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First, how are hospital pharmacies generally operated? Are they run on a concession basis, are they run directly by the hospital, or is there some alternative way in which a private individual can operate them? Do the same pricing preferences exist in all cases?

Mr. BOPP. Congressman, I feel there is a new innovation regarding franchise or contractual agreements wherein an independent will come into a hospital and operate the dispensary. This is extremely unusual. The dispensary, since it is such a high profit producing structure, that in most instances it is maintained and operated exclusively by the hospital administrators. By that I mean, it comes under the complete jurisdiction of that hospital and very seldom will you find the opportunity of an independent to contract with the hospital to operate that particular department, and as I said earlier, at one time when the clinic was definitely a complete separate segment of hospital functioning, then this may have been the groundwork set for this situation and you might have opened the door to independents coming into the hospital. Today, all the accounts and financial business of dispensing, clinical, or otherwise, is always handled through the hospital. Mr. WILLIAMS. Mr. Chairman.

Mr. DINGELL. Mr. Williams.

Mr. WILLIAMS. In what percentage of hospitals is there a full-time pharmacist?

Mr. BOPP. I would say all major hospitals have full-time pharmacists.

Mr. WILLIAMS. I come from a small town in Iowa and we do not have a full-time pharmacist in the hospital. Most of the country towns, I assume, do not have full-time pharmacists.

Mr. BOPP. In some instances you are correct. Today to become accredited the American Hospital Association has many stringent criteria and they have ultimately upgraded the hospital facilities because they have required these facilities to be maintained by qualified people. I would say the major hospitals are manned and operated, the dispensaries, by full-time graduate registered pharmacists.

Mr. WILLIAMS. Do you have to have a full-time registered pharmacist to be accredited?

Mr. BOPP. As far as I know, you do. There may be some quasi-accreditation available. But to be a full-time accredited hospital the APH require dispensing facilities with a registered pharmacist.

Mr. DINGELL. What is the general basis on which drugs are sold to persons other than those who are hospitalized who have an artificial price structure?

Let us consider both outpatients and casual drop-in trade.

I assume that the hospital pharmacy will oftimes take drop-in trade. Mr. BOPP. I have never known of a clinic pharmacy to ever turn down a walk-in or casual customer or patient. I think as a general practice morally he may be obligated to accommodate that particular patient. I have never known where they have turned down or refused to fill prescriptions of doctors not affiliated with the hospital.

The only conflict they may have there, since their formulary may not particularly work and is not compatible with the service drugstore, he may have a little conflict in affording this service.

Mr. DINGELL. But he is not permitted under State law to substitute one pharmaceutical for another even though it might happen to be a precise chemical equivalent?

Mr. BOPP. That is the conflict.

Regarding inpatients, that is clear. Because generally this inpatient has only one exclusive vehicle for prescriptions and that is the hospital dispensary.

In outpatient care, generally you find a particular physical structure in the rural areas of the State of Louisiana. A hospital will also afford available office facility space for private physicians. In other words, you very seldom see a medical complex. Normally the doctor's office is located in the hospital. Well now, in this particular case, if that doctor is staffed at the hospital, if he writes a prescription for an outpatient, and when I say outpatient that means any patient that belongs to that doctor that has no affiliation with the hospital. So consequently if Mrs. Jones comes to see Dr. Smith in the hospital facility that is available to him, and he writes a prescription for this particular lady, she has the prerogative to take this prescription to either the hospital dispensary or community pharmacist. It has been my experience that being creatures of habit and the close proximity of this particular facility, it is very much easier for this lady to go and take that prescription physically three steps down the corridor than it is to go home or either drop the prescription off and wait for delivery.

So that in answer to your question, Congressman, I would say that this particular practice is more prevalent in the rural areas of Louisiana and it is not uncommon to have outpatients or private patients. utilize the hospital dispensary department.

Mr. WILLIAMS. Mr. Chairman.

Mr. DINGELL. Mr. Williams.

Mr. WILLIAMS. In the case of outpatients, their prices must be competitive with the druggists, but with the captive audience, the inpatients, they do not have competition.

Mr. BoPP. That is correct.

Mr. WILLIAMS. Are the prices from the dispensary cheaper for the outpatient than they are for the inpatient?

Mr. Bopp. This is a matter of policy. It would be my understanding, and I think I could say this with some certitude that the prices to the inpatient people that are in the hospital represents one price schedule and the price to the outpatient is another price schedule.

Mr. WILLIAMS. If we have the 800-percent mark-up, he is going to go to your drugstore.

Mr. BOPP. You must recognize, first, it is based on unit dosage; that is, the doctor will come to the particular area where this patient is and on her medical chart indicate that he wants that patient to have a particular product every 3 or 4 hours, and he will order one or he may order two or three. He will be back the next day. Whereas if that outpatient person or customer goes to the dispensary, instead of getting unit dosage packaging, that outpatient customer will receive multiples of 12, or 50, or 100. So again, you may be charged 50 cents per aspirin while you may buy a dozen aspirin at say a dollar a dozen. Am I communicating?

78-783 0-67—vol. I—10

Mr. DINGELL. Yes; they have different pricing structures which would tend to favor the outpatient because of the larger volume packaging as opposed to the unit dosage prescribed for the inpatient.

As I understand, there is a possibility of the dispensary within the hospital pricing in two different ways.

One price competitive with other private drugstores-in which event a tremendous profit would be made. Then you indicated there is a possibility that these pharmacies might operate at what would be regarded as a fair mark-up, the traditional one-third mark-up in the industry, in which event they could literally destroy any conceivable competition.

Then you have the alternative where they can do some of eachmake what might be regarded as an unconscionable profit but yet still cut prices well below those prevailing in the area. Am I correct? Mr. Bopp. Yes.

Mr. DINGELL. There is one other possibility that troubles me. That is the possibility of divergence to both retail and wholesale outlets in the area. I would like to have you discuss that when you proceed.

You might want to direct yourself to their pricing policy. Is there a standard policy or does it vary greatly from area to area from institution to institution?

Mr. BOPP. I believe it is an administrative policy that generally the inpatient pricing structure would represent a higher cost to the ultimate consumer patient, because of the unit dosage packaging program.

I would say to the outpatient, he is actually paying less for that same prescription or medication than the inpatient is paying, based on administrative policy. I think this would vary from institution to institution. To what degree, it would be hard to say.

But there is a dual pricing schedule that exists.

Mr. DINGELL. Mr. Bopp, I have to leave for a few minutes, but I certainly want to commend you for your testimony so far.

The committee will stand adjourned until the call of the Chair. (There was a short recess.)

Mr. DINGELL. The subcommittee will come to order.

Previous to the time that the committee recessed, Mr. Edward S. Bopp, president-elect of the Louisiana Pharmaceutical Association was testifying. We are privileged to have you with us, Mr. Bopp. Will you continue with your testimony, please.

Mr. BOPP. To continue, I was attempting to avail to the subcommittee products purchased equally among all levels of distribution, inclusive of the retail drugstore and the hospital clinic, and I was attempting to exemplify certain manufacturers with various prices to both, and I proceeded to Wyeth Laboratories and I was referring to Equinal, a tranquilizer.

2. Wyeth Equinal, 400 milligrams available to drugstores at $2.95 per 50 tabs. and available to hospital clinics at $3 per 100 tabs. special package available to hospital clinics at $30 per 1,000.

3. Roche Laboratories Librium capsules 10 milligrams 500 list at $31.50 available directly from Roche to retail drugstores at $27.75 per 500 consisting of 15-percent discount from list. Available to hospital clinics at $23.95 per 500 consisting of a 20-percent discount from list. There is a special hospital package consisting of 5,000 that is not available to retail pharmacies.

4. Azo Gantanol available to retail drugstores directly from Roche at $33.12 per 1,000, available to hospital clinics directly from Roche at $30.40 per 1,000. Recently Roche has restricted this practice to State and Federal hospital-clinics.

Mr. POTVIN. Mr. Bopp, we received evidence that Roche Laboratories recently came out with a new product, not new in the sense that they had to get a clearance under the Kefauver-Harris Act, but new in the sense that Librium is now a tablet as well as a capsule. You are, I am sure, familiar with Libritabs. Do you stock it?

Mr. BOPP. We do.

Mr. POTVIN. As a practical matter you have to because they have been quite aggressive in retailing it and advertising it. May I presume that you have gotten prescriptions calling for it?

Mr. BoPP. That's correct.

Mr. POTVIN. Conversely, because of the formulary therapeutic committee list, it would not be necessary for a hospital to stock it. Is that correct?

Mr. BOPP. No, sir. According to the formulary, they pick the drug and the form, so in contrast to the capsule, you may get a capsule or a tablet, depending on the decision of the formulary committee.

Mr. POTVIN. Yet, this same kind of proliferation, in addition to generating considerable capital for the manufacturer, imposes a burden on the community pharmacist since he, in contrast to the hospital, must necessarily stock it.

Mr. DINGELL. He does not have the choice of substitution because of the State law?

Mr. BOPP. No, and it is illegal and isn't ethical to do this practice. He has the law on one side and the ethical consent on the other.

Gentlemen, you can readily understand the unfair disadvantage a drugstore retailer occupies in competing with a dispensing pharmacy and hospital-clinic purchasing the same merchandise at 15 to 20 percent less than can be purchased by said retailer. The general pricing practice of hospital-clinics may be to mark prescription drugs from cost indicating the retail community pharmacy is being markedly undersold. Therefore, you procure a bad image in said community and are identified as a commercial profiteer steadily forfeiting consumer business.

Tremendous upsurge in setting onerous standards only upon drugstores as direct accounts has created an unfair method of competition such as high annual quotas set by manufacturers or high direct minimum shipping requirements implemented to discourage drug buying not available to all drug dispensers at competitive prices. To exemplify a few pharmaceutical manufacturers that have set stringent purchasing rules and regulations I cite the following manufacturers: Ciba Laboratories, Schering, and Roche.

I mentioned those particular three and I have had a personal experience with the first manufacturer and I would just like to cite an incident that happened to me personally to indicate the onerous requirements superimposed upon the retailers to discourage markedly the possibility of direct purchasing.

I had opened a retail drugstore in Metropolitan New Orleans in 1958, and in 1958 I requested a direct status purchasing agreement with Ciba. I did this for two reasons, that two of my immediate com

petitors, my immediate competitor which was one block or half block in radius to my location was a direct account of Ciba Laboratories. Now, he was in a position to buy Ciba merchandise less 15 percent because my only available source was through the service wholesaler. Well, Ciba Laboratories had taken the position that there was a moratorium on opening new accounts, and I was told in 1959 and 1960 that this was the status of my particular request.

In 1963 I then requested for the third time to be considered for direct account status.

I would like to paraphrase and I will introduce into evidence the correspondence between myself and Ciba Laboratories indicating their position as to direct accounts.

I would like to read just one statement particularly and this was the April 22, 1963, letter directed to me, and it said

Ciba bases its program on dual distribution, with a greater share of indirect selling than direct selling.

You will appreciate that manufacturers may select the pharmacies to whom they wish to sell direct.

I feel this is the consensus of manufacturers of this particular type that they emphatically tell you that they are not interested in your competitive problem, they are not interested in your ability to pay for the merchandise you buy. They decide in their magic little way as to how they select you, and it wasn't until 1967-that my store was placed on direct account status due to my board of administrators at Charity Hospital membership, as I was discussing with a district manager of Ciba Laboratories a particular producer's problem that we were confronted with and he asked who was my direct salesman. I immediately said I do not have a direct salesman. He immediately had the next day at my drugstore a representative, and I was immediately put on a direct status.

This, gentlemen, is what I say, the onerous requirements and the whims of deciding whether you qualify as a direct account or not that has made retail selling so hard and so competitive.

Another area in drug distribution creating unfair competitive problems is drug diversion. This practice has developed throughout the country and is prevalent geographically in Louisiana rural areas whereby the exclusive direct drug products purchased by the hospital clinics from the manufacturer are diverted to retail drugstores. Naturally, small community drugstore owners purchasing pharmaceuticals at hospital-clinic, exclusive, direct-discount list prices certainly places him operationally in a superior competitive position to sell drug products at his direct competitive costs. But very briefly, two or three drugstores in a rural community, one drugstore owner becomes acquainted with the purchasing agent at one of the hospitals and through friendship-motivations I am not totally certain aboutdraw an agreement, the local drugstore owner will buy the special drugstore products or drug products, not readily available to him at particular direct clinic discount. Well, immediately, as you can see, mathematically he is buying at 15 percent less than what his immediate competitor may be paying, so you can also readily see the marked disadvantage that this drug diversion has created within the community of the pharmacies themselves.

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