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Washington, D.C.-The leader of the nation's largest independent union of federal employees today accused three major drug companies of "gouging" taxpayers by refusing to take part in a pilot program for drug purchases that held the potential to dramatically reduce costs for both federal employees and taxpayers.

In a letter to congressional committee leaders, President Colleen M. Kelley of the National Treasury Employees Union (NTEU) urged immediate hearings into the actions of Pfizer, Merck and Parke-Davis, three of the largest pharmaceutical companies in the country.

These three companies, Kelley said, refused to comply with a pilot program to be undertaken by the Office of Personnel Management (OPM). Under the proposed two-year pilot, a small company participating in the Federal Employees Health Benefits (FEHB) Program would have been able to purchase prescription drugs at a discount from the Federal Supply Schedule (FSS), and pass the savings on to enrollees and taxpayers.

In congressional testimony six weeks ago, Kelley called the plan by the Special Agents Mutual Benefit Association (SAMBA) a "forward-thinking approach to controlling health care costs." SAMBA, which has some 16,000 enrollees, would have saved $2.4 million a year by this single step. The FSS is administered by the Department of Veterans Affairs, which supported the SAMBA plan.

In her letter to Sens. Joseph Lieberman (D-CT) and Fred Thompson (R-TN) of the Senate Government Affairs Committee, and Reps. Henry Waxman (D-CA) and Dan Burton (R-IN) of the House Government Reform Committee, Kelley was sharply critical of the decision by the three drug companies to refuse to sell SAMBA any prescriptions medications under the pilot program. These three companies sell 90 percent of the drugs purchased by SAMBA enrollees, Kelley said.

"An industry whose profits exceeded $26 billion in 1998 alone," she wrote, "must, at a minimum, come before your Committees and explain their actions in refusing to comply with this pilot program."

FEHB serves nine million enrollees, who have seen substantial increases in the cost of their prescription medicines over the past three years-22 percent in 1997-98, 18 percent in 1998-99, and another 20 percent in 1999-2000.

Kelley has been in the forefront of those urging FEHB to use its massive buying power as the nation's largest employer-sponsored health insurer to negotiate discount rates to bring down costs and premiums wherever possible.

Referring to their refusal to take part in the SAMBA pilot, she said that "if the major drug companies are permitted to refuse to sell to one small FEHB plan, perhaps OPM needs to consider contracting for prescription drugs directly."

September l3, 2000

The Honorable Dan Burton and

The Honorable Fred Thompson

The Honorable Henry Waxman

and The Honorable Joe Lieberman

House Government Reform Committee

Senate Government Affairs Committee

U. S. House of Representatives

United States Senate

Washington, D. C. 205l5

Washington, D. C. 205l0

Dear Sirs:

It has recently come to my attention that OPM has been forced to cancel its SAMBA Pharmaceutical Pilot Project. As you know, the pilot held the potential to drastically reduce both employee and federal taxpayer costs associated with the Federal Employees Health Benefits Program, an area your Committee has explored repeatedly over the years.

Under the proposed pilot, SAMBA, the Special Agents Mutual Benefit Association would have purchased mail order pharmaceuticals for its FEHB program from the Federal Supply Schedule (FSS). As you also know, OPM's goal was to gather information from this pilot to determine whether or not developing a similar schedule for all FEHBP plans would be a viable method of reigning in health care costs.

Despite the fact that the Department of Veterans' Affairs gave its support for this pilot, three major pharmaceutical companies - who happen to sell 90% of the drugs purchased by SAMBA enrollees - refused to sell any drugs to SAMBA! It appears that Pfizer, Merck and Parke-Davis are more concerned about profit loss than helping the government better afford prescription drug coverage for its employees, even though SAMBA's drug volume would have amounted to only 3 pills of every l,000 these drug companies sell!

This appears to be yet another example of how the major drug companies gouge the public, and in this case, the American taxpayer as well. I am sure you share my concern that an industry whose profits exceeded $26 billion in l998 alone must at a minimum, come before your Committee and explain their actions in refusing to comply with this pilot program. I urge your Committee to schedule oversight hearings into this matter as quickly as possible.

Thank you for your prompt attention to this matter. I look forward to receiving your reply.

Sincerely,

Colleen M. Kelley

National President