told that there is a reason why they do this. I have been told on good authority that one of the reasons that they make this phenomenally good price to the hospital is that the physician who practices in the area of that hospital will become accustomed with that particular trademark name, in this case Equanil, will write prescriptions for it within the hospital and get accustomed to the use of the name and so forth, so that when he goes out into his private practice, then he is more apt to write prescriptions for this particular product. The company indicates that they are even losing money when they sell it to the hospital at $22.60 a thousand.

Mr. POTVIN. In analyzing that, Mr. Skinner, what really happens here is that the manufacturer furnishes the pharmaceutical to hospitals at an artificially low price, and uses salesmanship, psychology, and availability in order to get the doctors of the staff acquainted with it so they will write prescriptions at a much higher price in their private practices outside the hospital.

Mr. SKINNER. The pharmacists would have to charge a much higher price because he is paying $29 for 500 of them.

Mr. PoTvIN. So in a sense your customer is subsidizing the artificially low price at the hospital?

Mr. SKINNER. That's right.

Mr. DINGELL. Are these hospital prices extraordinarily low prices? In other words, are they below profit margin? Is it a sale at a loss or a sale at a reduced profit or sale at cost?

Mr. SKINNER. In the example I gave you I think it is quite definite that they are sold below cost.

What I said was, in the example that I just was talking about, the Equanil case, from the Wyeth Manufacturing Co., I think they were selling that below cost. But I don't believe this is the procedure. I know it is not the procedure for all of the manufacturers because in the study that I made and in the material that I just turned over to the committee, I think you will find within this material that the average discount given the discount given to the hospital is usually 10 to 20 percent below that given to the community pharmacist, which doesn't begin to compare with the price we had here, where it is less than half.

Mr. DINGELL. These so-called promotional prices that you have been referring to, are these continuing prices or are these special arrangements that occur for a limited period of time?

Mr. SKINNER. To my knowledge they are continuing.

Mr. POTVIN. Is that true today of the Equanil brand of meprobamate, to the best of your knowledge?

Mr. SKINNER. To the best of my knowledge it is true today.

Mr. PorvIN. Equanil has been on the market how many years now? Mr. SKINNER. Possibly 10, 12.

Mr. POTVIN. So it has a rather astoundingly long life?

Mr. SKINNER. Yes, sir.

Mr. WILLIAMS. In these illustrations that you are using, are you assuming inpatient usage and not resale by the hospital?

Mr. SKINNER. We haven't established that point yet. I would say that in some instances there is some outpatient dispensing.

Mr. WILLIAMS. Are we dealing in this case with inpatient use only?

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Mr. SKINNER. I would simply--I was establishing what the hospital was paying for the product. We might get into what they do with it after they pay for it, but I hadn't established that point yet-what they were doing with it.

Mr. WILLIAMS. Can I assume from your response that this is not an issue and that the price would be the same?

Mr. SKINNER. The hospital is going to pay the same for it no matter what disposition they make of it.

Mr. DINGELL. Let me ask a few questions so we can have an understanding of the charts you submitted.

In chart No. 1, comparing individually owned community pharmacies with chains with their own warehouse facilities, you said useful replies, 28. That would mean a certain number of replies gave you information that you could not appropriately catalog, or tabulate. Is that correct?

Mr. SKINNER. When and if the committee examines those reports I got from the manufacturers, I think you will find that there are many in there that are not useful replies. They might have answered one question and not the other.

Mr. DINGELL. Then you say that in 20 cases both received the same discount. Does this mean both received the same discount per unit purchased or for a given number of units purchased? In eight instances you say chains received a better discount. Would that mean the chains received a better discount on the same number of items sold?

Mr. SKINNER. This means whoever completed the questionnaire had indicated that both the community pharmacy and chain had received their price and they had given the same discount to both categories. Mr. DINGELL. For a given volume purchased?

Mr. SKINNER. There is no mention-well, yes, there was mention made of volume, but it didn't apply in this particular instance. I would say "Yes," for the same volume of purchase.

Mr. DINGELL. This is quite an important question. You say here, both received same discount. That would be for the same amount purchased or the same volume bought, am I correct? And then chains received a better discount. Would that mean that the chains got a units in each case? Would it be fair to say that as a pharmacist in a community I would receive the same discount from 20 of these but on eight of these for a units chains would receive a better discount? Mr. SKINNER. That is what I implied.

Mr. DINGELL. That is in chart No. 1.

Mr. SKINNER. Yes. In other words, the manufacturer might indicate that he gives the community pharmacy a discount of 33% percent, let's say.

Mr. DINGELL. And you go into chains and wholesalers who received the same discount, which is better than the discount to individually owned community pharmacies.

Mr. SKINNER. That's right.

Mr. DINGELL. You have 36 useful replies; 25 state that wholesalers received the best discount. Would this be for a given volume a wholesaler would receive a better price than, let us say, a retail pharmacist who has the privilege of purchasing direct from the manufacturer, or would this be that the wholesaler would receive a better discount than the ordinary retailer who had no such direct purchase privilege?

Mr. SKINNER. In this instance, the manufacturer would indicate that he gave a better discount to 25 wholesalers, a better discount for the same quantity purchased.

Mr. DINGELL. You mean in the case of 25 manufacturers?

Mr. SKINNER. Twenty-five manufacturers, I am sorry.

Mr. DINGELL. Twenty-five drug houses indicated that wholesalers received the best discount. This is better than chains and better than retail.

Mr. SKINNER. Yes.

Mr. DINGELL. Would they receive a better discount than a retailer who had the privilege of buying direct ?

Mr. SKINNER. Yes.

Mr. DINGELL. In the last instance you say chains and wholesalers received the same discount which is better than the discount to individually owned community pharmacies. In these instances you would have a situation where a chain would be receiving essentially direct purchase privileges and would be able to buy under conditions better than a retailer similarly situated purchasing the same amount of a particular commodity?

Mr. SKINNER. That's correct.

Mr. DINGELL. Now, chart 3, individually owned community pharmacies compared with physicians in private practice.

Pharmacies received better discounts in seven instances. Physicians received best discount in three instances. This would be in the case of physicians who would use it within their office practice or physicians who used it for resale or those who owned a retail pharmaceutical outlet?

Mr. SKINNER. It would be a physician who purchased for his own use in his office, whether dispensing or for consuming in the office. Mr. PorvIN. Mr. Skinner, as you understand it, is there a different price to a physician who buys for dispensing purposes or for purely office purposes? The point that I am trying to make here is that actually there is just a physician's price; is there not?

Mr. SKINNER. That's right.

Mr. PorvIN. It is not broken down any further than that?

Mr. SKINNER. No.

Mr. DINGELL. Is there usually a lower price to a physician than to the retail pharmacist?

Mr. SKINNER. It is pointed out here in the chart, that in seven instances out of the 21 the pharmacy received the best discount; in three instances the physician received the best discount and in nine instances they both received the same discount and in two instances, the remaining two, there is where the manufacturer referred to a separate physician's list but he didn't tell me what it was.

Mr. DINGELL. This would again be for the same volume of a particular commodity?

Mr. SKINNER. That's right.

Mr. DINGELL. I see. You may proceed.

Mr. SKINNER. Here are some generalities regarding pharmaceutical manufacturers' prices largely substantiated by the survey:

No. 1. Drug wholesalers, who provide the greatest supply service to the community pharmacist, must, because of drug manufacturers' pric

ing policies, charge the pharmacist the highest price he has to pay for prescription products.

If the community pharmacist wants to buy a product on the market he will pay the highest price for it if he buys it from his drug jobber or wholesaler. The drug wholesaler provides a great supply service to the community pharmacist.

Mr. POTVIN. When you say a drug wholesaler who provides the greatest supply service, may I assume you mean the full-line wholesaler? Mr. SKINNER. I am talking about the full-line wholesaler. I could have said it in this way: wholesalers provide the greatest supply service, and leave the word "who" out.

No. 2. If the pharmacist's requirements are large enough so that it is practical that purchases be made direct from the manufacturer, a discount of 10 percent to 20 percent will be obtained.

Mr. POTVIN. Could you give us any specific examples from your personal experience of the type of volume that you would have to produce to attain the privilege of buying, as you say, direct from the manufacturer so as to obtain this discount?

Mr. SKINNER. I could name a few of them-Abbott Laboratories would require a minimum dollar value-an order of $10. I believe Merck, Sharpe & Dohme is $25, although they give a better price if you buy $50 worth and in many instances they will give a better price if you can buy $100 worth.

Mr. DINGELL. This is of a particular commodity, or would this be sort of a mixed order of a series of different items?

Mr. SKINNER. A particular category that they specify. They will say that this particular drug, if you buy it in $50 lots you will get a better price.

Mr. DINGELL. In other words, you could not put together four or five different kinds of antibiotics?

Mr. SKINNER. Antibiotics are usually exempted in this area. Mr. POTVIN. Do any require a minimum monthly or annual overall volume, sir?

Mr. SKINNER. That is right.

Mr. POTVIN. So in addition to the $50 per item, you would have to buy several thousand dollars worth, or whatever, on an annual basis from that particular manufacturer?

Mr. SKINNER. That is very true.

Mr. POTVIN. Can you give us those minimum figures in some specific examples?

Mr. SKINNER. I am sorry, I don't have those.

Mr. DINGELL. Would you be able to obtain those for the record? Mr. SKINNER. I will be happy to do that and I will send them to the committee.

Mr. DINGELL. As far as minimums on a particular order and minimums on an annual or monthly or some kind of periodic basis. Mr. SKINNER. All right, I will be glad to supply that information.1 Mr. SKINNER. No. 3. Several pharmaceutical manufacturers are giving 10- to 15-percent rebates to the department of public welfare for prescription orders for their products processed through DPW channels.

1 The information was not available at the time of this printing.

No. 4. Separate discounts are given by some companies to dispensing physicians, privately owned medical clinics, and proprietary hospitals. This information was obtained from the survey that we were referring to previously and an analysis of that survey will define those companies which give the special discounts to these categories.

No. 5. Tax-supported institutions receive an additional 10- to 20percent discount on direct purchases from pharmaceutical manufacturers. In cases where bids are given for large purchases, discounts are greater, but most difficult to discern.

In other words, you won't find this information indicated in their catalogs.

The resulting price differential between tax-supported institutions and other drug outlets makes the diversion of the product a definite temptation and threat. This diversion of product I refer to has to do with the movement of the product from the shelves of the tax-supported institution into the possession of another dispenser of pharmaceutical products who, without such diversion, would have had to pay a higher price for the product. This is sometimes accomplished by an outright sale of the product by the hospital, by exchange of mechandise, and by other devious means. Unformity in pricing could eliminate this condition. Pharmacists have been warned by eminent legal authority that it is just as illegal for them to purchase as it is for the hospital to sell inventory purchased by the hospital at a special price. However, to my way of thinking, until this legal theory is proven, it is difficult to be critical of a pharmacist who takes advantage of lower prices on the legitimate market so that he can pass the resulting savings along to his patrons.

Most of the members of the pharmaceutical industry discriminate against the community pharmacist by requiring that he place his order for products in minimum amounts of $15 to $100 while this requirement is waived for the tax-supported institution.

This is the point that we were discussing just a moment ago.

It doesn't happen to be true in my hometown, but in many cities. pharmacies located within and included with hospitals routinely dispense prescription medication to outpatients. When this occurs, the community pharmacist is placed in an impossible competitive position since the pharmaceutical manufacturer sells his product to the hospital pharmacist at a price for 10 to 50 percent below that price charged community pharmacists.

"Special price" seems to be a basic tenet in every pharmaceutical manufacturer's community-marketing dictionary. There are-to mention a few-the pharmacy price, the dispensing physician price, the clinic price, the small-chain price, the large-chain price, the privatehospital price, the tax-supported-hospital price, and the unbelievable State and Federal Government price.

I say it is unbelievable because when it is compared with what the community pharmacist is paying it is quite fantastic.

The price variance between the first and last mentioned is fantastic. The community pharmacist has good reason to believe that the high price he pays for the pharmaceutical products he dispenses is supporting this entire ridiculous discount, upon discount, upon discount, pricing structure.