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Drugs prescribed and dispensed by nonproprietary names but not dispensed at available lower prices

Of the 650 prescription invoices in our net sample, 59 were for drugs prescribed and dispensed by their nonproprietary names. We compared the prices paid for these drugs with the range of prices published in the Red and Blue Books, including allowable markup. Our analysis showed that the prices paid for 11 of these prescriptions exceeded the highest published wholesale price plus the allowable markup. Of the prices paid for the remainder of the 59 prescriptions, 6 equalled the highest prices, 36 were between the median and the highest, and 6 were below the median published wholesale price including markup.

The following schedule shows the amounts paid by the State, the prices available based on the wholesale price ranges, and the difference if the lower available prices were used for 3 of the 11 prescriptions that were paid in amounts exceeding the highest published price including allowable markup.

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The following schedule shows three of the six prescriptions that were paid for in amounts equal to the highest published price including allowable markup.

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The following schedule shows 3 of the 36 prescriptions that were paid for in amounts between the median and highest published price including allowable markup.

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For the six prescriptions billed below the median published price, savings would also be available if the drugs were dispensed by their nonproprietary names at the lowest of the range of manufacturers' prices published in the red and the blue books.

The Pennsylvania Department of Public Welfare paid a total of $169.60 for the 59 drugs prescribed and dispensed by their nonproprietary names. If the cost of the drugs dispensed had been based on the manufacturers' prices at the median of the range for each drug, the Pennsylvania Department of Public Wel

fare would have paid a total of $88.93 and would have saved $80.67, or 48 percent, of its cost.

Extensive use of nonproprietary drugs by other agencies

Our review showed that nonproprietary drugs are used extensively by various municipal and nonprofit private hospitals, the Veterans' Administration (VA) outpatient clinic, and the city procurement department section for medical supplies in Philadelphia, Pa. We found that generally the hospitals and the VA clinic urge physicians to prescribe drugs by their nonproprietary names whenever feasible. Moreover, in nearly every case the policy of the hospital or clinic requires staff physicians to authorize hospital pharmacies to dispense drugs by the nonproprietary names even though the physician prescribes drugs by their brand names, unless the prescribing physician specifically indicates that no substitution is to be made.

Philadelphia procurement department personnel who purchase drugs for the Philadelphia General Hospital and city health institutions told us that they purchase all drugs by their nonproprietary names and on a competitive bid basis. Also, we have been told that, of the 67 nonproprietary drugs identified in our review, all but 7 have been procured by the city at one time or another. HEW and State procedures relating to the use of nonproprietary name drugs

The Bureau of Family Services has distributed to Pennsylvania and all other States a publication, entitled “Pharmaceutical Services," which states, in part, that a drug ordered by generic name usually costs less than the same drug ordered by a proprietary name. BFS officials informed us that each State determines its own policy as to the medical needs of its welfare recipients and the manner in which these needs are to be fulfilled. Our review of the Pennsylvania State plan showed that it was Pennsylvania Department of Public Welfare's intention to pay for adequate medical care, in accordance with accepted standards of good medical practice. The State does not employ any procedures which would encourage the prescribing and dispensing of nonproprietary name drugs which are available at lower costs than those for brand-name drugs.

In addition to information we obtained during our review of the procedures and controls used by the State of Pennsylvania over the cost of drugs provided welfare recipients, we obtained information relative to the manner in which other States control their costs of medical care for welfare recipients. We found that several States utilize a drug formulary, which is primarily a listing of drugs by their nonproprietary names with established maximum prices that the State will pay for such drugs. In exceptional cases, where physicians deem it essential to prescribe drugs that are not included in established formularies, these drugs must be justified and advance approval obtained from the State welfare agency. Although our review showed that HEW had not required States to prepare formularies, some States are using them as a means of control over their drug costs.

During our review, Pennsylvania employed a pharmacist consultant who, in addition to his other duties, was beginning to explore the possibility of establishing a formulary. At the conclusion of our review, we were informed that the State was in the process of preparing a formulary to be considered for adoption in Pennsylvania and that many of the drug items we discussed would be included therein. The formulary had not been established as of January 1966.

A.M.A.'S ATTITUDE ON PRESCRIBING BY NONPROPRIETARY NAME

HEW and State comments and proposed action

We proposed to the Secretary of Health, Education, and Welfare that steps be taken to bring about greater emphasis by the State of Pennsylvania aimed at the increased use of nonproprietary drugs for welfare recipients.

The State welfare agency informed the Department in a letter dated May 24, 1965, concerning our proposal, that to ask physicians to prescribe generically would subject the public assistance recipients to the possibility of receiving secondclass medical treatment. The State indicated that the majority of physicians do not prescribe generically because the newer drugs have been developed since they received their educations and it is unrealistic to expect the physicians to keep up with the newer drugs without relying on the drug companies. The State explained that it is not the State welfare agency's function to provide such education to physicians.

HEW officials did not fully agree with the State's observations, and, in a letter dated September 10, 1965, the Assistant Secretary for Administration advised us that there were ways in which State welfare departments could exercise better

management control over their drug programs. Although HEW believed that it had taken the initiative in urging the States to adopt procedures to achieve savings without impairment of medical care standards, the Department agreed that more could be done to reduce the costs of prescribed drugs provided welfare recipients in Pennsylvania. The Assistant Secretary informed us that, in trying to obtain physician cooperation in prescribing nonproprietary name drugs to reduce prescribed drug costs, the State would probably be more successful by using a medical advisory committee as part of its staff and that, in forthcoming consultations with the State of Pennsylvania, HEW plans to stress the use of such a committee by the State to aid in the overall administration of the drug program.

The Assistant Secretary informed us also that, in view of the recently passed legislation contained in title XIX of the Social Security Act, authority is available to require all States to have professional medical personnel on their staffs and to increase the use of medical advisory committees in medical care program administration. HEW stated that the Bureau of Family Services' Medical Advisory Committees would be closely consulted in developing such requirements, with the objective of increased use of nonproprietary drugs in State welfare programs having a high priority.

The Assistant Secretary stressed two factors considered to be important in relation to our recommending the increased use of nonproprietary name drugs: (1) considerable discretion was left to the States and localities in determining the conduct of their activities under legislation authorizing Federal participation in Federal-State public assistance programs and (2) the traditional doctor-patient relationship which allows the physician to prescribe as he considers best for the patient is a principle of medical practice and part of the role and responsibility of the medical profession to be taken into account in developing policies relating to drug costs. We recognize that these factors are important.

We believe that HEW's proposal to discuss with Pennsylvania Department of Public Welfare officials the use of a medical advisory committee in the State's drug program administration should, if adopted, contribute to reducing expenditures by the Federal Government and by the State of Pennsylvania for prescribed drugs provided welfare recipients with resultant savings to both. The use of a medical advisory committee should also provide assurance that adequate consideration is given to the doctor-patient relationship concerning physician freedom in prescribing drugs deemed best for the patient. In addition, we believe that the discretion used by the State in the conduct of its public assistance program activities must take into consideration its responsibility for proper and efficient program administration in accordance with the approved State plan.

We believe also that the requirements pertaining to the drug program to be developed by HEW under authority of title XIX of the Social Security Act, enacted July 30, 1965, should, when implemented, contribute to effecting economies in expenditures for prescribed drugs provided to welfare recipients in all States.

In the past, the Department has distributed to the States a pamphlet prepared by the Bureau of Family Services, Welfare Administration, and a document issued jointly by the American Public Welfare Association and the American Medical Association, which suggest guidelines that may be used by States and physicians when considering the use of nonproprietary drugs in prescriptions for welfare recipients. However, these publications are not part of the official regulations issued by the Department. The Department also uses a manual entitled "Handbook of Public Assistance Administration" as an official means of providing States with guidelines and recommendations for the proper and efficient administration of public assistance programs. In our opinion, the inclusion in the Handbook of Public Assistance Administration of a provision, specifically recommending that States encourage physicians to consider the increased use of nonproprietary name drugs for welfare recipients would be conducive in effecting additional savings in the cost of drugs for welfare recipients.

Significant amounts of Federal funds are involved in public assistance payments for prescribed drugs in all States, and the possibility exists that the conditions disclosed in our review in Pennsylvania may also be present in other States. New and expanded legislation that authorizes increased Federal participation in medical care benefits to needy people accentuates the importance of effecting economies in the purchase of prescribed drugs under federally aided public assistance programs.

In December 1965, subsequent to commenting on our findings, the Department of Health, Education, and Welfare issued a directive which requires each of the operating agencies in the Department, including the Welfare Administration, to

take appropriate steps to insure that (1) drugs procured for agency use are purchased under their nonproprietary or generic name whenever it is practicable and economical and (2) grantees are encouraged to prescribe and purchase drugs under their nonproprietary name whenever practicable and economical. Recommendation to the Commissioner, Welfare Administration

We recommend that, in implementing the Department's enunciated policy that nonproprietary name drugs be used wherever practicable and economical, the Commissioner, Welfare Administration, issue as a part of the Handbook of Public Assistance Administration a provision specifically recommending that State agencies administering federally aided public assistance programs adopt policies and procedures designed to encourage physicians to prescribe, and pharmacists to dispense, for the use of welfare recipients the less expensive nonproprietary name drugs whenever practicable and consistent with the recipients' welfare. We believe that, to assist the State agencies in implementing this recommendation, the Welfare Administration should obtain information concerning (1) the steps which may have been taken by State agencies to reduce drug costs through encouraging or requiring the use of less expensive nonproprietary name drugs in appropriate cases and (2) the results which have been experienced from these steps, and, after appropriate evaluation, disseminate this information to all the States for their consideration in designing means to achieve economies in the purchase of prescribed drugs in their own federally aided public assistance programs.

SCOPE OF REVIEW

Our review covered principally the expenditures made by the Pennsylvania Department of Public Welfare for prescribed drugs for welfare recipients. Our work was performed at HEW Washington headquarters and in the State of Pennsylvania and included:

1. A review of the basic legislation authorizing the programs and related legislative history.

2. An examination of prescription invoices and a cost analysis of the prices paid and the range of prices available from various manufacturers that could have been paid for the drugs prescribed and dispensed to welfare recipients.

3. A review of the policies, procedures, and controls of the HEW Welfare Administration governing the approval and administration of State plan provisions concerning payments to vendors and the prescribing and dispensing practices adopted by various hospitals in Philadelphia, Pa., and drug cost controls used by certain other States.

IMPROVEMENTS NEEDED IN DIAGNOSTIC LABORATORIES

Mr. FOGARTY. We recently talked informally about the job that is being done in the diagnostic laboratories throughout the country, both private and Government, and also that in the next 10 or 15 years the present-day laboratory will be as antique as the Model T Ford because of automation, and so on.

It has been brought to my attention on several occasions that more mistakes are being made in these diagnostic laboratories than people realize. Your successor at CDC, when he comes before us, will be asked some questions about it. Do you care to make comment on it as a former director?

Dr. GODDARD. I was made aware of this through our laboratory improvement program at the Communicable Disease Center, and it is also true of the activities of the New York City Health Department Laboratories, and special studies that have been carried out which indicate, indeed, there is great cause for concern in that proper supervision frequently is lacking for laboratory personnel.

By this I mean that one individual may supervise five or six laboratories and spend only a couple hours a week in a given laboratory, and delegate to the top technician the full responsibility for seeing that other technicians do the job.

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