individual bottle? And
could you describe two things with that, and I also remember
that part of their reason was internal theft. It wasn't just
counterfeiting. In other words, you can figure out who's
stealing things. And if you want to comment on those two things
and then leading to this question: What are the functional
approximate, without giving out competitive things and so on,
approximate cost questions that were involved in here in the
different types of frequencies, the difference between the
pallet and an individual, the ability, are people going to have
to get scanners that are specialized with this?
Mr. Raber. Sure. First of all, item level tracking and
unique serial number that would be addressed to each individual
bottle that would go through the distribution chain, that is
very real, very practical. It does happen today. Several
hundred thousand bottles of Oxycontin have been tracked. Many
bottles of Pfizer's Viagra and GlazoSmithKline's Trizivir have
all been tagged in large lots.
The bottles are individually being tracked, we can tell,
prior to the shipping of the case and prior to leaving the
facility that those drugs are there, that there really are 48
in the box, that the 48 have moved through the supply chain.
That can occur.
So item level really does happen. What that looks like on
the different kinds of things, whether that's a liquid
medication in a vile or whether that's a dosage medication that
is in a capsule or something; whether it's in a blister pack or
the different types of things that may occur. Those all play
into the manifestation of what technology you would use at item
level to be able to track that technology, to track that item.
So are there technologies that exist today? As the
gentleman from the HDMA said here, not one technology, whether
UHF or HF is going to be the answer to the world, universe and
everything as we know it in tracking pharmaceutical items, the
value associated with that, the supply and demand has clearly
driven the cost of an RFID tag down. We have seen in our 10-
plus, 10 years experience of watching tags that used to be in
the double digits and closer to $1 to now being down in volume
below 30 cents regularly and in high volumes certainly below
that. And so there are people that are claiming sub 10 cents
now in volume. And when we are talking volume, we are talking
about millions and hundreds of millions of tags a year where
somebody would commit to.
Those we are yet to see in production, and I will clarify
my statement in that. We have yet to see in high volume
production the single 3 or 4 cent tag in being delivered in
volumes that would require to support the supply chain. That is
another component that is not to be ignored.
The technology providers today, while the technologies do
exist, Mr. Gutknecht, one of the things that clearly is an
issue and they are all ramping up their ability to deliver this
product, but there has been a clear on the part of multiple
organizations, the ability to get the product is something that
should not be ignored. In order to tag, just picture Oxycontin
alone or Viagra alone or some of the other drugs, Lipitor,
those drugs and the amount of tags that it would take to
support those kind of implementations are not negligible. They
are significant. So that is something that the RFID
manufacturers are required to do.
As it relates to the value related to the readers and the
infrastructure that is put in place, many things have rapidly
changed in the last 2 or 3 years since we first worked with
simple technologies to do, Matrix and simple technologies to do
the Purdue Oxycontin implementation and the technology is
rapidly changing and working well.
Mr. Souder. Mr. Gutknecht.
Mr. Gutknecht. Mr. Chairman, and to this panel, thank you
for coming. I think you all provided very excellent testimony.
Mr. Catizone, we have seen you at a number of these types
of meetings, and I want to thank you for coming.
First of all, I want to make it clear that I really
appreciate what the pharmacists do every day. I know they have
a tough job. Frankly, what I have felt for a long time is, and
this may sound funny, but I don't want people to buy their
drugs over the Internet.
What I really want to do is create a system whereby our
pharmacists have a little more freedom where they can buy their
products from because American pharmacists are actually held
hostage as well. And one of the arguments has been--and, Ms.
Winckler, I am going to come to you because you said something
so powerful and so true--we many times talk here in Washington
particularly in terms of statistics and numbers and dollars and
so forth. But at the end of all of this are real people with
real faces. And I have a chance to meet a lot of these people
with real faces. And this goes back a few years, and I
understand we have probably gone beyond that, but I think the
best example is the drug tamoxifen which is taken by women of
all ages, but principally it is an anti-breast-cancer drug.
That drug, a number of years ago when we began to do this
research, you could buy in the United States for roughly $400 a
month. You could buy it in Canada for $89. It was exactly the
same drug made by the same company in the same plants. It was
FDA approved. And yet for a lot of these people, if you have
insurance, it's not that big of a deal, $400 versus $89. But
believe it or not, there are a lot Americans who either don't
have adequate insurance or whatever, but either way, I mean, I
cannot defend the difference between $400 and $89 for the same
drug. And this is why I am so frustrated because our own FDA
and the pharmaceutical industry, when we began talking to them
years ago about the technologies Mr. Raber talked about, their
argument was, no, no, we can't do that.
What do you think? Can we do this?
Ms. Winckler. The first thing we have to do is move beyond
that ``we can't'' and let's figure out how we can and what are
those most cost-effective steps. So I think we can if we have
enough consistency and uniformity to make it work, which I
think is key particularly in the pedigree area, and then let's
make sure as we are looking at identifying technologies, what
is counterfeit proof today may not be counterfeit proof
tomorrow. So do we start--as you recommended, let's start small
and start with a piece but then build into the system and
understanding that we need to continually advance those
technologies and move forward that we won't be able to be say--
we will solve the counterfeit problem by continuing to work to
stay ahead of the counterfeiters.
So I think we can but it does take that commitment and
being able to listen and work with everyone and giving the
regulators not only the authority but the resources to enforce
and that is I think something that is a key role for everyone
in this room to understand, that if we put a new penalty in or
put a new requirement out there, it is well funded, and we do
have the back up to make sure that it's enforceable.
Mr. Gutknecht. Well, we are more than willing to let the
industry lead on this. I don't hold myself out as an expert on
this technology. But we have some people in this town who are
experts. I do agree with you. I mean, we have had to revisit
the $20 bill several times in the last several years to try to
come up with more sophisticated technologies to prevent the
counterfeit of the $20 bill.
So success leaves clues, and are you ever going to prevent
counterfeiting? Probably not. But we can make it extremely
difficult and more complicated and more expensive to do that.
And so success leaves clues, and they are all around us. The
same company that makes the ink for this $20 bill makes the ink
for this packaging, OK. And you can make it so it is very, very
difficult for a low-cost supplier whether they are in India or
China or Bangladesh, it doesn't matter. We can make it very
complicated for them to counterfeit this packaging.
And these chips, one of the arguments we heard a few years
ago when I first started talking about this technology, oh,
they said, that's way too expensive. Mr. Raber, how would you
respond to that? Is this way too expensive?
Mr. Raber. Value is always in the eyes of the beholder,
sir. But, clearly, there are things that are happening. It is
clearly that value is always in the eyes of the beholder. And
the way that any individual market space or company addresses
value is based on their response to that, but what we have seen
over and over and over and a gentleman that I spoke with from
Hewlett-Packard about a year ago spoke about the hidden value
that occurs when you implement RFID technologies, there are
clearly discussions that happen as it relates to not just the
chain of custody and being able to close that more secure, but
the way that you increase your accuracy of your supply chain so
that your inventory is more accurate; the way that you reduce
the amount of time and handling that it takes to occur--
handling that it takes to handle 100 cases of a drug, the
amount of time that it takes to create a paper pedigree. That
value is clearly one that is not to be ignored.
Mr. Gutknecht. Well, I agree with that. Finally, let me
say, Mr. Chairman, I have been in this thing for so long now
that I just really suspect that there are people who have
ulterior motives. OK. This is much less about consumer safety
than it is the bottom line profit. Because once you have a
system that is far more secure, all of the sudden the biggest
argument that we have heard about not allowing pharmacists and
consumers access to world class drugs at world market prices,
all of a sudden it changes the arithmetic about what Americans
can and should pay.
I believe we ought to pay our fair share. The truth of the
matter is I think we are a blessed country and we ought to be
willing to pay and subsidize drugs in undeveloped countries. I
think we ought to pay more than the people in sub-Saharan
Africa, but I do not believe that American consumers should be
required to subsidize the starving Swiss. I mean, it is time
that we create what we have in virtually every other product
class that is a world market. And I believe RFID and other off-
the-shelf technologies can go a long way. Can we ever create a
perfect system? No. But if we created a system where you had a
better assuredness that these were in fact the products that
the pharmacists carry that really are what they say they are,
all of a sudden you create a marketplace that is much fairer
for American consumers. This has huge implications. I want a
safe drug supply. I don't want people buying drugs over the
Internet. But as long as you have a system where Tamoxifin is
$400 in the United States, and it's $89 in most of the
industrialized world, this problem is going to get worse and
worse and worse. And what we have encountered from the FDA so
far is little more than food dragging.
If anybody wants to respond to that, you are more than
welcome.
Ms. Winckler. If I could offer one suggestion as we look at
this, at how to continue to move forward, it is to also
consider that some of these anti-counterfeiting initiatives
have benefits outside of the direct anti-counterfeiting
question. Going unit-of-use packaging for example helps us on
the part of my job that I want to spend my time on which is
helping patients use their drugs correctly. It helps immensely
with patient compliance, and so you have all these other areas
where you can see a benefit. I think we have to look at our
interventions and say, there is an anti-counterfeiting benefit;
what other benefits do we see? What other impact does it have?
And understand that what we do here not only affects the
legitimate source of the drug supply but affects the medication
supply generally for patients and worldwide as well.
Mr. Catizone. Congressman, the States are saying they can
no longer wait. Florida, California have put in electronic
pedigree requirements, and they are holding fast to those
deadlines, 2006 and 2007. HDMA and the primary full service
wholesalers are supporting those efforts, but there is a
significant contingent of people that don't want this track-
and-trace technology in place, are fighting it, are using every
political trick they can in those States to defeat those
implementation deadlines and working against any regulation and
any tracking of those drugs. And so that is a significant
battle that we need your support and need your help with
because the States can't wait any longer.
Mr. Gutknecht. Let me just say that I know those tricks,
and I know who those people are, and we do have a bill. Now it
is not perfect, and we would love your input, but mostly, we
would love your support. It is a little bill we put together. I
am not an expert. Mr. Raber, people like you are, and we are
willing to listen to you because we get so little help from our
own agencies. But I would encourage you to at least look at
H.R. 4829 and see if maybe we can't get something going,
because I agree with you. Ultimately, we are going to wind up
with 50 different regulations, and this is one that is not
just--I think this issue is a national issue, and it is an
international issue. And I am not necessarily critical of
California or any other State that wants to move forward with
this, but I think it is an indication of just how slow we have
been to respond to what is happening out there in the
marketplace. So, again, thank you to the chairman, and the
bells are going off, but I want to thank you for coming today
and for your testimony.
Mr. Souder. Mr. Cummings.
Mr. Cummings. Mr. Chairman, I only have a question or two.
Ms. Winckler, let me ask you this, do generic drugs present
any unique situation different than what we would normally see
with regard to these issues?
Ms. Winckler. It is probably fair to say that, because
generic medications are generally lower cost, that they are
less likely to be counterfeited. But I think there is still the
risk of counterfeiting, and certainly as we look to trying to
address this situation across the board, we should not ignore
them by any means.
Mr. Cummings. Anybody else have anything on it?
Mr. Gray. I would agree. But from my understanding talking
to our members, there are some generic drugs that are at the
point almost now that might be worth counterfeiting from a
counterfeiter's perspective. So we as an industry and as an
association are working with the generic companies to look at
what is the viability of putting electronic chips on those
products. It is one thing to put a chip on a $100 branded item.
It is another thing to put a chip on a $2 generic item. And how
does that work for that generic manufacturer, because the last
thing you want to do obviously is to disincent the ability of
consumers to get generic drugs as well as branded drugs? So we
are working as an industry to figure out what is the ability to
do that with generics relative to all the things, Mr. Raber,
and with the cost of these chips, all the other things that go
along with the anti-counterfeiting measures. So there are
particular issues regarding generics that are just beginning to
get explored now.
Mr. Cummings. Mr. Raber, you were laughing. Why is that?
Mr. Raber. It is really interesting because there are
always, there is always a price point. It is real easy to
discuss putting an RFID tag on at Oak Ridge National Labs on
something that is a product related to nuclear security, and it
is big things that cost lots of money, or if it is a stainless
steel container that transports acid around the country that
costs $5,000 for the container, it is easy to put a tag on the
side of that. As my colleague says here, there is a point where
you have to make a decision, does the value of putting it on
outweigh the risk or not, and it really always comes back to
that.
Mr. Cummings. Mr. Chairman, in the interest of time, I will
submit questions to the panel in writing. Thank you.
Mr. Souder. Mr. Ruppersberger.
Mr. Ruppersberger. Just one. I just came in late, I'm
sorry. I want to talk about the pedigree issue on the chain of
custody. I know some States have toughened their licensing
standards for distributors such as Florida, which now requires
pedigree for all prescription drugs in the State. However, the
FDA has delayed the effective date for national regulations
requiring a pedigree until December 2006 in the hopes that an
electronic track-and-trace program such as radio frequency
identification will be viable. Where do you think we need to
be? Do we need to wait until December 2006? Do you think
Florida's plan is effective and should be used as a model for
other States?
Mr. Catizone. Commenting from the State perspective, we're
not happy that the States are embarking on this individually
without national leadership, without uniform standards. But
what Florida has said in a way to transition to the track-and-
trace technology is they have defined normal distribution and
normal distribution encompasses pretty much all the
transactions that exist today between legitimate wholesalers,
manufacturers and pharmacies. And Florida has then said,
anything outside of that where we have seen diversion, where we
have seen the problems would require an electronic pedigree.
We think that is the best approach at this point to phase
in electronic pedigrees rather than coming up with a
requirement for all drugs. We think the time is now. We can't
wait any longer because if we do and the system becomes
compromised, than every patient is going to be at risk.
Mr. Gray. As I said, HDMA was very active in Florida, and
our position, as Mr. Catizone said, as primary distributors
purchasing directly through is the model that Florida has been
trying and working with since 2003 on a 34-susceptible-drugs
list and very successfully. To our knowledge, there's no
incidence of counterfeiting in that 3-year period in Florida
once they tightened down on those 34 drugs and the licensing
requirements. And our position going into Florida, which
ultimately was passed into law, was that pedigree would be
required for those drugs that are purchased outside of the
direct purchase process.
Mr. Ruppersberger. What needs to be done to implement it
now, the Florida plan? What's the hold up?
Mr. Gray. They are doing regulations right now. The bill
was only signed by the Governor 2 to 3 weeks ago. Some
implementing regulations need to be done. And but, again, most
of our companies have all been doing this on those 34 high-risk
drugs, so we already know the drill, what's going to be
required for information purposes. It is just now getting the
States to do the formal regulations and instituting it from
there.
Mr. Raber. There are a couple issues related to the
industry. An organization called APC Global and some of the
other organizations that are involved: The standardization of
what's going to be put on an RFID tag, the standardization of
what's going to be into an electronic pedigree, what that looks
like; does it contain the actual NDC number that is normally
associated with a drug? Does that NDC number get encrypted?
What happens and what becomes part of that electronic pedigree
is certainly one of the things that's up in the air. And the
industry in some of the committees that exist in the different
organizations is trying to work their way through that. But
those are some of the obstacles that clearly exist today.
If you are using RFID in the electronic pedigree--there are
means that you could do an electronic pedigree that does not
have RFID. There are ways to be able to do that I would say
should be pursued rapidly as long as--as well as with the RFID
coming along side of it that keep it moving forward. But there
has to be some agreement on what's put in place from the
product coding that occurs on the tag.
Ms. Winckler. From the pharmacist's perspective, we need
action and we need uniformity. So we need to make sure that the
protections that are in place in Iowa are as strong as those in
California and Florida and Nevada and across the country. And
so that requires leadership, and it needs it soon.
Mr. Gray. I would support that. Our companies, we have
national and regional, but even my regional distributors ship
in multiple States and their fear is that Florida will require
one element of pedigree in their chips, California another. And
then they're managing multiple data bases of information.
Mr. Ruppersberger. Some of the same issues we have with
labelling of food throughout the country.
Mr. Gray. Very similar. Absolutely.
Mr. Souder. Thank you very much. We have a vote on the
basic move to the question on the rule for Internet gambling,
and we have may have a vote on the rule, so we will wind this
up, but we will have some additional written questions. We will
try not to overwhelm you.
Some that I have to give you, some ideas here are, Mr.
Raber referred to the competitive advantage of having several
different technologies going here. At what point do we gain
from the competitive versus having a uniform? Second, if we
could get some information on what Europe does and their
relative costs and why we haven't--why wouldn't we just bring
that system into here? Is there a cost reason? Is there a
tracking reason? Also we heard earlier, in some written
testimony at least if not verbally, about ebay and flea markets
or secondary sales of products, how this might affect that.
Would you take those RFID's off? Is this a secure way to track?
We have had hearings in this committee on infant baby
formula which has clearly been degraded and changed and altered
at some risk in going to flea markets. And legislation was put
in Texas, Oklahoma and a number of States to try to address
that question. One that Wal-Mart was early on trying to
address, putting baby formula behind the counter in some
States.
Then I had some questions that I wanted to make sure got
asked on what your associations were doing as far as trying to
do due diligence, for example, on wholesalers, what does that
mean? Are you tracking to make sure that the wholesale market
is legitimate coming into the pharmacies? As you receive this
price pressure from Canada in effect, the tendency is to try to
find the cheapest product, and how do you kind of counter
balance these type of things which also puts then legitimate
above-board wholesalers at risk.
We will have a series of questions about those type of
things. I'm sorry I won't get more in depth.
Mr. Gray.
Mr. Gray. Just one item on the European. I have very close
relationships with our Europe counterpart, and I will contact
them in Belgium to find out what are they doing actually. I was
just over at their annual meeting, and it was news to me that
they are employing it over there because I do not hear the
wholesalers talking about it at their event. But I will find
out for you, Mr. Chairman, exactly what is the level of BPC
implementation at the wholesale level anyway in the European
marketplace.
Mr. Souder. Also, I still am somewhat troubled, and I want
to make sure this question gets in this hearing record. In the
first panel, we heard high-value pharmaceuticals without really
a definition or specific items of what that is which seems to
me that we are putting a law in and you're guilty of a
violation of this law, good luck on figuring out what you are
going to be prosecuted on. And I would like some clarification
on that.
Thank you very much. I have to make it over to vote. The
subcommittee stands adjourned.
[Whereupon, at 11:52 a.m., the subcommittee was adjourned.]
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