Of course, you could not have the associations, he says. binding members to any particular negotiations and there could be no boycotting because these are obviously horizontal per se violations. Would you care to comment on that, please?

Mr. WILSON. I think Mr. Bernstein's suggestion was the plan's sponsors could go to various individual druggists and types of druggists. In other words, they can go to chain drug stores, they can go to independent pharmacists, and so on, to get an idea of what would be an appropriate offering to make to these individual pharmacists. As I gather from Mr. Kintner's statement, he does not think that is sufficient and he thinks that joint consultation with representatives of pharmacists is necessary if the plans are realistically to reflect even-handed dealing in the economic realities of the marketplace. I think when you get in that joint action you go over the line which separates antitrust legality from illegality.

Mr. RoE. The purpose of the antitrust laws is to promote competition, as you stated in the beginning of your statement, to help promote the lowest price, the best quality of goods. We have heard testimony that it is not promoting the lowest price and because of the deductible it is the same price for everybody, and that in many cases because of the definition of acquisition costs the pharmacists are being required to use generic drugs which there is some controversy which this subcommittee is not involved with.

But the assumption there is some merit to some of the controversy in this area, might not be providing the same for everybody be some inefficient drugs as a result?

Mr. WILSON. Well, I think what we have here is essentially a short-range problem resulting from the imbalance in bargaining power which obviously exists between the insurance carriers and the independent pharmacists. I think there are probably ways that we can solve this short-run problem without creating long-term consequences which I think would be undesirable, and this is precisely the kind of solution that I would like to see studied. But I do not believe excepting an industry from the effect of the antitrust laws without further study would be at all a desirable thing.

Mr. ROE. That is all, Mr. Chairman.

Mr. HUNGATE. Mr. Wilson, on page 3 of your statement, fee may be determined a number of ways and so on. One of them you list is the druggist's "usual and customary" charge. Is that formally used in any of these prepaid prescription plans of which you are aware?

Mr. WILSON. It was used in the early plans and I believe it is still used in some plans. There are really two problems there, the more important of which is that it provides no incentive to keep the operational costs down. The "usual and customary" costs just go up and up.

Second, the buying agency or the carrier, because it has no projection on which to base its actuarial calculations, has no basis of predicting the amount of disbursements with any accuracy.

Mr. HUNGATE. How would you distinguish that from the acquisition costs? As it is presented to the committee so far, acquisition costs do vary, can vary and they reach this by sometimes a complicated formula. Why wouldn't the same problem be inherent in that?

Mr. WILSON. I think, with respect to the acquisition cost or some other standard, there is a regional standard proposed by the carrier.

I heard the term referred to as the "red book cost," a manner of coming up with some form of standardized costing means, which enables the insurance carriers to predict what their disbursements are going to be.

Mr. HUNGATE. If I understand some of the testimony here-first, I do not know why that might not go up unpredictably, be as difficult actuarially, possibly, to predict-I do not know what they put in all of these formulas, but I suppose some of these might become rare, we might have ruptured relations with some country and you might have difficulty getting drugs from Turkey, I hope, and France, insofar as opium and heroin are concerned.

I would think that problem would exist there in forecasting how it would rise, and you still think there is a distinction there between the two.

Another point I wanted to get to there, again, if I understood the testimony, there are sometimes deductions for cash, percentage deduction for cash in your acquisition cost, and I think some of the witnesses testified that under the program if you have got a deduction for cash and they wanted you to reduce your acquisition costs accordingly. Why wouldn't that be an incentive to buy everything on credit?

Mr. WILSON. Well, I think this perhaps is a difference of degree rather than a difference of kind. I think the acquisition costs may tend to vary less than the druggist's usual and customary costs in that respect.

Mr. HUNGATE. I would suspect you would agree in some cases the differences of degree can be sufficient enough to become differences in kind.

Mr. WILSON. In some cases, yes.

Mr. HUNGATE. Mr. Wilson, if you find that you do have available the information on any plans that are still using the usual and customary, whatever that term was, the committee would appreciate if you would file that with us let us say-is a week enough time?

Mr. WILSON. If we have the information and if we have not acquired it through some device such as a grand jury where it would be protected by the doctrine of grand jury secrecy. (The information follows:)

Hon. WILLIAM L. HUNGATE,

DEPARTMENT OF JUSTICE, Washington, D.C., July 26, 1971.

Chairman, Subcommittee on Environment Problems, House Select Committee on Small Business, Washington, D.C.

DEAR CONGRESSMAN HUNGATE: This responds to the request for whatever information the Division might have concerning any current Third Party Prepaid Prescription Drug Plan which compensates the druggist at his usual and customary charge.

Our records show that in September 1969, we were advised by Samuel X. Kaplan, President of Prepaid Prescription Plans, Inc. 2600 Wilshire Boulevard, Los Angeles, California, that his organization provided such a Plan. The details which he then outlined to us were as follows.

When his company would learn of a prospective labor renegotiation, it would meet with representatives of the union, the employer, and an insurance carrier. From the employer, it would ascertain the number and ages of the persons for whom the drugs would be provided. Then, based on statistics which it had previously gathered over the six years it had been in operation, as to the actual amounts paid for prescription drugs by persons of all ages, it would furnish the insurance carrier with an educated estimate as to the amount the carrier could be expected to pay out under this Plan. It would also submit an estimate of the

amount of its fee for administering such a Plan. From this information, the insurance carrier, using its actuarial tables, would determine the amount of its premium.

Upon effectuation of the plan, the members of the union would be furnished IBM cards which were addressed, on one side to Prepaid Prescription Plans, Inc. The other side contained boxes for the furnishing by the druggist of coded information about the sale. When the prescription was filled, the beneficiary would pay the druggist his usual charge and present the IBM card to the druggist for completion. The druggist would insert the information requested in the card for computer coding purposes, hand it to the beneficiary who would then drop the card in a mail box and receive reimbursement directly from Prepaid Prescription Plans, Inc.

We have confirmed that Prepaid Prescription Plans, Inc. still has such plans in effect. They also advise that they have plans in which the druggist is reimbursed directly by Prepaid Prescription Plans, Inc. at his usual and customary charge. We have no information about any other plans currently in effect that provide reimbursement at the druggists' customary prices. We trust that this responds to the Committee's request. Sincerely yours,

Mr. HUNGATE. Mr. Lujan?

BRUCE B. WILSON,

Deputy Assistant Attorney General
For Consumer and Interagency Affairs.

Mr. LUJAN. In line with this, is there-I would imagine there would be a suggested selling price for retail druggists that somebody puts out, and is that a violation of the antitrust laws?

Mr. WILSON. I do not think a suggested selling price, as long as it is merely a suggested selling price and there is no agreement or encouragement to follow it, violates any antitrust laws.

There are problems with this, especially in the dual distribution area, in which the law is not clear. But I think in general, if it is purely and solely a suggested selling price with no encouragement and no sanction, it would probably be all right.

It also depends on who suggests the price. Ordinarily, if we have a manufacturer's suggested price, that is one thing. If, on the other hand we have a group of competing sellers getting together and all deciding that a certain price is what we will suggest to ourselves, then I think you run into problems.

Mr. LUJAN. What about a pharmaceutical association?

Mr. WILSON. That is the latter case. A pharmaceutical association would be a group of pharmacists getting together, establishing a "suggested" price schedule, and then circulating it among themselves. This is quite close to the situation involved in the Northern California case and the Utah case which I discussed in my testimony.

Mr. LUJAN. Are there plans which are specifically designed for payment of drug bills or are we talking mostly of plans within an entire medical package?

Mr. WILSON. I think there is a great variety. Some are in connection with a full health care medical package. Others are solely drugs. Mr. LUJAN. There are some that are solely drugs?

Mr. WILSON. I believe there are some that are solely drugs. Mr. LUJAN. I am interested in the mechanics of the agreement between the carrier and the druggist. What are these mechanics? Does an insurance company go to a group and say if you will abide by these

prices or these recommendations in terms of our policy you may participate in our program, but if you do not abide by them you may not. Is that the case?

Mr. WILSON. That is essentially as I understand it. Congressman. There is an offer by the insurance carrier to the druggist saying, "If you participate in our plan, we will pay you a fee for each prescription filled based upon the following formula. You may either accept this and participate in our plan or you need not accept it." Those are the legal mechanics of the transaction.

Mr. LUJAN. Are you talking specifically of Blue Cross or do other private carriers have the same arrangements?

Mr. WILSON. There are variations, of course, among the plans, but I think they basically follow along that line.

Mr. LUJAN. And there are agreements between the private carriers and the druggists?

Mr. WILSON. There are agreements between the private carriers and the druggists, yes.

Mr. LUJAN. That is all.

Mr. HUNGATE. Thank you.

On page 7, Mr. Wilson, you state:

Any concerted action by competing druggists which materially affects or seeks to determine the price to be paid the druggists by the carrier would constitute horizontal price fixing which is a per se violation of Section 1 of the Sherman Act.

What if that association got together and had other complaints here concerning these programs about the procedures for payment? In other words, they have 21 questions you have got to answer to get paid or 23 questions you have got to answer to get paid. One organization pays in 2 weeks and another does not pay in 6 months. You send in 10 forms and six of them come back, they go to the wrong department and stay there for 3 months and come back and you have to fill them out again. Some of these sound like things I think I would like to complain about if they happened to me.

What would your judgment be the ruling on that regarding the antitrust laws?

Mr. WILSON. As you get away from the basic ingredient of price and get into these elements of cost, the antitrust dangers become less severe. I think this is one area in which improvement is certainly needed simplifying the mechanics of the transaction, the large number of varying types of forms which the druggist has to fill out, and so on. This is especially a problem for the independent druggist who may run a small pharmacy and has to do a lot of this work himself as opposed to the chains where it can be consolidated in an office building and perhaps have two or three clerks to process it through. In other words, by consolidating the work they are really reducing the cost of administering the plan.

But I think this is an area where there is certainly room for improvement and I would like to see the groups I mentioned at the conclusion of my testimony get into this.

Mr. HUNGATE. What you mention there-we had testimony. I do not know that they had any that contradicted it-that they spent more time filling out the forms than prescriptions, which as we mentioned in the interest of efficiency as concerns the consumer, it seems to me that is an unreal efficiency that when a man you hire and pay really who knows something about prescription is of necessity being paid more time in paper work.

Mr. WILSON. I agree with that.

Mr. HUNGATE. Is it possible through the Federal Register, through the Department of Justice, or the FTC, that they could issue regulations or guidelines so a man would know if he was waiting 6 months to get paid he had a right to go down to the association and complain about it without getting in trouble.

Mr. WILSON. I would have to look into that. I think with respect to at least the public plans it would be possible for HEW, for example, to issue regulations prescribing a standardized form which would at least help the situation.

Mr. HUNGATE. A form that has been approved and was simplified we would hope.

Mr. WILSON. We would hope.

Mr. HUNGATE. Somewhere in here in your testimony you were discussing the cases regarding pathologists, and I believe real estate agents. You say they were settled by consent decree?

Mr. WILSON. Yes.

Mr. HUNGATE. You say whether or not they were professionals, was that issue reached?

Mr. WILSON. It was not reached in the sense that it was adjudicated by a court. On the other hand, I think if these associations had been of the conviction that the professional defense was a firm, solid one, they very well might have litigated rather than entering into the consent decree.

Mr. HUNGATE. Give me that last part again.

Mr. WILSON. One thing which influences counsel's decision in whether to advise his client to enter into a consent decree is whether he thinks his client has a good defense to the Government's charges. If they had thought that the professional exemption defense was a firm, solid one, there would be a greater chance that they would have litigated the case in court rather than settling it.

Mr. HUNGATE. Of course, there could be many factors.
Mr. WILSON. There could be other factors, yes.

Mr. HUNGATE. There are no cases of pathologists aren't they M.D.'s usually, pathologists? They charge like that.

Mr. WILSON. I think that some are and some are not.

Mr. HUNGATE. I am not acquainted with unmedical degreed pathologists.

Yes; Mr. Finn?

Mr. FINN. I believe Mr. Kintner pointed out earlier that the question had been settled by the U.S. Supreme Court in the American Medical Association case.

Mr. WILSON. Yes; that was another case involving the profession al exemption.

Mr. FINN. That I believe ruled against an attempt to boycott some kind of public health plan.

Mr. WILSON. Yes.

Mr. FINN. And the professional defense was not sustained there. Mr. WILSON. That is correct.

Mr. HUNGATE. The law would be even if they are professionals that is no defense.

Mr. WILSON. I think that is the law; yes, sir.

Mr. HUNGATE. I think bar associations put out recommended fee. schedules.