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1 nection with the administering of any public assistance and 2 medical assistance program by any Federal or State agency 3 by a medical practitioner, pharmacy, or drug company under 4 conditions prohibited by this Act.

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Sec. 8. The several district courts of the United States

7 shall have jurisdiction to prevent and restrain violations of

8 this Act. It shall be the duty of the several district attorneys

9 of the United States in their respective districts, under the 10 direction of the Attorney General, to institute appropriate 11 proceedings to prevent and restrain such violations. Upon the

filing of a complaint under this section and the service thereof 13 upon the defendants named therein, the court shall proceed

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as soon as may be possible to the hearing and determination

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SEC. 9. (a) Any person who shall be injured in his business or property by reason of any violation of this Act may

sue therefor in any district court of the United States for 20 the judicial district in which any defendant resides or is 21 found, without respect to the amount of controversy, and 22 shall recover threefold the damages sustained by him, and 23 the cost of suit, including a reasonable attorney's fee.

(b) Any action instituted under this section shall be

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25 forever barred unless commenced within three years after

26 . the date on which the cause of action arose.

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THE WHITE House,

Washington, D.C., July 29, 1970. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C.

DEAR SENATOR MAGNUSON: This is in response to your request for the views of this office on S. 1575, the Regulation of Trade in Drugs Act of 1969, a bill "to regulate trade in drugs and devices by prohibiting the dispensing of drugs or devices by medical practitioners and their participation in profits from the dispensing of such products, except under certain circumstances, and for other purposes."

The bill would prohibit the pecuniary interests in drug companies and pharmacies by medical practitioners and prohibit the dispensing of drugs and devices by medical practitioners except in the cited circumstances of (1) emergency; (2) administration of a unit dose of a drug; (3) dispensing a drug or device where there is no community pharmacy available to the patient; (4) occasional dispensing but not as a usual course of doing business. The bill prohibits Federal financial participation in expenditures for drugs and devices dispensed in connection with any public assistance program by any Federal or State agency by a medical practitioner, pharmacy, or drug company under conditions prohibited by this Act.

As Special Assistant to the President for Consumer Affairs, I endorse the objectives of this legislation as in the interests of the consuming public and support enactment with the inclusion of amendments which I respectfully recommend to increase the legislation's effectiveness.

This legislation would serve to implement the concept of “Buyer's rights” stated by President Nixon in his 1969 Consumer Message to the Congress, especially the buyer's right to make an intelligent and free choice among products and services.

Ownership of interests in pharmacies and drug companies by medical practitioners and the potential for personal monetary gain through the physiciandirected sale to consumer-patients is not consistent with the principle of free consumer choice and fair trade practices in a just marketplace.

There might be some circumstances in which the sale of drugs and devices by medical practitioners may serve the consumer-patient's interest, but the potential for disservice to the consumer far outweighs those occasions when it might benefit him. When the physician stands to gain financially from the drugs and devices he prescribes, a conflict of interest is inherent. It should be pointed out that the conflict of interest and the potential exploitation of patients in such situations was so apparent that in 1967 the American Medical Association declared it to be unethical.

Patients of a physician who both prescribes drugs and stands to gain financially from the sale are in effect captive consumers denied the free choice to make their purchase where they choose or to purchase where the price might be lower.

Evidence has failed to show that average prescription prices charged by physician-owned pharmacies are lower than those charged by other pharmacies, or that nonphysician-owned pharmacies are any more or any less likely to dispense improper medication.

On the other hand, the potential for the exploitation of patients through higher costs for drugs from the pharmacy in which the prescribing physician has a financial interest is significant. Particularly at this time when medical costs are high and rising, it is imperative for every effort to be made to eliminate possibilities for exploitation of consumers in drug sales and to open all doors to lower drug costs.

Amendments this office would propose for strengthening the effectiveness of S. 1575 would include:

Section 3(d), definition of pharmacy, be amended by changing the wording after the word "engages" to read “in the retail sale of drugs or devices, a substantial portion of such drugs or devices or their components which shall have moved in interstate commerce.

Section 3(g), definition of drug company, be amended by adding after the word “drugs” the words "a substantial portion of which are intended for sale in interstate commerce.

Section 8, enforcement provision, be amended to incorporate provisions of Section 4 of the Sherman Act (15 Ú.S.C. 4) which authorizes issuance of tem

porary restraining orders and preliminary injunctions pending outcome of litigation.

Section 10, provision on Effective Date, be amended to provide for divestment of presently held interests in drug companies and community pharmacies within one year from the date of enactment.

The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely,

VIRGINIA H. KNAUER, Special Assistant to the President for Consumer Affairs.

OFFICE OF THE DEPUTY ATTORNEY GENERAL,

Washington, D.C., August 4, 1970. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C.'

DEAR SENATOR MAGNUSON: This is in response to your request for the views of the Department of Justice on S. 1575, a bill “To regulate trade in drugs and devices by prohibiting the dispensing of drugs or devices by medical practitioners and their participation in profits from the dispensing of such products, except under certain circumstances, and for other purposes."

The Department endorses the objectives of S. 1575 and recommends enactment subject to suggested amendments. Congressional hearings on two previous bills of similar character (S. 260, 90th Congress; S. 2508, 89th Congress) have developed a record demonstrating that physician ownership of interests in pharmacies and drug companies and certain practices resulting thereform may have an adverse effect on competition and on the public interest and welfare. It is recognized that there may be circumstances in which the sale of drugs or devices by medical practitioners may benefit consumers and, in fact, have the effect of providing such commodities at lower prices. On the other hand, the dangers involved in the sale of drugs or devices by practitioners, or practitioners' ownership of pharmacies or dispensaries, are sufficiently great, and the practical problems of preventing abuses of such relationships sufficiently difficult, to warrant absolute prohibition of the type of financial interest proscribed by the bill.

The Department of Justice recommends that the bill be amdeded in the following ways to make the legislation more effective and to facilitate its equitable enforcement:

(1) The sale of drugs or devices and the conduct proscribed by the bill should be expressly related to interstate commerce. We suggest, therefore, that the definition of the term “pharmacy" in section 3(d) be amended to require that a substantial portion of the drugs or devices, or their components, shall have moved in interstate commerce. Section 3(g) should also be amended to add after the word “drugs” the words “a substantial portion of which are intended for sale in interstate commerce."

(2) With respect to enforcement and the jurisdiction of the District courts, we suggest that section 8 be amended to incorporate the provisions of section 4 of the Sherman Act ( 15 U.S.C. 4) which authorize the issuance of temporary restraining orders and preliminary injunctions pending the outcome of litigation.

(3) It is also suggested that section 10 of the bill be amended to provide for the divestment of presently held interests in drug companies and community pharmacies within one year from the date of enactment.

The Department of Justice recommends enactment of this legislation amended as suggested above.

The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program Sincerely,

RICHARD G. KLEINDIENST,

Deputy Attorney General.

FEDERAL TRADE COMMISSION,

Washington, D.C., August 7, 1970. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senale, Washington, D.C.

DEAR MR. CHAIRMAN: This responds to your letter requesting a report by the Federal Trade Commission on S. 1575, 9ist Congress, 1st Session, a bill “To regulate trade in drugs and devices by prohibiting the dispensing of drugs or devices by medical practitioners and their participation in profits from the dispensing of such products, except under certain circumstances, and for other purposes”.

The objectives of S. 1575 are to prevent physicians from exploiting their privilege of practicing medicine by selling drugs or devices to patients, or owning a legal, beneficial, or lessor's interest in a community pharmacy, or acquiring or owning a legal or beneficial interest in any drug company, or to solicit or knowingly receive rebates, refunds, commissions, or other valuable consideration from such drug companies.

The Commission endorses the objectives of the bill. The Commission would, however, urge that the bill be modified in several respects.

The Commission suggests that the definition of “drug company' in section 3(g) of the Act be amended to include any person engaged in the manufacturing, processing, packaging, or distribution of drugs or devices. It is also suggested that the words or devices" be added to line 5 of section 4(a) after the word “drugs," and that the words “or devices” be added to line 7 of section 4(c) after the word "drugs." These suggested changes will clarify the apparent intent of the bill to give similar coverage to drugs and devices.

With regard to section 5, the Commission urges consideration of an additional exception which would permit a practitioner to sell drugs or devices at his cost if his purpose and effect in so doing is to save his patients money.

The Commission would further suggest the inclusion of a provision that the bill shall not be construed as preempting any law of any State, Territory, Commonwealth, or the District of Columbia which regulates the practice of medicine except that any law of any State, Territory, Commonwealth, or the District of Columbia shall not provide immunity to acts or practices declared unlawful under the bill. Such a provision would make it clear that the bill would not preempt a State's right to regulate the practice of medicine and do its own housecleaning.

Section 8 authorizes the Attorney General to institute appropriate proceedings in the district courts to prevent and restrain violations of the provisions of the bill. The Commission recommends that this section be clarified to specifically authorize the Attorney General to seek temporary injunctions where the public interest warrants immediate action.

Finally, the Commission recommends that the effective date of the bill, as provided in section 10, be extended from six months to one year in order that medical practitioners have a more reasonable period to divest themselves of holdings which would be unlawful under the bill.

In conclusion, while the Commission supports the objectives of the subject bill, it does urge consideration of the foregoing modifications. By direction of the Commission, with Chairman Weinberger not participating.

CASPAR W. WEINBERGER,

Chairman.

Senator Moss. I am happy to have Senator Pearson, the ranking minority member of this subcommittee here this morning. Do you have an opening statement, Senator?

Senator PEARSON. I have no statement, Mr. Chairman.
Senator Moss. Thank you very much.

Our first witness this morning will be Dr. Jesse L. Steinfeld, the Surgeon General. Will you come forward, Dr. Steinfeld. We are glad to have you here this morning, sir.

49-480 0—70-2

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