WRITE WITH BALL POINT PEN PRESS HARD The CHAIRMAN. I was thinking of additional administrative time imposed upon the pharmacist vis-a-vis dealing with the individual purchaser who was paying him and charging it but not under any program, versus an individual who is under, say, blue cross, versus an individual who is under your program. Now, as between your program and blue cross, is there any difference in the paper work involved? Mr. PEEBLES. Oh, yes. they ask more questions than we do. Mr. PEEBLES. Right. The CHAIRMAN. So a pharmacist under your program can go through the necessary paper work in less time than he can under blue cross or a private insurance plan? Mr. PEEBLES. Right. The CHAIRMAN. Any private insurance plan? Mr. PEEBLES. Any private one that I have investigated. I don't know how many there are, but there are a lot of them, and ours is the simplest. Incidentally, I have copies of these forms, and I will be glad to leave them. The CHAIRMAN. I will appreciate it if you will leave them for the record. [Testimony resumes at page 11708. The information referred to follows:] ་་ ADDRESS IF REQUIRED STATE USE ONLY CHECK HEAL RX NUMBER DATE FILLED NAME OF RECIPIENT C D S SIGNATURE OF PHARMACIST PRESCRIPTION COPY PRESCRIPTION COPY ADDRESS IF REQUIRED) STATE USE ONLY VENDOR NAME AND NUMBER OF REFILL CHECK HERE RX NUMBER DATE FILLED NAME OF RECIPIENT C D S WITH RED BORDER PHYSICIANS DO NOT S PHYSICIANS COLO. LIC. NO. SIGNATURE OF PHYSICIAN COUNTY R NAM OF RECIPIENT VENDOR NAME AND NUMBER STATE LD, HUMDER PHYSICIANS COLO, LIC, NO NURSE K. NAME OR NO. T DOLLARS CENTS BILL NO 3554113 HEREBY CERTIFY THAT THE MEDICATION RECIPIENT SIGNS THIRD COPY SIGNATURE OF RECIPIENT OR AUTHORIZED REP THIS IS TO CERTIFY THAT THE FOREGOING INFORMATION IS TRUE. ACCURATE AND COMPLETE TO THE BEST OF MY KNOWLEDGE. PHARMACIST SIGNS THIRD COPY # DONATURE OF PHARMACIST PRESCRIPTION COPY The CHAIRMAN. There is a rollcall on the way. I will have to leave very shortly. But, Mr. Michelotti, on what basis does California reimburse, wholesale or acquisition costs? Mr. MICHELOTTI. The average wholesale price listed in the "American Drug Blue Book," "Drug Topics Red Book." These are commonly referred to as the average wholesale price. The CHAIRMAN. Where do you get the wholesale price from? Mr. MICHELOTTI. From Blue Book and Red Book. They are standard catalogs of pricing information available to all pharmacists. The CHAIRMAN. Do you find that, in fact, is the wholesale price or are there significant reductions for acquisitions depending upon volume or a long history of purchasing from the company or anything else? Mr. MICHELOTTI. OK. Fair question. In California if you were purchasing one bottle of any given medication in what we call a standard package size, 100's, or pint, or pound of ointment, from your normal service wholesaler, the price in the Red Book and Blue Book very closely approximates the acquisition cost. However, pharmacists generally are prudent businessmen and have direct accounts with some manufacturers, are on volume purchasing programs with various wholesalers, et cetera, so that, by and large, for a pharmacist doing any volume of business at all, he can purchase for less than the listed average wholesale price. PRESCRIPTION COPY The CHAIRMAN. Well, do you find that volume purchasing from a wholesaler is in fact the ordinary way of getting the product? Is it the normal credit you get for wholesale purchases or is the wholesale price not necessarily a good indication? Mr. MICHELOTTI. The average wholesale price is, as I mentioned, a good indicator of a single line item purchase; but for volume purchases, $100 invoices for goods all in one manufacturer's products or some such thing, very typically are competitive arrangements that create 10-percent discounts, 5-percent discounts, whatever. The CHAIRMAN. Can you imagine some purchasers where pharmacists have a direct relationship with the manufacturer? Mr. MICHELOTTI. Sure, there are several different ways of purchasing. The two most common are on direct account with the manufacturing firms, and a number of our major manufacturing firms have direct accounts with the pharmacist throughout the United States. The other typical way is through a service wholesaler and they carry, obviously, all the various lines. The CHAIRMAN. Well, the manufacturer as a matter of policy has a direct purchasing arrangement with the pharmacist, but that manufacturer does not typically have wholesale outlets? Mr. MICHELOTTI. Some have a limited wholesale distribution arrangement simply because most pharmacists prefer to buy their products directly for slightly less money. However, there are some companies that conduct their business on almost an equal mix. Approximately half through the wholesaler and half their own company. The CHAIRMAN. Well, then, when you are determining the reimbursable price, if you are dealing with a product of a manufacturer who does not have a wholesaler, you can still use the average wholesale price even though the manufacturer's price might be much lower? Mr. MICHELOTTI. Yes, we have done this in California in attempting to be equitable to the broad demographic differences in the State. There may be some small mom-pop-type pharmacies in out-lyingtype communities that don't have the volume necessary to purchase direct from a manufacturer or from a wholesaler with volume discount deals. So to be fair to everyone, we have taken literally the highest or the most readily available wholesale price, the average wholesale price listed in these documents. It is to a certain extent a windfall to those individuals with the capacity to purchase in larger quantities, et cetera, but what we don't want to do is impinge on the small businessman who doesn't have that volume of traffic advantage, the multiple discount capability and that sort of thing. The CHAIRMAN. Would you find that acquisition costs would present a series of administrative problems? Mr. MICHELOTTI. We are currently dealing with that. We recognize the proposed Federal MAC regulations are speaking to acquisition costs. In our comments in January we offered as you know, a technical discrepancy with that. We felt that our program was easier to monitor and administer. But in recognizing that may eventually be be what is handed down from the Federal Government, we are doing a feasibility study to try to speak to that particular issue. The CHAIRMAN. Go ahead. Mr. MICHELOTTI. I am finished. I just mentioned we are doing a feasibility study to see what we can do about paying acquisition costs. We have had experience in the past. From 1962 through 1968, we paid at acquisition cost, and our experience in monitoring was-I wasn't with the Department of Health at the time-but I am told it was horrendous, that our administrative costs for monitoring the effort was just not cost effective. So in 1968 we redefined acquisition costs to be the cost listed in Red Book and Blue Book and we even further clarified that in 1971, with the new regulations that came along with medi-cal reform. So it is clearly indicated what we are talking about as acquisition costs being the average wholesale price listed in Red Book and Blue Book. Incidentally, just yesterday I was talking with Red Book staff at Oradel, N.J., and I asked them how do they establish this average wholesale price, and the indication to me at that time was that they have the tapes, the inventory tapes from large pharmaceutical wholesalers they specified McKesson, Foremost-McKesson and BergenBrunswig. They add the two prices together and divide by two and this gives them an indication of the national picture, and then they also use smaller wholesale firms, I suppose here on the east coast, to verify they have a ball park figure as an average wholesale price. I really think that is a fair indication of what would be an average price, because both Brunswig and McKesson are national firms and they are competing with firms of equal size-while there aren't any other firms of quite that equal size, but firms such as AMFAC, another major wholesaler and a number of independent wholesalers. So if they are doing business, their prices must reflect what is the going marketplace price for a commodity, again, purchased as a single item, you know, on a single invoice. However, those companies obviously have purchase programs for pharmacies and many pharmacies and many pharmacists participate. The CHAIRMAN. You made reference, as I recall it, to prednisone in your testimony. Mr. MICHELOTTI. That is correct. The CHAIRMAN. Have the figures, the prices, you used changed? Mr. MICHELOTTI. They have changed considerably. The CHAIRMAN. But some of the period you were referring to, about 4 years ago, you had prednisone in the marketplace and the wholesalers price varied, from as you said, less than a dollar to $17, in fact it went from 60 cents from the Wolins Co., 80 cents from the American Pharmaceutical Co., and then on up, $2 and a quarter for Merck's, and then $17.88 or $17.90 for Schering's Metricorten. Anyway- there are 22 of them in the marketplace-ranging from more than 60 cents a hundred to Schering's Meticorten at $17.90 a hundred. Do you bet an average wholesale price out of that. Mr. MICHELOTTI. No. Average wholesale price as listed in the red book is a price for, say for example, Schering's Meticorten. Brunswig might market Schering's Meticorten to the retailer for $17.95. McKesson, on the other hand, might market it to a retailer for The CHAIRMAN. You mean to say these companies weren't marketine Meticorten. They were marketing prednisone? Mr. MICHELOTTI. I am sorry, I am speaking to the references of average wholesale price. The CHAIRMAN. I am trying to get straight in my mind if you will reimburse at the average wholesale price. Mr. MICHELOTTI. At the average wholesale price for a given drug product as opposed to a generic drug type, which includes many companies' drug products. The CHAIRMAN. So you have 22 prednisones on the market varying in price from 60 cents a hundred wholesale from one company to $17.90 for the highest price one. How do you determine the average wholesale price? Mr. MICHELOTTI. There are two things we have to recognize, average wholesale price and then a ceiling price, however, you want to name it. The CHAIRMAN. When you say average wholesale price Mr. MICHELOTTI. I have to talk about wholesale, I will try to illustrate that to you. As I started to mention, Bergen-Brunswig will market to the retailer Schering's prednisone called Meticorten for $17.95. Now, Schering's Meticorten will be marketed to the retailer by McKesson for $17.50, a difference of 45 cents. OK? I am saying that Red Book adds the two together, divides them by two, and they come up with an average wholesale price, listed in the Red Book The CHAIRMAN. If you say there are several wholesalers of Meticorten, and one of them is selling it at $16 a 100 and one at $17.90, you average the price of Meticorten? Mr. MICHOLETTI. We don't, Red Book does. That is how they get their average wholesale price that they list. The CHAIRMAN. You mean if somebody prescribes prednisone, you take the average wholesale price of the Meticorten and reimburse them? Mr. MICHELOTTI. I am getting to that. Our program has decided within the generic drug prednisone, there are these companies' products priced from a few cents up to several dollars. I believe our ceiling price at that time was $4.50. OK? We will pay for a drug product whose price is listed in the Red Book or Blue Book, if the drug product is available at a price of $4.50 or less. For those products who have an average wholesale price listed more than $4.50, we will pay up to $4.50, and no more than $4.50. The CHAIRMAN. You mean that drug made of the same compound? Mr. MICHELOTTI. Yes, drug products within generic drug type. The CHAIRMAN. Well, you are dealing with the same compound. When you say drug products, you mean a drug under a different name, produced by different manufacturers? Mr. MICHELOTTI. Yes, but with the same chemical entity. The CHAIRMAN. How do you get out of prednisone a price of $4.50? Mr. MICHELOTTI. We take a look at all the available average wholesale prices of those drug products that are available in the marketplace, as you pointed out, some 22. At some point, we determine a drug product for which we can be comfortable with: Statewide availability through usual and customary channels, the therapeutic efficacy of that drug, and the indicated safety of the drug; in other words, whether the drug had been the subject of a number of recalls. The CHAIRMAN. Well, I am starting with the assumption they all meet the standards and are all available. 54-476 O-75-6 |