Mr. POTVIN. That would be just through full-line drug wholesalers? Mr. BOPP. That's correct.

Mr. DINGELL. What about part-line wholesalers?

Mr. Bopp. Eli Lilly is a reputable pharmaceutical house, and I think they are rather particular to whom they sell. The only issue that I take with Lilly would be the following examples that I will further elaborate on. But No. 1, they rebate the service wholesaler a certain percentage for selling directly to the hospital.

Mr. DINGELL. In other words, there is a rebate program between their service wholesalers and themselves on hospital sales?

Mr. Bopp. This is my understanding of the mechanics, that this is the way they exclusively handle this transaction.

Mr. WILLIAMs. Mr. Chairman.

Mr. DINGELL. Mr. Williams?

Mr. WILLIAMS. What is a "service drug wholesaler" as compared to a "drug wholesaler"?

Mr. BOPP. When you talk about service wholesalers you are talking about all services available through a service drug wholesaler. Mr. WILLIAMS. Is this a "full-line" wholesaler"?

Mr. BoPP. Yes, full line. He carries basically every pharmaceutical item plus OTC's which are over-the-counter items and other front. items. He also has delivery service, credit policies and he is considered bon famile in the drug wholesale business. They are the reputable people in the drug wholesaling field and this would be my definition of a service drug wholesale.

Ilosone, an antibiotic, 250 miligrams available to drugstores from drug service wholesalers at $21.99 per hundred, available to hospital clinics at $16.64 per hundred and $15.40 in quantities of six.

5. A. H. Robins has exclusive direct discount prices available to hospital clinics consisting of 15 to 20 percent less than available to retail drugstores.

To cite you an example to wit, pheraphen, a narcotic, the retail drugstore $5.25 as opposed to $3.50, available to hospital clinics.

The following manufacturers negotiate directly with hospital clinics in various discount arrangements consist of the following manufacturers: rather than elaborate I put into here the following manufacturers that I have found to be in similarity to the above mentioned procedures and programs. That would be: (1) Wallace Labs.; (2) Bristol Laboratories; (3) Burrough-Welcome; (4) Armour; (5) White Laboratories; (6) Lloyds Bros.; (7) Lakeside; (8) Ortho; (9) Alcon; (10) Crooks-Barnes; and (11) Smith, Miller & Patch.

Mr. DINGELL. If you feel it would be helpful to the committee, would you supply at a later time and at your convenience more detailed information on some of the pricing practices of particular drugs by the firms that you mentioned above?

Mr. BOPP. I could have done that today but I thought due to your time and with respect to your courtesies in extending the invitation to me, I would certainly afford you this documented information at a later date.

Mr. DINGELL. Fine, the committee is grateful to you. You have been most helpful.

(The material referred to follows:)

Mr. BOPP. The following pharmaceutical manufacturers provide direct accounts to retail pharmacists and hospital clinics, but at various price schedules. I have dissected this level of distribution because the following manufacturers that I will cite do have a trade practice of selling both to the drugstore and to the hospital clinic. The only variation is that there is one price available to the drugstore and another price available to the clinic.

1. Squibb Laboratories Notec, 0.5 gram available to hospital clinics at $2 per hundred and $4.08 to the retail drugstore per hundred.

Mr. POTVIN. Mr. Bopp, many of the hospitals have pharmacies which sell to outpatients and, it might be said, even to people who walk in off the street. Is that correct?

Could you describe to the subcommittee the manner in which these pharmacies price their pharmeuticals to their customers?

Mr. BOPP. You are talking about specifically the hospital or retail druggist?

Mr. POTVIN. Just the hospital pharmacy at this time.

Mr. BoPP. In most instances there is a dual pricing schedule that is incorporated into the hospital dispensing function; that is, he may either mark up from his actual physical cost or he may mark up from the cost that is afforded the retail druggist.

Mr. POTVIN. So that you have both varieties?

Mr. BOPP. That's correct.

Mr. POTVIN. May I digress for a moment?

You can buy Notec for $4.08. What would you sell that item for, sir?

Mr. Bopp. If we sold this particular product in packagings of a hundred, the average price would run approximately $6 per hundred. Mr. POTVIN. Slightly less than a 40-percent markup?

Mr. BoPP. That's correct.

Mr. POTVIN. You have testified that there are free-goods deals made to hospitals. Is that correct?

Mr. BOPP. That is correct.

Mr. POTVIN. The most frequent of these, or at least one of the most common, is a buy-five-get-five type of thing so that you pay for precisely half of the goods you receive and thereby cut the cost per hundred in half. Is that correct?

Mr. BOPP. That's correct.

Mr. POTVIN. If the hospital pharmacist sold to the public from the blue book base, that is to say with the markup from the retail community pharmacists' price, he, too, would sell at $6?

Mr. BOPP. He would also sell at $6, netting a gross profit of $5 on that one unit package.

Mr. POTVIN. It appears that he would sell Notec at six times what he paid for it.

Mr. BOPP. Yes. There are two concepts in the pricing schedule. Either the hospital clinic will beat your ears back by underselling you or he will sell at the normal acceptable prices and reap a tremendous profit. So either way, the community drugstore is at a marked disadvantage both in his profit structure of operation or in his image to the consumer.

Mr. POTVIN. Could we speak for just a moment about prices on pharmaceuticals to the inpatient group?

Mr. BOPP. Yes.

Mr. POTVIN. In general terms could you indicate from your observation and investigation the range of markups offered these patients?

Mr. BOPP. Generally, I think regarding inpatients, it is more of an acceptable practice that maximum charges are made. This is my finding, what could be normally a 40 percent markup at a retail drugstore, possibly within hospitals, this particular functional unit of the hospital has always been used to pay for other deficiencies of operational costs and it is true of X-ray and pathology, and it looks like the pharmacy, pathology department, and X-ray department always have been able to pay their way, plus.

Mr. POTVIN. Subsidizing the rest of the operation?

Mr. BoPP. Yes, so consequently the prices of inpatient prescriptions and drugs have been increased tremendously.

Mr. POTVIN. Is it not a fact, sir, that the markup, based on the cost of acquisition at institutional prices by the hospital, is frequently in the range of 800 percent?

Mr. BOPP. I would say definitely within that area. You have often heard the expression about paying 25 cents or 50 cents for an aspirin. I don't know why the hospitals do it, but they do. Regarding outpatient there is one schedule of pricing and, on inpatient it is another. Of course regarding inpatients there is no way for you to get out to procure drugs so either you accept their prescription or you don't get treated?

Mr. POTVIN. May I ask you this, sir?

The people who are hurt worst financially are the patients in the hospital who stay the longest. Patients within this group commonly require the so-called maintenance type of drug in relatively heavy dosage regularly over an extended period of time. Consequently this group is undergoing the greatest financial disadvantage.

Would not this policy operate in such a fashion that it would impose an extra burden on the very group that is already hurt the worst? Mr. BOPP. Definitely.

While we are talking about pricing schedules, I would like to just vary and digress a bit to tell you about the pricing schedules normally adhered to in a corner drugstore.

Generally speaking, a corner drugstore works on approximately a one-third to 40-percent profit structure on prescription items. That is an average.

Now, you mentioned maintenance drugs. There are certain instances where a drugstore may work on as low as 10 percent gross profit on maintenance items, particularly in drugs that are used over long periods of time. That distinction is made at the community-pharmacy level, but in the hospital, to my knowledge, there is no distinction made in profit structure, whether it be maintenance or nonmaintenance or any therapeutic classification.

So that to your question, yes, the man that will be taking therapeutic drugs over a period of time will definitely be hit the hardest, particularly through hospital prices. So it reverts back to the consumer who ultimately pays, yes.

Mr. DINGELL. May I ask a question?

With respect to the operation of hospital pharmacies, there are two questions that occur to me.