Gentlemen, I appreciate the opportunity to have offered you a few remarks here about our association, its background, and we would be more than happy to try and answer any questions you might have.

Mr. DINGELL. You have made a very helpful statement, Mr. Ford. The committee is grateful to you. The Chair will recognize now our good friend and colleague, Mr. Burton.

Mr. BURTON. One question, Mr. Chairman.

Mr. Ford, you said that the National Wholesale Druggists Association didn't believe that the economic situation of a family should be a determining factor in the availability of drugs to them. Then you went on to be critical of some Federal programs which aid in making these drugs available to people in the lower economic strata. What, if any thing, is your association doing to make these drugs available to lowincome families on a voluntary or charitable basis?

Mr. FORD. I assume you are referring, of course, to the members of our association rather than the association office or staff itself. Mr. BURTON. Either one.

Mr. FORD. I would say that there is little being done in the way of charitable donations of drugs. I think that the assistance that the members of our association can offer and have offered throughout is a system providing for distribution of merchandise effectively throughout the entire corners of our United States to where these products are available locally at a reasonable cost.

What I was trying to say when, in effect, I said that we did not feel that the income level of a citizen should condition the health care that he is entitled to is that if a man's economic resources don't permit the purchase of drugs at the prices that are available, we certainly don't feel that this should deny the drugs to those individuals, but we think that these drugs, where they are through Federal assistance or State assistance, can get most economically and efficiently into the hands of the underprivileged, if you will, can be through existing distribution channels rather than the Government attempting to set up its own distribution system which we don't feel will be as efficient and as economic as what we already have to offer.

Mr. BURTON. Thank you, Mr. Chairman.

Mr. DINGELL. Thank you, Mr. Burton. Mr. Potvin.

Mr. POTVIN. Mr. Chairman. Sir, you say that you have 370 members in the wholesaler category. Could you tell us of those 370 how many are branches of McKesson & Robbins?

Mr. FORD. I think McKesson at the present time has about 98 or 99 divisions in the country.

Mr. POTVIN. And how many would be Brunswig?
Mr. FORD. Brunswig has 27 houses.

Mr. POTVIN. And Southwestern?

Mr. FORD. Southwestern I believe has about 13.

Mr. POTVIN. Then, approximately 140 of the 370 would be branches of those three firms.

Mr. FORD. Correct.

Mr. DINGELL. Would you yield? Are those each treated as a member or is McKesson & Robbins and Brunswig and Southwestern each counted as one member?

Mr. FORD. No, sir; Mr. Chairman. These would constitute, if the arithmetic is right, 140 of our 370 members. Mr. DINGELL. Each branch then is

Mr. FORD. Each warehouse location is a separate member as far as we are concerned.

Mr. POTVIN. Do you have, or if not could you supply us at your early convenience, a list of the names and the number of branches for each of the other multibranch members?

Mr. FORD. I am certain we could, sir; and will be glad to.

Mr. POTVIN. Now you also have 370 associate members. Could you tell us of those how many are manufacturer members.

Mr. FORD. This would be a rough estimate on my part, but I would say somewhere in the neighborhood of 250 or so.

Mr. POTVIN. And could you tell us in general terms the portion or perhaps percentage of your total annual revenue coming from that source, your manufacturer associate members, and allow me to say, sir; if this is uncomfortable in any way, you certainly do have the option of submitting that in writing to the committee.

Mr. FORD. I believe perhaps one of the documents I have got here would give that to me in rough figures. From our revenues at the end of our 1966 fiscal year about one-third came from associate manufacturers.

Mr. POTVIN. Could you tell us the percentage that came from associate nonmanufacturers?

Mr. FORD. It was about a sixth, so that means that about 50 percent or one-half came from our wholesaler members.

Mr. POTVIN. That is almost a precise reflection of the composition of your overall membership.

Mr. FORD. It would be pretty close to it, sir: that is right.

Mr. POTVIN. Several years ago spokesmen for NWDA_appeared before another subcommittee of the House Small Business Committee. in relation to the dual distribution problem. This would have been during the 88th Congress.

During the intervening years are you familiar with what has happened in terms of the dual distribution problem? Has it increased? Has there been any significant changes that you are aware of?

Mr. FORD. Again, I had better indicate that I don't consider myself an expert in these fields. My personal feeling would be that this problem has continued on about the same plane that it was on at that time. There are constant changes and fluctuations within the industry. In other words, one firm, one manufacturer can be going away from selling through wholesalers, for example, more toward direct selling, and at the same time another manufacturer can be going 180° in a different direction, and I think this is actually what is taking place and what seems to take place.

As people change within a manufacturing firm and their philosophy of distribution changes, well, you find these patterns constantly going in opposite directions.

Mr. POTVIN. Could you supply us with copies of your bylaws and your constitution and the document you were reading from. I believe it is the minutes of your last annual convention.

Mr. FORD. Yes, it is the proceedings of our last meeting.

Mr. POTVIN. You have a publication known as the NWDA Executive Newsletter.

Mr. FORD. Correct.

Mr. POTVIN. May we have copies of that from 1959 to date.

Mr. FORD. I will try and make them available. I am not certain we have got copies going back that far.

Mr. POTVIN. As I understand it, this is a relatively sparse material that is what, monthly in nature?

Mr. FORD. No, our Newsletter comes out weekly.

Mr. POTVIN. Weekly?

Mr. FORD. And it is a 4-page brochure 812 by 11, four sheets. We will certainly give them to you as far back as our files have them. Mr. POTVIN. Sir, let me check with the Library of Congress. I have no idea if that publication is there, but if so we might be able to save a rather large mailing.

Mr. FORD. All right. Do you want me to make some notes of this or would you like to give me a list at the conclusion of what you would like?

Mr. POTVIN. You will receive a copy of the transcript. It will be in the mail tomorrow. May we also have your membership directory for each of the last, say, 5 years?

Mr. FORD. Certainly.

Mr. POTVIN. Now one of the central characteristics of your associa tion is that you have seemingly divided the country into some 39, I believe you call them, trading areas.

Mr. FORD. You are probably referring to 39 distribution areas.
Mr. POTVIN. Distribution areas.

Mr. FORD. Yes.

Mr. POTVIN. One of these I note at the present time, No. 38, which falls between No. 37, Wisconsin, and No. 39, Hawaii, is seemingly unoccupied, is that correct?

Mr. FORD. Thirty-eight I believe was Alaska that we added when Alaska became a State. We have no members in Alaska. We thought we had better recognize them in view of their statehood, but we simply have no people located there.

Mr. POTVIN. Mr. Chairman, at this time I would like, if I may, to offer for the record a compilation of the 39 NWD distribution areas including the names of the States included therein.

Mr. DINGELL. Without objection it will be inserted in the record at this point.

(The compilation referred to follows:)

N.W.D.A. "TRADING AREAS" WHERE PAUCITY OF INDEPENDENTS ARE CONCENTRATED (11 TRADING AREAS)

11. (Parts of Ohio) (Known as "Cleveland-Buffalo" Area) McK&R (3), Ketchum (2), Independent (0).

12. (All of Michigan) (Known as "Detroit" Area) McK&R (2), Brunswig (4), Humiston-Keeling (1), Independent (0).

20. (All of New Mexico and all of Colorado) (Known as "Denver" Area) McK&R (1), Davis Bros. (1), Fox-Vliet (2), C. D. Smith (1), Independent (0). 23. (All of Oregon and all of Washington) (Known as "Seattle-Portland" Area) McK&R (6), Northwestern (2), Independent (0).

24. (Parts of California and Nevada) (Known as "San Francisco" Area) McK&R (7), Brunswig (8), Los Angeles (2), Independent (0).

25. (Parts of California & Nevada) (Known as "Los Angeles" Area) McK&R (8), Brunswig (9), Los Angeles (4), Independent (1).

26. (All of Arizona) (Known as "El Paso-Phoenix" Area) McK&R (1), Brunswig (2), Independent (0).

27. (Parts of Texas and Arkansas) (Known as "Dallas" Area) McK&R (4), Southwestern (7), Behrens (4), Davis Bros. (1), Independent (1).

29. (Parts of Texas) (Known as "Houston-San Antonio" Area) McK&R (3), Southwestern (5), Independent (1).

36. (Parts of Florida) (Known as "Miami-Jacksonville" Area) McK&R (6), Johnson (4), Yahr-Lange (2), Allen (2), Independent (2).

37. (Parts of Wisconsin) (Known as "Milwaukee" Area) McK&R (1), Humiston-Keeling (2), Spence-McCord (1), Yahr-Lange (1), Dohmen (2), Independent (0).

Mr. POTVIN. Could you tell us, sir, how these trading areas were arrived at.

Mr. FORD. Well, I am not certain I can, because this goes back a long time before my employment with NWDA.

Mr. PorvIN. Let me ask this, for example. Is Buffalo, N.Y., in the same trading area with Cleveland?

Mr. FORD. I would have to take a look at a copy.

Mr. POTVIN. Do you have a diagram with you in your attaché case? Mr. FORD. I may have a copy of the map here with me.

Mr. POTVIN. As an example, the State of Indiana is partially in area 13, partially in area 14, and partially in area 15.

Mr. FORD. Yes. What would you like from me, sir?

Mr. POTVIN. Such comments as you feel prepared to make on what the rationale for this is and how it came to be.

Mr. FORD. Well, to the best of my understanding, the map started way back I believe in about the 1930's, and I believe at this time the association was using a professor at the University of Minnesota in marketing as sort of a consultant and adviser to NWDA on matters of distribution and on warehousing and wholesaling practices.

The map simply purports to in effect show the areas-distribution areas-in general terms of combinations of wholesalers-groups of wholesalers. Now the map, of course, would not in any sense reflect an individual wholesale house's pattern or even where they might be selling as far as an area is concerned, but this would represent a collection of wholesalers in a geographic section of the country.

Mr. POTVIN. What is the significance or function of these areas? Are they supposed to denote areas within which your members stay?

Mr. FORD. No; this is purely a marketing research tool. The distribution map has been prepared exclusively for that purpose.

Mr. PoTVIN. Sir, are you familiar with a publication known as the Medical Market Guide, published by Modern Medicine? Mr. FORD. I have heard of this; yes.

Mr. POTVIN. On page 67 of the current issue, the second paragraph, it states: "Sales can also be made in cross trade areas" referring to NWDA trade areas, "but from extensive checking it has been pretty well determined that there is very little line crossing by the NWDA wholesalers."

Do you feel that that is a reasonably accurate statement?

Mr. FORD. Well, I think it is a relative statement, to be perfectly honest with you, sir, as to what you would call very little. Our comments that we have made as we have distributed the map in the past are that our research would indicate that the sales of the wholesalers in a given distribution area are made within a plus or minus range of 10 percent within the boundaries of that area.

Mr. POTVIN. Would you feel that it was then unusual for a wholesaler to be making more than as you say 10 percent of his total volume outside the area?

Mr. FORD. No; I wouldn't at all, sir.

Mr. POTVIN. What significance does the 10 percent have then?

Mr. FORD. The 10 percent would have significance only with respect to the total group of wholesalers contained in that distribution area, not with respect to any individual firm. In other words, we have tried in all of our research activities to maintain a complete anonymous position as far as any individual firm's figures being able to be disclosed or divulged by any material that we would release.

Mr. POTVIN. Are you familiar with the word, in the use that is made of it in your industry, the word "diversion"?

Mr. FORD. I believe so, sir.

Mr. POTVIN. Is this ever discussed at NWDA meetings?

Mr. FORD. I don't think that we have ever had a program on diversion; no, sir.

Mr. POTVIN. May I assume that you are familiar with the NWDA code of ethics?

Mr. FORD. Yes, sir.

Mr. POTVIN. What does it say about diversion?

Mr. FORD. I don't believe that it currently says anything about diversion, sir.

Mr. POTVIN. Do you have a copy of your code of ethics with you? Mr. FORD. I am not certain. I would hope so. I don't believe I do have.

Mr. POTVIN. Could you supply us with such a copy, sir?

Mr. FORD. I can.

Mr. POTVIN. Were you present at the 1965 convention of NWDA? Mr. FORD. Yes, sir.

Mr. PorVIN. And were you present when your group was addressed by your then president, Mr. Ralph Ellis?

Mr. FORD. I am not sure that I was physically present in the room at

that time.

Mr. POTVIN. You are familiar at least in general terms with the text of his remarks.

Mr. FORD. Mr. Ellis was president of the association that year. Mr. POTVIN. Is it not a fact, sir, that at that time he espoused that NWDA ask manufacturers to limit the number of wholesalers?