The CHAIRMAN. Well, these things are obvious. The Food and Drug Administration has the duty and the responsibility of seeing that all these drugs meet Federal standards, and they have failed to do their duty-in fact, they have, I assume, violated the law-if they permit these drugs to be marketed that do not meet Federal standards. In other words, is it not correct to say that this Government, under the Food and Drug Administration, has the responsibility of seeing to it that these drug manufacturers should not be permitted to put a product on the market that does not meet Federal standards? Mr. VENEMAN. That is correct. That is the purpose. It is a regulatory body for that particular purpose. The CHAIRMAN. Now, if those Federal standards are not adequate, we should raise those standards and make them hew to a higher quality of production. But so far as I know, they do have a higher standard and I find that even the larger concerns and the best known, that claim to be the best in the field, themselves complain about too much inspection, not too little. So that job has to be done, anyway. Now, when someone comes in, if you have Squibb claiming that his product is better than Pfizer or legally claiming that his product is better than either of the other two, logically should not the burden be on him to prove it and should he not have to carry that burden at his own expense if he wants to say that you ought to buy my product rather than the other fellow's? Mr. VENEMAN. That seems to be the logical approach to take, Mr. Chairman. I think the program we are presently carrying out is a review for efficacy of some 2,900 drugs. That is being done by the National Academy of Sciences-National Research Council. I think that when this review is completed, we would be in a better position as a department to make a recommendation that would carry out the concepts in your measure. The CHAIRMAN. The Federal Trade Commission is not going to let you advertise that your aspirin is better than the other fellow's. As Bayer says, there is none better. I am sure that that is true. I am also sure it would be true if they said there is none worse. It is all aspirin. But they have to be in a position to prove that statement. They are not in a position to prove that statement. So they go as far as they think they can, which is to say there is none better. The other fellow has the right to say the same thing, I would assume. So it would not be fair to assess against the cost of this amendment which I have suggested and the Senate has passed on previous occasions, the expense of what the Food and Drug Administration is already doing or the expense that a manufacturer would have to undergo himself if he wants to require that his product be purchased to the exclusion of all others. If he wants to do that, he ought to bear the burden of providing that his is better. I think you agree with that. Mr. VENEMAN. I would say it would be a combination. I think the Food and Drug Administration has the responsibility to test for efficacy and the other things that are necessary as part of their responsibility. But I think additional testing in the direction that you are suggesting could very well be the responsibility of the industry. The CHAIRMAN. Thank you. DEPARTMENTAL REPORT ON WORK INCENTIVE PROGRAM Now, I would like to call your attention to the fact that section 440 of the Social Security Act requires that your Department and the Department of Labor submit a report on the 1967 work incentive program to Congress by July 1, 1970. To date, we have received neither your report nor that of the Department of Labor. Naturally, these reports will be important in the committee's consideration of your welfare proposals next week. Will you be so kind as to contact the Secretary of Labor and see that he and you work together to get this report to us so we will have it next week? Mr. VENEMAN. I will, Senator. I saw a letter or a memo come across my desk the other day suggesting that we did in fact have this in draft form and asking for an extension until August 1. Now, whether that came to your committee or not, I do not know. But we anticipate having a report by August 1. We regret the 30-day delay and I will contact the Department of Labor. The CHAIRMAN. We do not have it and we want it, because we think that is fundamental to doing the job that the law or at least the Senate assigns to us.* Mr. VENEMAN. That is correct. The CHAIRMAN. We think that training and employment is one of the most relevant features of the family assistance plan and the proposed amendments to it. We need an effective program to put people to work and that it be more effective than it has been in the last year or two. TAX LOOPHOLE FOR KICKBACKS Now, I have noticed that there is an inadvertent loophole, according to the Medical World News, in the tax law that I did not intend and I do not know of anybody else who intended it. We wrote a provision to say that a person could not deduct as a necessary business expense his expenses or fines assessed upon him as a result of violating the antitrust laws. The amendment went beyond that to say that if he had been subject to a criminal conviction, he could not deduct the expenses of bribes and kickbacks and corruption of that sort. It has come to my attention that by virtue of the manner in which that was drafted, someone is in a position to deduct some kind of referral fee and fee splitting or even kickbacks by doctors that he could not have deducted under prior law. I do not know whether it has come to your attention or not. Are you aware of it? Mr. VENEMAN. It has not come to my attention Mr. Chairman. The CHAIRMAN. I will just make the article available to you. (The article referred to follows:) [From the Medical World News, June 26, 1970] AN INADVERTENT LOOPHOLE FOR KICKBACKS Federal tax code now allows MDs to deduct such payments-irrespective of their state's law. An obscure change in the Internal Revenue Code, enacted as part of the Tax Reform Act of 1969, has the effect of actually encouraging medical fee splitting, The report was received by the committee and printed as part of the committee print entitled "Reports on the Work Incentive Program", dated August 3, 1970. It removes an incentive to stock and dispense high cost drug products when low-cost chemical equivalents are available. It makes clear that the dispensing function bears little relation to product cost and therefore emphasizes the professional service rendered by the pharmacist. By reducing the cost of high-priced medications and increasing the cost of low-priced items, it eliminates the subsidization of some patients by others. 27 By itself, the employment of a dispensing fee allowance system does little to assure that reimbursement for pharmacy services will equitably achieve the desired economies. Rather, techniques should be developed so that the allowance will be designed to reflect only those expenses which are directly related to the dispensing function. No portion of program payments should be made for unrelated functions or for vendor services that are grossly inefficient. Although the Task Force is convinced that significant program savings could be achieved through the application of techniques designed to improve the efficiency of vendor operations, it is unable at this time to estimate the extent of these savings. Administrative Procedures and Costs The establishment of reasonable cost and charge ranges for drugs, as envisaged in S. 3323 and H. R. 16616 would entail new methodology and significant administrative costs. In addition to the drug quality and equivalency activities already under way, mechanisms would be needed at both the Federal and State levels to assume other new responsibilities involved in the proposed legislation. Among these would be the following: 1. Establishment of an expert advisory committee of physicians, pharmacologists, and pharmacists, to advise the Secretary on the qualification of specific drugs and drug groups for cost reimbursement. 2. Improvement of Federal resources for the determination of drug acquisition costs, development of audit and compliance procedures, drug utilization review methods, and techniques to increase the efficiency of drug distribution. 3. Mechanisms to provide technical assistance to the States in developing and improving their drug benefit programs. Although considerable experience has been gained at the Federal level in part the result of Task Force activities-that would permit the swift and efficient discharge of some new responsibilities, others would take many months from the date of enactment. We find that comederable time would be required to develop all the necessary administrative mechanisms. Therefore fuli imusementation of such provisions as appiai to Fotorai reimbursement for prescribed drugs cannot be assured in less PARK YO's after enactment of appropriate legislation. In a preliminary report to the Chairman of the Senate Finance Committee on an earlier sumi'ar proposs. S. 2299, former Secretary of Howth. Nduestion, and Welare Jean W. Gardner, submitted Task Forve stai astmates of adnumpirmave custs which were in excess of $70 milion dạng de fist year and appratimatey $34 milion The bulk of this projected expenditure would have been for improved quality control and for drug product testing to be conducted by or for the Formulary Committee envisaged in S. 2299. Secretary Gardner recognized, however, that the improvement of drug quality would benefit not only those eligible for drug benefits in Federally assisted programs but all users of prescription drugs. Indeed, since the staff report in 1967, the improvement of drug quality and the studies of clinical equivalency have become matters of high priority within the agencies charged with these responsibilities and these priorities are reflected in substantial budget increases. Any necessary increases in Federal expenditures for the improvement of drug standards and quality control will have benefits which apply to all users of prescription drugs and should not be attached to the implementation of cost standards for drugs supplied in Federally assisted programs. Significant costs would be incurred, however, solely from the enactment of the proposed legislation. If the provisions of S. 3323 were to take effect in fiscal year 1972, we estimate that the net incremental costs to the Department of Health, Education, and Welfare and the State programs would be as follows: Publication of drug lists, guides, and other informational materials. 1.2 1.2 Technical assistance to State agencies and compliance review (titles V and XIX). 76626433 Reviews of drug providers (for exemption from provisions of the act, title XVIII). Total, administrative costs.. Projected Savings At the present time, Medicaid programs are in effect in 43 States and other jurisdictions. Of these, 36 provide reimbursement for the costs of prescription drugs. Drug expenditures under the program totaled $208 million in fiscal year 1968, approximately 6.8 percent of all Medicaid expenditures.29 In addition, $3 million was spent for drugs under the various Maternal and Child Health programs. It is anticipated that joint expenditures for drugs under these programs may rise to approximately $300 million by mid-1971. If drug expenditures do, in fact, reach $300 million in that year, and if the projected savings outlined earlier in this report are applied, the following program savings could be expected: U.S. Department of Health, Education, and Welfare, Social and Rehabilitation Service. 23 These figures could vary substantially, however, with such factors as the development of an out-of-hospital drug benefit program under Title XVIII, the costs to drug producers of developing and supplying data to substantiate drug quality, the extent to which the States develop their own mechanisms for limiting drug expenditures, and the effectiveness with which Federal quality and cost standards are applied at the State level. From a consideration of the projected costs and savings, we reaffirm our earlier finding that establishment of reasonable cost and charge ranges for drugs provided under the Medicare, Medicaid, and Maternal and Child Health Programs is feasible, and would reduce the cost of drugs to the Federal and State governments without sacrifice of quality. |