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Woodland Corp. said it has been attempting for over a year to sell its interest in Woodland Drug Holding-or presumably any of its subsidiaries individually. Besides Des Moines Drug, the holding company controls by various means:

Iowa Wholesale Drug-Now-defunct Des Moines wholesales, 87%-owned by Woodland since October 1967. According to Woodland, Iowa Wholesale was facing immediate bankruptcy when it bought the firm, and had been offered for sale repeatedly. Woodland's efforts to revive Iowa Wholesale were described as too little and to late” and its operations were shut down in the summer of 1969, The company is "beyond rehabilitation" and "should be liquidated,” Woodland said.

Iowa Wholesale, formed in 1928, had sales ranging from $3.5 million to $4.7 million annually over a ten-year period up to 1965, with small profits and losses. In 1966 it lost $192,804 and has continued to lose money ever since, according to Woodland, which blamed the firm's problems in general” on the market effect of changes in the independent drug wholesale field, as well as lax management practices.” The firm had been controlled by the F. W. Fitch family.

Capitol City Wholesale Drug-Mail-order discount wholesaler, serving a five state area, formed by Woodland in April 1968. Sales in the first partial year were under $200,000 and expanded to about $2 million in the fiscal year to July 31, 1969. Capitol employees fill orders at night from Des Moines Drug's inventory. It could not be sold or operated apart from Des Moines and therefore is “subject to the same adverse financial influences,” Woodland said.

Standard Medical & Surgical Supply—65-year-old Des Moines distributor of medical and surgical supplies and equipment, also now in bankruptcy. Woodland gained control of Standard through a complicated series of financial transactions in 1967 and 1968 involving two holding companies owned by Woodland Corporations Chairman John Gustafson.

Woodland said that through the FY ended April 30, 1965, Standard experienced “modest but steady net profits from operations and a gradually expanding sales volume.” However, in each of the subsequent years it lost money on declining sales.

Among the reasons for Standard's problems are the write-off of about $64,000 in FY 1966 of an investment in a wholly-owned subsidiary, which became insolvent, and installment payments on judgments against it of about $63,000 from two lawsuits, Woodland said.

PDQ of America-A drug store franchise operation which admitted four Woodland execs to its eight-man board in 1969 after it was unable to pay Des Moines and Iowa Whsle. for merchandise provided during PDQ's 1968 formation. Extent of the debt is highlighted by a now-cancelled agreement which would have given Woodland a 67% equity interest in PDQ as partial settlement.

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WOODLAND VIVIDLY DESCRIBES DEMISE OF DES MOINES DRUG FOLLOWING

MERGER

PDQ was formed to develop and sell a franchised program for independent druggists. Its first-and still the only–franchisee was Drug Mart Inc., a group of six formerly independent drug stores that united in 1968.

Drug Mart also is heavily in debt to Des Moines Drug for merchandise acquired in 1968. Woodland's equity interest in Drug Mart would have been 75% under the proposed settlement.

Early this year Drug Mart operated 13 PDQ franchise stores, nine in Des Moines, one each in Waterloo and Fort Dodge, Iowa; Lincoln, Neb., and St. Joseph, Mo. PDQ also operated an outlet under its name in Colorado Springs, Colo. It is understood, however, that a number of these outlets since have been closed, including those in Waterloo and Fort Dodge.

In June 1969, PDQ hired Franchises Internatl. (F-I) to establish a nationwide marketing program for PDQ franchises, but marketing plans never got off the ground because PDQ could not meet certain financial requirements or hire the necessary people. PDQ has paid F-I $50,000 and is required to issue to it 58,275 (715%) of its stock.

Attempts were made to convert PDQ's debt to equity via a program recommended by F-1, in an effort to qualify PDQ for a Small Business Administration loan, and thus allow F-1 to go ahead with its marketing plans. Such action ended when Woodland Drug Holding filed bankruptcy, and the fate of PDQ now rests largely in the hands of Woodland's receivers.

Woodland's own description of Des Moines Drug's demise reads like the "Problem” section of a business school case study. Woodland said that prior to its acquisition, Des Moines Wholesale “had been managed conservatively by

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EX-WOODLAND

PRESIDENT

EFFORT

FAILED

the same management for many years. It has been continuously profitable, although the return on its capital investment was modest.”

Following the purchase “it continued under the same active management for about a year. Eventually, the then president and a number of other management personnel left or were discharged. Continuous problems of maintaining and controlling inventory were experienced,” Woodland said.

“Heavy interest charges were required to meet purchase money indebtedness. Gradually sales declined, margins worsened, and operating expenses increased. Large amounts of inventory were found to be unsaleable or excessive and were disposed of in bulk at distress prices or were written down in value on the books," Woodland added.

“Credit was extended without sufficient controls with substantial bad debt experiences. Working capital, the essence of a whsle, operation, became depleted. Maximum loans were obtained, but were still not sufficient,” Woodland continued. In the fiscal years ended July 31, 1968 and 1969 and subsequent interim period, Des Moines Drug sustained large operating losses.”

Besides the publicity regarding Woodland's MD ownership and Des Moines Drug's ties with PDQ, Woodland blamed the whslr.'s problems on “the general decline in numbers and financial health of the independent retail pharmacies which are the firm's principal customers,” and “'increasing competition of discount stores and natl. and local chain drug outlets."

Woodland said that because of Des Moines Drug's deteriorated credit standing, most suppliers now demand cash with orders, adding that the company can no longer supply many items typically ordered from a whsle. drug company.

LOUIS MULLER'S REORGANIZATION J. W. Edgerly, 101-year-old full-line wholesaler headquartered in Ottumwa, Iowa, has been the principal force moving into the Des Moines market to fill the void being left by Des Moines Drug. In May 1968 Edgerly bought the inventory of Cramer Drug in Des Moines.

Cramer was doing about $465,000 a year volume at that time. Edgerly's big push came last fall, however, when it opened a branch in Adel, right outside Des Moines.

Drug wholesalers outside the Des Moines area also have begun filling orders in the city—including McKesson, which has houses in Burlington, Cedar Rapids and Sioux City, Morphy Drug in Council Bluffs and Torbert Drug in Dubuque.

Rumors have been circulating that Chicago-based wholesaler Louis Zahn is eyeing the Des Moines market, but insiders say that if the company hasn't moved by now it probably won't. Zahn had planned in January to buy Des Moines Drug, but decided against the move.

Woodland Drug Holding's former President Louis Muller had attempted to organize a group of the company's employees and other investors to buy the operation, but this too fell through as a result of the bankruptcy proceeding.

Muller had indicated that he was not interested in the PDQ operation. “The doctors took a beating on this,” Muller was quoted as telling the Des Moines Tribune. “Otherwise the employees could never have come up with the money" to buy the firm.

Muller had been president of Woodland Drug Holding--and all its subsidiaries— since the fall of 1967. For one year before that he was sales manager for Abco Dealers Inc., a NY co-op group of mfrs.' representatives for surgical supply companies. From 1964 to 1966 he was a sales manager with J&J. Gilpin SET TO LAUNCH STORE-LEVEL COMPUTER ORDERING SYSTEM FOR RETAIL AND HOSPITAL CUSTOMERS; TERMINALS ALSO WILL HANDLE THIRD-Party CLAIMS

DC-based wholesaler Henry Gilpin is on the brink of launching a fully computerized Rx ordering system designed to speed deliveries, cut pharmacists' paperwork and electronically transmit third-party Rx claims for processing. Gilpin has been quietly working the bugs out of the system in a one-pharmacy test since December, and is expected to expand operations to several other sites in a few weeks.

The system, called Rx-Econ, provides a direct hook-up betwween pharmacies and Gilpin's central computers via in-store electronic ordering terminals. The terminals, small enough to fit on a counter-top, are geared to virtually eliminate ordering paperwork and speed deliveries to one day.

Other wholesalers, notably McKesson & Robbins through its Economist program, have also been developing computer links with pharmacies, but Gilpin's system is believed to be the first effort to provide all customers with store-level terminals.

Gilpin forecasts “a fairly good size”. Rx-Econ system in operation with six to 12 months, depending on the availability of low-cost terminals. Terminals compatible with the system now rent for abour $140 per month, but the wholesaler expects rates to drop to $50 soon. Pharmacies using Rx-Econ will be charged a yet-unannounced fee based on terminal use and the amount of central services provided,

The wholesaler will offer Rx-Econ to all of its customers, retailers and hospitals as well as its Sentry pharmacy franchises. In addition to handling orders, the system provides a basic facility which eventually will be expanded to offer pharmacies electronic accounting services such as computerized family record systems, instant drug interaction data and centralized charge account record-keeping, Gilpin said. START-UP COSTS OF SENTRY AND CARE FRANCHISE PROGRAMS HURT GILPIN'S PROFITS

Rx-Econ is programmed to accept only Rx orders, but could be broadened to include propietaries and front-end merchandise as well, company officials said Gilpin handles housewares, toys, notions and other sundries through its recentlyacquired Point-of-Purchase rack-jobber subsidiary.

The advantages of computerized ordering, however, may be overshowed by the system's potential applications in the third-party area. Using Rx-Econ, pharmacies will transmit claim data daily to Gilpin via the terminals, eliminating the need for claim forms except for store-level record-keeping. Gilpin then will channel this data, already translated into computer "language,” to third parties for fast reimbursement.

The wholesaler installed new IBM 1130 computers in each of its four wholesale drug divisions last year, a move which contributed to Gilpin's depressed 1969 earnings. Net dropped 28% from $278,000 in 1968 to $200,000 in 1969. Sales increased 4.4% to $33.5 million, from $32.1 million in 1968.

Other factors adversely affecting 1969 profits were higher interest rates and operating expenses, lower gross profit margins, start-up costs of Gilpin's Senatry and Care drug store franchi ze systems and expenses incurred due to acquisitions. The company said its Cher-O-Seal institutional housekeeping service business was "unprofitable in terms of the time and management talent required for its administration,” and announced plans to dispose of the two-year-old subsidiary. Gilpin's wholly-owned McKenna Surgical Supply subsidiary, however, is "progressing profitably” with over 80% of its volume stemming from sales to hospitals, the company said. Gilpin's acquired the $1.5 million-sales Va.-based supplier in Jan. 1969.

OPINIONS AND REPORTS OF THE JUDICIAL COUNCIL
(Prepared and approved by the Judicial Council of the

American Medical Association) 41. Physician ownership of drugstores, drug prepackaging houses and pharmaceutical

companies and dispensing of glasses by physicians Section 7 of the Principles of Medical Ethics provides: "Drugs, remedies or appliances may be dispensed or supplied by the physician provided it is in the best interests of the patient.” Under this language it cannot be considered unethical for a physician to own or operate a pharmacy provided there is no exploitation of his patient.

It is unethical for a physician to have a financial interest in a drug repackaging company.

It is unethical for a physician to own stock in a pharmaceutical company which he can control or does control while actively engaged in the practice of medicine.

These ctices are contrary to the best interest of the public and the medical profession.

The Council calls the attention of the House to the following statement concerning the meaning of the words “drugs, remedies or appliances may be dispensed or supplied by the physician provided it is in the best interests of the patient” which was adopted by the Council on June 26, 1958.

It is the opinion of the Judicial Council that this language was adopted to permit both the practicing physician and the local medical societies to evaluate the many factual situations incident to prescribing and dispensing which are bound to arise in the practice of medicine. Under this language the doctor is permitted to exercise his own best judgment when caring for his patients. It is known that there will be situations when it is necessary or desirable for a physician to dispense or supply what he has prescribed. The Principles permit this to be done. On the other hand, this broad language provides a means by which a component medical society can inquire into the facts of a particular practice. The profession thus can act to prevent abuse of discretion and protect patients from exploitation. In essence this language means that a physician in the exercise of sound discretion may dispense "in the best interest of his patient”; it does not authorize him to dispense solely for his convenience or for the purpose of supplementing his income. 48. Dispensing drugs

Although there are circumstances in which physicians may ethically engage in the dispensing of drugs, the American Medical Association nevertheless urges physicians to avoid the regular dispensing and the retail sale of drugs to patients wherever the drug needs of patients can be met adequately by local ethical pharmacies. 49. Definition of a drug repackaging company

The term “repackaging company” as used by the Judicial Council and approved by the House of Delegates refers to a drug company which markets under its own label or trade names drug products manufactured by others with the objective that physicians having a financial interest in the drug company will prescribe its drugs to the patient.

CLARION, IOWA, August 20, 1969. Hon. Harold HUGHES, Senate Office Building, Washington, D.C.

SENATOR HUGHES: Although on numerous other occasions I have wanted to write my Senators I never have. However today I have received information which compels me to write regarding Senate File 1575 which refers to the dispensing of drugs by doctors.

In Clarion we are in a hot bed for dispensing doctors and it has afforded me many insights into the drawbacks of same. I have had some suspicions of some of the doctors billing their patients for "consultation” when either they call or I call about a refill of medication for prescriptions on file at my store. This has been confirmed in 2 conversations today. This $3.00 fee for "consultation” is quite unjust to the elderly living on retirement funds.

The A.M.A. and doctors hold that their ethical regard for their patients wellbeing, both physical and financial, dictates their dispensing. I challenge this because I have been able to ascertain that they are charging

much more for drugs than they can be purchased for at the local drug store. This pertains to both legend drugs and O.T.C. drugs. Some examples are as follows:

Doctor price

Drugstore price

50 Equanil, 400 mg
50 Diuril, 500 mg
50 Orinase
20 Ovulen, 1 mg
12 oz. Kolantyl Gel.
12 oz. Maalox

$6.00

5. 10 5.50 2. 50 2.00 2.00

$5.00 4. 55 5.25 2.00 1.83 1.43

Last fall I had a conference with the doctors about various things and one of them was when they might consider the cessation of dispensing. Their answer was that they could foresee that in the next 5 years either the A.M.A. or the government would legislate them out of it but until then it was more than taking care of their overhead. Is this the answer of men dedicated to saving of men's lives or of a mercenary who practices medicine as a side line?

We also should consider the availability of drugs. Although the local doctors use numerous drugs that there can be no question about the integrity of the manufacturer there are some drugs which would have to be questioned in this manner. Also the variety of dosage forms of drugs is quite limited in the doctors' offices since, as they say, they don't wish to have too much money tied up, they are obviously not using all drugs that could aid the patient and are available at the local drug store.

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As you are aware the laws are quite definitive regarding the dispensing of legend drugs. It states that the only persons who can legally do so are doctors and pharmacists. I know, because I have seen them do so, that nurses and office girls dispense medications locally. Here again when the doctors are questioned they fall back on the theory of a doctor doing no wrong.

While the foregoing may sound somewhat like a case of sour applies I am firmly convinced that given the opportunity to serve the public in my capacity as a pharmacist I can do so both at a lower cost to the patient and provide them with a better selection of drugs. For this I ask your favorable consideration of S. F. 1575. Respectfully,

RICHARD LANDESS, R. Ph. (From the American Medical News, June 1, 1970) DRUG SUBSTITUTION

WHITTIER, CALIF. Your issue of April 27, 1970, states that the American Pharmaceutical Assn. is seeking repeal for so-called "anti-substitution drug law."

An excellent case in point on this currently is the patient with an allergic reaction to paraben preservatives in ointment bases. These were and are present in almost all steroid cremes with the exception of Hytone (Dermik) Hydrocortisone. These are traces of merthiolate or other mercurial preservatives in a good many bases, which would be equally harmful to someone allergic to mercury. At any rate, the physician who knew the patient was allergic to parabens and who wrote a prescription for Hytone would not be well served, nor would the patient if pharmacists "reasserted their professional prerogatives" and substituted a different hydrocortisone creme, containing parabens in the base.

If these anti-substitution laws are repealed, there will be “sweetheart” pharmacists, where the doctor will have an unwritten agreement that no substitution will be done and he will refer the patient to this particular pharmacy. Another alternative which will be exercised by many physicians is increased dispensing: Since any physician can buy prednisone and tetracycline for $1.30 a hundred and since these cost the patient a minimum of $10.00 a hundred on prescription, the margin for “doing well by doing good” is fairly wide.

MURRAY C. ZIMMERMAN, M.D.

Senator Moss. Dr. Robert L. Brent, chairman of the Department of Pediatrics, and chairman of the Stein Research Center at the Jefferson Medical College of Philadelphia, Pa. Dr. Brent, we will be glad to have you before the committee, sir.

STATEMENT OF DR. ROBERT L. BRENT, PROFESSOR, RADIOLOGY

AND PEDIATRICS, DIRECTOR, STEIN RESEARCH CENTER, THE JEFFERSON MEDICAL COLLEGE OF PHILADELPHIA, PHILADELPHIA, PA.

Dr. BRENT. Thank you very much, Senator Moss. I welcome the opportunity to appear before the committee, and I want to extend my appreciation to you and your staff.

Senator Moss. Well, we certainly appreciate your coming to appear before us, Dr. Brent. We look forward to hearing your testimony.

Dr. BRENT. I have a relatively brief statement which I would like to read.

Senator Moss. Very good.

Dr. BRENT. And might I also comment about some of the previous testimony-is that appropriate?

Senator Moss. That would be perfectly acceptable. Dr. BRENT. The provisions of this bill are consistent with the ethical standards expected from every medical practitioner in the

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