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cipients, less expensive nonproprietary name drugs, whenever practicable, and consistent with the recipients' welfare.

We are issuing this report to the Congress to inform it of the possibilities for significant economies in the Federal financial participation in the cost of prescribed drugs for welfare recipients.

Copies of this report are being sent to the President of the United States; the Secretary of Health, Education, and Welfare; and the Commissioner of Welfare Department of Health, Education, and Welfare.

FRANK H. WEITZEL,

Acting Comptroller General of the United States.

REPORT ON REVIEW OF FEDERAL FINANCIAL PARTICIPATION IN THE COSTS OF PRESCRIBED Drugs for WeLFARE RECIPIENTS IN THE STATE OF PENNSYLVANIA, WELFARE ADMINISTRATION, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

INTRODUCTION

The General Accounting Office has made a review of Federal financial participa tion in expenditures made by the Pennsylvania Department of Public Welfare (PDPW) for prescribed drugs for welfare recipients in the State of Pennsylvania. Federal financial participation in public assistance grant programs is administered by the Welfare Administration, Department of Health, Education, and Welfare (HEW). Our review was made pursuant to the Budget and Accounting Act, 1921 (31 U.S.C. 53), and the Accounting and Auditing Act of 1950 (31 U.S.C. 67). We selected the State of Pennsylvania for review of activities under this program, because of the significant Federal financial participation in the Pennsylvania prescribed drug program. We directed our efforts primarily to an analysis of the costs of prescribed drugs for welfare recipients, an area which appeared to be in particular need of attention, rather than to a general evaluation of the total medical care activities of the Pennsylvania Department of Public Welfare. Accordingly, the findings included in this report relate only to those aspects of the prescribed drug program in Pennsylvania. The scope of our review is set forth in more detail on page 23 of this report.

BACKGROUND

Titles I, IV, X, XIV, XVI, and XIX of the Social Security Act, as amended (42 U.S.C. 301-306, 601-606, 1201-1206, 1351-1355, 1381-1385, 1396–1396d), authorize annual appropriations for Federal payments to States to assist them in furnishing financial assistance in the form of direct money payments to recipients of public welfare and to suppliers of medical or remedial care on behalf of recipients, and other services for recipients. Title I authorizes grants for old-age assistance and for medical assistance for the aged (MAA) who do not meet the standards of need for other federally aided public assistance programs but who need assistance to obtain adequate medical care. Title IV authorizes grants for aid and services to needy families with dependent children. Title X authorizes grants for aid to the blind. Title XIV authorizes grants for aid to the permanently

and totally disabled. Title XVI authorizes grants for an optional combined plan for aid to the aged, blind, or disabled, or for aid to the aged, blind, or disabled and medical assistance for the aged. Title XIX, which became effective January 1, 1966, authorizes supplemental grants for medical assistance for individuals who are recipients of money payments under a State plan approved under titles I, IV, X, XIV, or XVI.

Under the act, the States have the primary responsibility for initiating and administering public assistance programs. The nature and scope of the programs are contained in State plans which, after approval by HEW, are the basis for Federal grants to the States. Plans for State public assistance programs must fulfill certain requirements in order to be approved by the Secretary, HEW. One of these requirements is that the plans must provide such methods of administration as those found by the Secretary to be necessary for proper and efficient operation of the plan.

The Federal Government participates with State agencies in monthly average payments per recipient, not exceeding maximum amounts specified in the Social Security Act for each category of assistance with the exceptions of the medical assistance for the aged category and medical assistance which is provided under title XIX, for which no dollar maximums are specified. The average monthly payment is based on expenditures made directly to recipients and to vendors for medical or remedial care for or in behalf of recipients. The Federal expenditure to States for public assistance programs was $2.94 billion in fiscal year 1964.

In the State of Pennsylvania, financial assistance is provided directly to welfare recipients for food, shelter, clothing, and incidental medical supplies. In addition, payments for medical care such as prescribed drugs and inpatient hospital services are made directly to vendors by the State welfare agency for all eligible recipients in the State. As of June 1964, there were 392,985 welfare recipients in the State of Pennsylvania receiving assistance under federally aided categories of assistance. The total Federal financial assistance to the State of Pennsylvania for public assistance programs amounted to $128.7 million in fiscal year 1964. As part of its public assistance programs, the State of Pennsylvania makes payments for prescribed drugs for recipients in all federally aided categories of assistance except under the medical assistance for the aged program. The expenditures by the State of Pennsylvania and the Federal share thereof for drugs for welfare recipients in Pennsylvania during fiscal year 1964 are shown as follows:

Expenditures for drugs

Category of assistance

Total

Federal share

Aid to families with dependent children (AFDC) including children of unemployed parents..

Aid to the permanently and totally disabled (APTD).
Old-age assistance (OAA)..

Aid to the blind (AB)..

Total.....

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The Secretary of HEW is responsible for administering the public assistance grant programs. He assigned the functions to the Commissioner, Welfare Administration, who, with certain exceptions, redelegated the functions to the Bureau of Family Services (BFS). The field activities of the grant programs are handled by nine regional offices of HEW. In each regional office, the Bureau regional representatives direct the operations of Bureau activities and coordinate relations between HEW and State and local agencies administering the public assistance programs. The HEW New York regional office provides general administrative direction and coordination of the federally aided public assistance programs in the States of New York, Delaware, New Jersey, and Pennsylvania. The principal officials of the Department of Health, Education, and Welfare responsible for administration of the activities discussed in this report follow.

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Possibilities for reducing Federal expenditures for prescribed drugs for welfare recipients

On the basis of our review of expenditures made by PDPW for prescribed drugs for welfare recipients in the State of Pennsylvania, we believe that such expenditures can be reduced through the increased use of less expensive nonproprietary (generic) name drugs, with savings accruing to both the Federal Government and the State of Pennsylvania, without adversely affecting the accomplishment of the objectives of the federally aided public assistance programs. We believe that, to avail itself of these economies, HEW should make further effort to have the States encourage physicians and pharmacists to use more extensively the less expensive nonproprietary name drugs whenever appropriate

in lieu of comparable brand name drugs or the more expensive nonproprietary name drugs.

A projection of the results of our examination of 650 prescription invoices paid in March 1964 by the State of Pennsylvania, covering the cost of drugs dispensed to welfare recipients, indicates that savings of from $722,500 to as much as $1,501,800 could possibly have been realized during fiscal year 1964; the Federal share of such savings would amount to from about $353,900 to as much as $705,400. The higher savings could have been realized only if (1) the least expensive nonproprietary name drugs had been dispensed in all cases instead of (a) drugs prescribed and dispensed by their brand (trade) names and (b) drugs dispensed by their brand names although prescribed by their nonproprietary names and (2) the least expensive nonproprietary name drugs had been dispensed in certain cases where drugs were prescribed and dispensed by their nonproprietary names. The lower savings could have been realized if the most expensive nonproprietary name drugs had been dispensed in all cases instead of (1) drugs prescribed and dispensed by their brand names and (2) drugs dispensed by their brand names although prescribed by their nonproprietary names.

We are not suggesting in this report that the dispensing of the least expensive drug available, or a drug less expensive than that actually dispensed, would in all cases have been consistent with good medical practice, but we have shown the range of possible savings available through the use of less expensive drugs in order to convey the range within which economies may have been possible had maximum effort been made by all concerned to insure the dispensing of the least expensive drug consistent with the welfare of the recipient.

Also, in computing the range of possible savings, we have assumed that arrangements could have been made to have the less expensive drugs available at the dispensing pharmacies.

We selected for detailed review a random sample of 2,505 prescription invoices from the 211,158 invoices processed by PDPW in March 1964, a month which appeared to be typical for the year on the bases of prescription volume and dollar Of these, we eliminated 1,855 prescription invoices consisting of-

cost.

1. Drugs for recipients of the blind pension and general assistance categories which receive no Federal matching and are paid for entirely by the State (500 prescription invoices).

2. Brand name drugs supplied only by one company, which are not available under a nonproprietary name (1,152 prescription invoices).

3. Drugs billed at the minimum price of 75 cents as provided for in the PDPW manual (157 prescription invoices).

4. Incidental medical items which are limited to the prices specified in the PDPW manual (40 prescription invoices).

5. Drugs dispensed at the lowest available price (six prescription invoices). The remaining 650 prescription invoices (25.95 percent of the random sample) constituted our net sample and are the basis for our findings.

In our detailed examination of the 650 prescription invoices, we compared the price paid by PDPW for each prescribed drug dispensed to welfare recipients with the range of manufacturers' prices for the same drugs under their nonproprietary names. The price of each drug dispensed was the amount paid by the State to the vendor although the range of manufacturers' prices for each drug under its nonproprietary name was obtained from wholesale druggist price lists as shown in American Druggist Blue Book and Drug Topics Red Book commonly referred to as the "Bluebook" and the "Redbook" which are widely used by pharmacies. These books list the drugs available on the market by their brand names and nonproprietary names, the names of the manufacturers of these drugs, and the related prices.

For the purpose of our examination, the prices compared included wholesale drug prices plus a 50-percent markup as permitted by the PDPW manual. By comparing the prices paid by the State for the drugs dispensed with the range of manufacturers' prices for the drugs under their nonproprietary names, we determined the lowest, median, and highest amount of estimated savings that could have been realized if these drugs had been dispensed by their less expensive nonproprietary names.

Our review of 2,505 prescription invoices selected on a random sample basis from those paid in the month of March 1964 showed that, for the net sample of 650 prescriptions, savings of from about $718 to as much as $1,487 could have been realized if less expensive nonproprietary name drugs were used. In line with the results of our review, 25.95 percent, or about 54,800, of the approximately 11,200 prescription invoices paid in the month of March 1964 may have been

subject to possible savings through maximum use of less expensive nonproprietary name drugs. Projecting the estimated savings in our net sample to the entire month of March, we estimate that combined savings of from about $60,200 to $125,200 could possibly have been realized by the Federal and State Governments. Similarly, we estimated that savings of from $722,500 to $1,501,800 could possibly have been realized on about 657,600 prescriptions by both the Federal Government and the State of Pennsylvania during the entire fiscal year 1964. The following schedule shows the estimated savings for the 650 prescriptions in our net sample and our projections of the estimated savings for the month of March 1964 and fiscal year 1964.

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1 The negative figure resulted because the price PDPW paid for many of the 59 drugs dispensed by their nonproprietary names was less than the highest listed manufacturer's price for these drugs in the red and the blue books.

By applying the specific formulas stipulated in the Social Security Act relating to each category of assistance, we determined that, except for the aid to the blind category, the average payment per recipient in the State of Pennsylvania was below the maximum average monthly payment that could be participated in by the Federal Government. Accordingly, with this exception, our review showed that for these categories both the Federal Government and the State would share in any savings resulting from greater use of less expensive nonproprietary name drugs. Since the State's average payments per recipient in the aid to the blind category of assistance were above the maximum average monthly payments that could be participated in by the Federal Government, any savings in the cost of drugs for this category of assistance would not be shared by the Federal Govern

ment.

The Federal and State shares of the savings that we estimated may have been realized for fiscal year 1964, by category of assistance, are as follows:

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The details of our findings are discussed more fully on the following pages.

Drugs prescribed and dispensed by brand names

In our net sample of 650 prescription invoices, 500 prescription invoices, or 77 percent, were for drugs prescribed and dispensed by their brand names. The PDPW paid a total of $1,861.54 for these drugs. If these drugs had been pre

scribed and dispensed by their nonproprietary names from manufacturers' prices at the median of the range, the PDPW would have paid a total of $901.59 and would have saved $959.95, or 51 percent, of its cost. For example, on 41 prescription invoices the brand name drug “Peritrate" was prescribed and dispensed at a total cost to PDPW of $178.55. Had the drug been prescribed and dispensed by its nonproprietary name, pentaerythritol tetranitrate, from manufacturers prices at the median of the range, the total cost to PDPW would have been reduced by about $131.08.

The following summary shows the 10 brand name drugs most frequently dispensed in our net sample. It shows also the total amount paid during the month of March 1964 for all the 500 drugs dispensed by their brand names and the lowest, median, and highest prices available for the drugs by their nonproprietary names. All comparative prices shown are based on the prices of drugs of the same quantity and strength as that of the drugs dispensed.

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