We cannot continue these facilities if you continue to adopt programs that will cut the heart of the pharmacy away and I refer to the prescription department. We are there to service the public in convenient locations with qualified personnel and thoroughly reliable products not bound by limitations of Government decree.

The cost of drugs is one of the smallest parts of the medical care dollar. The emotional feedback from the public and the Government is out of all proportion to its reality.

Thank you.

Mr. DINGELL. Thank you, Mr. Blatman.

Mr. Williams?

Mr. WILLIAMS. No questions, sir.

Mr. DINGELL. Mr. Potvin?

Mr. POTVIN. Mr. Blatman, I will, just as soon as we go out of session, supply you with the same list that was given to Mr. Skinner. The chairman has directed me to request you to take it back to Philadelphia with you and submit it to the board of your association with the subcommittee's request that it be sent out to your membership, together with such appropriate comments as you choose to make.

Mr. BLATMAN. I will be very happy to do so.

Mr. POTVIN. I appreciate your help.

(The information is retained in subcommittee files.)

Mr. DINGELL. If there are no further questions, the Chair notes that there are no further witnesses today. The subcommittee will stand adjourned until tomorrow at 10 o'clock.

(Whereupon, at 3:30 p.m., April 3, 1967, the subcommittee recessed, to reconvene at 10 a.m., April 4.)

SMALL BUSINESS PROBLEMS IN THE DRUG INDUSTRY

TUESDAY, APRIL 4, 1967

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ACTIVITIES OF REGULATORY AGENCIES

OF THE SELECT COMMITTEE ON SMALL BUSINESS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room 2359, Rayburn House Office Building, Hon. John D. Dingell (chairman of the subcommittee) presiding.

Present: Representatives Dingell and Conte.

Also present: Gregg Potvin, subcommittee counsel; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel.

Mr. CONTE (presiding). We will open the hearings this morning on small business problems in the drug industry.

I am very happy to have the opportunity to introduce to the committee Mr. William F. Shaffer, president of the Massachusetts State Pharmaceutical Association.

I am sure Mr. Shaffer will have some very valuable contributions to make to the committee and we certainly appreciate his coming here from Massachusetts to testify.

I would also like to thank the committee for making available this opportunity for Mr. Shaffer to present his statement today. Mr. Shaffer, you may proceed as you wish.

TESTIMONY OF WILLIAM F. SHAFFER, PRESIDENT, MASSACHUSETTS STATE PHARMACEUTICAL ASSOCIATION

Mr. SHAFFER. Thank you, Congressman Conte and members of the committee.

I officially represent the Massachusetts State Pharmaceutical Association, comprised of 1,250 members, and also represent the over 5,000 pharmacists practicing in the Commonwealth of Massachusetts.

I wish to thank the committee for allowing me to appear before this committee this morning to air and to explain some of the problems which are confronting community pharmacists and retail pharmacists. I hope my testimony today helps solve the problem and correct the situation which we feel is unfair and unjust.

As you probably know, pharmacy is plagued on all sides, from big industry through unfair practices, price discriminatory policies; this is evident, I am sure, to this committee and to people in everyday walks of life.

I have brought down material with me, material such as hometown newspapers, which show that large manufacturers must be selling to large chainstores, discount operations, supermarkets, well-known

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products of theirs at reduced prices which are not given to the community pharmacy, or at least made available for the community pharmacist to purchase as these large chains.

There are literally hundreds of items that are advertised in the journals and in the papers below the cost at which the community pharmacy obtains the same merchandise, and it is unfair, it is actually unfair in the marketplace for the community pharmacist to have to compete on terms which make it difficult for him to practice and to survive. The effect of these practices has been evident in the years that I have been practicing in Massachusetts, for in 10 short years over 100 pharmacies that had been fulfilling the vital needs to the community for years and, in the case of many pharmacists, for lifetimes, have closed their shops.

I would like to leave some of these advertisements with you showing retail prices which in my opinion establish that these manufacturers are selling to these large chains at far lower prices.

Mr. POTVIN. Mr. Shaffer, could you identify the name and issue of the newspaper and firm running the advertisement?

Mr. SHAFFER. Yes; I could do that for you, counselor.

This is a Belmont Herald ad, dated December 15, 1966, just a short few months ago. The story that is in point is CVS, otherwise known as Consumer Value Stores, which is a large discount chain in the fair Bay State of Massachusetts.1

I would like to point out that they have products such as AlkaSeltzer, which is normally sold for 67 cents, and 39 cents is their selling price, far below the cost of that at which the pharmacist may obtain this product.

Mr. POTVIN. As I understand, you are the proprietor of two drugstores. Is that correct?

Mr. SHAFFER. Two pharmacies.

Mr. POTVIN. So you would have a bit more purchasing power than the typical single unit proprietor?

Mr. SHAFFER. This is correct, but I must say that I just opened my second pharmacy 2 months ago. As you probably know, I am running at a considerable loss now as this is the shaky point of any business-the establishment of it. I am being confronted with discounters left and right, all around me, but I hope as a result of my good name and the services that I avail to my clients and patrons, that I will be here for many years to come. But at least at this particular time, I am buying on similar terms as one-pharmacy owners.

If it gets successful, then I would have the opportunity for buying for two pharmacies.

Mr. POTVIN. Could you, on the Alka-Seltzer, tell us your acquisition cost and perhaps give one or two other examples that come to mind as you look at the various items in the advertisement with the specific name of the item, its price, your cost, and your price?

Mr. SHAFFER. Yes; I could name you one product here, AlkaSeltzer, which as I stated before, sells for 67 cents, selling to the consumer for 39 cents. We pay 46 cents for that particular product.

Mr. POTVIN. Is that buying in the largest quantities practical for you?

Mr. SHAFFER. No; at the best price to me it is just about 42 cents. I don't know the exact figure. I know it is around that, plus or minus 1

cent.

1 The information is retained in subcommittee files.

Mr. WILLIAMS. May I ask a question? Would this be regardless of quantity?

Mr. SHAFFER. That is right.

Mr. WILLIAMS. The cheapest that you could buy it would be 42 cents? Mr. SHAFFER. Yes. I would like to point out, also, which may not lend any real value-at least I would like to make mention of it-and that is, this is below the Unfair Sales Act of Massachusetts. As you know, you have to sell a product 6 percent above cost and in many instances the prices are below 6 percent of cost.

I also have letters and documents of our legal counsel and staff sent to these particular discounters and chainstores to cease and desist, after pointing out the law to them, and some of them have complied with the wishes of counsel. But they forget this product and they go on to another product. It is just a game of checkers. One week it is Alka-Seltzer, and the next week it may be Maalox, next week Bufferin, and the next week Excedrin that they put below the 6-percent required sales markup.

Mr. Porvin. How many units are there in the Consumer Value Stores organization, sir?

Mr. SHAFFER. I don't know, counselor, the exact number of stores that they have, but I would say at least 15.

Mr. CONTE. What if they sell below 6 percent of cost and they fail to cease and desist? What is the penalty in Massachusetts?

Mr. SHAFFER. I could state the law-the chapter, but I don't-I think it is a $100 fine-there is a fine and penalty.

Mr. WILLIAMS. One other question. Are you contending that they are selling below cost or, in addition to that, that they are buying at a lower cost than you are?

Mr. SHAFFER. Well, it seems to me good business sense that anyone who is selling merchandise does not sell it below cost. I do not have any documented invoices pertaining to manufacturers selling to chainstores at below cost, but I am sure you heard a few years back of the company, Aurora, which had a special price for chainstores as opposed to pharmacies, and discounts, that they were showing this discriminatory price practice, and I am sure that it exists with these chainstores and discounts. I do have material that I can earnestly say is documented material in the other area.

As I pointed out to this committee, we are confronted on many sides. On one side we are confronted with the discounters, the supermarkets, and chainstores in the front of the pharmacy which we call merchandising, and we are also plagued in the backroom, the prescription end. Here we have manufacturers who are certainly showing price discriminatory practices. I will leave with this committee documented material of differential prices to hospitals and there are many companies that are involved.

I would like to submit to the committee this document from Hoffmann-La Roche, Inc. This firm will give to hospitals a 25-percent discount on all products prescribed for on the Roche line. It does not indicate that the patient will be receiving this 25-percent reduction, and it does not say that the person who is a medicare patient will be receiving his 25-percent reduction, but the hospital will receive a 25percent reduced rate on its normal purchase for medicare patients.

I, as a practitioner of pharmacy serving six nursing homes, one of them an extended care facility, also deal with medicare patients and

comply with the rules and regulations, but this 25 percent is not granted to my pharmacy. I feel that this is grossly unfair and does indicate price discrimination and, I believe, violation of the Robinson-Patman Act.

So, I would like to leave this with you.

(The above referred to documents follow :)

PRINCIPLES OF AGREEMENT

HOFFMANN-LA ROCHE MEDICARE REIMBURSEMENT PLAN

Hoffmann-La Roche Inc., pursuant to the public interest and to assist in the implementation of Title XVIII of Public Law 89-97 (Health Insurance For The Aged "Medicare"), is willing to grant hospitals twenty-five per cent 25%) discount off the purchase price of Roche prescription drugs dispensed to patients who qualify under Title XVIII, under the following terms and conditions:

1. Hospital will furnish us with quarterly statements setting forth such patient's "Medicare card number," name and quantity of the particular Roche prescription drug (s) dispensed on behalf of such patient; and the purchase price for said drug (s).

2. Upon satisfactory receipt of the above information, Roche will pay hospital quarterly, 25% of its purchase price of the Roche prescription drugs involved.

3. Either party may cancel this agreement at any time on 10 days' prior written notice to the other.

If hospital agrees to the above proposal, please so indicate by signing and returning the reply card portion to Roche. Upon receipt of this signed agreement complete information concerning participation will be forwarded to you. Agreed to this 27 day of October, 1966. Name of Hospital.

ROCHE LABORATORIES, Nutley, N.J., August 8, 1966.

DEAR HOSPITAL ADMINISTRATOR: At this significant point in time, following close upon the introduction of Medicare, Roche Laboratories is privileged to announce the availability of the Roche Medicare Reimbursement Plan-an extension of the intent and scope of the Roche Policy and Pledge1 to include all hospitalized Medicare patients.

Roche Laboratories takes pride in inaugurating the Roche Medicare Reimbursement Plan reducing total hospital costs of Medicare patients by reducing the costs of all Roche drugs used in their treatment.

Promptly upon the participating hospital's submission of brief, pertinent data-the patient's Medicare card number, name of the Roche drug used, and the cost of the drug to the hospital-the Roche Medicare Reimbursement Plan will return, directly to the hospital, 25 percent of the hospital cost of the Roche drug or drugs used by the Medicare patients in that particular quarter of the year. In initiating this plan, Roche Laboratories does so with deep conviction and awareness of its community responsibility and with full recognition of the plan's long-term potential. We anticipate your response to this announcement with great interest and welcome your hospital's active participation.

To all of you who have a role in implementing Title XVIII (Medicare), Roche Laboratories extends sincere appreciation. We will be most privileged and honored to have you cooperate in our proposal to supplement this national effort with the Roche Medicare Reimbursement Plan for hospitals and to complete the enclosed agreement of participation.

Sincerely,

1 The Roche Policy is to raise new, higher standards of therapy through research. The Roche Pledge is to make available new drugs assuring patient benefits in efficiency, safety and practicality.

Mr. POTVIN. Mr. Chairman.

V. D. MATTIA, M.D., President.

Mr. Shaffer, is there any distinction made in the LaRoche document as to those drugs which are used in the hospital as part of its internal procedures and those that are sold at an in-house or in-hospital pharmacy?