would be-are there any bioequivalency or bioavailability problems with that drug? If the answer is no-and I think that would be the case when we would pay $5.70 for 100-for a prescription of erythromycin. We would pay no more.

The CHAIRMAN. Thank you.

Secretary WEINBERGER. Our studies have made clear that drug acquisition cost is very hard to pin down. Quoted wholesale prices often do not reflect the real acquisition costs. The individual pharmacist, or the buyer for a large chain or a large hospital, may be able to get the drug at well below the so-called wholesale stated cost.

This would suggest that maybe we should look at the account books of the pharmacist. But here, too, precise information is difficult, especially if the drug supplier offers inducements, rebates, tie-in sales, or other products or considerations that actually lower the true acquisition cost.

We do not mention this to suggest that there is anything improper about such marketing practices, but merely to indicate that it is a difficult thing to figure actual acquisition costs. And so it is difficult for a public agency to know what is a fair reimbursement rate-fair to the pharmacist, fair to the taxpayer. A reimbursement system must give consideration to the cost of professional services involved in dispensing a drug and a reasonable return to the pharmacist who is, as any other health professional, interested and has to maintain the cost of his operations. That is a consideration that has to be borne in mind, too.

There are other issues that remain to be clarified, as the public comments on our proposed regulations quite properly indicate. I think we have made great strides toward developing a responsible and equitable program.

Before we go into that, we might mention this point of quality, which I think is uppermost-properly-in most peoples' minds. Essential to the success of this whole program is our ability to assure that drug products covered by the program all meet the same high standards of quality. We have some things that the Food and Drug Administration is doing that we think does assure that.

The Food, Drug, and Cosmetic Act requires that every drug firm be inspected every 2 years, and we do that. Those inspections are done primarily to determine whether the plan is operating in compliance with the Good Manufacturing Practices regulations. These regulations specify the basic standards the manufacturer must adhere to in order to control his production process. Stringent process control is essential to the manufacture of high quality drugs.

Considerable effort has been devoted to updating our regulations, and a late draft of these newly amended regulations is on display in the office of the Hearing Clerk at FDA, and will be published as a proposal in the Federal Register. It has some changes in it. This requires a description of manufacturing and control operations in written procedures. It says that appropriate statistical sampling techniques must be followed in quality control testing. A quality control unit must be established by the company with a director reporting to management, independent from those who are responsible for production. All drug products must carry an expiration date on their

labels. No penicillin contamination will be permitted in nonpenicillin products and we have a new section on sanitation.

The Food and Drug is also giving priority to the development of separate Good Manufacturing Practices regulations for specific processes such as the production of large volume paranterals, tablets, or capsules, medicinal gases, and radiopharmaceuticals.

Specific GMP regulations are also being drafted for manufacturers of bulk drugs and for repackers and relabelers.

Our plant inspection activities have been excellent. There have been about 8,000 drug firms registered with FDA, but fortunately the number of prescription drug manufacturers is much lower. There are approximately 400 basic manufacturers of prescription drugs in the country, and each of these is inspected at least every 2 years. The larger manufacturers are inspected much more frequently, as they should be, in view of their market impact. That occurs when new products come on the market and things of that kind.

Mr. GORDON. Mr. Secretary, may I interrupt for just a moment? Secretary WEINBERGER. Yes

Mr. GORDON. I would like to go back to page 6 for a moment. I missed something there.

Secretary WEINBERGER. Page 6?

Mr. GORDON. Yes.

You referred to the difficulty of ascertaining the true acquisition cost of drugs. Would this difficulty not be eliminated, and would more money be saved, if the government itself bought the drugs and distirbuted them through the regular commercial channels?

For example, the druggist orders whatever he needs from a manufacturer for his government account, and the bill is sent to the government buying agency. The cost of the drug would be lower because the government buying agency can buy drugs for its depots on an open-ended basis. The government will pay for the drug plus the pharmacists' fee for the reimbursement program.

Have you given any thought to this kind of a tie-in?

Secretary WEINBERGER. Yes, but we have rejected it, Mr. Gordon, because we do not want to interfere with the basic market system to that extent. We do not want to expand the government's activities. There are problems with this that a lot of people have raised as to the enormous cost that is involved in it. Those considerations or those criticisms are wrong, but they might be perilously close to being right if we got into this kind of a large governmental activity of buying all the drugs and shipping them and doing all of that that I think should properly be done by the private sector.

Mr. GORDON. Thank you.

Secretary WEINBERGER. The basic problem of quality is, as I said, something that underlies all of this. Therefore, I think it is important to note what FDA is doing to insure that and we have mentioned that we have the every-2-year inspection in the larger manufacturers because applications for new drugs for other reasons are inspected more frequently than that. And that is proper because they have a greater impact on the market.

Another thing we are doing is the surveillance of marketed drugs to determine whether they are adhering to compendial standards

or to the standards that are established in new drug applications. This analytical work is carried out in St. Louis in our National Center for Drug Analysis-we have 19 field laboratories. Drugs of similar composition-whenever we can-are assigned to a single laboratory for analysis so we can get automated testing and standardized procedures.

During 1975, we will analyze over 20,000 human drug samples and that requires about 250,000 individual assays. We found that only a very small percentage of drugs are not in compliance with official standards andn require regulatory action.

The CHAIRMAN. May I interrupt you there a moment, Mr. Secretary?

Dr. Henry Simmons, in an article in the March 1973 issue of FDA Consumer-I just wanted to read a couple of excerpts into the record-stated that:

Each year our National Center for Antibiotics Analysis receives approximately 20,000 samples for examination. The rejeciton rate is approximately 1 percent. These rejects cannot be marketed. Based on many years of experienc with this program, we are confident there is no significant difference between so-called generic and brand name antibiotic products on the American market. Any antibiotic offered for sale in the United States, regardless of whether it is brand or generic, has met the same high FDA standards.1

And at another point in the statement he states:

Since 1970, our St. Louis lab has completed the study of 19 classes of drugs, including adrenocorticosteroids, major and minor tranquilizers, urinary antibacterial agents, central nervous system depressants, antihyroid agents, cardiac glycosides coronary vasodilators, anticoagulants, oral contraceptives, and others, and we have found no significant differences between them. On the basis of the data we have accrued to date, we cannot conclude there is a significant difference in quality between the generic and brand name products tested.

Do you agree with the conclusions reached by Dr. Simmons in that article?

Secretary WEINBERGER. Yes.

Generally, I do not think it is a matter of brands or generics. A great many of the generics are marketed by brand name manufacturers, and many are made by the same people. In the last analysis, I think, the quality comes down to the individual drug itself. We are trying to assure through our monitoring programs that we have uniform quality.

For some drugs we need somewhat more sophisticated methods, but generally, we are trying to make sure that we have such things as dissolution rates and bioavailability testing. And that is why we have said that before a drug is put into this program-this Maximum Allowable Cost-we will have to have those tests and be sure that the quality is the same, whether it is a generic or method of marketing. I do not think there is any significant dfference. There are significant differences in the quality of some drugs and when we find thosewe know some of them already-we would not put them on the list. The CHAIRMAN. Perhaps you would want Dr. Schmidt or Dr. Cooper to respond to this, but in any event, you mentioned bioavailability. And as you are aware, there are lots of arguments around the country about this subject. My query is this: Therapeutic equivalence and bioavailability are not necessarily the same, are they?

1 See article by Dr. Simmons, page 11841.

Secretary WEINBERGER. NO.

The CHAIRMAN. In a substantial number of drugs there is a wide spectrum between efficacy and toxicity, and so you might have a different blood level achieved by a half a dozen of the same compounds. But the identical level achieved is not necessarily significant as long as they are effifficacious. And you can have a margin one way or the other.

Is that not correct?

Secretary WEINBERGER. Well I think maybe I will take your suggestion and ask Dr. Schmidt to respond to that. I know there have been problems with two or three drugs. Just let me before he gives the full answer to that question-just let me emphasize that when we know problems, or when we ascertain there are problems, or as part of the whole process, no drug would be put into this program— the Maximum Allowable Cost-unless the full testing and the full assurance had been given and with some, such as digoxin, where we know there had been a problem, we would not include that until we were satisfied that there was no problem.

Dr. SCHMIDT. In general, Mr. Chairman, we certainly agree with your statement. In many different examples there can be variations in bioavailability that do not result in therapeutic inequivalence. I think when we set the standards we will try to be as precise as we can, but in some instances there may very well be a range of blood levels that will be entirely acceptable as measures of bioavailability.

The CHAIRMAN. And it is, if I understand it from looking at the literature, a relatively small percentage of those drugs-digoxin was one-in which there is a very narrow spectrum between efficacy and toxicity. Is that correct?

Dr. SCHMIDT. If there is a narrow therapeutic range, i.e., a certain blood level has to be achieved before the drug is effective, and then a small amount over that would be toxic. Then you would have to be very, very precise, obviously, about the requirements for bioavailability.

The CHAIRMAN. Is my understanding of the literature correct, that that involves a relatively small percentage of compounds in the market?

Dr. SCHMIDT. Yes, indeed.

In the majority of drugs, we-for a lot of good reasons-kind of use therapeutic overkill, and penicillin is a classic example of this, wherein we use many, many more times the amount that is really necessary to be therapeutically effective.

Senator JAVITS. Mr. Chairman, if I may just have a minute?
The CHAIRMAN. Yes.

Senator JAVITS. I am due on the floor on the foreign aid bill, but I came, Mr. Secretary, because I gather this is probably the first time we have had a Cabinet Secretary before the Small Business Committee, and as I am the ranking minority member, I just wish to note that fact with appreciation.

I noticed-if I may-one thing in your statement that I think needs to be developed, that is, the concept that the total cost of medical care is materially increased if a doctor prescribes very expensive drugs. I think that has been a much overlooked problem in the unbelievably escalating costs of medical care and physicians services,

and I, for one, would hope that the subcommittee will look into that very carefully, and that the Department will too, because it is a very key point and I think it has been very much overlooked.

Secretary WEINBERGER. Well Senator, we do have as part of this proposal a recommendation-actually it will be a requirement_under the regulation to gather and disseminate pricing data to doctors so that they will have before them the knowledge that they can prescribe a bioequivalent therapeutic equivalent kind of drug or a medication at one price, but if they call for it under another name it might be much higher. We do not believe they have had all that information before them, and so one of the parts of this program would be to make that available to them as well as to pharmacists and others.

Senator JAVITS. I think that is excellent, and I would hope that going to increasingly loom in respect to the national health insurance the American physician will pay very strict attention to that as it is plan in which it would then become a critical cost factor.

Thank you very much.

Secretary WEINBERGER. Thank you, Senator.

When these monitoring activities reveal problems with an entire class or type of drug, we then put specific intensive programs into effect. The drug classes that have been studied includes such important drugs as digoxin, diuretics, antiarrythymics, anticonvulsants, antibacterials, tranquilizers, oral hypoglycemics, bronchodilators, antiinflammatories, antihistamines, coronary vasodilators, and sedatives. Many of the multisource drugs in the list of the 200 most frequently prescribed products have been studied in that way. While some individual products have failed to meet standards, we do not have any evidence of any widespread industry problems of meeting appropriate standards of identity, purity, or potency.

Every batch, of course, of antibiotics and of insulin is certified by the Food and Drug Administration before it is released. Such batches are now tested to assure their potency, purity, and sterility. The CHAIRMAN. And that applies to antibiotics that are imported from foreign countries?

Secretary WEINBERGER. Yes, sir. Dr. Schmidt assures us that is correct. That is my understanding. The Food and Drug Administration certifies approximately 20,000 batches of antibiotics and 6,000 batches of insulin every year. The overall rejection rate is less than 1 percent, which indicates a very high degree of industry performance in this area.

1

Although FDA has the authority to use strong enforcement measures such as seizure or injunction to remove defective drugs from the marketplace, such action is relatively rare. The usual method is the voluntary recall, and I would like to submit for the record a list of the recalls which we have conducted in fiscal year 1974 and fiscal year 1975, and it includes all recalls of drugs with an actual or potential hazard to health which involved a quality control problem, 130 recalls in fiscal year 1974 and 94 so far this year. The list reveals the names of many major manufacturers as well as those not so well known. We are unable to conclude from this list that there is any 1 See list of drug recalls, page 11965.