Mr. SHAFFER. No. Of course, I am not a lawyer, but as far as I could comprehend this particular statement and document, it says that as long as Hoffman-LaRoche products are used for a medicare recipient, it is inventoried, and a quarterly statement is sent to Hoffman-La Roche, the company will reimburse the hospital for 25 percent of the purchase price.

Mr. POTVIN. Are there hospitals in your area that have pharmacies in the hospitals?

Mr. SHAFFER. I am glad you asked, counselor. As you know, Boston is the medical center of the world, or at least I hope to believe so, and I am sure Congressman Conte will agree with me. We have the finest hospitals in the world and one of the largest-I believe we have the privilege of having the largest general hospital in Massachusetts, the Massachusetts General Hospital, and Peter Bent Brigham Hospital, Boston Lying-In Hospital, Beth Israel, and I could go on and name many, many more. These are all in competition with the community pharmacists.

As I said to you before, I am glad you brought that out because it has been my belief and the belief of my members of the association that hospital pharmacies originally were formed to service the patients of the hospital, otherwise known as the inpatients, with the medication prescribed by the physician.

Somehow or other through the years, they have not only served the inpatients of the hospital, but they are now serving outpatientspeople right off the street who are the patrons to the community retail pharmacy. These hospitals are receiving preferential price buying. The companies are showing discriminatory practice by giving the hospitals a large reduction on merchandise, far below what the community pharmacies can obtain.

I would like to quote some prices.

Mr. CONTE. Could I interrupt you there? How did this all come about? Does the doctor give a prescription and tell the patient that he can go to the hospital to obtain this medication?..

Mr. SHAFFER. Are you talking about inpatients or outpatients?
Mr. CONTE. Outpatients. There is no difficulty with inpatients.

Mr. SHAFFER. The outpatient system works--a person would come into the hospital for an examination, the doctor would examine the individual, the doctor would prescribe some medication-I don't know if he tells the individual to go down to the hospital pharmacy. I should like to believe that he does not, because this would be unethical. They! oftentimes go to the pharmacy within the hospital. That same patient, once he has the prescription filled there, comes back to the hospital to purchase the medication when he runs out and needs a refill-and some patients are on long-term medication.

Sometimes and oftentimes they do this far below the price that the community pharmacist could service them for because they do have a price reduction.

Mr. CONTE. Do you have any evidence of a patient, who has no connection whatsoever with the hospital, an outpatient

Mr. SHAFFER. I see them every day, Congressman.

Mr. CONTE (Continuing). Getting a prescription at the hospital pharmacy? Can he go into the hospital and fill that prescription?. Mr. SHAFFER. You mean from a physician that is not within the hospital?

Mr. CONTE. The patient who has no connection with the hospital. He has not gone in for an examination but he is ill; he goes to a doctor and gets a prescription. Can he go into the hospital and have that prescription filled?

Mr. SHAFFER. The best way I can answer your question is, many physicians who have private practices outside have now moved into the hospital, and as you probably know, many hospitals are increasing the policy of having physicians remain in the hospital-they have their offices there, they pay rent and they see their patients in the hospital. So that is an office patient going to the doctor who is in the hospital, and who, in turn, goes to the pharmacy department.

They are competing, as I said before, with the community pharmacist who has been playing the role of the health provider for years and sometimes a lifetime, who is being actually driven off the market. Mr. POTVIN. Mr. Shaffer, suppose a patient went to his neighborhood physician's office. Could he then walk in off the street into the hospital pharmacy and get the prescription filled?

Mr. SHAFFER. In some instances, this has been happening, yes. I don't know if this is the common procedure, but I know in many instances it has happened.

Mr. POTVIN. At least there is nothing to prohibit it?

Mr. SHAFFER. Yes.

Mr. CONTE. Do you want to read those prices?

Mr. SHAFFER. Yes, I would like to, Congressman Conte.

I would like to say that this is material that I have obtained from a purchasing group of hospitals in our State of Massachusetts. There are several companies, Squibb, Bristol, Wyeth Laboratories, Upjohn Co., Roche Laboratories, Eli Lilly, Roerig.

Mr. CONTE. What have they done? Can you show where they have given preferential treatment?

Mr. SHAFFER. Yes, I can. It states here that this hospital and the group, may purchase from E. R. Squibb & Son, 100 capsules of Steclin or Sumycin capsules, strength 250 milligrams, for $4.95. I pay in my community pharmacy, buying directly from the manufacturer, $5.50. About a month ago it was $7.50.

Mr. CONTE. $5.50 for the same quantity?

Mr. SHAFFER. Same quantity, same strength, and same medication. It goes on in larger packages, also. This is one area of price discriminatory pricing.

We have the Wyeth Co. which will sell to the hospitals, Equanil, 400-milligram tablet in quantities of 100, for $2.10. My best possible price, buying direct from Wyeth, is $5.80.

Mr. DINGELL. A differential of about 2 to 1 in favor of the hospital? Mr. SHAFFER. That is right; correct.

Mr. POTVIN. Mr. Shaffer, on this latter drug, the Equanil brand of meprobamate, one of the commoner complaints we have received around the country is that the community pharmacist can only buy in packages up to perhaps 50 in number, at least in some areas. Is this true?

Mr. SHAFFER. Counselor, you are reading my mind, because the next question I was going to bring before the committee is that they do have prices on quantities of 500 and they have prices on quantities of 1,000, which we are not able to obtain. We have for many years and I

myself have written to the company asking that this product which is very heavily used be provided in a larger size so we could give a reduced price to our patrons. The hospital is able to purchase a bottle of 1,000 for $20.09-actually, $2 per hundred, as opposed to my $5.80, a difference of $3.80.

Mr. DINGELL. Are you saying that you, the pharmacist, are not allowed to purchase hospital size packages or containers of prescription pharmaceuticals?

Mr. SHAFFER. Yes.

Mr. DINGELL. Would you submit a list to the committee of some of those which are not made available to you in that size package? Mr. SHAFFER. Yes.

Mr. DINGELL. You may want a little more time to do this.

Mr. SHAFFER. I could read it off to you. I have it in front of me. The 500 is not available and the 1,000 bottles of Equanil, 400 milligram, are not available.

Mr. DINGELL. But they are available to hospitals?

Mr. SHAFFER. That is correct. They also make it in other strengths, like 200 milligram, and the price is the same discriminatory in nature. Mr. POTVIN. Mr. Shaffer, does not this arbitrary practice on the part of the manufacturer of Equanil force you to pay an artificially high price because of the small size of the package?

Mr. SHAFFER. Well, naturally, the smaller sizes would constitute a slightly higher fee because of packaging, et cetera. As you probably know, packaging is a very costly factor in any manufacturing level, whether it be in pharmaceuticals or other kinds of merchandise.

Mr. POTVIN. Could you not give your customers a better price were you allowed access to the 500's and 1,000's?

Mr. SHAFFER. Not only could I give them a better price, but my patrons are subsidizing the lower price to the hospitals.

Mr. DINGELL. Are you able to buy, let us say, five or 10 smaller packages at the same price that you could buy one very large package or one very large container of a particular commodity?

Mr. SHAFFER. I understand.

Mr. DINGELL. Could you buy ten 100's and get the same prices as you would for a 1,000 container?

Mr. SHAFFER. No; emphatically not. I buy Equanil in quantities of dozens at a time.

Mr. DINGELL. Dozen hundreds?

Mr. SHAFFER. Dozen 50's every 3 weeks, and my price is $2.90 from the company for 50.

Mr. DINGELL. You are not permitted to put those together into one larger order and come up with an order for 1,000 or 2,000!

Mr. SHAFFER. No. I understand your question, and I would say no again.

Mr. DINGELL. This is very important.

Mr. SHAFFER. If I were able to give them an order for a thousand tablets or twenty 50's, I would not get the price that is quoted to the hospital.

Mr. DINGELL. Would you get a price, a special price, for 1,000 that might be different from the hospital's 1,000 price?

Mr. SHAFFER. No; there is no price difference for my buying in quantities of 1,000.

Mr. POTVIN. Do you buy direct on Equanil?

Mr. SHAFFER, Yes; I buy from Wyeth.

Mr. PorVIN, Other than those sources from which you buy direct, may we assume you are a patron of one of the full-line wholesalers in your area?

Mr. SHAFFER. That is correct. If I buy from a full-line, wholesaler, I pay $3.20-some-odd-cents.

Mr. POTVIN. The customary 15-percent markup?

Mr. SHAFFER. Right. That is correct.

Mr. DINGELL. How does your volume of sales or your volume of use on something like Equanil compare with, let us say, a small- or medium-size hospital?

Mr. SHAFFER. I am glad you brought that out. I would say I would be able to purchase Equanil tablets on the same basis and in the same quantities as a small hospital.

Mr. DINGELL. You say you would sell the same quantities that they would dispense so your total volume of use would not be radically different from that which would ultimately be flowing through the hands of the hospital. Is that correct?

.

Mr. SHAFFER. Of a small hospital. I would like to make that clear. I couldn't compare with Massachusetts General or Beth Israel, but a small hospital; yes. Absolutely. I would certainly say in certain tablets and certain medications, we purchase more than a small hospital.

You have also been reading my mind. I would like to say that on this contract they name a blank for a "minimum delivery," which means the smallest amount that the hospital can purchase, and the terms here are "None." Therefore, if a small hospital wanted to buy one bottle of 50, it could buy one bottle of 50 and receive that price of $1.10 as opposed to my $2.90.

Mr. DINGELL. Even though you might buy a much larger quantity of the same substance, you would still pay a higher price per unit than the hospital ordering a very small amount?

Mr. SHAFFER. Absolutely. I would like to bring out another point which will document what you have to say and concur with your remarks. Hoffman-LaRoche on Gantrisin tablets

Mr. POTVIN. Could you explain to us what Gantrisin is?

Mr. SHAFFER. Chemically?

Mr. PoTVIN, No, sir.

Mr. SHAFFER. I could do that, if you would like, but I don't know if you would understand it. Gantrisin is known as a sulfisoxazole, comes in a strength of 0.5 gram. It is a sulfur preparation, most commonly used for urological and bladder infections and other types of infections.

The hospital may purchase Gantrisin at its best possible price of 100,000 or more tablets for $9 per 1,000. I purchase Gantrisin tablets if I were not on a direct basis with the company-I would have to pay $25.30. Where I am on a direct basis, I feel it only fair to let you know that I purchase Gantrisin tablets in quantities of 5,000, my best possible price is approximately $20 per 1,000, plus or minus a

penny.

Mr. DINGELL. Again, a differential of 2 to 1 or better?

Mr. SHAFFER. Yes, that is correct. If the hospital purchases 1,000 through 9,000 tablets, it pays $14.25 which is still far below the $20 on a 1,000 purchase price.

I purchase approximately 100,000 to 125,000 tablets of Gantrisin per year in my particular pharmacy, and I pay $20 per thousand, and going on this schedule it would be $9 per 1,000. There is a difference of $11 on which my patrons are forced to subsidize hospitals.

I could go on and on, if the committee will permit me, and name other products-possibly, it wouldn't be fair to just pick out a few-but there are other companies involved. We have E. R. Squibb with Neomycin sulphate tablets, which is an antibiotic. This is not absorbed through your stomach, and is usually used for infections of the stomach, or of a diarrhea-type. In battles of 100, the hospital pays $5.20. I would have to pay $20.54.

With injectibles, it is the same way: I have Amphycillin tablets, capsules, and liquid, which are manufacturd by Bristol Laboratories, a very commonly used product now, a 250-milligram capsule in quantities of 100, and this is purchased by the hospital group for $11.96. My best price is $27.25 per 100.

I would like to point out that this comes in a larger strength size. They make a 500-milligram size. The hospital price for 100 is $23.49. When I purchase it, I purchase it in quanties of '16. I don't think it is available to us in 100's-I am not sure the size is relatively new-I can't say for sure.

Mr. POTVIN. Sixteen tablets?

Mr. SHAFFER. Sixteen capsules, and I would assume it comes in hundreds, but being on a direct basis they sent me 16 automatically. I pay $8.28 for 16 capsules. I would be paying on that basis, $50 a hundred, as opposed to $23.49. This means that my patrons pay approximately $0.75 a capsule if it costs me $0.50 with a third markup and the hospitals are selling this far below, because they are getting this preferential price.

My patrons, as I say, again, are subsidizing the hospital price.

Mr. CONTE. Mr. Shaffer, do you have any evidence of what the patients are paying at the hospital compared to your pharmacy or some other similar pharmacy?

Mr. SHAFFER. If your good counsel had given me a little more time to prepare I first received this invitation to testify from Mr. Potvin, I believe, on Friday afternoon at about 2:30 or 3:30, just as hospitals were closing up. It was practically impossible for me to get this material and I am sure if I had enough time for research and took this as a project we could come up with additional material. I may say that I was so rushed in putting together this testimony that I could only thank God I made the plane. They had to pull the door open, and I rushed on, shaved at the hotel at 10:30. That is the kind of hectic day I had yesterday.

Mr. DINGELL. Mr. Shaffer, you have done a fine job, and the committee is appreciative of this and the problem that you had. I think that both Mr. Conte and I would like to have you submit such other information on matters of this kind as you feel the committee would find helpful.

Mr. SHAFFER. Thank you.

(The information referred to appears in the appendix at p. A127.) Mr. DINGELL. I would particularly like to have some additional information on the matters that you have been discussing in the time that I have had the privilege of listening.