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And we feel that Federal legislation is definitely needed across the board on this issue. If we were to attempt to go thorugh 50 States legislatures to enact this type of legislation, it would take us 50 years.

Senator Moss. Are there State laws also against dispensing by the physicians?

Dr. APPLE. No; the State laws, again, at the time they were enacted, provided an exemption to physicians.

Senator Moss. On the packing, the statute is adequate, if it were enforced-is that what you told me on the first question when we asked about these examples?

Dr. APPLE. They are required to label the drug dispensed when a physician does it, the same way a pharmacist is required to put the name of the patient, the name of the prescriber, the date, and other pertinent information required under the act.

Furthermore, of course, if a pharmacist were to dispense a product in those kinds of containers, I think that the Board or Pharmacy would have a right to bring him to task for the kind of practice he is engaged in. Many of those drugs in those envelopes in front of you are in the process of disintegration and have been since the day they were handed out and taken out of the light-resistant containers.

We also have another facet of this situation in terms of the dispensing physician and that is his mere presence encourages what is known as a mail order operator or mail order distributor who caters to the dispensing physician. We have reported to the Food and Drug Administration in the past, we have reported to the Federal Trade Commission, instances where anybody could write to one of these interstate type of drug distributing firms and obtain, on a fictitious physician's letterhead, all the drugs he wanted of any kind. Here we are in the midst of one of the most serious drug abuse problems in the country and at the same time we are being told that more and more these mail order firms are flourishing. It all doesn't make sense, Senator.

Senator Moss. Are the number of physician-owned pharmacies increasing now or have they been increasing since last you testified?

Dr. APPLE. If you define a physician-owned pharmacy as one in which the doctor has the direct controlling interest of stock, I would have to say that perhaps we are about where we were the last 3 or 4 years.

It is far more effective to engage in a type of situation of a percentage lease, or some other type of equity arrangement, which doesn't require the physician to have his name on the license application.

But it boils down to the fact that more and more, as we move toward group practice in medicine, and the more clinics that are established and we agree with people who believe that parmaceutical service ought to be available in a clinical environment, that the pharmacist can only get an opportunity in these particular environments to participate in his profession by paying through the nose. Now $40 a square foot is unconscionable.

Senator Moss. Is there any validity to the argument that the physician can dispense drugs more cheaply than sending his patients to the pharmacy--that the patient gets an advantage, a price savings in that way?

Dr. APPLE. This is a claim that has been made since time immemorial. I don't think that any physician goes into dispensing as a benevolent gesture. If he has a patient who needs—is in dire financial circumstances or he wishes to assist, he can usually make some arrangement with the pharmacist for consideration of that patient's welfare.

The claim, of course, always being that the physician can buy cheaper than the pharmacist. Íhis may be true, but if we are talking about the same quality of drugs, I don't believe it's true. And I think there is ample evidence to indicate that the physician's charges on the average and on the whole are far more in excess to the patient than the pharmacist's would be, when he merely collects the cost of the drug plus a reasonable fee for professional services.

Senator Moss. Well, if this pharmacy had to pay $40 a square foot for its rent, this would be reflected in the cost-it would have to go into the drugs dispensed; wouldn't it?

Dr. APPLE. There is no question that the pharmacist has to charge the public more than he would if he were paying $10 a square foot, or $8, which is even more common.

You might say, why doesn't the public just take their prescriptions somewhere else? Generally, these arrangements are worked out so that the public is held as a captive audience.

Senator Moss. They leave the physician's office and there is a pharmacy right there in the same building.

Dr. APPLE. Even more so, as the patient leaves the physician's office, the nurse says, if you walk across the hall or down the hall, your prescription will be ready for you.

. The patient isn't given the physical prescription, the written document and given a choice to go it, because this wouldn't serve the best interest of the physicians that own that building. Especially, on a percentage basis, you can see that the smaller the volume of that pharmacy, the less take the physicians would get.

Senator Moss. Well, thank you, Dr. Apple, and Mr. Roberts, Mr. Sacks, and Mr. Olson. It's good to have you before the committee. We appreciate your testimony and it is rather persuasive, I would say. Thank you very much.

Dr. APPLE. Thank you, Mr. Chairman. (The statement follows:)

STATEMENT OF THE AMERICAN PHARMACEUTICAL AssociATION Mr. Chairman and members of the committee, as you know, the American Pharmaceutical Association is the national professional society of pharmacists in the United States. Its approximate 50,000 members are composed of practicing pharmacists, pharmaceutical educators, pharmaceutical scientists and pharmacy students. APhA's objective as a professional organization is the continual improvement of the pharmacy profession as a part of the nation's health care services. I am Philip Sacks of Chicago, Illinois, Vice-Speaker of the APhA House of Delegates. I am a practicing pharmacist, President of the Illinois Pharmaceutical Association and member of the Illinois Board of Pharmacy. I am accompanied by Dr. William S. Apple, Executive Director of APha, Mr. C. Albert Olson of Bountiful, Utah, President of the APHA Academy of the General Practice of Pharmacy, and Mr. Carl Roberts, Director of the APA Legal Division.

We are appearing again in support of legislation introduced by Senator Hart, which is designed to rectify serious conditions in the delivery of health care which are harmful to consumers and a threat to both the professions of pharmacy and medicine. In fact, these conditions benefit only a small percentage of physicians throughout the country. We refer, of course, to instances involving physicianowned pharmacies, physician-owned drug companies and physicians who, for their own financial benefit, regularly dispense drugs to patients.

APhA did not endorse Senator Hart's first effort in this area because we did not agree with its basic approach. However, we did support wholeheartedly S. 260, which Senator Hart introduced during the 90th Congress. In our view, s. 260, represented a major improvement over the earlier bill. We believe that even greater improvements have been made in the bill you are now considering, S. 1575. We offer our full support of this measure as drafted and will do all we can to obtain its enactment.

Since the first hearings on this subject in 1964 by the Senate Antitrust Subcommittee, there has been amassed a substantial and dramatic record of existing and potential abuses which are likely to occur when physicians are engaged in activities which would be prohibited by S. 1575.

In our previous testimony on S. 260, we have detailed pharmacy's total lack of success in attempting to resolve this problem on an interprofessional basis with the medical profession and its chief spokesman—the American Medical Association. We feel that members of the Commerce Committee should have the benefit of this background and we have appended excerpts from our 1967 testimony to this statement. We have not come here today to rehash what is now documented history. Nothing has changed. Rather, our objective today is to place the problem in present day context and to illustrate that, as time goes on without resolution of the problem, its effects become more widespread, more insidious, and a more potent threat to decrease the quality of health care received by the nation's citizens and to increase the price paid for it.

It is hardly overstating the case when we tell you that this nation is in the throes of a health care crisis. Note that we are not saying the nation faces a health care crises; we are saying that the crisis is upon us and is worsening. Only a few years ago, the nation was concerned about the inability of many to pay for needed health care. Congress responded with the Medicare and Medicaid programs. Today, our citizens are concerned not only for those who find it difficult to pay for health care, but also for those who are financially able to pay for it, but are unable to obtain health care for want of sufficient numbers of health care facilities and health care personnel.

Congress has established as a national policy the development of adequate health care facilities and personnel. Within the past several years, Congress has appropriated hundreds of millions of dollars for hospital construction and modernization, new medical schools, training of physicians, dentists and alljed health personnel, including pharmacists. In January, 1969, Dr. Charles W. Bliven, Executive Secretary of the American Association of Colleges of Pharmacy, reported the scope and effect of federal financial support for our profession. Briefly summarized, his report indicates that federal grants for construction of undergraduate teaching facilities and research facilities received or projected from fiscal year 1964 through fiscal year 1972 total 37.5 million dollars. As a result of such construction, approximately 1,000 new first year places for pharmacy students will have been created. In fiscal 1967 and 1968, pharmacy student loan and scholarship funds received from the federal government totaled 6.8 million dollars. These funds were used to provide financial assistance to approximately 7,200 pharmacy students during those two years. Thus, on the one hand, Congress is pouring money into the development of greater numbers of pharmacists, but on the other hand, Congress has to date refused to take one step that would work to ensure the continued existence and stablity to the pharmacy profession in this country. That step is the elimination of physicians as professional and economic poachers in pharmacy.

Today's drastic shortage of physicians to provide medical services has been widely documented. We need only point to the American Medical Association's own policy position within the past year which would encourage the training of nurses to serve as so called “physicians assistants." We might also point to expanding interest in the training and development of new types of paramedical personnel. Yes, we could even point to the development of broader roles for the pharmacist, including a primary responsibility as a drug consultant and drug therapy planner for the physician. The point is that we don't have enough physicians in this countryto perform those functions for which the physician is trained, namely, the diag. nosis and treatment of disease. It is incredible, in the face of this shortage, that a small but significant segment of the medical profession is attempting to perform not only their traditional health care role, but also the health care responsibility traditionally assigned to the pharmacist.

Pharmacists spend an average of six years being trained as experts in the preparation, storage and handling and dispensing of drugs. This training and pharmacella tical practice make the pharmacist the most knowledgeable member of the health care team with regard to pharmaceutical products. This expertise is wasted to a great extent, because the pharmacist is prevented from exercising his knowledge by overly restrictive laws and inhibited by the attitudes of many physioians. The

threat of the physician dispensing hangs over every pharmacist's head. We will make further reference to one aspect of this problem shortly and show how physician's ownership of drug interests can seriously degrade health care.

Another aspect of this waste is attributable to dispensing physicians whose knowledge of drug product quality is limited at best, and whose selection of drug products frequently reflects the salesmanship of drug manufacturers rather than pharmaceutical training and knowledge.

The question which Congress must face squarely at this time is whether or not it is in the public interest to continue the use of pharmacists as members of the health care team.

As we have stated in prior testimony on this problem, the division of functions between the physician and pharmacist were settled by agreement between the professions during the mid 1800's. Since this agreement was reached, however, there has been a serious erosion of the relationship. Most major nations of the world require by law that physicians prescribe and pharmacists dispense.

If pharmacy is guaranteed a professionally independent and economically sound future, the pharmacist will continue to serve the public health needs of the nation. He will, in fact, take on an expanded and far more important role in the delivery of health care services than that performed today. On the other hand, if pharmacists are not guaranteed the freedom to exercise professional judgments within their area of expertise and the freedom to practice their profession with assurance of a reasonable, secure financial future, major incentives to recruit new pharmacists will have been destroyed.

Today's graduating pharmacist is better trained and better motivated than at any time in our history. However, the realities of today's general practice of pharmacy, with a continuing reduction in independent, pharmacist-owned

a pharmacies and a concurrent growth of corporate-owned chain pharmacies, is creating the most professionally frustrated pharmacists in our history. Those circumstances which frequently force upon the pharmacist little more than the function of a clerk are a major threat. The encroachment of the medical profession in the practice of pharmacy is another major threat.

We have brought with us several examples of the inferior methods of dispensing physicians which are a threat to health care. These samples of drugs dispensed by physicians were provided us by the Michigan State Pharmaceutical Association. Some were gathered in the emergency room of St. Lawrence Hospital in Lansing in connection with accidental poisoning cases. Pharmacists know that similar samples can be obtained in virtually every state. In the office of such physicians, the drug dispensing function is often relegated to a nurse, or worse, a totally untrained assistant.

If you will examine these envelopes you will note that their labeling is totally inadequate, and directions for use are either confusing or non-existent. The name of the patient is not indicated and the date when the drug was dispensed is not given. Moreover, all of these drugs have been dispensed in small envelopes with absolutely no regard for the storage standards which are established to assure the stability and therapeutic value of the drug.

Thus, most of the drugs in these samples are required to be stored in prescription vial type containers according to the standards of the official compendia, which, as you know, have been adopted as the federal standard for drugs under the Federal Food, Drug and Cosmetic Act, as well as state acts. We would point out that under Sections 502 and 503(b) of the Federal act, and also under the state acts, every one of these samples would be deemed to be misbranded and subject to seizure if dispensed by a pharmacist. When federal and state laws require specific dispensing practices to protect public health, how does the public health benefit when drugs are dispensed in this fashion by a physician? The fact is that there is no federal enforcement of these provisions of the FDC Act against physicians who dispense drugs. The further fact is that physicians who dispense are either unaware of the requirements of the law or “too busy” to comply with them.

In stating our full support of S. 1575, we wish to make clear that we do not attribute the abuses the bill would correct or prevent to the vast majority or even the bulk of the medical practitioners in the country. For the most part, relationships between physicians and pharmacists, certainly at the practitioner level, have been and continue to be sound, mutually beneficial and gratifying. However, there always has been an element in medicine which sees financial involvement in the pharmaceutical industry and pharmacy profession as a way of lining its pockets.

Senator Hart's prior hearings on physician ownership of pharmacies and manufacturing and repackaging companies, as well as his hearings concerning the dispensing practices of the so-called “fat doctors," have dramatically exposed individual practitioners to public view. Unfortunately, there are always some on whom such lessons have little or no effect. Abuses, both real and potential, continue.

At this point, we wish to submit two such instances for the record. Appended to our statement is an article which appeared in the Louisville Kentucky Times on April 16, 1970. The situation described in that article relates to a small Kentucky drug firm, which apparently numbered among its stockholders a substantial number of physicians or members of their immediate families. It illustrates a classic need for S. 1575. While the article speaks for itself, we feel there are several points which should be emphasized. Firstly, the Kentucky and Indiana Pharmaceutical Associations had received inquiries from their members about this company and the sudden change in many physicians' prescribing habits to prescribing products of this firm by brand name. As the article points out, so-called "antisubstitution” laws in almost all states prohibit a pharmacist from dispensing the same drug in dosage form manufactured or distributed by a different company if a prescription is written for a particular brand name product. In other words, if a prescription is written for ampicillin under the trade name of one manufacturer, the pharmacist may not legally dispense ampicillin of any other manufacturer.

We seek the repeal of such state laws because they represent an unacceptable encroachment on the professional prerogatives of the pharmacist and specifically his unique ability to exercise professional judgment in selection of quality drug products. Antisubstitution laws, applicable to most pharmacists, prohibit them from selecting a quality product available at the most reasonable cost to the patient and frequently force the pharmacist to dispense a product of lesser quality against his best professional judgment. We point out that the pharmacist is placed on the horns of this dilemma not because he willingly purchases products of lesser quality, but because prescribers are writing prescriptions for them. We would also point out that the patient often pays a premium for such products, certainly in terms of the price paid in relation to the cost of the product. There can be no question but that the physicians in this situation were given or sold stock to increase sales of the company's brand-name products.

Secondly, we would point out that ethical considerations were apparently insufficient to keep the physicians involved with this firm from resisting the temptation of financial gain, even to the point of attempting to disguise their ownership interests by having stock issued in the names of their family members.

Finally, although the Kentucky Medical Association, through its Judicia Council, was quick to advise its members to divest themselves of any interest in this firm, the Association declined to take any disciplinary action against those involved.

A second situation which we would bring to your attention is described in articles appended to our statement which appeared in the Des Moines, Iowa Tribune on October 23, 1969 and F-D-C Reports (“The Pink Sheet”) on May 4, 1970. The staff of the Senate Antitrust Subcommittee is intimately familiar with this situation. It involves Woodland Drug Holding Co., a subsidiary of the Woodland Corporation in which physicians own a very substantial interest. Through Woodland Drug Holding Co., the Woodland Corp. owned three wholesale drug companies in Iowa, a distributor of medical and surgical supplies and equipment and a pharmacy franchising firm. Although, as “The Pink Sheet” article describes, the financial fortunes of Woodland Drug Holding Co. have fallen upon hard times, this clearly was not intended. What apparently was intended, and achieved in large part, was control of drug distribution at the wholesale level in Iowa and a substantial interest in drug distribution at the pharmacy level both in Iowa and elsewhere. The Woodland situation makes clear that the physician owners were nvolved in a substantial conflict of interest in at least the following ways.

(1) Physician owners had the incentive to stimulate moving drug products in the wholesaler's warehouses by prescribing for them.

(2) Physician owners had the incentive to direct patients to Woodland franchised pharmacies paying percentage fees.

(3) Physician owners had the incentive to over-prescribe for their patients, thereby increasing sales by the wholesalers and also increasing the percentage

fees received from pharmacy franchises. In addition to these two specific examples involving abuses related to physician ownership, we can also state that percentage leases of the type that would be prohibited by S. 1575 are in force and continue to be demanded of pharmacists who wish to establish pharmacies in physician-owned medical centers, clinics and even regular commercial buildings.

49-480—70-7

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