our opposition to the medicaid proposal for physicians dispensing. As far as I can tell the letters were filed, but no change was made in the original HEW proposal to allow physicians dispensing. The first proposal that they made to us was the one that was the final regulation. We feel it encourages and invites physicians to dispense. Another thing I think that is interesting is that the original contention by HEW was that physicians dispensing would only happen in about seven States and that we should not be concerned about medicaid drugs being dispensed by physicians in other States. HEW wanted to make this change for only seven states, where the medical licensure act says that physicians dispensing is allowed, and these would be the only States where this would take place. But, it just isn't so. We find reports now from other States, Virginia is one, where physicians are dispensing. I understand there are some 300 dispensing physicians in Virginia. We sent a questionnaire out within the last couple of weeks, and from many States we are getting reports back that they don't know how much but certainly there are some physicians that are submitting drug claims under medicaid. Physicians dispensing is not limited to the States we were told it would be limited to when HEW first proposed this change in medicaid regulations.

Senator HART. Mr. Winton, California has this statute that prohibits physician ownership of pharmacies, I understand. How does

it work?

Mr. WINSTON. Senator Hart, the intent of the Holmes law in California was to prevent physician ownership of drugstores. But the law did not prevent a doctors corporation in the practice of medicine from entering into an agreement among themselves and the corporate officers to practice pharmacy.

I want to tell you frankly that I have spent almost 25 years in California in the problem of physician-owned pharmacies and physician dispensing. I sympathize with you in your 6 years or longer that have been involved in this problem, and I certainly hope that we can bring this to a satisfactory conclusion.

you

There are 22,000 licensed physicians in California. There are 12,000 licensed pharmacists and 4,500 drugstores. The problem of physician dispensing or physician ownership of pharmacies in his professional area has developed in the southern part of the State of California and in the northern part of California. For 16 years I was led to believe that a code of professional conduct or a regulation by the board of pharmacy would correct this problem, along with legislation.

Senator Pearson this morning introduced a letter to this committee that one of his constituents, which I presume is in Kansas. One of the great leaders for the legislation which has been introduced was another Kansas physician, a member of the American Medical Association who in June of 1961 wrote a letter to the Honorable Estes Kefauver. He is Edward L. Fitzpatrick, M.D., of Hutchinson, Kans. While this letter is in the 1964 record, I would like very much for Senator Pearson to have a copy of this statement to go along with the one that he read prior to the time that you got here this morning.

Senator HART. We will put it in at this point in the record. (The letter follows:)

Hon. ESTES KEFAUVER,
U.S. Senator,

Senate Office Building, Washington, D.C.

HUTCHINSON, KANS., June 26, 1961.

DEAR SENATOR KEFAUVER: As an active physician and a member of the Reno County Medical Society, the State medical society and the American Medical Association, I usually do not take the time or have the inclination to write anyone in Washington. However, I was so pleased to learn that your subcommittee was interested in investigating the physicians-owned and/or controlled pharmacies, that I felt I should give you some of the facts.

First may I point out that the growth, progress, and advancement of the entire medical program has been developed because dedicated physicians served unselfishly to promote and protect the health and life of his fellow man, without plans or designs on how much income he could make from his practice or an allied profession, which in this case is pharmacy. When we, as physicians, deviate from these privileged principles, which are the very foundation of our profession, then we deserve, for the benefit of the public, Government intervention.

Please allow me to set out the reasons why I believe you should investigate physicians-owned, controlled, rented on percentage lease basis, in clinics, removed from clinics but serving as income to the prescribing physicians. I am hopeful you will consider these thoughts.

(1) For years the American Medical Association considered it unethical and not in the interest of the public for a physician to profit directly or indirectly on the medication dispensed on his own prescriptions.

(2) The unfortunate patient should not be placed in the middle position, where on one end the physician collects medical fees, and on the other end the same physician profits on the drugs the same physician prescribed.

(3) In practice the physicians'-owned pharmacies destroy the patient's freedom of choice and the competitive advantages that result from private competing pharmacies.

(4) When pharmacies are financially divorced from the prescribing physician, the physician is sincerely interested in how little and how economically he can prescribe for his patient. When the reverse is true, the physician is tempted into how much he can prescribe and how much longer he can keep his patient on his profitmaking medication.

(5) It behooves men in responsible positions, as yourself, to protect the public against plans of conflicting interest. Certainly the disjoins of pharmacies from physicians has served as a check and balance, and the pattern has become an American heritage. In a large measure this has helped to keep each profession honorable and without public accusation of merchandising medicine on the American public.

(6) The public would not tolerate for General Motors to own the filling stations, or for the electric power companies to have the corner on electric appliances. Federal food and drug laws are very restrictive. They demand that a private pharmacy cannot dispense, sell, give away, or even consume his own stock of legend prescription drugs, which is about 90 percent of his prescription drug stock. The only avenue for a private pharmacy to dispense his prescription drug stock is on a bona fide physician's prescription. When we allow physicians to put in their own pharmacies, it usually follows that by direction or designed convenience the physicians-owned pharmacy get all the prescription business, and the private pharmacy is helpless to dispense his prescription drugs.

(7) Several years ago the Justice Department broke up an arrangement in which physicians were getting a profit on the spectacles he prescribed, via a kickback from the optical companies. As I recall, in addition to a heavy fine, an order was issued to "forever cease and desist this practice." Perhaps this order covers the current problem and trend in which a minority of physicians are engaged with respect to profiting on prescription drugs.

(8) The public demands and industry accepts controls to avoid monopolies in business, since physicians and pharmacists are dealing in matters of health, illness, and life itself, it seems even more important that we not allow arrangements that lend themselves to monopolies on a defenseless and uninformed public. (9) In isolated rural areas there are occasions in which a country physician has to personally dispense his own drugs in the absence of a pharmacy in the area. However, this should not be confused with a practice of physicians forming clinics and installing their own pharmacy to dispense their wares through

what appears to be an innocent private pharmacy but is actually owned by the physicians. This is being done in the presence of a number of private pharmacies competing in the immediate area of the clinic.

Let me assure you I have no reason to defend private pharmacies by virtue of relatives or friends in the field. I do feel we both have much at stake when monopolies threaten to destroy the freedom of the public to enjoy the benefits that come from trading with competitive private enterprises. I am equally certain if we permit the above-mentioned practice to prevail, the profession of the physician and the profession of the pharmacists will both decay.

I appreciate your interest and the respect you have earned by delving into some of our complex monopoly problems and I urge you to vigorously pursue this investigation.

As a dedicated public servant I am sure you agree, when each of us in his own field will first consider the interest of the public, then together we can make a worthwhile contribution to society and help preserve the ways of American life that have made this country great.

Yours sincerely,

EDW. L. FITZGERALD M.D.

Mr. WINTON. My work on the code of professional conduct for pharmacists in the United States was based a great deal on the men of the American Medical Association that we worked with in those days. A letter within my statement from the secretary of the board of pharmacy, Joseph Bottini, pointed out the problem that we have with the Holmes Act in California. This legislation would correct the errors with the Holmes bill and prevent the corporate practice of pharmacy within the State of California.

We in California have worked closely with the physicians and with 99 percent of our colleagues in the practice of medicine in California and we have no problem.

You asked a few minutes ago about the overutilization of the welfare program in California. The 22,000 physicians in California write prescriptions and drugs in excess of $500 million a year for their patients. Some of these are written for a longer period of time, even though the patient is only authorized for a 30-day period to receive medication. If the physician is paid his usual and customary fee for seeing welfare recipients, which he is in California, and if he owns his own dispensary and he prescribes medicine which his pharmacist under his authorization dispenses, we have a captive situation there that is almost unbearable for the taxpayer in our State: 50 percent of our money for medical aid covers this; 30 percent is from the State and 15 percent from our county. We lost an election here where we would be placed in this entire responsibility of county participation back in the State capital. Does that answer your question?

It can't be presumed that you can put your faith in the physician. We have found that since the Holmes bill, which covers the ownership of pharmacies by the other members of physician's families, doctors will cover up ownership of pharmacies by using names of employees. Senator HART. Wouldn't they do the same thing with the Federal law?

Mr. WINTON. I think not, if the enforcement was left with you. people. We found as soon as California required the physicians to put their names on the pharmacy license and the license to be displayed in a conspicuous place, the ownership of pharmacies by physicians dropped considerably. This was during the nine years that I spent on the California Board on the State Board of Pharmacy.

I also spent 16 years on the Board of the Pharmaceutical Association in California. I worked with Dr. Fitzgerald from Kansas on this problem and the members of the CMA in trying to do what your legislation does through a code of professional ethics. When we presented it to the Board of Pharmacy in 1963 a licensed pharmacist who entered into an agreement with a medical practitioner and we took the pharmacist's license away from him. The ink wasn't dry on the order before the doctor was out promoting a discount from some of the other drugstores in the community.

Senator HART. Senator Pearson?

Senator PEARSON. Mr. Woods, I cited a statistic this morning that a physician-affiliated pharmacy represented about one percent of all the pharmacies in the country, and in your testimony you indicated that you felt like that practice was increasing considerably. You have gotten communications from Mississippi, et cetera. Do you think the statistics that were furnished me by a Kansas physician is an accurate one? Is it one percent?

Mr. Woods. Well, Senator, I don't know what figures the doctor was basing his statistics on. I would say, first, if his percentage of physician-owned pharmacies in the country is as inaccurate as his reference to the number of drugstores in the country, then he may not be too accurate. He mentioned 75,000

Senator PEARSON. 70,000, I think.

Mr. Woods. There are only about 53,000 drugstores in the country. Now, I don't know how he could come by the figure 1 percent. We just recently received a statement from the secretary of the board of pharmacists in Mississippi, and he said 5 percent. That State really amazed me, because I didn't think there was much physician-dispensing or ownership either there. Another reply we recently received from North Carolina estimated 100 physician-owned drugstores. That amazed me again, because I didn't think there were too many physician-owned pharmacies in North Carolina. It was pointed out in one of the earlier hearings that a survey to ascertain these facts was being conducted annually by one of the national drug publications up until 1960. At that time they were talking about something like 2,000 drugstores. They quit making the survey because it was impossible to get the information. As Mr. Winton just pointed out, the ownership may be in the wife's name or some other relative's name. Some boards of pharmacy request this information and some do not.. I just don't know how this information could be obtained.

Senator PEARSON. If that would be the case, this legislation would not cure that.

Mr. WOODS. Well, first, there is no State legislation that speaks to this point except California. The difficulties there were explained by Mr. Winton. If this legislation were enacted

Senator PEARSON. Let me interrupt you to say that I am in error.. I think the legislation does cover it. Senator Hart is directing my attention to section VI where it says it should be unlawful for a medical practitioner to own directly or indirectly a legal, beneficial or vestor's interest in a community pharmacy. So, I think probably it is covered.

Mr. Woods. Right.

Mr. WINTON. I think your figure is probably correct. We consider

that in 9 years on the board of pharmacy, we had approximately 2 percent of the 4,500 drugstores in California that were physiciancontrolled or physician-owned. With the advent of the Holmes Act, this dropped to about 1 percent. The when the corporate practice act went into effect, the other 1 percent picked up the ownership again.

Mr. Woods. There is a lot of blending of the problem of physiciandispensing and storeownership. For instance, I understand in southern Indiana that there are a lot of either dispensing or pharmacy ownership by clinics. It gets into a gray area whether the doctor is dispensing or whether he has a drug room down there that would be called a pharmacy where a nonpharmacist is dispensing the drugs.

Senator PEARSON. I thank you very much, Mr. Woods. Thank you, Mr. Chairman.

Senator HART. Mr. Cary?

Mr. CARY. Do you see any objection to a pharmacy being physically located in a medical clinic?

Mr. Woods. The problem really is there when a physician benefits by the drug he prescribes and where he is writing the prescription and is going to benefit for profit by what he prescribes. If there is a clinic with the pharmacy and it is owned by the pharmacist, not the physician, we see no difficulty, unless, and I believe the bill covers this, there is some exorbitant lease requirement that again would enable the physician to profit by the number of drugs dispensed. We hear some pretty phenomenal lease percentages as to the take the physician would get in one of these clinic pharmacies. We are very much opposed to that.

Mr. WINTON. Prior to the time, gentlemen, that the percentage lease arrangement in the clinic was established in California whereby the board of pharmacy reviewed all of the leases for pharmacies and clinics, we found these are not exceptions-where leases were based on 50 percent of the total volume of the business by the pharmacy. This then led the board of pharmacy to establish a procedure whereby the rent of the medical building for the pharmacist would be on a square-foot basis. This arrangement might not be a bad idea for lab technicians who are also captive administrators of the physicianowned pharmacy building.

Senator PEARSON. May I ask, Mr. Chairman, are there not some circumstances caused because of the geographical conditions in the upper part of Michigan or in the western highlands of Kansas where the physician-pharmacist combination is desirable and feasible? Mr. WOODS. You mean physicians dispensing?

Senator PEARSON. Yes.

Mr. Woods. There is no problem. The bill provides for this where adequate pharmacists' services are not available in rural communities. We couldn't complain. The bill enables a physician to dispense under those circumstances.

Senator PEARSON. Thank you.

Senator HART. Mr. Simmons and Mr. Rooke, do you have anything you would like to add?

Mr. ROOKE. Senator, I think that this whole matter has been covered very comprehensively. I would like to say as chairman of the Committee on National Legislation, I received endorsements and