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Section 7 of the American Medical Association's “Principles of Medical Ethics" states specifically: "In the practice of medicine, a physician should limit the source of his professional income to medical services actually rendered by him, or under his supervision, to his patients."

It is interesting to note that the Judicial Council of the American Medical Association, even though it would permit physician ownership of pharmacies if patients are not exploited, declares it unethical for a physician to have a financial interest in a drug repackaging company or 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. The Judicial Council has also stated that physicians should avoid regular dispensing where adequate pharmaceutical services are available and should recognize and promote the practice of pharmacy as a profession and should receive the cooperation of the pharmacist in educating the public concerning the practice of ethical and scientific medicine.

Copies of Judicial Council opinions on these subjects are appended to our statement for the record.

It is apparent that mere ethical pronouncements by the AMA's Judicial Council are not and will not be sufficient to remedy the problem we are facing. Legislation is needed.

We would point out also, Mr. Chairman, that problems of physician ownership and their financial impact on the public are not limited to pharmacies and pharmaceutical suppliers. These have now carried over to the field of nursing homes and extended care facilities financed in large part by the Medicare and Medicaid programs. This has been the subject ot extensive investigation and hearings by the Senate Finance Committee. Preliminary conclusions contained in a committee staff report call for major steps toward eliminating abuses connected with physician ownership of such facilities.

We emphasize that the failure to legislate with regard to the problem in the drug field has unquestionably, in our view, created the "hands off” climate in which these abuses can flourish in Medicare and Medicaid generally. This failure to legislate has also made possible one of the most indefensible decisions made by government officials in connection with the Medicaid program. The Department of Health, Education, and Welfare's Handbook of Public Assistance Administration entitled “Medical Assistance Programs under Title 19 of the Social Security Act (Supplement-D)" was issued on May 16, 1967. Section D-5150 originally specified that federal financial participation with regard to prescribed drugs:

** * * is available in expenditures for drugs dispensed by licensed pharmacists and, when dispensed by legally authorized practitioners, where not adequate pharmacy services exist or are available when needed, and the practitioner dispenses such drugs on his written prescription, and retains records thereof." (emphasis added]

On June 28, 1968, the Administrator of HEW's Social and Rehabilitation Service announced a change in this policy which now permits federal financial participation with respect to prescribed drugs in all cases involving physician dispensing: “Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and licensed, authorizee practitioners in accordance with the State Medical Practice Act. When dispensing, the practitioner must do so on his written prescription and maintain records thereof.'

Since the earlier HEW policy had permitted federal financial participation relating to physician dispensing where adequate pharmaceutical services were not available from licensed pharmacists, it insured that Medicaid patients always would be able to obtain needed medication. What could have influenced responsible HEW officials to relax their stand? In our opinion, it was physician-backed pressures relating not to health care, but to money. The change in HEW policy did absolutely nothing to increase the availability of pharmaceutical services to Medicaid patients.

We are most pleased to see that Section 7 of S. 1575 would reinstate HEW's original policy with regard to federal financial participation in all federally supported programs. This provision is urgently needed to control the escalating costs of these programs by eliminating unwarranted duplication of services.

Finally, we wish to relate the need for S. 1575 to another serious health care related problem. Much recent attention has been given the subject of medical malpractice. The Department of Health, Education, and Welfare has appointed a Special Assistant for Malpractice Research and Prevention in the Health Services and Mental Health Administration of the Public Health Service. The problem has also been studied by the Senate Subcommittee on Government Reorganization chaired by Senator Ribicoff. A National Conference on Medical Malpractice sponsored by the American Osteopathic Association with support from the Department of HEW was held this year on February 7-8 in Chicago, Illinois. This significant conference brought together representatives of the health care professions (including APhA, the health insurance industry, government and consumer representatives, as well as both plaintiffs' and defendants' attorneys with broad experience in malpractice litigation. Several participants in this conconference attributed the escalating malpractice claim experience of physicians in large part to public resentment relating to dehumanization of medical care and also to the belief that doctors are getting rich at the public's expense. These factors are also cited in the Senate Subcommittee's report, Medical Malpractice: The Patient Versus the Physician:

Second, the public image of today's doctor is not what it used to be. Medical societies and associations are often pictured taking unpopular positions that receive great attention.

The poor image" of the profession may be passed on to the individual physician when he sends a bill the patient thinks is excessive.

Unfortunately there has developed in this Nation in recent years a negative view of the medical community that physicians, ironically, have helped to create.

Consider, for example, the views of two outstanding and nationally respected lawyers in the malpractice field.

Crawford Morris, a Cleveland lawyer who has defended physicians and hospitals in malpractice litigation for many years, stated:

"It is common knowledge today that almost all doctors are making enormous amounts of money, refuse to make house calls, play golf on Wednesdays, drive expensive cars, own yachts, hunting lodges, and apartment houses.

"The doctor's image is sadly tarnished.

"Once thought of as 'the old country doctor driving through the rain all night to sit beside a sick patient, they are now thought of as 'supersuccessful businessmen.' This, perhaps subconscious, attitude makes patients more willing to sue their doctors and makes patients on juries more willing to return a verdict, and one of considerable size, against doctors.”.

Financial involvement of physicians in pharmacy and the pharmaceutical industry which has already been brought to light and which will continue to come to the public's attention, can only serve to inflame the malpractice claim and litigation problem. Thus, because of the abuse of a segment of our medical practitioner, the entire medical profession suffers. Congress would go far toward improving the image of medical practitioners as a group by imposing legislative restrictions on those who are unwilling or unable to keep their own house in order.

Pharmacy is pleading for a fair opportunity to keep its own house in order by preserving control of the practice of pharmacy within our profession. Pharmacists are willing to accept and exercise their responsibility and authority fully. We will accept the benefits when these are fulfilled, and we will accept the penalties when they are not. We believe firmly that patients should continue to receive the benefit of high quality pharmaceutical services which only a pharmacist provides. We urge that pharmacists be permitted to provide such services as free and independent professionals and not as the servants of the medical profession.


(By Wayne Welch) The young pharmacist, who works in eastern Jefferson County, was furious as he talked to a reporter.

A regular customer had come in a few days before with a prescription to treat a cold.

The drug specified was from a new and little known firm, Bonco Labs, Inc. of Prospect, Ky., a wholesale firm.

The pharmacist, not having the drug on hand, routinely phoned the physician who had written the prescription and asked if he might substitute something else. (Pharmacists cannot change a prescription without a doctor's permission.)

The doctor became angry, according to the pharmacist, threated to physically attack the pharmacist, and said he'd find a place to get the prescription filled as written.

The patient wound up waiting two days for his medicine, the pharmacist noted.

"I have nothing against the drug,” the pharmacist said, “but this is no way for professionals to treat each other."

He indicated there must be some special reason why the physician was so insistent on the Bonco drug.



The Judicial Council of the Kentucky Medical Association (KMA), after some investigating, announced yesterday it "strongly urges” all physicians who own stock in Bonco to dispose of it. This "urging” extended to stock owned by members of a physician's family.

The KMA council admitted it doesn't know how many physicians actually own stock, and Thomas Bond Jr., president of Bonco, would not say. Talks with some pharmacists indicated it might be 50 to 100, apparently including some doctors in Southern Indiana.

The problem in the past several weeks has come to the attention of medical and pharmaceutical professional organizations concerned with the possibility that some doctors might be changing their prescription-writing habits to help boost their Bonco stock.

Investigations into Bonco already had been held by the Jefferson County Academy of Pharmacy and the Jefferson County Medical Society before the KMA got involved.

FIRM'S LEGALITY NOT QUESTIONED Dr. N. Lewis Bosworth of Lexington, chairman of the five-member KMA Judicial Council, said there is nothing illegal about the Bonco type offirm.

"It is just unethical for a doctor,” he said, referring to a policy of the American Medical Association (AMA) and its affiliate groups against doctors having a financial interest in a drug firm.

The medical societies, increasingly sensitive to public criticism of doctors' finances, apparently have moved swiftly to meet a problem they find sensitive and potentially embarrassing.

The KMA Judicial Council, which ordinarily meets quarterly, has had at least one special meeting on Bonco, and quickly drew up the statement announced yesterday.

The statement is to be read at the next meeting of all county medical societies in Kentucky.

Throughout the talks, no one--not even a few irate pharmacists who talked to a reporter-has questioned the quality of Bonco drugs.

Officers of Bonco, which is incorporated in Delaware, are Thomas Bond, Jr., Ronald R. Cox, vice-president and secretary; and James E. Bond, treasurer. The name, Bonco, apparently comes from a combination of Bond and Cox.

The firm markets under its own label drugs produced by generic drug makers.

Bond, who indicated he might have a statement later on the KMA action, indicated the firm hopes to expand and produce its own drugs.

Bosworth said Bond was invited to talk with the council, but preferred not to come.

Bond disputed this today, saying he told the council he could not come "at that particular time.” Bond said he invited the council to visit Bonco, but was told the council members were very busy and couldn't.

“I don't think their time is any more valuable than mine," Bond said.

An early rumor among pharmacists was that Bonco, apparently aware of the AMA directive about direct physician ownership of drug stock they can influence, had offered the stock to physicians' wives.

Bosworth confirmed this to some degree, noting that wives did own stock. In one case it was a daughter, about 22 years old, he said.

“Our concern,” the KMA statement says, "lies with the temptation which is bound to be present on the part of a physician-stockholder to prescribe Bonco products in order to further his financial interest (or that of his family) in the company."

The statement said all physicians interviewed by the Judicial Council-eight to 10 were called in-were aware it is unethical for a physician to own stock in a drug-repackaging house.

Each physician was emphatie that Bonco is not a repackaging house, the council asserts, but "we are not so sure."

Even if Bonco is not a repackaging firm, the council says, the fact that doctors could help boost stock of a small drug company by writing prescriptions could hardly escape the attention of the company.

The council, as does the AMA, drew a distinction between the Bonco case and that of a doctor owning stock in a large, national drug firm like Lilly or Abbott. The council said a single doctor or even several would have no notable effect on a large company by writing prescriptions specifying their products.

Bond did say this was discrimination against small firms. "All of these companies that are major manufacturers today didn't start out big."

The KMA Judicial Council said no disciplinary action is planned against physicians who own stock in Bonco.

One council member indicated, however, there would be checks later to see if physicians actually did dispose of Bonco stock.

(From the Des Moines (Iowa) Tribune, Oct. 23, 1969) INVOLVEMENT IN WHOLESALE, RETAIL SALES STUDIED—PROBE DOCTOR-Drugs


(George Anthan) Involvement of a group of Des Moines and central Iowa medical doctors in the wholesale and retail sale of drugs is being investigated by the U.S. Senate's subcommittee on antitrust and monopoly.

A subcommittee official told The Tribune by telephone from Washington, D.C., Thursday that the object of the investigation is the Woodland Corp., of Des Moines. The firm's records have been subpoenaed by the subcommittee, the official said.

Woodland Corp. officials have reported that medical doctors own a large percentage of the stock in the firm.


Woodland Corp. now owns and operates two major drug wholesale houses, Des Moines Drug Co. and Iowa Drug Co., believed to be the largest independent drug wholesalers in the state.

Woodland officials also have said the firm is involved in the retail drug store franchise business.

Dorothy Goodwin, assistant counsel for the anti-trust and monopoly subcommittee, said the investigation is aimed at setting up hearings in connection with a bill that would prohibit doctors from selling drugs, except under rare circumstances.

The bill, sponsored by Senator Philip Hart (Dem., Mich.), the subcommittee chairman, currently is pending before the Senate Commerce Committee.

"It is my feeling this bill is aimed at the type of practices (involving drug sales) that the Iowa doctors say they are involved in," Miss Goodwin said.

The measure would, she said, prohibit doctors from selling drugs at wholesale or retail, except in certain rural areas where there was no other supply of medicines,


Miss Goodwin was in Des Moines for several days about two weeks ago, interviewing Woodland officials and gathering information about the firm's activities.

She also met with Robert Gibbs, executive secretary of the Iowa Pharmaceutical Association, who has declared:

"I do not understand why doctors want to invest their money in such fields as drug manufacture and distribution ... when there are so many other places for them to put their money."

He supports the proposed federal legislation, saying the American Medical Association “has failed to recognize the problem of physician conflict of interest.”

Many independent pharmacists in Des Moines and central Iowa have strongly opposed the involvement of doctors in the drug business, especially in the franchising of retail drug stores.

Miss Goodwin said her probe of Woodland's operations "certainly raises questions" about the possibility of onflict of interest on the part of doctor-stockholders.

She said doctor-involvement in Woodland Corp. could make it possible for physician-stockholders to profit from drugs they prescribe to their patients, although she emphasized there is no evidence to indicate this is happening.

But if physician-stockholders did profit from drugs they prescribed to their patients, "that certainly is not right," Miss Goodwin said.


Harold Castle of Des Moines, Woodland Corp. president, said Thursday that "I would not be surprised” if Woodland is included in U.S. Senate hearings into the selling of drugs by doctors.

Castle said a recent check indicated that doctors own some 400,000 shares of Woodland stock, out of a total of 836,000 shares outstanding.

There are four medical doctors on Woodland's nine-member board of directors. Two other doctors resigned from the board earlier this year.

Castle said Woodland Corp. is negotiating to acquire P.D.Q. of America, Inc., which has several franchised drugstores in the Des Moines area, and whose officials have stated will be expanded into a national chain. P.D.Q. of America, Inc., has offices at Des Moines Drug Co., 2511 Bell ave.


However, present relationship between Woodland and P.D.Q. of America, Inc., is not entirely clear because Dr. John Gustafson, chairman of Woodland Corp., reported in a letter published in the May-June issue of The Bulletin of the Polk County Medical Society that Woodland "acquired, effective Jan. 1, 1969, the P.D.Q. franchise operation."

Gustafson stated in an interview last summer, “There is no question about it. We have acquired P.D.Q. and we are working together and have been since Jan. 1."

Many independent druggists in Des Moines and throughout the state reportedly have severely limited their purchases from Iowa and Des Moines Drug Companies, contending that entry of Woodland Corp. into the retail drug business as well as the wholesale drug business would give doctors too much financial interest in the sale of drugs.

Senator Hart's bill also would prohibit doctors from owning and operating drug repackaging firms.

(Reprinted with Permission from F-D-C Reports, "The Pink Sheet", May 4, 1970) DRUGGISTS Boycott Of Des Moines WHOLESALE DRUG LEADS TO BANKRUPTCY;


A partial boycott of Des Moines Drug Co. by “large numbers of its regular retail drugstore customers,' was a major factor in the 73-year-old, full-line wholesale drug firm's recent filing under Chapter 11 of the bankruptcy act.

The move had been expected since early this year when parent corp. Woodland Drug Holding Co. announced that unless it could find a buyer soon, Des Moines Wholesale would be “incapable of continuing in business more than a short time."

Woodland said the "sudden refusal” by these customers to purchase from Des Moines Drug., “or the lessening of such purchases," was brought on by extensive newspaper publicity about Woodland's MD ownership and Des Moines Wholesale's "working relationship’ with PDQ of America, a retail drug franchise business which Woodland took effective control of in mid-1969.

Following the publicity, sales of Des Moines Drug-an NWDA memberdeclined from $750,000 per month ($9 mil. annually) to as low as $200,000 per month, Woodland said. When Woodland bought the wholesaler in Nov. 1966, it was the largest independent drug wholesaler in Iowa, with sales in the $5 million range. Iowa pharmacy leaders said disenchantment with Des Moines Drug stemmed equally from the firm's cutback both in products and services following its purchase by Woodland.




Woodland Drug Holding--also now in bankrupter-is a 92.5%-owned subsidiary of Woodland Corp., a large MD-controlled holding company with interests in real estate development, banks, franchised Holiday Inns and movie houses. The MD control of Woodland Corp. was the spark which touched off the publicity, which in turn prompted an investigation by Sen. Hart's (D-Mich.) antitrust subcommittee.

“Repeated newspaper and TV publicity and Congressional activity," which challenged the "ethics and proprietary” of the MD control —"allegedly allowing physicians to profit indirectly from the wholesale and retail distribution of Rx drugs"-was a major contributing factor to Des Moines Drug's financial plight, Woodland said.

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