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STATEMENT OF JESSE L. STEINFELD, M.D., SURGEON GENERAL,

USPHS, DEPUTY ASSISTANT SECRETARY FOR HEALTH AND SCIENTIFIC AFFAIRS, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Dr. STEINFELD. I have a prepared statement with me.

Senator Moss. If you would like to, you may read the statement or if you

would like to summarize, you may: Dr. STEINFELD. Thank you, Mr. Chairman. I would like to read it, if I may.

Senator Moss. All right, sir.

Dr. STEINFELD. Mr. Chairman and members of the subcommittee, I am pleased to appear before you today to discuss the views of the Department of Health, Education, and Welfare on S. 1575, the Regulation of Trade in Drugs Act of 1969, introduced by Senator Hart who serves as vice chairman of this subcommittee, on ehalf of himself, Senator Moss, and Senator Magnuson.

S. 1575 would make it unlawful for a drug company to give or sell to medical practitioners any legal or beneficial interest in the company for the purpose of inducing those practitioners to prescribe for their patients the drugs of that company. It would make it unlawful for medical practitioners to acquire or own an interest in any drug company except solely for investment purposes, or for medical practitioners to solicit or knowingly receive or for a drug company to pay or promise to pay-any rebate, discount, refund, or commission in connection with the prescribing of the company's products by the practitioner.

Medical practitioners would be prohibited from engaging directly or indirectly in the dispensing of drugs or devices except (1) furnishing a patient any drug or device in an emergency; (2) administration of a unit dose of a drug to a patient under medical supervision; (3) dispensing a drug or device to a patient where there is no community pharmacy available within 10 miles of any place where a medical practitioner maintains an office for professional practice; or (4) occasional dispensing but not as a usual way of doing business.

The bill would also make it unlawful for medical practitioners to own directly or indirectly a legal, beneficial, or lessor's interest in a community pharmacy. Medical practitioners would also be prohibited from soliciting or receiving any rebate, refund, discount, or commission from such a pharmacy for income received from the sale of drugs or devices to the practitioner's patients. Community pharmacies would be prohibited from offering or paying such considerations.

In connection with any Federal or State public assistance or medical assistance program, Federal financial participation would not be available for drugs or devices dispensed by a medical practitioner, pharmacy, or drug company under conditions prohibited by this act.

The objective of the bill is to prohibit both direct and indirect opportunities for financial gain by practitioners in connection with the supplying of drugs and devices to patients, a problem which was the subject of hearings held in 1965 and 1967 by the Subcommittee on Antitrust and Monopoly of practices of the Senate Committee on the Judiciary. The problem has also received extensive consideration

elsewhere. The Department of Health, Education, and Welfare looked into the matter through a task force that made a 2-year study of prescription drugs. The American Medical Association, individual practitioners and consumer groups have studied it.

The objective of removing the temptation for practicing physicians to make an exorbitant profit on the drugs their patients use is a commendable one. Practicing physicians do not need to make money on drugs—they have ample opportunity to make a living by following their chosen profession.

If a physician wishes to make money on drugs he should stop treating patients and devote his energies to the other activity: manufacturing, repackaging, or dispensing drugs as the case may be. But this is not to say that a physician should be forbidden by Federal law to dispense drugs. There are physicians who wish to dispense drugs in the course of their practice, and there is a real question as to whether, in the absence of any exploitation of the patient, the practice need be barred to the extent contemplated by the bill under consideration.

Should the Government, for example, forbid a physician to dispense drugs to his patients at no cost, or at 1% times or 2 times cost? That may not be the way most doctors practice. The time the doctor spends in the act of dispensing may be time that would benefit society more if he spent it in treating another patient and let a pharmacist do the dispensing. But is this a problem requiring Federal control?

In fact, Mr. Chairman, the bill before this committee raises fundamental questions that go far beyond the dispensing of drugs. These are questions about the extent to which the Federal Government should attempt to control the practice of medicine-or beyond that the ethics of physicians or other professional groups.

Lest I be misunderstood, I would emphasize the fact that the Department of Health, Education, and Welfare recognizes areas in which Federal intervention is necessary. These are activities that assume much more than a local character and clearly are beyond the capacity of peer groups or local or State governments to control. On a number of occasions licensed, but unethical physicians have devised schemes of regional or even national scope through which they promoted their prescriptions on a mass production basis with inadequate or nonexistent efforts to diagnose or give patient care. Fake cancer treatments and dangerous reducing pill schemes come to mind and you emphasized those in your introductory remarks.

But, there are other areas of poor medical practice that in no way approach the regional or national scheme. There is the occasional surgeon who is too willing to apply the scalpel. There is the occasional general practitioner who may augment his income by prescribing and administering an excessive number of parenteral injections or shots of a variety of drugs.

In fact, most if not all professions or trades have members whose performance is not in keeping with accepted practice, is repugnant to their honorable peers and is expensive to their victims.

In our view the basic question raised by S. 1575 is whether the time has come to place the Federal Government in the business of regulating shady practices of professionals, or tradesmen, which practices are local in their effect. Stated for my own profession, the question is whether the time has come for the Federal Government to begin regulating the ethics of doctors?

Certainly we deplore the kinds of abuses whose regulation is sought in S. 1575. We would like to see kickbacks from drug manufacturers to prescribers, M.D. ownership of pharmacies, rebates from pharmacies to doctors for drugs prescribed, and similar abuses stopped. We clearly oppose conflict-of-interest situations involving the prescribing and dispensing of drugs and devices for reasons other than the medical needs of an individual patient. The long-range implications of extrapolation of the controls this act would impose, deserve further consideration, not only for the doctors and pharmacists, but also for other groups that may have some representatives whose practices deviate from those accepted by the majority, in our view, deserve further consideration. But we feel that the abuses we seek to correct can be carefully specified and delineated. And we do not feel that extrapolations beyond those listed are justified at this time.

These hearings, in our view, are serving a real need by focusing attention on a situation of great importance to those who are ill and those who minister to them.

Some physicians find it necessary to sell drugs directly to patients in medical emergencies, or because they practice in areas isolated from regular pharmacy services, but such situations would seem to be relatively uncommon. In view of the physician shortage, the need to make the best use of the professional skills which only they possess, the possible conflict of interests which may be involved, and the general availability of other professionals who can perform these functions at least as well, we believe that there is only a limited need for a physician to dispense drugs and devices himself. We endorse limitations on the direct dispensing of drugs and devices by a medical practitioner to his patients. We would prefer that the Secretary of Health, Education, and Welfare be authorized to determine by regulation the exemptions under which a medical practitioner may dispense drugs and devices, rather than having such exemptions specified in law.

An example of an additional exemption which would be advisable is the matter of prepaid group practices which include drugs and devices as a part of their health maintenance benefits. In this situation, the physician is motivated to provide optimal amounts of drugs and devices to keep people healthy; thus, prepaid group practices which include drugs and devices would seem to be appropriately exempted from the prohibition against direct dispensing by physicians.

The ethical status of physician-owned pharmacies has been under consideration by the American Medical Association, the Department of Health, Education, and Welfare, and other groups in recent years. It has been held that such pharmacies offer particular convenience to patients, that they can often purchase drugs from manufacturers or wholesalers at prices which are not available to many community pharmacists, that they can maintain small inventories, and that they are more likely than community pharmacies to ensure that patients will receive the proper medication.

Although low inventories and relatively low acquisition costs could result in lower drug prices to patients, there is no evidence that the average prescription prices set by physician-owned pharmacies are

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any lower than those set by other pharmacies in the community, nor is there any evidence that physician-owned pharmacies are any more or less likely to dispense improper medication. Furthermore, patients treated by a physician who both prescribes drugs and has a financial interest in the pharmacy which dispenses the drugs could be a captive audience, with no freedom of choice on where they will have their prescriptions filled. With the physician occupying a dual role as prescriber and dispenser, there is an obvious conflict of interest.

We endorse the prohibition in S. 1575 against physician-ownership of pharmacies. However, there are undoubtedly some circumstances under which a physician's patients would not otherwise have ready access to drugs and devices. We believe that these situations could best be provided for under the authority which we recommend be vested in the Secretary of Health, Education, and Welfare to determine by regulation the circumstances under which a practitioner may dispense drugs and devices himself.

A drug repackaging company is one which purchases drugs from the manufacturer, usually in large quantities at a relatively low price, and then repackages under its own brand names—and at its own prices. When such a drug repackaging company is controlled by one or more physicians, the potential conflict of interest is evident. If the physician-owner prescribes for his patients by his own brand name-thus requring the pharmacist to dispense-products repackaged by his company, he is able to control his own profits. The cost to the patient under these circumstances can be needlessly high. The conflict of interest and the potential exploitation of patients in such a situation are apparent and the American Medical Association in 1967 declared it to be unethical.

In its final report dated February 7, 1969, the task force on prescription drugs recommended that products marketed by physicianowned repackaging companies be considered unacceptable for reimbursement in any medicare programs except in those instances where the Secretary determines that the availability of products marketed by such companies is in the public interest. There was general agreement with the latter recommendation among the non-Government experts appointed by this administration to review the report of the task force on prescription drugs. We endorse the provisions of S. 1575 which would prohibit the conflict of interest involved in physiciancontrol of drug repackaging and other types of companies within the purview of section 4.

There are certain clarifying amendments to S. 1575 which we believe would better carry out the overall purposes of this legislation. We would very much like our staff to work with your staff in developing these things, Mr. Chairman.

As examples, and not being all-inclusive, the bill would appear to make it unlawful for a medical practitioner to own an interest in a grocery or general or department store, located or operating a branch within 10 miles of his office, if that store sells foods with medical claims or over-the-counter drugs such as aspirin or medicated toothpaste.

We recommend revising the definition of "pharmacy” in the bill to mean a "pharmacy, drugstore, or other establishment which engages in the sale or dispensing, whether or not exclusively, of prescription drugs or devices to the ultimate consumer." The term "prescription drug" or "prescription devices” could then be defined as a “drug or device which under applicable law may be sold or dispensed only on a practitioner's order or which is in fact so sold or dispensed.”

We suggest that section 5 of the bill be amended to read, “Except as otherwise provided by this section, it shall be unlawful for a medical practitioner to engage directly or indirectly in the dispensing of drugs or devices to his patients," since any other sale by a medical practitioner within the purview of the bill would seem to be covered by section 6.

As now drafted, the general prohibition in section 5 of the bill against the sale of drugs or devices by a practitioner, would be subject to several exceptions. We recommend that authority to establish these execptions be vested in the Secretary of Health, Education, and Welfare.

We clearly oppose any conflict-of-interest situations involving the prescribing and dispensing of drugs and devices for reasons other than the clear medical needs of the particular patient. Such dangerous abuse of patients' trust for financial gain is grossly unethical and represents malpractice.

For these and other reasons we believe that legislation of this type is needed, and recommend its enactment with consideration being given to our suggested amendments to the bill. We would welcome the opportunity to work with the subcommittee on these or other areas of the bili.

I appreciate the opportunity to discuss these important problems with you and will be pleased to answer any questions.

Senator Moss. Thank you, Dr. Steinfeld, for that very good statement. I particularly appreciate your offer to work with the staff and to discuss the possibilities of the amendment that you have suggested. Every piece of legislation has to go through careful scrutiny and obviously many changes are often made as we go through that consideration. But what we do appreciate is the constructive efforts to help us improve the bill such as the one before us. So I think perhaps we can cooperate in this manner very well.

I have wondered about-I quoted from this code of ethics of the Medical Association that has been abandoned. What about that? Can you tell me about that? This is the one that until 1955 was in the code of ethics. It reads: “An ethical physician does not engage in barter or trade in the appliances, devices, or remedies prescribed for patients, but limits the source of his professional income to professional services rendered the patient.” Now, this was modified after 1955. If I heard your testimony right, you indicated to me that this was still the ethical requirement to a medical doctor.

Dr. STEINFELD. I don't know if it is an established policy. It is eminently reasonable. What I will do, Senator, is attempt to find out if indeed it has been modified and the reason for that modification, and I will supply the information for the record.

(The information follows:) The statement in the 1955 American Medical Association Code of Ethics asserted that an ethical physician does not engage in barter or trade in the appliances, devices, or remedies prescribed for patients, and that he limits the source

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