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. Sincerely, FRED T. MAHAFFEY, 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 Practitioners 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 a drug monopoly which, having eliminated competition, might raise drug prices. It is interesting to note that at the previous hearings AMA stated that doctor ownership of drug repackaging companies represented a potential temptation for the doctor to prescribe unnecessary or expensive drugs and such ownership should be prohibited, but the AMA is unwilling to extend this principle to doctor-owned drugstores. When a physician owns a drugstore he is tempted strongly to satisfy the patient's medical needs but place his own financial needs before the financial needs of the patient. This bill, S. 1575, will remove the physician from this financial temptation. SEC. 7. Federal Financial Participation in Drug Expenditures When the original guidelines for the title XIX medicaid program were issued in 1966 by HEW to assist the States in planning for State medicaid programs the HEW policy indicated that Federal financial participation would be available in expenditures for drugs dispensed by licensed pharmacists but in 1969 this policy was changed to also pay dispensing physicians. The two policies are quoted below. The 1966 version reads: Drugs with respect to prescribed drugs, as defined in D 5141, item 12a, Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists or legally authorized practitioners, where no adequate pharmacy services exist or are available when needed, and the practitioner dispenses such drugs on his written prescription and retains records thereof. The present policy appeared on page 9786 of the June 24, 1969, Federal Register: With respect to prescribed drugs, Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and authorized practitioners in accordance with the State Medical Practice Act. When dispensing, the practitioner must do so on written prescription and maintain records thereof. These policies are promulgated by the Medical Services Administration of the Social and Rehabilitation Service of the Department of Health, Education, and Welfare which administers the medicaid. program. Early in 1967 the American Medical Association complained when told that the medicaid guidelines would not allow Federal reimbursement to dispensing physicians unless no adequate pharmacy services are available. The AMA, on June 2, 1967, wrote HEW that "Physician dispensing is a common practice among many physicians in Midwestern States for their private patients" and that the medicaid regulation restricting the practice of physician dispensing is "an unwarranted interference in an accustomed pattern of practice for private practitioners." The AMA letter "strongly" urged that the regulation be changed to allow physicians to dispense to medicaid patients without any restrictions except "on written prescriptions and retains records thereof." The HEW replied July 6, 1967, that "serious consideration was given to the many facets of the problem by the medical staff of the Bureau of Family Services by various consultant medical advisory committees and by professional organizations. Mr. Chairman, we will be glad to make available for the record this explanation of correspondence between Secretary Blassingame of the American Medical Association and Health, Education, and Welfare. Senator HART. It will be received. DEAR MR. MEYERS: In Section D-5150, "Federal Financial Participation," of Supplement D of the Handbook of Public Assistance Administration, issued by the Bureau of Family Services, the following statement appears: “Drugs.—With respect to 'prescribed drugs,' as defined in D-5141, item 12 a, Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and, when dispensed by legally authorized practitioners, where by no adequate pharmacy services exist or are available when needed, and the practitioner dispenses such drugs on his written prescription, and retains records thereof." During your meeting March 17, 1967, with the Committee on Welfare Services of the Council on Medical Service, American Medical Association, it was made clear that you interpret this wording as meaning Federal reimbursement will not be available in Title XIX programs for payment of physicians for drugs they themselves dispense, unless "no adequate pharmacy services exist or are available when needed." Physician dispensing is a common practice among many phsycicians in midwestern states for their private patients and is specifically included as part of medical licensure in some states. Utilizing the Handbook to restrict the practice of physician dispensing is an unwarranted interference in an accustomed pattern of practice for many private practitioners and prohibits to Title XIX beneficiaries a physician's service which is legally authorized and provided to private patients in a number of states. The Association therefore strongly urges that Section D-5150 of the Supplement be changed by substituting the following: "Drugs. With respect to 'prescribed drugs,' as defined in D-5141, item 12 a, Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and, when dispensed by legally authorized practitioners, under the following circumstances: where no adequate pharmacy services exist or are available when needed, or where the practitioner dispenses such drugs on his written prescription, and retains records thereof.” [Additions to the statement are indicated by underlining.] The net effect of this change would be to make payment for physician dispensing permissive with the individual states, rather than restricting this practice through Federal regulatory action. The Association urges your serious consideration of this proposed change. If Title XIX is truly to become a means for enabling the needy and medically needy to obtain first-class medical and remedial care, it is essential that Federal standards not prevent them from receiving services which physicians have been accustomed to provide to their private patients. Sincerely, F. J. L. BLASINGAME, M.D. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, F. J. L., Blasingame, M.D., July 6, 1967. Dear Dr. Blasingame: Thank you for your letter of June 2, 1967, concerning a change to Section D-5150 of Supplement D Handbook of Public Assistance Administration concerning prescribed drugs. In the development of the present policy, serious consideration was given to the many facets of the problem by the medical staff of the Bureau of Family Services, by various consultant medical advisory committees, and by professional organizations. However, we can appreciate the concerns as expressed in your letter. I will certainly review the matter as you suggest including very careful consideration of the particular revision proposed by the American Medical Association. Sincerely, JOSEPH H. MEYERS, Acting Commissioner. Mr. WOODS. Pressures from physician groups and physicians in HEW continued until the new policy appeared in the Federal Register November 5, 1968, as Interim Policy No. 19 which is identical with the final policy quoted above that appeared in the Federal Register June 24, 1969. On November 29, 1968, NARD objections to Interim Policy 19 were filed with HEW, a copy of which we are pleased to make available for the record. (The letters follow:) THE NATIONAL ASSOCIATION OF RETAIL Druggists, Re Interim Policy No. 19 Administrator, Social and Rehabilitation Service, Department of Health, Education, and Welfare, Washington, D.C. Dear MISS SWITZER: Reference is made to section 12(a) of Interim Policy No. 19 as it relates to "prescribed drugs" and more specifically to the following wording which appears in section 12(a): "With respect to 'prescribed drugs,' Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and licensed authorized practitioners in accordance with the State Medical Practice Act." On behalf of the member drug stores of the National Association of Retail Druggists, which is the only national voice for independent retail pharmacy exclusively and such members being the drug providers most adversely affected by the proposed Interim Policy No. 19, we herewith respectfully submit our strenuous objections to the proposed change. The NARD represents the ownership of some 40,000 retail drug stores. At the outset it should stated that the subject policy change proposed in No. 19 is an effort to change Section D5150, entitled "Federal Financial Participation," which appears in the Handbook of Public Assistance Administration, Supplement D, Medical Assistance Programs. Section D5150 does not encourage physician dispensing of drugs under the Medicaid program, as does Interim Policy No. 19 Section D5150 reads as follows: "Drugs. . . . With respect to 'prescribed drugs' as defined in D5141, item 12a, Federal financial participation is available in expenditures for drugs dispensed by licensed pharmacists and, when dispensed by legally authorized practitioners, where no adequate pharmacy services exist or are available when needed, and the practitioner dispenses such drugs on his written prescription and retains records thereof." From the foregoing it is clear that Interim Policy No. 19 is intended to expand physician dispensing rather than confine such practices to only those situations where they can be justified, as is fairly provided in Section D5150. A recent survey published in Modern Medicine shows that a dramatic drop has taken place in physician dispensing over the years. In 1923, about 39% of the physicians dispensed medications to one half or more of their patients. It is estimated that this figure was no more than 8.7% in 1967. We feel that if Interim Policy No. 19 is adopted it will reverse this trend and bring about more physician dispensing. Consequently the policy will frustrate the public and members of both the medical and pharmacy professions. As we have stated to you in previous correspondence and in various conferences with the competent staff of the Medical Services Administration of SRS, we appreciate the consistently high regard that SRS has shown for the private sector and for vendor drug programs which recognize the outstanding pharmacy services |