drugs and sell them to his patient in competition with the corner drugstore, I have the feeling at least that he ought to be put on the same competitive scale as the corner drugstore, and our statement so reflects this.

Mr. DINGELL. The Chair is concerned with the fact that prescription pharmaceuticals may wind up in the hands of a pharmacist, hospital, or doctor through a number of ways. One would be through the regular channels. One would be through repackaging. One would be through samples and promotional-type packaging and disbursement of these commodities.

Now are there problems in connection with promotional samples and also investigative samples of these drugs in the hands of hospitals or others insofar as potential price discriminations or different pricing or violation of Robinson-Patman or the other antitrust laws are concerned?

Mr. KINTNER. Mr. Chairman, I think this is an area that definitely deserves further investigation. I have tried to secure facts on this problem, and tried without very much success. I have had informants who will tell me of situations, but they tell me in confidence because they fear reprisals, economic reprisals. I think that generally the responsible drug manufacturers of this country have tried to eliminate the abuse of oversampling, where samples are given to M.D.'s in greater number than it might be anticipated that they would need for sampling purpose, and then find their way into commercial channels.

Mr. DINGELL. Is this one of the sources of repackaged drugs?

Mr. KINTNER. I don't know. I don't believe so, but it has been a problem, and I think the responsible drug manufacturers are well aware of it. But there is another problem that I have had brought to my attention. In fact, a gentleman who was then State president of a pharmaceutical association a couple of years ago, at a NARD convention, got up and made a rather lengthy speech about what he called "diversionary" practices, where drugs were drop shipped to an address entitled to an institutional price, and then picked up for cash by a pharmacist at the lower price, and perhaps a sawbuck or a five-spot extra. Now I don't know how common this practice was, but it was common enough that the gentleman who headed the State pharmaceutical association got up and spoke at length about it, and said that he had made some calls because of the prevalence of the practice in his area. He had made personal calls on certain of the drug manufacturers at their offices in New York, to remonstrate about this. He also freely confessed that he was engaged, in order to meet competition, in trying to buy these under-the-counter drugs himself, in order to survive.

Mr. DINGELL. You say he was not able to secure these under-thecounter drugs?

Mr. KINTNER. Oh, he was able to. He said you buy it off the back of the salesman's truck, as I remember his testimony, or his statement. Now I am sure that a lot of these practices may go on without the knowledge of the drug manufacturer, but where they do occur, they have very great adverse effects upon the corner drugstore.

Mr. DINGELL. Getting into this business of hospital sales, do they in any instances involve promotional or investigative drugs?

Mr. KINTNER. I am sure they do involve investigative drugs, the drugs for research, but the problem that I am addressing myself to is the problem of the institutional pharmacy buying conventional drugs, the same drugs that are purchased by the corner drugstore, and then reselling to the same customers as the corner drugstore, with a favorable price advantage, naturally.

Mr. DINGELL. Is this done in a wholesale or a retail manner by these hospital pharmacies?

Mr. KINTNER. They buy in many ways. Some buy from wholesalers, some buy direct.

Mr. DINGELL. But are the hospital pharmacy sales wholesale or retail?

Mr. KINTNER. I brought this Pennsylvania letter to your attention because I thought it was a good example of investigations of attempts. to sell at wholesale.

Mr. DINGELL. Would it be fair to say that there are both?

Mr. KINTNER. I think so, yes, sir; both.

Mr. DINGELL. Now the other question I wanted to ask is this. Are hospital pharmacies operated on a concession basis or are they operated by the hospital itself?

Mr. KINTNER. I would say that mostly by the hospital, although in many instances there will be concession operated pharmacies. Mr. DINGELL. Does the concession operated pharmacy receive an institutional price, a preferential institutional price?

Mr. KINTNER. Very often; it does.

Mr. DINGELL. Is this appropriate under Robinson-Patman?

Mr. KINTNER. It is appropriate where it is for the "own use" of the hospital I think, and where it is for the inpatient use. There is also a gray area, but clearly where the hospital pharmacy is selling to the general public, or where doctor's office is in the hospital, and this is an increasing practice, and where they cause their patients to go to the hospital pharmacy and purchase, I think that you have the Robinson-Patman problem presented.

Mr. DINGELL. Counsel had a comment to make at this point. Mr. Potvin.

Mr. POTVIN. Mr. Kintner, just so that the record may be abundantly clear on that point, many hospital pharmacies also cater to and solicit the patronage of people off the street; is that not correct?

Mr. KINTNER. Oh, yes; and this is where the problem has the greatest rub, because these are people who normally would go to the corner drugstore for their prescriptions, and if the doctor urges his patients to buy from the hospital pharmacy, then the corner drugstore loses that much potential business or the opportunity of competing for that potential business.

Mr. DINGELL. Is it lawful for a doctor to instruct a patient where he is to get his pharmaceuticals?

Mr. KINTNER. I think he can influence him. He doesn't have to instruct him. He can influence him and there are ways of doing that which I think are perfectly lawful.

Mr. DINGELL. Now with regard to other pharmaceutical sales is there a problem in connection with the use of samples to doctors or to hospitals or to ordinary retail or wholesale outlets? Is this a problem in terms of discriminatory pricing? For example, buy a number

of packages, and we will throw in y number of samples? Is this a problem?

Mr. KINTNER. Mr. Chairman, that is a conventional Robinson-Patman problem, and I haven't been able to document it, but druggists have called my attention to the fact that they believe that certain suppliers may add a greater quanity than is invoiced, as a way of effecting a discriminatory lower price for certain customers. This is very difficult to document.

Mr. DINGELL. This is a very clear violation of Robinson-Patman, is it not?

Mr. KINTNER. Yes, sir, and if I were able to document one of those, I would have certainly referred it to the Federal Trade Commission. Mr. DINGELL. Now with regard to this business of buying direct, the pharmaceutical outlets have a number of different kinds of operations. One would be their wholesale distribution setup. The other portion of it would be those retailers who would be able to buy direct, Am I correct?

Mr. KINTNER. That is correct.

Mr. DINGELL. Is there a Robinson-Patman question in connection with those persons who are able to buy direct?

Mr. KINTNER. There may be, Mr. Chairman, under certain facts. I have in mind the Rohr case which was the subject of a cease and desist order at the Trade Commission, where there was a special price for multiple unit drug operations, which could not be cost justified. Mr. DINGELL. Wouldn't it also be a violation if they were to accept one person as a direct account and deny another person similarly situated an opportunity to buy direct?

Mr. KINTNER. Not necessarily. The problem comes when a better price is extended to say a chain operation, which normally will purchase in large quantity, but which better price cannot be cost justified under Robinson-Patman.

Mr. DINGELL. Let's assume you get two "buy directs" or one person who has "buy direct" and another person who wants "buy direct." They buy the same amount of drugs, but the supplier will allow only one of the two individuals concerned who wish to buy to buy direct. Is that a Robinson-Patman violation?

Mr. KINTNER. In your example are the sales contemporaneous, Mr. Chairman?

Mr. DINGELL. Reasonably contemporaneous and also to persons similarly situated in that they would both be retailers or both would be wholesalers.

Mr. KINTNER. I think you very well could have a Robinson-Patman violation, or you could bring an action under section 5 of the Federal Trade Commission, alleging that this is an unfair method of competion, if it is a practice.

Mr. DINGELL. Mr. Potvin.

Mr. POTVIN. Mr. Kintner, is it not true, sir, that the chairman has just rather ably sketched the entire anomaly of the central distribution problem? Is it not a fact, sir, despite being armed with section 5 of the Fair Trade Commission Act and the Robinson-Patman Act, that this type of case just has not been pursued down at the Com mission in recent years?

Mr. KINTNER. That is correct, and you have an area there where it is virtually impossible, under existing law, to effect corrective

measures.

Mr. POTVIN. But what we in effect here are attempting to do is to bring the Fred Meyer doctrine from promotional allowance over into price.

Mr. KINTNER. Yes.

Mr. POTVIN. And it is not clear that the center part of that girder has been built yet.

Mr. KINTNER. That is correct, but I would say that the Fred Meyer case is a big first step, and I hope that the Trade Commission would somehow, with all its expertise and ability, be able to take a second step in that direction, assuming, as I hope it will, the Supreme Court sustains the Trade Commission position in the Fred Meyer case. Mr. DINGELL. On page 3, at the end of the first paragraph, you said:

However, I am convinced the splendid programs will be effective only to the extent they are accompanied by a hard hitting enforcement program directed at the minority of violators who refuse to comply voluntarily with the antitrust laws.

This committee has been concerned for some period of time with regard to the vigor of both the Antitrust Division of the Department of Justice and, of course, the Federal Trade Commission. And since you alluded to this, not only once in your prepared statement but subsequently, the committee would find it helpful if you were able to give us some idea of enforcement statistics by both the Federal Trade Commission and the Department of Justice.

Mr. KINTNER. Mr. Chairman, I do not have these in mind, and I am not at all sure that statistics alone would fairly tell the story.

I have mentioned this twice because, like my belief in the basic rightness and soundness of the Robinson-Patman Act, I believe just as strongly in voluntary compliance with the antitrust laws, and in education with respect to those laws, but I feel strongly that education and voluntary compliance will not work unless it is accompanied by a hard-hitting enforcement program.

Mr. DINGELL. You are absolutely correct in that. Let me refer now to one other thing, if you please, Mr. Kintner. On page 8 in your statement here, you said:

"Although the Robinson-Patman Act applies to such sales❞— referring to exemptions afforded to institutions other than nonprofit institutions, but which are purchasing for institutional use, and are of a somewhat charitable nature, you go on to say "price differences are probably allowable to the same extent as with sales to nonprofit institutions."

This would be a matter of policy and not a matter of law; would it not? It would not be an enunciation of law but would be simply a matter of administrative judgment which might not be appropriate and proper in carrying out the law. Am I correct?

Mr. KINTNER. It would depend, Mr. Chairman, on the facts of the competitive situation. I draw this conclusion because of the state of the law in Robinson-Patman on functional selling. If there is no competition between functions-differing functions then RobinsonPatman's anticompetitive effects would not be found.

I am arguing here from analogy, but I hasten to add that you rightly have a concern here, because it is the situation whether or not the law in functional selling applies depends upon the facts in each competitive situation, and there are many gray areas here, and there are some that are fairly plain, where enforcement action is very much in order. Mr. WILLIAMS. Mr. Chairman.

Mr. DINGELL. Yes, Mr. Williams.

Mr. WILLIAMS. One question. Of course, the wholesaler or the manufacturer is going to say, "You are forcing us to supervise our customers and the use to which they put the product. In other words, we will have to monitor our own customers."

Would you care to comment about this?

Mr. KINTNER. Well, this is an old chestnut that I have heard many times. I heard it when I was in Government, and I have heard it in the 6 years since I have been out of Government, when I have represented a lot of big businessmen as well as small businessmen, and counseled them on how to comply with the Robinson-Patman Act.

I think I have done it very successfully, and effectively, where I had a cooperating client, and mostly clients don't come to me unless they want to comply with the law and agree to cooperate.

But, Mr. Williams, this is an old chestnut. The businessman says "Well, I can't send my accountant in to audit his books." Well, of course, he can't and he shouldn't. And he needn't do an extreme amount of policing that would absolutely, beyond peradventure, indicate how much of the business is at one function and how much at another function.

But businessmen do not operate in a vacuum. They have a certain amount of information available to them from trade sources. They are able to estimate, with a fair degree of accuracy, how much of a particular business is done at one function and how much is done at another, without going into the intimate details of a business operation as an internal revenue agent might. Minimally, they could rely upon what the buyer represents to them, and only question if they have good reason to question.

Mr. WILLIAMS. Could the problem in the case of the nonprofit institution be solved by the Internal Revenue Bureau alone?

Mr. KINTNER. I think the nonprofit institution, if it would estimate the amount or the percentage of its drugs that are sold in competition with the corner drugstore, could easily do so. I do not believe myself that the hospital administrator would lie about it. I think that if he understood the law and were told by his supplier that he had a certain responsibility to help them comply with the Robinson-Patman Act, that he would be honorable and honest about it, without the supplier having to go into his books and records to find out whether he was lying to them. I think the average hospital administrator would certainly tell the truth, the same way that I think the average businessman, who is engaging in more than one function, will tell the truth to his supplier.

Mr. WILLIAMS. Thank you, Mr. Chairman. I am glad to have Mr. Kintner's view on this point.

Mr. DINGELL. Mr. Kintner, the committee is indeed appreciative of your presence this morning, and I, as your friend and admirer, am grateful to you for your kindness in being with us today.

78-783-67-vol. I—3