Judd Gregg

Mr. GREGG

Mr. GREGG. I thank the Chair for recognition. I would like to express my appreciation to Mr. Inouye, The Chair of the Senate Appropriations Subcommittee on Defense, and to Mr. Stevens, the Ranking Member of the Subcommittee, for the fine work they have accomplished in crafting this important FY2003 Department of Defense Appropriations Bill. It has been my pleasure, as a member of the Appropriations Subcommittee on Defense, to work with them on this bill, as well as on the defense portions of the recently passed FY2002 Emergency Supplemental Bill, H.R. 4775. They certainly do a masterful job of setting priorities and balancing competing needs. I am also pleased that the Appropriations Committee chose to specifically provide $90 million in the FY2002 Emergency Supplemental bill to accelerate the depot modernization period of the USS Scranton at the Norfolk Naval Shipyard from FY2002 to FY2003, as it will result in dramatically improved fleet readiness. In addition, it will free up $90 million in FY2003, which had been programmed for the USS Scranton to be used for other U.S. Navy critical submarine requirements. This could include returning back to FY2003 the important USS Annapolis depot modernization period at the Portsmouth Naval Shipyard, which the Navy was recently forced to slip from FY2003 to FY2004, because of a Navy funding shortfall. I would like to direct a question to my friends, the chair and the ranking member of the Defense Appropriations Subcommittee. Is it the Subcommittee's understanding that the appropriation of the additional $90 million to accomplish the USS Scranton depot modernization period in FY2002, now gives the U.S. Navy flexibility to allocate the FY2003 USS Scranton funds to meet other critical submarine requirements?

Mr. GREGG

Mr. GREGG. After they pay taxes on them.

Mr. GREGG. Will the Senator yield for another question on that point. Aren't we talking about aftertax dollars? I mean basically what we are saying is if an American company generates American revenues, it has to pay taxes on those American revenues. When an international company generates American revenues, it has to pay taxes on those revenues. The United States Treasury has taken in dollars from American-generated income from an American or international company.

Mr. GREGG. You made some excellent points. The point that the company that invests overseas, if it is a foreign company, it has the right to do that, but under this rule, if it is an American company, it would not have that right if it were domiciled outside the United States--

Mr. GREGG. Will the Senator yield for a question?

Mr. GREGG. Right.

Mr. GREGG

Mr. GREGG. Mr. President, the underlying bill, which is the generic drug bill, has not really been addressed as we have moved through these debates on the overlying issue of whether we should have a prescription drug program for seniors. This underlying bill still has many significant issues in it. Probably the most significant issue is the fact that it creates a new cause of action, a whole new set of lawsuits which have never been used before. This cause of action has never been tried before, never been used before, involving patent law and the FDA. It really will be a lawyer's relief act rather than an act which is going to relieve our citizens of the high costs of drugs. We should have the opportunity to amend this bill. It can be improved. The basic concepts of this bill are good, but the bill can be improved. That is why we should not have cloture at this time. We simply have not had a chance to properly address this underlying bill because it has been sort of sidetracked as we have addressed the prescription issue for seniors. So I would hope we would vote against cloture.

Mr. GREGG

Mr. GREGG. I have no objection.

Mr. GREGG. I thank the Senator.

Mr. GREGG. Reserving the right to object, is it my understanding the piece of legislation which increases spending by $400 billion over the next potentially 8 or 10 years is not available for us to read?

Mr. GREGG. It is good to know we are going to have a chance to take a look at this piece of legislation. Do we expect to vote on this piece of legislation that is just hot off the press today that is a $400 billion expansion of the expenditure of the Federal Government over the next 10 years?

Mr. GREGG

Mr. GREGG. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GREGG. No, I have not raised a point of order.

Mr. GREGG. Madam President, I wanted to speak on a couple of issues. First is the underlying effort here to pass major legislation in the area of assisting senior citizens, specifically, with the cost of their prescription drugs. I think we all understand very well that there has been a fundamental shift in the way medicine is practiced in our country, and it has been a positive shift. That shift is that we have gone from a society which had basically as its first line of defense for significant health concerns an invasive medical procedure using a scalpel, to a society which has as its first line of defense for major medical concerns the use of pharmaceuticals. This has been a revolution, a biotech revolution. As a result, it is not so much that pharmaceuticals have become more expensive--but not outrageously so, with respect to inflation and other costs--but they have become so much more aggressively utilized. As a result, senior citizens and all citizenry that have medical concerns are finding that they are more often than not going down to the pharmacy and purchasing a pill in order to address a physical ailment versus going into the hospital and receiving some sort of remedial medical care that might involve an operation or some sort of therapy within the physical confines of a hospital. So utilization has gone up dramatically in the area of pharmaceuticals. This is a change in the way we practice medicine as a country. The practical effect of that is that all Americans, but seniors especially because as a practical fact, as people begin to get older, they have more health needs in most instances. Seniors are finding themselves more and more put into the situation of having to purchase pharmaceutical goods, which are adding up, and because there is more significant utilization, they are expensive and sometimes unaffordable, especially to low-and middle-income seniors. So we as a Congress and the President are attempting to address this through passing some sort of a package that will give senior citizens the opportunity to take some of the pressure off of the cost of this new need to use prescription drugs. The goal, in my opinion, should be basically twofold: One, to assure that low- and moderate-income seniors--especially low-income seniors-- who find it virtually impossible to fit into their budgets, which are usually very constricted, the cost of pharmaceuticals, to allow those individuals to receive assistance as they have to purchase these medications; second, to address the situation where a senior who has reasonable income and reasonable wealth confronts a catastrophic situation where simply the cost of medication exceeds even their capacity to pay for it. Those should be our two primary goals as we put together this package of relief for senior citizens, in my opinion. Also, there are a lot of secondary goals. Secondary goals should be-- and it is fairly significant--that we do not undermine the ability of our society to bring new drugs to the market. As a society, we have basically become the creators of most of the major new pharmaceuticals that are created in this world, and that is because we have a vibrant research capability going on in this country and a vibrant commercialization of goods and products which are created within that research market. It is important that we not kill the goose that is laying the lifesaving drug, as I said earlier, and that we allow the entrepreneurs in our society, who are research scientists for the most part, to evolve a capability of continuing to bring to market drugs which save people's lives and benefit people and make their lives better, and that we not in the process of developing a package of drug benefits end up creating an atmosphere which works against the bringing to market of new pharmaceutical drugs. That should be a subsidiary effort as we move forward to address the question of a drug benefit for senior citizens. In that context, we are now working aggressively to try to pull together a package. We have had three major votes on different drug packages. We had the Democratic proposal which, regrettably, was, in my opinion, fundamentally flawed because it did not meet the conditions I have laid out. First, it was extraordinarily expensive, and I should have mentioned that as a fourth line of consideration, which is that as we put this benefit package in place for seniors, we should not have it created in such a way that it transfers a huge new cost on to working Americans, especially young Americans with young families, who are trying to make ends meet, who have other issues, such as education, housing, the day- to-day costs of raising a family. We should not make the cost of this major new drug benefit so high that the tax burden to pay for it--which will fall on working Americans for the most part will significantly disadvantage working Americans in their ability to live a good life. This new drug benefit is not like the Medicare proposals under which we presently work. There is no premium in most instances. Some have premiums, most do not. There is also no earned benefit--in other words, over the years people paying into the Part A insurance fund and building up a fund. In this instance, seniors are going to simply receive this benefit without it having been paid for through building it up over the years, paying through Part A. It is essentially going to be a tax. To pay for this drug benefit, there is going to be a tax levied on working Americans, especially young Americans, to assist senior citizens with the issue of how they pay for drugs. We have to be very careful in putting this package together that we do not end up putting such a huge burden on young working Americans that it makes it very difficult for them to raise their families. As I mentioned, there have been three votes on this issue in the Senate in the last few days. The first was on the Democratic plan. The Democratic plan failed in a number of areas. One, it was extraordinarily expensive. It would have passed $600 billion--and that was the estimate. We all know estimates end up being low. For example, when Medicare was originally passed in the 1960s, it was estimated in 1990 to cost $9 billion. Medicare in 1990 cost about $70 billion. It was off by almost 1,000 percent. We know the $600 billion pricetag attached to the Democratic package is a pricetag which is probably low. Even if it were accurate, it is a huge pricetag to pass on to working Americans, younger Americans, and far more than we should put on the backs of the working American who is trying to raise that young family. It is far too high a burden on those individuals. It is disproportionate in the way it deals with the intergenerational issues in benefiting dramatically, in terms of dollars spent, senior citizens at the expense of young Americans who are trying to raise a family. It exceeded the budget allocation by $300 billion, by 100 percent. There was $300 billion budgeted. This was a $600 billion package, which is far too expensive. Also, it undermined the marketplace. It was a public program, which in and of itself is an undermining of the marketplace, but it was a public program which had an incredibly regressive element to it. It essentially said that you could only, for a certain ailment--let's take arthritis--purchase one type of drug for that ailment, one. There are probably 20 different drugs on the market to address arthritis. Why would you limit the ability of a senior to only purchase one and have it covered by insurance? It is a foolish idea from the standpoint that doctors may not want to prescribe that one drug, and it may not be medically a good idea, plus it is just not conducive to creating a marketplace which is going to bring more pharmaceuticals on to the market so seniors have more choices and that we drive down the prices of pharmaceuticals generally because we have competition. It is truly a regressive idea from the standpoint of health care and from the standpoint of how you develop a strong and vibrant market for producing pharmaceuticals. That bill, in my opinion, was fundamentally flawed. Plus, of course, it had the little gimmick in it--rather large actually--that it was not a permanent benefit. It lapsed after 5 years. It would not exist anymore. I do not know what was going to happen then. It would be gone and who knew what was going to happen. It was a black hole or a cliff proposal where everybody gets a benefit for 5 years and suddenly they look down and there is no more benefit and they have to step off the cliff into the abyss, not knowing what is going to happen. It was a poorly constructed idea and it failed because it did not get 60 votes. The second idea that came through was the tripartisan proposal. Again, it is a fairly expensive proposal, $370 billion, but significantly less than the Democratic proposal, but much more reasonable in the way it approached the issue. It opened the marketplace. It gave seniors options as to what pharmaceuticals they could use. Senator Snowe was talking about how many more pharmaceuticals it covered than the Democratic proposal, dramatically more. I am not sure of the numbers. In any event, the specific numbers were that it covered far more specific pharmaceutical products, and made those available to seniors, than the Democratic plan--dramatically more. In addition, it had language which significantly protected the low- income senior. It gave them basically a 90-percent subsidy and had positive catastrophic language. That also failed to get 60 votes. The third vote we had was on the Hagel-Ensign proposal, which is an idea I am attracted to, although I also voted for the tripartisan plan. It says what I have been saying. You take low-income seniors and protect them. You give them the ability to buy the pharmaceutical, you give them support to do that and it does not wipe out their income. The plan was very progressive in this way. You say to seniors, who are in the general population, who are not low-income seniors: If you have a serious illness which throws you into a high-cost pharmaceutical situation, and you are spending a dramatic amount of your basic wealth, your income, your assets on pharmaceuticals, the Government will come in and pick it up. There was a catastrophic cap which the Government picked up. Again, this was built in, as I understood it, in a progressive way so higher income people had to spend more than middle- and moderate-income people had to spend. It was very progressive in a thoughtful way. This idea made a lot of sense and got a very good vote. In fact, it got as high a vote as any other proposal that came to the floor. I hope from this idea we can evolve a package that can work effectively. That is basically where we stand today. We have now had three major packages. None have passed because the sequence of events that are set up is that the Democratic leadership refused to take these bills through committee and created a situation where we could not pass them on the floor because they all required 60 votes. Had Hagel-Ensign, for example, come out to the floor after having gone through the committee, with the vote it got on this floor it would have passed the Senate, and we would now have in place a drug benefit. It would not have been subject to a budget point of order because it was under $300 billion--just barely, $294 billion. That was not allowed to happen because of the way this whole exercise was set up, which is unfortunate. Where do we go from here? It is my hope we will reach some sort of consensus on a catastrophic package, a package that takes care of low- income seniors and makes sure they have adequate coverage, that takes care of people who have a huge impact on their assets through a catastrophic event, and allows seniors who have moderate income, if they wish, to purchase the insurance if they want to cover the difference through some sort of Medigap insurance. This, to me, is a logical way of resolving this issue. Independent of all that, however, we have had other amendments dealing with this bill. One of them is the amendment which we presently have before us which is a $9 billion bailout for the States--some States, not all States. States such as mine, which do not happen to meet the formula because we have been very frugal in the way we have managed our Medicaid accounts and, as a result, have kept our reimbursement at 50 percent, do not benefit a whole lot from this proposal. For States which have been less effective in their ability to deal with Medicaid, this bill basically is a $9 billion bailout. Is the $9 billion offset? No, it will simply be a vote by the Senate which says we are going to spend another $9 billion on Medicaid to assist the States. First off, this is the wrong place to bring forth this amendment. This bill started out as a generic drug bill. It has moved on to an all-inclusive drug bill debate, but it has always been a bill that has been debated in the context of Medicare and drug initiatives, and this is a Medicaid bailout, which is totally separate from the underlying issue of what we discussed in these other bills. This amendment should have gone through committee and should have been brought out here as a committee bill versus being brought out here separately. Secondly, it sets a very dangerous precedent in that it waters down the FMAP formula even on a temporary basis. The purpose and fairness of the formula will be eroded over time. Around here, temporary changes rarely turn out to be temporary, although they claim it is temporary. This amendment sets a precedent, and if it is passed, any State that ever faces an FMAP decrease in the future will lobby Congress to override the formula. Instead of an automatic process based on a fair formula, future FMAP rates will become a political fight in Congress, which is exactly what this exercise is. It is basically an attempt to use the fact that a number of States believe they need more money and to pull enough people together from those States so there are enough to vote for this $9 billion bailout. It is called logroll. It is working very effectively on this amendment, I am afraid, which is too bad. This is totally fiscally irresponsible. Such a process as this disrupts the whole process and will not likely produce a program that benefits those who need it most but, rather, States that have been most ineffective in managing their Medicaid accounts. FMAP rates are not designed to change according to short-term economic developments. Although FMAPs are based on State per capita income levels and other economic indicators, they have not typically risen at all and with short-term economic trends. If State logic suggests raising FMAP now, then it would also apply to lowering them in times of economic boom. If we had followed such a course after 9 years of economic recovery, current FMAP rates would be much lower than they are today. Such cyclical movements are contrary to the intent of Medicaid statutes and in the long term would serve the interests neither of the States nor the Federal Government to pursue this action. States have other options to making Medicaid benefits more secure. States can take steps to make their benefits more efficient, enabling more persons to be covered with the same or lower costs using the health insurance flexibility and accountability initiatives unveiled in August 2001. The HIFAI demonstration is designed to help States reduce the number of uninsured through innovative and cost-effective approaches using Medicaid and CHIP funds. The initiative emphasizes private insurance options rather than public program expansions. To date, HHS has approved HIFAI demonstrations in Arizona and California, and it could approve more if more States are willing to be aggressive. The simple fact is what we have is an effort by a large number of States that have had problems with their Medicaid accounts for a variety of reasons to basically raid the Federal Treasury to the tune of $9 billion. I guess they are probably going to have enough votes to do that because they have structured this formula so that enough States are going to pick up money from it that is significant. But I have to ask the question, Why are we not offsetting this $9 billion? Why are we just coming out and saying let's take another $9 billion hit on the Federal Treasury, in which we do not happen to have any money right now, and add that to the deficit? It makes very little sense from the standpoint of fiscal policy. Fifty States have the power to energize this type of support for $9 billion. I would think they would have the power to go find money to offset it somewhere, but unfortunately they are not doing that in this amendment. It is an unfortunate, in my opinion, effort to raid the Treasury, as a result of which we will not only get bad policy but we will get a significant increase in Federal debt. I yield the floor and make a point of order that a quorum is not present.

Mr. GREGG

Mr. GREGG. Yes.

Mr. GREGG

Mr. GREGG. Madam President, it was my understanding that I had 5 minutes plus 7 minutes which would have been 12 minutes.

Mr. GREGG. That is no problem at all.

Mr. GREGG. Senator Stabenow would close?

Mr. GREGG. Senator Stabenow would then have the right to close.

Mr. GREGG. The Senator is probably not aware of this because this information has just been forwarded to me. I will actually have a paper on it. But there have been a lot of different representations as to how much the underlying bill would save. I have seen numbers that ran from $20 billion to $60 billion, and I believe the Senator mentioned it is actually a higher number. We have just been advised by CBO that the underlying bill, the Edwards-Collins bill, will have $8 billion savings assigned to it by CBO. So as we debate this issue--I know some people are planning to use that savings to assist the major movement on the overall drug benefit-- this is going to change the dynamics around here a little bit. But just so we are all playing off the same song sheet on savings, this bill is now scored by CBO as an $8 billion savings.

Mr. GREGG. Will the Senator yield for a question?

Mr. GREGG. The Senator from Tennessee understands the issue better than anybody else, and certainly the points he makes are excellently made. It was my understanding on this specific point of bioequivalency that the Senator had a commitment from a primary Democratic sponsor of the bill, Senator Edwards, that this would be worked out or straightened out before the bill came to the floor. Am I correct?

Mr. GREGG. Mr. President, will the Senator yield for a question?

Mr. GREGG. Well, I may use all my 10 seconds. I will reserve that time.

Mr. GREGG. Let me first associate myself with the excellent comments made by the Senator from Oklahoma who has made most of the points I would have made but made them with more energy and eloquence. If you look at this proposal which has come forward, offered by the Senator from Michigan, essentially its outcome will be that the discounts allowed under Medicaid, which States get for their Medicaid recipients, which are significant discounts--nobody should underestimate, these are big discounts which drug companies that make your product are required to give to the States through the Medicaid process--those discounts under the proposal of the Senator from Michigan, those discounts will now be transferable to a whole new population of people, a very large, potentially very large population of people. As the Senator from Oklahoma pointed out rather correctly, that population is not necessarily going to be means tested, not necessarily going to be of need. It could simply be a population which qualifies for this new discount under a State plan. As a result, what you are going to do is end up for those drugs significantly reducing the revenues which flow to whoever produced that drug. What is the impact of that? Assuming that this is not a situation where the people who produced the drug are charitable organizations but are, rather, organizations which, in order to be able to produce that drug, had to go out and borrow money from somebody through the capital markets or through actual borrowing in order to be able to raise enough money to be able to bring that drug to market, remembering that the average cost to bring a drug to market in America today is somewhere between $500 million and $800 million and it takes somewhere between 10 and 12 years, assuming that this is not a charitable organization, then that company, in order to be successful, those people who invented that drug, who created that drug, who put their life into that drug for 12 years, managed to manufacture it after going through all the hurdles-- and believe me, there are an unlimited number of hurdles, an incredible number of hurdles, at incredible expense, had to go out and line up their financing to do this--those people are going to have to raise the cost to somebody else. Because they still have to pay off the people who financed the drug. They have to give a reasonable return to the people who invested in that company or they are not going to be able to produce another drug. The drug that they produce may put them into bankruptcy for all intents and purposes, if they can't get a fair recovery on it. What is the practical implication? Essentially what we are doing here is another example of saying: The big, bad, greedy drug companies, they can take the hit no matter what. They can take the hit. We have seen it happen out here on the floor. We have heard the argument from the other side. We can just do this because the big, bad drug companies are going to take the hit. Let's remember what we are talking about. We are talking about one of the most important elements of our society, organizations which are producing products which are making American lives better, longer, and more healthy. Is it our goal to fundamentally undermine the capacity to do that? If we continue on this course--and this is obviously not the most extreme example of it, but this is a clear example of price controls and an attempt to drive down the return on the ability of somebody to produce a product, which saves lives--if we continue on this process, we are essentially going to be plucking the feathers, rather aggressively, of the guys who are laying the lifesaving drug. In the end we are not going to have a whole lot of gooses or they are going to be geese that don't have enough ability to produce those lifesaving drugs anymore because they don't have any feathers left on their bodies. This is really pretty obvious, if you think about it logically. Capital in a marketplace system--I understand this is an elementary concept which has escaped some people in the Government--flows where it gets a return. That is just simple fundamentals. By capital I mean money which allows people to invest in products, which creates jobs, and create items that give us as a nation a better chance to compete internationally but, more importantly, gives our American people a better standard of life. Capital flows where it gets the best return. If you reduce radically or even if you reduce incrementally but in a way that is basically pyramiding on top of itself like straw on a camel's back, if you continue to reduce the ability of the people who are creating the new drugs which are saving lives to have a viable market to go into and get capital; in other words, to be able to go to somebody who is willing to lend them money or willing to invest in their business and expects a reasonable return, if you reduce their ability to get a reasonable return or to pay that debt, you inevitably reduce the amount of drugs coming to the marketplace that will benefit citizens. In the process, you cut our productivity, cut our national competitiveness, and take what is a very vibrant part of our economy and undermine it. I realize it is great politics to come to the floor of the Senate and claim that if we do this we will be helping the poor. We will be helping the indigent, helping people who need help. That is great politics. But if you are not producing the drugs, you are not helping anybody. If that lifesaving drug, that drug that is going to give people a better way of life, isn't going to come to market because the people who produce it can't get the money to make it because they can't go in the capital markets and get a decent return, then you are not helping anybody. It is a fraud to come to the floor and claim you are helping all these people. There was a statistic, which I found most interesting, cited today by a colleague on the other side of the aisle. They said that in the biotech industry today there are a thousand firms, but only a hundred of them have products on the market, and we are really excited to think the next 900 are going to come to market with their products. Well, if we continue to pluck this goose, those 900 firms are not going to come to market with their products because they are not going to have the financial strength to survive the 9, 10, 11, 12 years it takes to get to market with their product. It takes money, cash, capital flowing into those companies--and paying the employees, by the way. It doesn't happen to go to somebody making a gazillion dollars; it goes to the employee. It takes money, cash, and capital to fund that period from the time you think of the product, from the time you invent that concept, from the time it germinates as an idea in some wonderful scientist's mind, to get it to the market, and $500 million to $800 million. So those 900 companies that are out there that don't have a product on the market, but if those products come to the market--this was their point--those products will save hundreds of thousands of lives. Those products are not going to be there if we continue on this path of, every time we turn around, taking another nick--a fairly significant nick--out of the ability of those companies to be viable. Are those companies evil and greedy because they want to bring to the marketplace something that is going to improve the lives, or extend the lives, and improve the quality of life of Americans--and, well, yes, be sold in Canada for less because they take advantage of all our research, in a very mercenary way, as does the rest of the world? No. They want to produce a product that is going to improve the quality of life of Americans; and they are willing to do it, willing to put at risk their time, effort, brain power, and their resources, including cash and capital. But the argument on this floor is they are greedy, so let's just shut down their capacity to do that. And then, at the same time, we are out here claiming: But we are going to have a wonderful, viable drug industry in this country, and we are going to continue to be on the cutting edge. Well, we are not. We cannot continue to say to people who are producing products you can't get a fair return on your product and expect that they are going to continue to produce their products. This amendment is not overwhelmingly egregious, but it is one more straw on the back of the ability of the marketplace to move their capital into the production of quality health care products versus moving it into who knows what--software for video games or movies that are violent or whatever else for which the capital gets a better return. The basic element of this amendment is that we are going to take a very limited program, which demands that people sell a product at significantly less than what the market will bear, and should bear, in order to give a reasonable return and demand that it be spread across a whole new population. And as a result, that population will get a lower cost drug, no question about it. But somebody else is going to have to pay more for the ones that come to market and are put under that system. It is like a balloon, when you squeeze it in one place, it pops out in another place. Other people--probably those on an insurance program--will pay more. So their insurance will go up and maybe they will become uninsured. We can also talk about that. More importantly, fewer people are going to be willing to pursue the path of producing quality drugs because you are not going to be able to go into the marketplace and get the capital to do it. That is what this debate comes down to--whether this feel good, ``I care about everybody'' concept that says that the way you feel good and you care is you basically say the drug companies are greedy, the production is greedy, the biotechs are greedy, and you drive their price down so they can no longer compete, but for a while at least people get a lower cost drug. I will admit there will be a window where you will be successful. But 4 or 5 years from now, or 8 years or 10 years from now when that drug that might have addressed the issue of Alzheimer's, or of arthritis or addressed the issue of arteriosclerosis, multiple sclerosis, or any number of diseases, that drug didn't come to the market because the person who had the idea could not get the money in the capital market to finance the 8 to 12 years and the $500 million to $800 million to bring it to market because there was not a market that generated that kind of return. Have we done a lot of good for the American people then? I don't think so. So as we move down this road, we have to be balanced. Good ideas may flow, things that seem appropriate to the moment. We can throw them out, but let's evaluate them in the context of what their ultimate outcome will be. How much time do I have remaining?