Are you advocating legislation that would make it illegal to sell below cost?

Mr. GOLDFEDER. Yes.

Mr. POTVIN. Mr. Goldfeder, you received earlier today a copy of the questionnaire which the subcommittee is submitting to each of its witnesses. Would you be willing to return to your place of business and during the next few days to supply the subcommittee with the information requested?

Mr. GOLDFEDER. Yes, I will; to the best of my ability.

(The material referred to is retained in subcommittee files.) Mr. POTVIN. Could you briefly sketch for the subcommittee your sources for pharmaceuticals.

First of all, may we assume you are a patron of the local full-line wholesaler?

Mr. GOLDFEDER. Yes, sir.

Mr. POTVIN. How many wholesalers do you patronize?

Mr. GOLDFEDER. Three.

Mr. POTVIN. Are they all full line?

Mr. GOLDFEDER. Yes, sir; they are all full line. One is a mutual house to which certain manufacturers, due to their policy, will not sell, but I would for all practical purposes say they are full line.

Mr. POTVIN. Do any of them grant discounts?

Mr. GOLDFEDER. Yes, thev do.

Mr. POTVIN. These would be quantity discounts?

Mr. GOLDFEDER. Quantity discounts recommended by the manufacturer.

Mr. POTVIN. Approximately how many lines are you able to secure direct from manufacturers of pharmaceuticals?

Mr. GOLDFEDER. I would say approximately 10 lines.

Mr. POTVIN. Could you give us the names?

Mr. GOLDFEDER. The pharmaceuticals?

Mr. POTVIN. If it is not convenient now, you can submit them later. Mr. GOLDFEDER. Averst Laboratories, Winthrop, Ciba, Merck, Sharpe & Dohme, Upjohn, Schering, Merrell, Parke, Davis. I guess that pretty well covers it.

Mr. POTVIN. Are there any franchises or rights to buy direct which you have sought and have been unable to receive from manufacturing houses?

Mr. GOLDFEDER. The only ones that I have sought have claimed, and to the best of my knowledge have a policy, that they do not sell direct to retailers, only through wholesalers.

Mr. POTVIN. So there are no lines which are selling direct to any retailers in the Metropolitan Washington area that have refused to deal with you?

Mr. GOLDFEDER. To my knowledge, I would have to say no.

Mr. CONTE. Have you ever considered cooperative buying with a group of other independent stores?

Mr. GOLDFEDER. In many instances manufacturers are reluctant to sell to a co-op.

Mr. CONTE. Is this the reason why you have not started one? Mr. GOLDFEDER. Yes, sir.

Mr. CONTE. You mentioned on several occasions that, as a result of chainstores having loss leader items, they must overprice on other items.

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Can you get for the committee any evidence of overpricing by the giant chainstores.

Mr. GOLDFEDER. I have one item here if I may take a moment to find it.

Here is an item, sir-it is most difficult to know when an item is overpriced because the large chains in particular today are going in for sundry-type merchandise, perhaps imports from Japan, and these are what we call blind items. You can almost name your own price.

If I walked into a manufacturer and he wanted, say, 60 cents apiece for ladies' slippers and I told him that I would buy a hundred gross of them, I could possibly get the price down to 38 cents.

Now, here is one item which I would have to assume is the same item which I am going to sell next week for $2.99. It is a rollout dolly for appliances, and my cost is $2. I am putting it out on special for $2.99. Here you see it advertised for $3.77, and the other large chain in the area had it advertised for $3.29. I am selling it at $2.99 and I am most happy with the markup that I have.

Mr. CONTE. Thank you very much, Mr. Goldfeder. We certainly appreciate the testimony that you have presented here today. I am sure I speak for the committee. We feel that you have done your homework well and you have been a very excellent witness.

I might mention at this time that the subcommittee chairman, John Dingell, informs me that the subcommittee is going to call before it representatives of Peoples Drug Stores, Dart Drug Stores, and Drug Fair as witnesses, and also call the suppliers of these drugstores in order to ascertain prices being charged by the suppliers to the drug

stores.

The committee will now recess until 2 o'clock when we will hear Edward S. Bopp, president-elect, Louisiana Pharmaceutical Association.

(Whereupon, at 11:20 a.m., the subcommittee recessed, to reconvene at 2:40 p.m. this same day.)

AFTERNOON SESSION

Mr. DINGELL (presiding). The subcommittee will come to order. This is a continuation of the hearings on small business problems in the drug industry. Our first witness is Mr. Edward S. Bopp.

Mr. Bopp, we are privileged to have you with us for whatever statement you choose to give the committee. If you will give your full name and address to the reporter for the record, we will appreciate it. TESTIMONY OF EDWARD S. BOPP, PRESIDENT-ELECT, LOUISIANA PHARMACEUTICAL ASSOCIATION

Mr. Bopp. Mr. Chairman and members of the Small Business Committee, my name is Edward S. Bopp. I am an attorney-pharmacist and president-elect of the Louisiana State Pharmaceutical Association. The LSPA functions as a voluntary professional association of Louisiana pharmacists with statewide membership of over 1,000. The LSPA represents Louisiana pharmacists on all State and national matters affecting their professional and business interests. The objects of this association are to promote and advance pharmacy and public health interest locally and nationally.

Permit me to express my appreciation on behalf of the LSPA for this select House committee's invitation to participate in exploring and sharing ideas objectively on the subject of drug distribution.

Information availed to this committee should create assistance in clarifying the competitive issues involved in community pharmacies operation.

Secondly, to aid in encouraging good faith efforts by all interested parties to seek a fair solution to drug distribution.

The LSPA believes that fairplay in the marketplace maintains a sound economy compatible with promoting competition.

We believe our position is founded on sound principles and Federal antitrust laws.

Apparently, the drug business has been divided on important distribution issues-between the manufacturers who create the product and various drug dispensers, such as (a) drugstore; (b) hospitalclinic; and (c) doctor dispensing all operating at the same functional level of distribution.

Drug distribution and trade practices by manufacturers throughout the country has created many unfair competitive problems and alleged price discrimination in many levels of drug marketing.

Consequently, through price discrimination and trade practices, many community drugstores have been aggrieved by unfair practices causing competitive injury.

The object of the antitrust laws as I understand, is to promote competition in open market-not lessen competition.

Yet there must be a uniform application of the Federal statutes applicable to all levels of drug distribution in our free economy. Simple truth is that the public health should be served in a fair, competitive economy and this freedom must be protected against encroachments.

As the term indicates, drug distribution is the method employed by manufacturers in availing pharmaceutical products to the ultimate consumer or patient.

Categorically-there are three basic drug distribution functions: (1) The manufacturer to the drugstore and ultimate consumerwith a modification of this method whereby an intermediary such as a service drug wholesaler would act as agent on behalf of said manufacturer.

(2) Drug manufacturer to hospital clinic, to ultimate consumer. (3) Drug manufacturer to dispensing physician, to ultimate con

sumer.

Each distinct level is competing to gain consumer preference in the drug market. The retail drugstore holds itself out as a drug dispenser and compounder. The dispensing physician diagnoses and treats ills and dispenses drugs (ancillary) to stimulate income. Hospital clinics function as an institution to care for the sick, consisting of inpatient and outpatient therapy.

You must understand the physical structure of hospital clinics to avail inpatient care and, secondly, to avail outpatient care and office availability to private physicians that are located within the hospital facility. The unfair competitive problems exist in competing against the community pharmacy, particularly in outpatient therapy, whereby private physicians will diagnose and treat and then prescribe medication to be filled and utilized by the patient.

The hospital clinic or dispensary then fills this prescription based on direct purchase prices from manufacturer, that, in most instances, represents a much lower cost than available to retail druggists.

Mechanically, drug manufacturers avail pharmaceutical specialists to sell products to the respective hospital clinics. The purchasing agent and chief pharmacists directly purchase products from the manufacturers' agent relative to quoted pharmaceutical list prices-terms and condition provided in oral or written contract agreements. Merchandise from manufacturers would be directly delivered via post to the hospital or clinic or, secondly, through a service wholesaler drug firm providing minimum handling costs to said intermediary, paid by manufacturer. That is for the handling costs.

Lastly, distribution policies are established by the drug manufacturer in determining: (a) buyer status, such as whether or not he will qualify as a direct or nondirect accounts eligibility; (b) cost and price structure of merchandise made to said consumer; (c) criteria for selecting direct accounts; (d) annual quotas for direct accounts; (e) minimum shipments for direct accounts; and (ƒ) different rules are applicable to all levels of marketing. Minimum shipment from hospital clinics may vary from drugstore minimum shipments and annual orders may differ in contrast from drugstores to hospitals to drug

stores.

Many conflicts arise by a nonuniform application of trade policies to the various account levels such as drugstores, hospital clinics and dispensing physicians.

You must remember that before a product reaches the consumer, each dispenser is in direct competition; that is, pharmacists, hospital clinics, and dispensing physicians are all fighting for the consumer dollar.

On this occasion, LSPA is concerned about said discriminatory trade practices perpetrated against the retail pharmacies.

In evaluating the market dilemma, we must turn to trade practices and, more particularly, to direct and nondirect accounts, direct and nondirect availability of accounts and uniform prices. This is created by the unfair competitive practices of the manufacturer in establishing trade policies to either exclude or include levels of distribution in selling, and price discrimination.

In selecting actual evaluations, I shall attempt to depict all major drug manufacturers to satisfy the record, as follows:

Incidentally, these are records and information that we have acquired through personal investigation of the more prominent clinichospital facilities in the city of New Orleans and Louisiana.

Mr. POTVIN. Would you please describe what you mean by clinic and hospital facilities?"

Mr. BOPP. I will digress a minute.

Physically, the institution of the hospital is one edifice and the clinics were an ancillary function of the hospital. Today this is a conglomeration of one complete entire function. That is, at one time a clinic dispensed prescription medicines to inpatient care. Today, in many instances, the hospital dispensary dispenses all the medications both to inpatient and outpatient care.

Mr. POTVIN. So included in your use of the word "outpatient"

would be patients in the ordinary course of practice for physicians whose offices are within the hospital proper as "part of a clinic"? Mr. BOPP. That's correct.

And secondly, I would also like to state that the particular examples that we use, the facilities, are basically non-State, non federally operated, but they are private functions, they may fall into profit and nonprofit; but I have never been able to distinguish between the two. So that these examples that I give to you today will not depict basically the State nor Federal, because as a member of the Louisiana State Board of Hospitals, more particularly, the Charity Hospital of New Orleans, where I have been an administrator for 3 years, I have particularly deleted information in this area because I don't believe it is applicable to this testimony.

So this testimony will be applicable to this testimony. So this testimony will be applicable to such institutions as Ochsner Foundation, Truro Clinic, Baptist Hospital clinics, respectively.

I would like to give you my impression of information funneled to us in the respective hospitals, particularly in the following manufacturers, to wit:

(1) Warner Chilcott Laboratories represent a particular pharmaceutical manufacturer who negotiates directly with dispensing physicians and hospital clinics at reduced prices, consisting of a minimum 15 percent below retail pharmacists' list price. By pharmacists list price I wish to say that this is the price that is available to the druggist at his minimum cost.

Retail drugstores are not permitted to buy directly from Warner Chilcott Laboratories, and purchase products from service drug wholesalers at 15 percent more than paid by the hospital clinics for the same merchandise. Warner Chilcott, like many other pharmaceutical manufacturers, is presently formulating nursing home trade agreements to include drug product availability on a special discount structure. The growth of the nursing home has gained particular status due to the recent social security amendments (title 18, subsections A and B), of the medicare legislation.

This market shall apparently attain preferential treatment to purchase drugs from Warner Chilcott and other manufacturers at noncompetitive costs in direct competition with drugstores.

At this time, gentlemen, I mentioned nursing-home facilities because it is in the embryonic stage of development. Yet, it looks like the manufacturers have taken this particular market and are attempting to formulate preferential prices to this particular level of selling prescription merchandise to ultimate patients.

To cite you an example to wit, Peritrate 80 milligrams SA costs the drugstore $30 for 500; and for the hospital clinic, $25.50.

Mr. DINGELL. At this point, Mr. Bopp, you have indicated some pretty good examples of pricing. I notice in other places in your statement you have similar pricing examples in terms of hospital-clinic prices versus retail outlets.

Can you give us, if you will please, as many examples of this kind of pricing as you would find convenient at a time after you have completed your statement, perhaps when you return home? This would be very helpful.

Mr. BOPP. I would be happy to afford that information. This is information that is not readily available. These are clandestine transac