Mr. GORDON. Would you consider this a misleading advertisement? Dr. BERLINER. I consider this a highly misleading advertisement. Mr. GORDON. Thank you very much, Dr. Berliner. The hearings will recess until tomorrow, and we will meet tomorrow in room 2221 at 10 a.m. [Whereupon, at 11:45 a.m., the subcommittee adjourned, to reconvene on Thursday, March 20, 1975, at 10 a.m.] COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) THURSDAY, MARCH 20, 1975 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 2221, Dirksen Senate Office Building, Senator Gaylord Nelson (chairman of the full committee) presiding. Present: Senators Nelson, Hathaway, and Abourezk. Also present: Benjamin Gordon, staff economist, and Kay Klatt, research assistant. Senator HATHAWAY (presiding). The subcommittee will come to order. The first witnesses we have this morning are people representing the American Pharmaceutical Association. Dr. William Apple, I understand that you are going to make a statement and you have accompanying you Dr. APPLE, Dr. Feldmann and Mr. Roberts. Senator HATHAWAY. You may proceed to read or summarize your statement. STATEMENT OF DR. WILLIAM S. APPLE, EXECUTIVE DIRECTOR, AMERICAN PHARMACEUTICAL ASSOCIATION, ACCOMPANIED BY DR. EDWARD G. FELDMANN, ASSOCIATE EXECUTIVE DIRECTOR FOR SCIENTIFIC AFFAIRS; AND CARL ROBERTS, AMERICAN PHARMACEUTICAL ASSOCIATION ASSOCIATE GENERAL COUNSEL Dr. APPLE. Senator Hathaway, I am Dr. William S. Apple, executive director of the American Pharmaceutical Association, which, as you know, is the national professional society of pharmacists in the United States. I am pleased, once again, to appear before this distinguished committee with my associates, Dr. Edward G. Feldmann, associate executive director for scientific affairs, and Mr. Carl Roberts, APhA associate general counsel. This is the third opportunity which APhA has had to express its views directly to Congress regarding the Maximum Allowable Cost (11663) 54-476 - 75 - 3 policy announced by HEW Secretary Weinberger on December 19, 1973. However, it is the first opportunity we have had to comment on the proposed implementation of that policy. As the members of this committee know and are well aware, the APhA has stood virtually alone in support of the MAC policy since it was unveiled by Secretary Weinberger. You know that APhA has publicly endorsed the basic concept embodied in this policy as fair and making good sense. In testimony in February of last year, APhA noted that: What the Secretary has said in essence is that the Federal Government and the taxpayers who support it should not pay drug manufacturers more for drug products of acceptable quality than a competitive marketplace requires. Implicit in the proposed Federal policy is a recognition that at present the Federal Government is paying more for some drug products than it should have to pay. We also noted at that time that, while no controls had been applied to drug product costs, the professional service component of the prescription charge has always been tightly regulated under federally supported health care programs: While direct controls over the fees reimbursed to pharmacists have been exerted both by government and the private third-party managers, no similar controls have been imposed with regard to the drug product component of the prescription cost. Drug products are paid for on the basis of whatever price the manufacturer decides. For 8 years medicare outpatients have been denied coverage of essential prescription drugs because of the controversy over controlling the price to be paid for the drug product. The fact is that in the medicare program, for example, the pharmacist has been continuously squeezed between drug product cost increases levied without restraint by the manufacturers and the unwillingness of the States to pay an adequate fee for the pharmacist's professional services. Senator HATHAWAY. Dr. Apple, could you give us an idea of the fees that are being paid by the various States? Do you have a table on that? Dr. APPLE. In our filing on the MAC we listed a number of States and showed, for example, what the fees were in 1969 and again in 1973, and for a number of these States the fee had not increased at all. As a matter of fact, in many other States it remained relatively static during this period. That table is on page 5 in the middle column of our MAC filing, Senator. Senator HATHAWAY. We will make the whole pamphlet here a part of the record, along with your statement.1 Dr. APPLE. It is obvious that the average for those 26 States was $1.77, and in 1973 it was $1.87, or only a 5.8 percent cumulative increase in a 5-year period. Senator HATHAWAY. How about the price increases by manufacturers over this period? Dr. APPLE. I do not have the exact statistics on that, but I can say without any hesitation it was significantly more than that during that comparable period. Senator HATHAWAY. What State agencies now fix the fees? Dr. APPLE. In general, it is the agency that administers title XIX 1 See information, pages 11995 to 12013. activities in the State, usually a welfare department of a State. Senator HATHAWAY. What factors do they consider, do you know, in fixing fees? Dr. APPLE. In some States there is a concerted effort to take into consideration what the going rate is. In other States it would appear to us that it is strictly a budgetary proposition. There are a number of dollars available for the drug program. They extrapolate out the product costs and they take what is left and divide it by the anticipated number of prescriptions and arrive at a fee that way, leaving the pharmacist what is left. Senator HATHAWAY. Regardless of what his costs happen to be? Dr. APPLE. Yes, sir. Senator HATHAWAY. What would be a fair way of going about it? Dr. APPLE. There is an experimental program right now under title XIX in the State of Kansas where the State medicaid administrative body is attempting to ascertain the actual costs of each individual pharmacy and reimburse it a commensurate fee based on that pharmacy's own cost without regard to the product cost. Senator HATHAWAY. Of course, the fees would vary from State to State, I suppose. Dr. APPLE. Yes, sir, but in the Kansas situation they are looking at not only the operating costs of each pharmacy but they are attempting to compensate for the differentiation of services offered by individual pharmacies. In other words, the pharmacies that keep patient record systems. and provide other ancillary services which benefit the recipient are taken into account in the actual accounting procedure they use in the Kansas system. Senator HATHAWAY. Thank you. Please go ahead. Dr. APPLE. Now APhA understands and appreciates why a manufacturer may have to increase its prices to pharmacists because the cost of raw materials and production are increasing. But, what everybody must understand is that pharmacists are subjected to the same inflationary pressures. State medicaid programs required to operate within fixed appropriations have paid for drug product cost increases by not increasing, and in some cases by reducing, pharmacists' fees. The bottom line is that after the manufacturer gets paid for his product and the third party administrator gets paid for his services, the pharmacist gets what is left-which is always insufficient. APhA has now filed with HEW its comments on the specifics of the proposed MAC regulations. Those comments state that APhA has not changed its views regarding the soundness of the proposed HEW policy as set forth by Secretary Weinberger. The comments clearly distinguish, however, between the basic policy announced by the Secretary and the proposed program for implementation of that policy, at least in its present form as published as a series of proposed regulations in the Federal Register beginning in November 1974. With respect to the program for implementation, we find many features to be sound and reasonable. However, there are several details with which we are not satisfied and which are critical as to our ability to support the resultant program. Before discussing specifics of the proposed program, we feel compelled to mention that it is most distressing to us that HEW has permitted the controversy over the MAC program to ferment for what is now over a year since the policy was announced. This delav in putting the policy into effect has permitted its opponents the opportunity to develop and conduct a well-organized propaganda campaign to build opposition in several quarters to the MAC pro gram. APhA is well aware from communications it has received from pharmacists throughout the country that physicians and pharmacists have been subjected to an intense pressure campaign by certain firms in the drug industry in an effort to generate their opposition to the MAC program. We also know from propaganda materials transmitted to APhA that what pharmacists and physicians have been and are being told about the MAC program and the facts of the MAC program-based upon our own review and analysis of the MAC regulations are frequently entirely different things. I can say personally that in my entire professional experience I have never witnessed a more intensified propaganda campaign than that which has been and is still being conducted by drug industry opponents of the MAC program. Senator HATHAWAY. Can you name some of those firms? Dr. APPLE. Ayerst Laboratories, Wyeth Laboratories, WarnerChilcott, and Eli Lilly are among some of the firms that we have knowledge about. Senator HATHAWAY. What kind of pressure have they been exerting? What action have they been taking? Dr. APPLE. Basically, Senator, it is in the form of propaganda material that is published on plain paper without any identity of the actual manufacturer, which is distributed to the pharmacist. The propaganda attempts to convey the impression that there are many inferior drug products on the market. The propaganda discusses the bioavailability issue in a way to attempt to scare both the physician and the pharmacist, and convey the impression that the Government is attempting through the MAC program to foster inferior drugs on patients. Another aspect is to raise a fictitious administrative cost figure to operate the MAC program that runs anywhere from $180 million to $200 million or more. The propaganda outlines a number of incremental costs to administer the program which are completely unrealistic. Senator HATHAWAY. Do you have a sample letter that we could put in the record; or if you could obtain one and give it to us we would appreciate it? Dr. APPLE. At the request of the chairman, we have turned over to the committee all of the copies of such correspondence that were sent to us. Senator HATHAWAY. Good, thank you. And do you have the list of organizations in addition to the ones you have already mentioned? Dr. APPLE. Yes, sir. Senator HATHAWAY. Fine. |