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certainly these are subjects about which consumers are doing much agonizing. It is a well-known fact that the high cost of medical care has increased at a rate that surpasses almost every other consumer service. It has been established historically that the physician is the one who orders the many medical care services such as institutional care, X-rays, and drugs. Experience has shown that these costs will be predictably higher if the ordering physician shares in the profits. It is significant that drugs are the only component in medical care costs whose share has not significantly increased in recent years. We feel it is primarily because of the competition existing at the retail level.

In recognition of the fact that the physician is the primary decisionmaker in the health team and is in a position to control costs, the Government should act now to separate the physician from the temptation to profit from the medications he prescribes.

We have emphasized our concern with the high costs of medical care and the abuses consumers have experienced as a result of the evils S. 1575 would curtail. We do not pretend that the interests of our members are confined to these two subjects only. In specific areas, our members have found it is not possible to continue to operate their retail pharmacies because of either dispensing physicians or because of physician-owned pharmacies. Our members find it is impossible to compete with a physician who is determined to deny his patients freedom of choice by whatever method of persuasion the physician chooses to use on these patients.

Our association has been following these problems for our members for many years and we have no doubt the time for S. 1575 is now. There is no doubt that the time for this idea is now.

Efforts on State legislation have been tried and failed, but even more important the national character of Government and other third party insurance programs make State legislation totally impractical for coping with many of the problems. Organized medicine has demonstrated their inability to deal with the problem voluntarily through a code of ethics. All of the circumstances are now present for a mushrooming of the consumer absues if S. 5175 is not enacted to establish Federal controls.

Turning now to the provisions of the bill, sections 4, 5, 6, and 7 prohibit the practices that we believe are the basis for most of the complaints and abuses. Since previous hearings have dealt with the prohibitions against pecuniary interests in drug companies, physician dispensing and physician ownership of pharmacies we will not dwell on them at length. Since section 7 of the bill which prohibits payment of Federal funds to physicians engaged in certain activity is new we like to set forth our views in greater detail.

Earlier we mentioned that many physicians are not engaged in any of the practices which would be prohibited. In fact, most pharmacists and physicians have a good relationship as they work together in the patient's best interest, each performing responsibilities for which they are trained. The problems for our members and the patients arise when a physician and often his lay assistants undertake to perform pharmaceutical roles for which they are not trained in a manner which removes the patient's freedom of choice.

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SEC. 4. Prohibition of Pecuniary Interests in Drug Companies

At the 1964 hearings on similar legislation, the AMA joined NARD in condemning closely held drug repackaging companies which are owned in whole or in part by doctors. But the AMA solution that "within a reasonable time, physician ownership of drug repackaging companies will, in the main, disappear" had not come to pass when the 1967 hearings were held.

Since there seems to be no disagreement that such ownership by physicians should be prohibited, we conclude in view of the record and AMA's inability to stop the practice that a Federal statute prohibiting such activity is the only effective way to deal with the problem. We believe that the reports from Iowa in the last year that physicians have been branching out into ownership of local wholesale drug houses and other suppliers of medical and surgical supplies are further evidence of the need for this legislation.

When the physicians own closely held drug companies they may be in the unique position of charging the patient for professional services, for which we find no fault, and then in addition collecting for drugs dispensed to the patient and finally realizing a profit from the company which manufactured the medication prescribed.

Such company ownership will not be disclosed by physicians to any professional association or any State pharmacy or medical board. The many ways for disguising physician ownership in such companies are also so well known that they commend the need for Federal legislation. SEC. 5. Prohibition of Dispensing Drugs and Devices by Medical Practitioners

Previous hearings have established the numerous abuses to patients which may result from drug dispensing in physicians offices. The potential for harm to patients is considerable because physicians are too busy to dispense so this function is turned over to someone else in the office such as a nurse but more often a receptionist or girl in the office.

The earlier hearings brought out the types of practices found in the office of dispensing physicians which can lead to abuse: unauthorized personnel dispensing drugs, failure to keep accurate records, drugs dispensed in envelopes or other improper containers, drugs from unknown companies dispensed, excessive charges, frequent sales of drug samples given the physician by manufacturers and giving patient wrong drug or wrong strength of drug intended.

Dispensing physicians deny patients freedom of choice. The essential element in consumer protection, choice by consumer, is totally eliminated both the drugstores and consumer are injured financially.

From the complaints NARD continues to receive about physician dispensing it would seem there is a higher incidence of this practice in smaller communities or towns, even though there are adequate retail pharmacy services available in the community. In many areas the small town is soon deprived of a drugstore because a dispensing physician has made it impossible for the pharmacist to stay in business. We have just received information from Wisconsin that there

are 400 dispensing physicians in the State and from the State of Virginia about 300 dispensing physicians.

Recently we were told of cardiac patients going to a drugstore in a small midwestern town in search of amber colored bottles in which to keep their nitroglycerine products given to them in paper envelopes in the dispensing physician's office. This medication decomposes quickly in envelopes.

In September 1969, the National Association of Board of Pharmacy received five reports from various parts of the country describing abuses including deaths which resulted from drug dispensing in physician's offices. This information contained in the report points the fact that unauthorized personnel are usually handing out the drugs and refills in dispensing physician's offices. We would be happy, Mr. Chairman, to make available for the record a summarization of these five instances by the National Association of Pharmacists.


Senator HART (presiding). I would ask our staff to receive them in an appropriate form and make them a part of the record. (The information was subsequently received for the record:)

Chicago, Ill., September 12, 1969.

Senate Office Building,

Dear SenatoR HART: The report of the N.A.B.P. committee on legislation given at the Montreal convention last May suggested that this office determine opinions of various boards relating to numerous specific pieces of Federal legislation. One of which was your bill, Senate 1575, referred to the Senate Commerce Committee.

We recently mailed questionnaires to the various licensing agencies throughout the United States who hold membership in this association asking them to give us information which might be of some use to those proponents of your bill in the interest of the protection of the public health. We sought information directly related to public health which were as follows:

Demonstrations of persons who had received medication from a physicians' office or clinic and had been harmed in some way. We concerned ourselves with the physical aspects of this harm: 1. Overdose; 2. Improper medication; 3. Medication errors; 4. Changes in medication; 5. Others.

We would like to present you with certain case situations as they come to our office in the hope that this will assist you in proving to your colleagues that passage of this Federal legislation is in the interest of the protection of public health. We will not document the specific state wherein these incidents have occurred. We would add, however, they they are true situations, and documentation can be provided you should this be necessary.

CASE NO. 33-1

About three years ago, a license to practice medicine issued to a doctor in an eastern state was revoked for the indiscriminate sale of "reducing pills". This medication was packaged by the doctor, and his office assistant, and made available to interested parties without in some instances, even seeing the patient. Many of the transactions were consummated by telephone, and the doctor would leave the package of pills on the waiting-room table, where the "customer" would obtain them at her convenience. The Board of Pharmacy and the Attorney General received several complaints from females who had taken the doctor's "reducing pills", and had suffered the usual untoward reactions associated with overdoses of amphetamines.

CASE NO. 33-2

An eastern physician surrendered his license to practice medicine approximately six weeks ago, after it was determined that he was selling amphetamine tablets to teenagers. One young man died as a result of an overdose of tablets supplied by this doctor.

CASE NO. 34-1:

About 1955, a physician in a southern state conducted a clinic next door to a pharmacy. The physician "coded" all prescriptions so that they might be filled at the pharmacy next door only. It was stated that there was a "kick back" arrangement existing between the physician and the pharmacist. As a result of a disagreement the arrangement was dissolved and the physician began to dispense his own drugs with the assistance of his wife who did most of the dispensing. On one occasion, the wife dispensed a Boric Acid-Alum douche powder on an order for an antacid powder. The patient died due to renal malfunction. The physician's insurance company settled the matter out of court and the physician was never prosecuted. He was called before the Board of Medical Examiners but no action was taken against his license. The local medical society expelled him and denied him hospital privileges for some five years.

CASE NO. 36-1:

One of the state boards from a central state indicates violation of drug laws by personnel employed by dispensing physicians. We can state that this board indicated that numerous complaints from pharmacists have been received to the effect that all kinds of drugs were dispensed by office personnel. This was done at times when the physician was not present. Inspectors of the Board of Pharmacy had subsequently investigated these complaints, found some of them to be true, but had stopped the illegal practice without resorting to criminal prosecution.

Dispensing doctors permit their office staff to dispense drugs to patients as a routine part of their duties, and once this procedure is established; it occurs when the doctor is out of the office, out of the city, out of the state, and frequently, out of the country. Stricter enforcement of the laws in this matter is most difficult, and on one or two occasions, the Board has tried to "make a case" in the courts, and the courts have been less than uncooperative. The Board has spent much time and effort and money, particularly with no worthwhile results. Doctors have been warned, but these have been dismissed and the staff has been more careful. Under subsequent investigation, it is virtually impossible to collect evidence.

Any further information which comes to our attention regarding harm caused from indiscriminate dispensing of pharmaceuticals in doctors' offices by unqualified persons will be passed on to you for your information.


Executive Director.

Mr. Woods. Thank you sir. With the extreme shortage of medical personnel in this country it is astonishing that some physicians, often father and son combinations, persist in dispensing drugs in their off.ces when fine retail pharmacies are nearby.

SEC. 5. Prohibition of Pecuniary Interests in Pharmacies by Medical


The earlier hearings have set forth the common abuses arising from physician-owned pharmacies. The evidence then as now speaks of how consumers and retail pharmacies are financially injured.

While physician ownership of pharmacies may exist anywhere this practice is often found in a city large enough for a clinic with several doctors. When they own the pharmacy they are seeking to increase their income by the medications they prescribe. Certainly not all clinics are engaged in the practice but where such a monopoly does exist, it is not unusual to find overprescribing, exorbitant prices, denial of freedom of choice to patient, use of unknown products, and prescriptions dispensed by unauthorized personnel.

It is often more difficult to determine when a physician has an interest in a retail pharmacy than it is to discover a dispensing physician. Consequently it is almost impossible as the earlier hearings established to report the number of physician-owned pharmacies today. We know they are still in abundance and may be increasing because last week we received complaints from Mississippi and Indiana that unauthorized personnel in physician-owned pharmacies are filling prescriptions.

If the physician-owned drugstore charges higher prices than prevailing at competing pharmacies the patient as a consumer is immediately injured financially. But even if the prices are competitive, the competing drugstore is directly injured in that the drugstore is deprived of an opportunity to compete. And, the consumer is indirectly injured in that the physician has decreased the patient's freedom of choice thereby decreasing competition and the likelihood of low prices which the American system of free competition brings, further, the doctor's actions to eliminate competition leads to a monopoly and a subsequent increase in prices.

In previous hearings, AMA and other opponents of S. 1575 did not seriously contest the evidence by NARD on the potential and actual abuses by physicians who own drugstores. Rather, AMA as the principal opponent seemed to suspect our position of saying physicians generally violate their ethical and fiduciary duties and take advantage of patients. The AMA pointed to its code of ethics as lending moral backbone to the medical profession.

NARD has always made its position clear that our criticisms here do not involve the vast majority of physicians in this country who disapprove of the practices we are discussing. But the hard fact is that despite the ethical traditions of the medical profession, the AMA has not been able to police its membership to prevent the unscrupulous prescription drug practices by many of those doctors who own drugstores.

Moreover, the AMA Code of Ethics on this point is a case of "shifting sands" which places their views on physician ownership of a drugstore in a gray area. It is doubtful that the position of the association representing medical clinics will be any more clear. On this point the AMA during the period of 1954 to 1963 amended the code of ethics three times and issued three clarifications of the final wording.

The current AMA principle of ethics, covering drugstores was adopted in 1957: "Drugs, remedies, or appliances may be dispensed or supplied by the physician provided it is in the best interest of the patient." This formula is so simplistic as to be unhelpful: Physician dispensing to an ailing patient is always helpful to the patient's immediate medical need-except in the area of overdosage, wrong drug, or poor choice of drugs. But, ownership by a physician of a drugstore may not be in the best interest of the patient's financial condition if the charge for the drug is excessive. And, ownership by a physician of a drugstore is never in the best interest of the patient's financial condition in that it restricts his freedom of choice, his interest in fostering competition among drugstores and his interests in avoiding

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