PAGENO="0001" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ~7O~i~i! t HEARINGS BEFORE THE SUBCOMMITTEE ON MONOPOLY OF2~RE SELECT COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE NINETY-SECOND CONGRESS FIRST SESSION ON PRESENT STATUS OF COMPETITION IN THE PHARMACEUTICAL INDUSTRY PART 20 JANUARY 18, 19, FEBRUARY 1, 2, AND 3, 1971 GOVERNMENT PROCUREMENT (VOL. 3) 0 Printed for the use of the Select Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 59-681 WASHINGTON: 1971 ô For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402-Price $1.25 PAGENO="0002" SELECT COMMITTEE ON SMALL BUSINESS [Created pursuant to S. Res. 58, 81st Cong.] ALAN BIBLE, Nevada, Chairman JACOB K. JAVITS, New York PETER H. DOMINICK, Colorado MARK 0. HATFIELD, Oregon ROBERT DOLE, Kansas EDWARD J. GURNEY, Florida WILLIAM B. SAXBE, Ohio J. GLENN BEALL, Ja., Maryland ROBERT TAFT, JR., Ohio CHESTER H. ~MITH, Staff Director and General Counsel KEITH A. JONES, Minority Counsel SUBCOMMITTEE ON MONOPOLY GAYLORD NELSON, Wisconsin, Chairman JOHN SPARKMAN, Alabama ROBERT DOLE, Kansas RUSSELL B. LONG, Louisiana ROBERT TAFT, JL, Ohio THOMAS J. MCINTYRE, New Hampshire EDWARD J. GURNEY, Florida ALAN BIBLE,* Nevada JACOB K. JAVITS,* New York BENyAMIN GORDON, Staff Economist ELAINE C. DYE, Clerical Assistant *Ex officio member. JOHN SPARKMAN, Alabama RUSSELL B. LONG, Louisiana HARRISON A. WILLIAMS, Ja., New Jersey GAYLORD NELSON, Wisconsin JOSEPH M. MONTOYA, New Mexico FRED R. HARRIS, Oklahoma THOMAS J. MCINTYRE, New Hampshire DAVID H. GAMBRELL, Georgia (II) PAGENO="0003" CONTENTS Statement of- Ahart, Gregory, Deputy Director, Civil Division; accompanied Hon. Page Elmer B. Staats, Comptroller General of the United States 7995 Barondes, Seymour, Chief, Commodity Eligibility and Price Branch, Office of the controller, Agency for International Development, Department of State; accompanied Gov. Lane Dwinell, Assistant Administrator for Administration, AID. - - - 8065 Brands, Allen J., Pharmacy Liaison Representative, Public Health Service, Department of Health, Education, and Welfare; accom- panied Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service, and Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 8087 Caffey, Dr. Eugene M., Jr., Chief, Psychiatry Division, Veterans' Administration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Chase, Dr John D., ACMD, Professional Services, Veterans' Admin- istration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Clark, Col. E. J., MC, USAF, Office of the Surgeon General, Depart- ment of the Air Force; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment) 8188 Cohn, Dr. J. N., Chief, Hypertension and Clinical Hemodynainics, Veterans' Administration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Cook, Clyde C., Deputy Director, Supply Service, Veterans' Adminis- tration; accompanied Dr~ Benjamin B. Wells, Deputy Chief Medi- cal Director, VA 8125 Crowther, Dean, Assistant Director, Civil Division; accompanied Hon. Elmer B. Staats, Comptroller General of the United States - 7995 Dwinell, Gov. Lane, Assistant Administrator for Administration, Agency for International Development, Department of State; accom- panied by Leslie A. Grant, Deputy General Counsel, AID; Seymour Barondes, Chief, Commodity Eligibility and Price Branch, Office of the Controller, AID; Nathan Salant, Acting Chief, Industrial Re- sources Division, Office of Procurement, AID; and Edward E. Kunze, Special Assistant for Small Business, Office of Procurement, AID - 8065 Edwards, Dr. Charles C., Commissioner of Food and Drugs, Public Health Service, U.S. Department of Health, Education, and Wel- fare; accompanied by Dr. Henry Simmons, Director, Bureau of Drugs; and William W. Goodrich, Assistant General Counsel, FDA.. 7966 Feinberg, Max, Assistant Chief, Division of Technical Operations, Directorate of Medical Materiel, Defense Personnel Support Center; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment) 818~ Fox, Capt. L. M., MC, USN, Chief, Medical Service, Naval Hospital, Bethesda, Md., and Chairman, Pharmacy and Therapeutic Drug Committee; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment) 8188 Goodrich, William W., Assistant General Counsel, Food and Drug Administration; accompanied Dr. Charles C. Edwards, Commis- sioner of Food and Drugs, Public Health Service, U.S. Department of Health, Education, and Welfare 796& (III) PAGENO="0004" Iv Statements of-Continued Grant, Leslie A., Deputy General Counsel, Agency for International Development, Department of State; accompanied Gov. Lane Page Dwinell, Assistant Administrator for Administration, AID 8065 Haber, Dr. Paul A. L., Deputy ACMD for Professional Services, Veterans' Administration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Harding, Roland F., Assistant Director, Pharmacy Service, Veterans' Administration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA_~ 8125 Hayes, Brig. Gen. George J., Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment); accompanied by Col. M. E. McCabe, MC, USA, Office of the Surgeon General, Department of the Army; Capt. L. M. Fox, MC, USN, Chief, Medical Service, Naval Hospital, Bethesda, Md., and Chairman, Pharmacy and Therapeutic Drug Committee; Col. E. J. Clark, MC, USAF, Office of the Surgeon General, Department of the Air Force; Capt. R. F. C. MacPherson, MC, USN, Director of Medical Materiel, Defense Personnel Support Center; Col. A. J. Snyder, MSC, USA, Chief, Division of Medical Materiel, Direc- torate of Procurement and Production, Defense Personnel Support Center; and Max Feinberg, Assistant Chief, Division of Technical Operations, Directorate of Medical Materiel, Defense Personnel Support Center 8188 Kunze, Edward E., Special Assistant for Small Business, Office of Procurement, Agency for International Development, Department of State; accompanied Gov. Lane Dwinell, Assistant Administrator for Administration, AID 8065 Loudon, Robert G., Chief, Research in Pulmonary Disease, Veterans' Administration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 MacPherson, Capt. R. F. C., MC, USN, Director of Medical Materiel, Defense Personnel Support Center; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment)_ 8188 McCabe, Col. M. E., MC, USA, Office of the Surgeon General, Department of the Army; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment) 8188 Rankin, Winton B., Special Assistant to the Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare; accompanied Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service, and Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 8087 Rose, Robert G., Manager, Marketing Center, Veterans' Administra- tion; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Salant, Nathan, Acting Chief, Industrial Resources Division, Office of Procurement, Agency for International Development, Department of State; accompanied Gov. Lane Dwinell, Assistant Administrator for Administration, AID 8065 Shnitzer, Paul, Assistant General Counsel; accompanied Hon. Elmer B. Staats, Comptroller General of the United States 7995 Simmons, Dr. Henry, Director, Bureau of Drugs; accompanied Dr. Charles C. Edwards, Commissioner of Food and Drugs, Public Health Service, U.S. Department of Health, Education, and Welfare~ 7966 Snyder, Col. A. J., MSC, USA, Chief, Division of Medical Mate- riel, Directorate of Procurement and Production, Defense Personnel Support Center; accompanied Brig. Gen. George J. Hayes, Medical Corps, U.S. Army, Principal Deputy Assistant Secretary of Defense (Health and Environment) 8188 Staats, Hon. Elmer B., Comptroller General of the United States; accompanied by Gregory Ahart, Deputy Director, Civil Division; Dean Crowther, Assistant Director, Civil Division; and Paul Shnitzer, Assistant General Counsel 7995 PAGENO="0005" V Statements of-Contimied Statler, Robert A., Director, Pharmacy Service, Veterans' Adminis. tration; accompanied Dr. Benjamin B. Wells, Deputy Chief Page Medical Director, VA 8125 Steinfeld, Dr. Jesse L., Surgeon General, Public Health Service, and Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare; accompanied by Winton B. Rankin, Special Assistant to the Assistant Secretary for Health and Scientific Affairs, HEW; and Allen J. Brands, Pharmacy Liaison Representative, P115, HEW 8087 Warman, Philip, Assistant General Counsel, Veterans' Administra- tion; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 Wells, Dr. Benjamin B., Deputy Chief Medical Director, Veterans' Administration; accompanied by Dr. Paul A. L. Haber, Deputy ACMD for Professional Services; Dr. John D. Chase, ACMD, Profes- sional Services; Robert A. Statler, Director, Pharmacy Service; Robert G. Loudon, Chief, Research in Pulmonary Disease; Donald P. Whitworth, Director, Supply Service; Clyde C. Cook, Deputy Director, Supply Service; Philip Warman, Assistant General Counsel; Roland F. Harding, Assistant Director, Pharmacy Serv- ice; Robert G. Rose, Manager, VA Marketing Center; Dr. Eugene M. Caffey, Jr., Chief, Psychiatry Division; and Dr. J. N. Cohn, Chief, Hypertension and Clinical Ilemodynamics 8125 Whitworth, Donald P., Director, Supply Service, Veterans' Ad- ministration; accompanied Dr. Benjamin B. Wells, Deputy Chief Medical Director, VA 8125 EXHIBITS Letter dated January 29, 1971, from M. J. Ryan, Director, Office of Legis- lative Services, Food and Drug Administration, Department of Health, Education, and Welfare, to Senator Gaylord Nelson, chairman, Sub- committee on Monopoly, Select Committee on Small Business, US. Senate 7991 Press release dated January 14, 1971, "News of Eli Lilly and Co" 7993 Article, "Many Doctors Ignore U.S. List of Hazardous or Useless Drugs," by David A. Andelman, from the New York Times, December 21, 1970 - 7993 List of hospitals and clinics visited by the Office of the Comptroller General of the United States 7998 Speech delivered at the 21st annual meeting of the Defense Supply Associa- tion, by Col. W. V. Breyfogle, U. S. Army, Chief, Division of Medical Materiel, Defense Personnel Support Center, Defense Supply Agency, reprinted in The Review, November-December 1968, pages 161-162 8010 Defense preaward surveys of domestic drug manufacturers classified as large or small business, fiscal year 1969 8026 Defense Personnel Support Center listing of manufacturers subjected to preaward surveys supplied to Veterans' Administration reason for discontinuance 8029 Digests of reports to the U.S. Congress by the Comptroller General, Hon. Elmer B. Staats 8051 Chart, comparison of drug procurements, Veterans' Administration sole- source procurement versus Defense Personnel Support Center competi- tive procurements 8058 Notice, determination of commodity eligibility' for bulk pharmaceutical products, Department of State, Agency for International Development, published in the Federal Register, December 31, 1970 8069 Statement of Senator Gaylord Nelson, chairman, Subcommittee on Monop- oly, Select Committee on Small Business, U.S. Senate, with accompany- ing letters of Dr. Charles C. Edwards, Dr. Jesse L. Steinfeld, and C. Joseph Stetler 8082 Progress report, "A Formulary for Delaware Practitioners," submitted by Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service, with accompanying enclosures 8093 PAGENO="0006" VI Purchases by formally advertised bids by Health Services and Mental Health Administration Supply Service Center, submitted by Dr. Jesse L. Page Steinfeld, Surgeon General, Public Health Service 8116 Letter dated May 12, 1971, from M. J. Ryan, Director, Office of Legislative Services, Food and Drug Administration, Department of Health, Edu- cation, and Welfare, to Senator Gaylord Nelson, chairman, Subcom- mittee on Monopoly, Select Committee on Small Business, U.S. Senate 8117 Letter dated March 18 ,1971, from Dr. Charles C. Edwards, Commissioner, Food and Drug Administration, Department of Health, Education, and Welfare, to C. Joseph Stetler, president, Pharmaceutical Manufacturers Association 8117 Letter dated March 10, 1971, from M. J. Ryan, Director, Office of Legisla- tive Services, Food and Drug Administration, Department of Health, Education, and Welfare, to Senator Gaylord Nelson, chairman, Sub- committee on Monopoly, Select Committee on Small Business, U.S. Senate 8118 Letter dated February 23, 1971, from Senator Gaylord Nelson, chairman, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate, to Dr. Charles C. Edwards, Commissioner, Food and Drug Administration, Department of Health, Education, and Welfare 8118 Letter dated February 19, 1971, from C. Joseph Stetler, president, Pharma- ceutical Manufacturers Association, to Senator Gaylord Nelson, chair- man, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate 8118 Letter dated February 19, 1971, from C. Joseph Stetler, president, Pharma- ceutical Manufacturers Association, to Dr. Charles C. Edwards, Com- missioner, Food and Drug Administration, Department of Health, Education, and Welfare 8119 Letter dated February 10, 1971, from C. Joseph Stetler, president, Pharma- ceutical Manufacturers Association, to Dr. Charles C. Edwards, Com- missioner, Food and Drug Administration, Department of Health, Edu- cation, and Welfare 8121 Circular 10-70-237 dated December 4, 1970, from the Veterans' Admin- istration, Department of Medicine and Surgery, re implementation of NAS/NRC drug efficacy studies information, with accompanying FDA drug listings 8134 Circular 10-70-286 dated December 30, 1970, from the Veterans' Admin- istration, Department of Medicine and Surgery, re implementation of NAS/NRC drug efficacy studies information 8157 Circular 10-71-16 dated January 20, 1971, from the Veterans' Administra- tion, Department of Medicine and Surgery, re procurement of drugs classified by FDA as lacking substantial evidence of effectiveness or with unfavorable benefit-to-risk ratio 8159 Statement of Composition and Functions of Veterans' Administration Therapeutics Agents and Pharmacy Reviews Committees and Executive Committee on Therapeutic Agents 8164 Letter dated March 17, 1971, from John J. Corcoran, General Counsel, Office of General Counsel, Veterans' Administration, to Benjamin Gordon, majority counsel, Select Committee on Small Business, U.S. Senate, with accompanying list of brand name drugs 8170 List of "probably effective" drugs, submitted by the Principal Deputy Assistant Secretary of Defense (Health and Environment), Depart- ment of Defense 8191 Statistical summary of procurement of major forms of tetracycline from July 1, 1968, through January 1971, submitted by the Principal Deputy Assistant Secretary of Defense (Health and Environment), Department of Defense 8193 Memorandum dated January 25, 1971, from Chairman, FSC Class 6505 Review Committee, to Assistant Secretary of Defense (Health and Environment), re report of committee review of special interest, with accompanying enclosures 8199 Memorandum dated November 27, 1970, from Maj. Gen. Thomas H. Crouch, USAF, MC, to U.S. Air Force Medical Service officers, re rational prescribing of drugs 8230 PAGENO="0007" VII APPENDIXES (PRINTED SEPARATELY IN PART 21) I. Exhibits provided by the Public Health Service: Memorandum dated December 11, 1970, from Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service, to all Department Agencies, re drug products declared as "Ineffec- tive" and "Possibly Effective" by the Food and Drug Ad- Page ministration 8233 Publication, "Prescription Drug Data Summary," July 1970, compiled by the Division of Health Insurance Studies, Office of Research and Statistics, Social Security Administration~~ - 8260 Conference highlights, "Challenge to Pharmacy in the 70's," September 10-12, 1970, University of California, San Fran- cisco, Calif 8289 Report, "Oral Contraceptives and Thromboembolic Disorders," April 24, 1970, issued by the Food and Drug Administration, Department of Health, Education, and Welfare 3324 Report, "L-Dopa is Approved To Treat Parkinsonism," June 1, 1970, issued by the Food and Drug Administration, Depart- ment of Health, Education, and Welfare 8325 Report, "Lithium Carbonate," April 1970, issued by the Food and Drug Administration, Department of Health, Education, and Welfare 8328 Report, "Oral Hypoglycemic Agents," October 1970, issued by the Food and Drug Administration, Department of Health, Education, and Welfare 8830 Memorandum dated January 15, 1971, from Allen J. Brands, Executive Secretary, HSMHA Drug Purchasing and Utiliza- tion Committee, to FHPS, IHS, and NIMH, re amphetamine drug products as anorectic agents in weight reduction, with accompanying Federal Register announcement dated August 8, 1970 8331 Memorandum dated January 26, 1971, from Allen J. Brands, Executive Secretary, HSMHA Drug Purchasing and Utiliza- tion Committee, to FliPS, IllS, and NIMH, re fixed dose combinations of drugs, with accompanying article, "Drug Combinations: Sense and Nonsense," by L. Lasagna, M.D., from the Medical Tribune, January 6, 1971, pages 6-7 8335 Memorandum dated January 26, 1971, from Allen J. Brands, Executive Secretary, HSMHA Drug Purchasing and Utiliza- tion Committee, to FHPS, 1115, and NIMH, re propoxyphene hydrochloride .(Darvon) 8338 Announcement, "Drugs, Current Good Manufacturing Practice in Manufacture, Processing, Packing, or Holding," by the Food and Drug Administration, from the Federal Register, volume 36, No. 10, January 15, 1971, pages 601-605 8339 Document, "Drug Utilization and Drug Utilization Review and Control," by Donald C. Brodie, Ph. D., professor of pharmacy and pharmaceutical chemistry, School of Pharmacy, Uni- versity of California, April 1, 1970 8348 II. Articles: "A `Relative Efficacy' System for New Drugs," by Paul D. Stolley, M.D., M.P.H., and James L. Goddard, M.D., M.P.H., from Annals of Internal Medicine, volume 73, No. 3, September 1970, pages 479-480 8423 "The Other Pollution-Internal-Additives and Drugs Swallowed Carelessly Harm Human Animal," by Dr. Peter Beaconsfield, from the New York Times, January 11, 1971 .. 8424 PAGENO="0008" VIII III. Speeches: "Toward a New Understanding," by Dr. Charles C. Edwards, Commissioner of Food and Drugs, delivered before the Mid- west Pharmaceutical Advertising Club, Chicago, Ill., June 23, Page 1970 8426 Delivered by Dr. Henry E. Simmons before the San Francisco School of Pharmacy, September 10, 1970 8430 "Combination Drugs," by Dr. Henry E. Simmons, delivered before the Academy of Pharmaceutical Sciences meeting, November 16, 1970 8434 "Solutions to the Communications Gap With the Practicing Physician," by Henry E. Simmons, M.D., M.P.H., Director, Bureau of Drugs, Food and Drug Administration, presented before the American Academy for the Advancement of Science, Chicago, Ill., December 29, 1970 8438 IV. Prepared statements: Dwinell, Hon. Lane, Assistant Administrator for Administration, Agency for International Development, Department of State - 8444 Edwards, Dr. Charles C., Commissioner of Food and Drugs, Public Health Service, Department of Health, Education, and Welfare 8448 Hayes, Brig. Gen. George J., Medical Corps, U.S. Army, Prin- cipal Deputy Assistant Secretary of Defense (Health and Environment) 8453 Steinfeld, Dr. Jesse L., Surgeon General, Public Health Service, Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 8455 Wells, Dr. Benjamin B., Deputy Chief Medical Director, Veterans'Administration 8460 V. Letter dated April 6, 1971, from Lyndon E. Lee, Jr., M.D., Assistant Chief Medical Director for Professional Services, Veterans' Ad- ministration, to Benjamin Gordon, majority counsel, Monopoly Subcommittee, with accompanying random samples of VA Form 10-7144, request for new drug, on Darvon, Peritrate, or any form of tetracycline other than tetracycline hydrochloride 8466 VI. Material on Isoniazid: 1. Material supplied by Congressman Durward G. Hall 8486 2. Documents supplied by the Food and Drug Administration. 8502 HEARING DATES January 18, 1971: Morning session 7965 January 19, 1971: Morning session 7995 February 1, 1971: Morning session 8065 February 2, 1971: Morning session 8125 February 3, 1971: Morning session 8187 PAGENO="0009" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) MONDAY, JANUARY 18, 1971 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Wa$hington, D.C. The subcommittee met, pursuant to recess, at 10:10 a.m., in room 1318, New Senate Office Building, Senator Gaylord Nelson (chair- man of the subcommittee) presiding. Present: Senator Nelson. Also present: Benjamin Gordon, staff economist; and Elaine C. Dye, clerical assistant. Senator NELSON. The committee will now open its hearings. Our witness today is Dr. Charles Edwards, Commissioner of the Food and Drug Administration. I apologize, Doctor, for being delayed on the way over here. I appreciate your taking time to come. The Monopoly Subcommittee of the Senate Small Business Com- mittee is resuming its hearings today on drug usage and purchasing by the Federal Government. Testimony by the Agency for International Development, the Public Health Service, the Veterans' Administration, the Depart- ment of Defense, and the Office of Economic Opportunity indicated that many millions of dollars were being spent on drugs which have been found by panels of specially qualified medical experts to be ineffective, unnecessary, or unacceptable. For example, the National Academy of Science/Nat~ional Re- search Council found that Darvon in its "32 mg. dose has often been found indistinguishable from placebo." Yet, the Defense Depart- ment and the Veterans' Administration in 1968 and 1969 paid $678,000 for this ineffective dosage form. The NAS-NRC has also found that Darvon "in doses of 65 ing. to 100 mg. ha~ usually, but not always, proved superior to placebo in reasonably sensitive human analgesic assays. * * ~" Expert testimony before the subcommittee on November 24th held that there is no "particular reason to use it (Darvon) routinely in preference to aspirin, acetaminophen, or codeine or some combination of codeine with one of the others." Yet, the Defense Department alone spent $4.4 million for Darvon in 1968 and 1969. The Veterans' Administration purchased the tranquilizer mepro- bamate from Denmark for $1.55 per 500 tablets. VA, ~t the same (7965) PAGENO="0010" 7966 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY time was purchasing Meprospan, the sustained release form of meprobamate, from Carter-Wallace for $34.25 for 500 tablets, or 2,300 percent as much as plain meprobamate. Neither the TJSP nor the National Formulary recognize the use of long-acting prepara- tions as good medical practice, and the NAS-NRC panel of experts told the subcommittee that "most of these oral preparations of this type are not doing what they purport to do" and that their use can be dangerous. The Defense Department spent about $3 million in 1968 and 1969 on demethyichiortetracycline (Declomycin), oxytetracychne (Terra- mycin), and chiortetracycline (Aureornycin). If the Department heeded the advice of the medical experts and used the drug of choice of this family of antibiotics, that is, plain tetracycline, $2.3 million would have been saved. The Department of Defense bought $133,584 of Equagesic, a com- bination of aspirin and meprobamate. The. NAS-NRC report says that "this combination may be no more effective as an analgesic than the amount of aspirin present." The comparable total for aspirin would have been $2,721, or a saving of $130,863. Both the VA and the DOD spent $683,632 for Peritrate, a drug used for angina pectoris, which, according to expert testimony, is "not effective compared to a placebo." It may be mentioned also that the American public spent $22 million in 1968 and $19.5 million in 1969 for this drug. These are only a few examples of the large number of ineffective and unnecessary drugs being bought and used by the. Federal Gov- ernment in many of its programs. Our witness today is the Commissioner of the Food and Drug Administration, who will discuss problems of rationality in drug usage. Our witness tomorrow will be the Comptroller General, who will discuss problems of rationality and competition, and small busi- ness in drug procurement. On February 1, 2, and 3, the Government agencies will be return- ing to discuss the various changes they have made to bring about more rational and economical drug use and procurement. Dr. Edwards, your testimony will be printed in full in the record.1 You may present it however you wish and if at any time you desire to extemporize on it or elaborate on anything you have said, feel free to do so and we will be glad to take time for any comments of your counsel, Mr. Goodrich or Dr. Simmons. Go ahead. STATEMENT OF DR. CHARLES C. EDWARDS, COMMISSIONER OF FOOD AND DRUGS, PUBLIC HEALTH SERVICE, U.S. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE; ACCOMPANIED BY DR. HENRY SIMMONS, DIRECTOR OF BUREAU 0]? DRUGS; AND WIL- LIAM W. GOODRICH, ASSISTANT GENERAL COUNSEL, FDA Dr. EDWARDS. Thank you, Mr. Chairman. I would like to intro- duce the gentlemen with me. On my right is Dr. Henry Simmons, Director of our Bureau of Drugs. On my left, Mr. William Good- rich, who Is the General Counsel of FDA. ~ See pp. 8444~-8465. PAGENO="0011" COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY 7967 We certainly appreciate this opportunity to discuss with you the important issue of safe and effective drugs. These are certainly issues that touch directly on the lives of all of us. I think no one would question that the discovery and development of new drugs and new antibiotics over the past three decades have contributed enormoijsly to the eradication and control of disease arid to the relief of patient suffering. However, over this same period of time, drug misuse has become a major national problem. I speak not just of drug abuse in the conventional sense, but rather of the promotion, the prescribing, and the use of drugs of limited or no value, and, of course, equally im- portant, the consumption of too many drugs, often for no purpose or for the wrong purpose. I think few things are more tragic than the prescribing and administration Qf a drug of no proven effective- ness followed by a serious and even sometimes fatal adverse reaction. We at FDA are concerned first with drug safety, but we must constantly bear in mind that considerations of drug effectiveness and drug safety cannot be separated. I would like this morning to briefly discuss where we are today, how we arrived at this point and how we plan to proceed in the days ahead. Our goal is to achieve the objective of excellence in drug quality, honesty in drug promotion, and rationality in drug use at the earliest possible time. We are striving for a uniform and high standard of safety and reliability of all drugs. Of course, this requires us to be concerned with all phases of the drug scene: We are concerned with all manufacturers large and small; With the discovery and investigational use and development of all new drugs; With the evaluation of safety and efficacy of new products offered to the medical profession; With the quality controls that assure the identity, the strength, the quality, the purity, and the reliability of the product that comes off the production line and into the hospital, and the com- munity pharmacy; We are concerned with the labeling and promotion of these products; With the experience of these drugs in the hands of the prac- ticing physician; And indirectly, of course, with the costs of these products. Although we have no specific responsibility relating to drug costs, it is well to recall that Senator Kefauver's investigation a decade ago focused attention on the causes of the high cost of prescription drugs. They were poor quality research, excesses, and exaggeration in promotion and the difficulties encountered by prcscribers in ob- taining reliable information that would facilitate rational drug therapy. All of these important areas are responsibilities of the Food and Drug Administration. Senator NELSON. May I interrupt a moment? Isn't an additional problem, which relates to costs, the result of brand name prescribing? That is to say, in 40 or more States-the legislatures have passed anti-substitution laws. So then, if you have a situation in which the PAGENO="0012" 7968 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY doctor prescribes by the brand name, the pharmacist is required by ~Eaw to give that brand even though the same compound meeting all appropriate USP or NF standards is being sold at a fraction of the price. Brand name prescribing is an important factor in keeping the price up. As you know, we heard lengthy testimony on prednisone, which varied in price from 59 cents a hundred to $17.90 a hundred to the pharmacist; which is a radical price difference. Yet the Medical Letter said they were all equivalent-all met the same standards. How do you get around that kind of a problem? Dr. EDWARDS. Well, I think there is probably no simple answer to solving that problem. Certainly, one of the answers is to better com- municate to the medical profession the fact that in today's drug scene the brand names and the generic name drugs that are approved by the Food and Drug Administration are for all practical purposes equal drugs in terms of their potency, uniformity, et cetera. I think frankly, we have not done enough in communicating this kind of information to the practicing medical profession but I think it has to be done and I think until that message is satisfactorily or adequately conveyed to it, we are likely to have this discrepancy in prescribing patterns. Senator NELSON. You do not have any evidence that indicates, generally speaking, that between brands and generics, one is better than the other? Dr. EDWARDS. No. I think in today's drugs, certainly in the case of the antibiotics that are certified by the Food and Drug Admin- istration, we can certainly say there that brand and generics are equal. I think that any drug that goes through the New Drug Appli- cation process is equal, be it brand or generic. I think there are some of the "me-too" drugs that we are coming to grips with via the National Academy of Science drug efficacy study that present a little different problem and we cannot make quite that statement in reference to those drugs, but certainly on all drugs that have been approved through regular processes we can make this statement. Senator NELSON. You may proceed. Dr. EDWARDS. Moreover, as the investigations of this subcommittee have shown, the Federal Government is a very substantial purchaser of prescription drugs. We at FDA have a responsibility to do what we can to assure that the Federal purchasers are fully informed about the products they buy. We do have problems in the use of prescription and nonprescrip- tion drugs in this country. It is a serious problem and threatens to become more so if vigorous steps are not taken to correct the basic problem. Mr. GORDON. Dr. Edwards, may I interrupt? What is the evidence of the existence of these problems? How are they manifested? Dr. EDWARDS. I am about to allude to some of the problems in my statement. They include the fact that the American public is currently receiving approximately 2 billion prescriptions per year and it is estimated that in 5 years this is likely to increase some 50 percent to over 3 billion prescriptions a year, this figure excludes PAGENO="0013" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7969 over-the-counter drugs which are sold in even greater quantities. I think just the volume itself speaks somewhat to the problem. The subject of adverse reactions to drugs is an important subject. This complication rate has been estimated at some 10 percent, and further that approximately 5 percent of all patients admitted to general hospitals are admitted because of some form of drug re- action. As I have indicated in my testimony, studies have shown that the average hospital patient receives between eight and 10 drugs per hospital admission and this, of course, may go much higher. I think all of these indicate, to a degree, the magnitude of the problem we are talking about this morning. M~. GORDON. You also state: We have a responsibility to do what we can to assure that Pederal pur- chasers are fully informed about the products they buy. What have you done tb keep the Government agencies informed about the merits and demerits of drugs on an absolute as well as relative basis? Dr. EDWARDS. Well, as you know, at least as it relates to the cur- rent drug efficacy study, we have sent to each of the purchasing agencies in the Federal Establishment that purchases drugs, our list of drugs classified by NAS-NRC as "ineffective." We intend to keep them up to date on this. We also intend at the completion of this study to publish a docu- ment on the study per se listing all the drugs and their classification by the National Academy of Sciences. In terms of our day-to-day activities, and Dr. Simmons might want to address himself to this particular question, I do not believe we notify Federal agencies on a day-to-day basis of the new drugs we have approved. Is that correct? On a periodic basis they are notified but not with each drug as it is approved by the Food and Drug Administration. Senator NELSON. What kind of a response, if any, have you gotten from any of the professional organizations, the medical profession, or from individual physicians across the country when you have listed a drug that has been widely used and then taken off the market as "ineffective" or "possibly effective?" Those two categories go out of the market forthwith, if they are classified as such; is that right? Dr. EDWARDS. Possibly. In the case of those drugs classified as "ineffective", the manufacturer has 30 days in which to submit new evidence to us to justify a change in that classification. With "pos- sibly effective" drugs, 6 months are allowed for submission of new evidence; and for the "probably effective" drug 1 year is allowed. Senator NELSON. Of those that have been removed from the market because they were found to be ineffective or because com- panies could not come up with evidence to sustain any claim that they were effective, what kind of a response have you heard from the profession? Dr. EDWARDS. I suspect it is a little early to make any blanket statements. We have certainly heard from the American Medical PAGENO="0014" 7970 COMPETITIVE PROBLEMS IN THE DRUG iNDUSTRY Association and Medical News, their weekly publication, they have been very cooperative with us. The response we have gotten from the profession per se has been rather limited but I must be very frank to say that most of the response has not been particularly compli- mentary to the Food and Drug Administration. I think there has been an unwillingness, at least by some of the profession, to accept these findings of the National Academy of Sciences and the Food and Drug Administration as being final and as authoritative. Senator NEI~soN. I am sure you saw the December 21 article from the New York Times with the heading: "Many Doctors Ignore U.S. List of Hazardous or Useless Drugs".' It states: A list of 369 drug products considered ineffective or hazardous by the FDA apparently is being ignored by a large number of doctors and their patients across the country. Some doctors go so far as to say they consider the Fed- eral agency's action in Issuing the list unethical. Reports from 18 cities one month after the list was issued, also indicate that most people are unaware of the list's existence and are continuing to rely on the advice of private physicians on which drugs to take. Dr. William Limberger, President of the Pennsylvania Medical Association, commented that: However, this at times injudicious release by the FDA does not enhance the confidence in the medical profession. I am curious about this reaction, not being a doctor myself. I wonder whether this is a typical reaction of the medical profession to the judgment of the most distinguished clinicians in the country oii the use of drugs. Do you have any comments as to why the pro- fession would not enthusiastically follow the lead of their most distinguished authorities in the field rather than, as apparently many do, take the attitude that there is something wrong with what the FDA is doing? Dr. EDWARDS. Unfortunately- Senator NELSON. May I interrupt? There is something wrong either with the communication of the information to the doctors or their understanding of it or the medical profession's effectiveness in telling doctors: For heaven's sake, follow the advice of the most distinguished scientists on this matter. What do you think about that, Doctor? Dr. EDWARDS. I think all the points you just made are very real ones, very legitimate ones, I think in addition to that we have to appreciate or at least hope that the opinion the doctor in Pennsyl- vama expresses is not necessarily the opinion of the majority of the medical profession. But I certainly would find his statement a very difficult thing to explain and as I say, I just hope that it is not the unanimous opinion of the medical profession. Senator NELSON. It seems to me, if the President of the Pennsyl- vania Medical Association is accurately quoted, that it would have an unfortunate effect on the rest of the doctors of the State since he is elected by the profession. `See p. 7993. PAGENO="0015" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7971 Have YOU gotten this reaction from other State medical societies? Dr. EDWARDS. As I attempted to indicate a moment ago, the reac- tion has been mixed. We have had some very nice things said about what we have done. Some other people that have been very critical of what we have done~ And I do not know just exactly, as we have not really surveyed the profession in a meaningful sort of way, what the overall reaction is, nor do I think the gentleman who wrote that article really had a sample that was meaningful that would allow him to make a statement quite like he made. I think we have to communicate the fact to the medical profession that our ultimate aim is to assure the physician that when he pre- scribes a drug, on which certain claims are made, that he can depend on those claims. I mean, he can depend that these claims will be fulfilled by the drug that he is prescribing. So it really is in the best interests of the profession that they support us and support the National Academy as well. Senator NELSON. I have not had the opportunity to look at the professional journals. How have they handled the continuing re- lease of the information respecting NAS-NRC studies and the deci- sions made by the FDA respecting these drugs? Dr. EDWARDS. I think their handling to date has been pretty much a straightforward reporting job. I do not think there has been a great deal of editorializing. Do you want to comment on that, Dr. Simmons? Dr. SnIM0N5. Generally, the journals that report this informa- tion, specifically the AMA Journal, the Journal of the American Medical Association, and also the Journal of Internal Medicine, merely report what has been said without editorializing. If you ask what kind of support there has been in the medical community gen- erally, I would echo the Commissioner's statement that it varies from faint praise to loud damning. The New England Journal of Medicine recently ran an editorial stating that with all the difficulties the FDA had in these drug evaluations and other things, the title of the editorial was, "Homage to the FDA," that even with this difficult job the profession did look to it for that kind of guidance. I think generally what it might be reasonable to say is that if anybody thought of going back to the old system before FDA had authority to look to efficacy, almost no one would be willing to go back to that system. We know that change is difficult to accept. Senator NELSON. Go ahead, Doctor. Dr. EDWARDS. I would now like, Mr. Chairman, to speak briefly about the drug efficacy review per se. The Drug Amendments of 1962 required that drugs be proven effective for their intended uses, as well as safe. Thousands of drugs introduced between 1938 and 1962 had been marketed on proof of safety alone with no obligation upon the manufacturer to prove the truth and validity of their promotional claims of effectiveness. Surely the most important provision of the 1962 Amendment was to define the kind and the quality of medical evidence that is to be required both to justify the introduction of any new product and to sustain the continued marketing of products already on the PAGENO="0016" 7972 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY market. Congress decreed that claims of drug effectiveness must be supported by "substantial evidence"-meanirig evidence derived from adequate and well-controlled clinical investigations on the basis of which it can fairly and responsibly be concluded by experts that the particular drug will have the effectiveness it is represented and pur- ported to possess. The task set forth before the Food and Drug Administration was a monumental one, to say the least. In 1966 the Agency turned to the National Academy of Sciences/ National Research Council for help. NAS-NRC agreed to undertake the evaluation of the more than 3.000 marketed preparations ap- proved by the Food and Drug Administration between 1938 and 1962, that were still on the market, and to determine whether they were effective for the indications claimed in their labeling. The Drug Efficacy Study was established by NAS-NRC in June 1966 and some 30 panels were set up to evaluate various categories of drugs. The results are summarized in Drug Efficacy Study, A Report to the Commissioner of Food and Drugs from the Natio'r~al Academy of Sciences, which was given to us in 1969. As the report notes, this review made "an audit of the state of the art of drug usage that has been uniquely extensive in scope and uniquely intensive in time" and is applicable to more than 80 percent of the currently marketed drugs. Senator NELSON. You mean 80 percent of the different compounds? Is that what that means? Dr. EDWARDS. 80 percent of all dosage forms that are available in the pharmacy. Senator NELSON. Of all kinds of compounds. Dr. EDWARDS. Right. The report noted that the quality of the evidence of efficacy, as well as the quality of the labeling, was poor. Many of the presenta- tions submitted by manufacturers in support of the claims made for the use of their drugs consisted of reports of uncontrolled observa- tions and testimonial-type endorsements. There was a conspicuous lack of substantial evidence based on well-controlled investigations by experienced investigators. The panels specifically criticized the labeling of about two-thirds of the drugs that they evaluated. They have found too many of the package inserts to be poorly organized, repetitive, out-of -date~ evasive~ and proinotionally oriented. The majority of the inserts were found to fail in their primary purpose of providing the physician and the pharmacist with authoritative and objective guides to prescribing or dispensing the drugs in ques- tion. Senator NELSON. May I interrupt again, Doctor? Under the law the Food and Drug Administration has the authority to require that the package insert be accurate and make only justifiable claims and be in sufficient detail. In other words, you have the authority to con- trol what goes into that package insert? Dr. EDWARDS. That is correct. Senator NELSON. What is the practice? The company makes up the insert-then when does the FDA get around to looking at it? Dr. EDWARDS. Prior to approval of any new drug the company, the manufacturer, and the FDA sit down frequently in numerous PAGENO="0017" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7973 conferences to work out the labeling of the particular drug in ques- tion. All of the labeling claims on these some 2,000 drugs that are under review in the drug efficacy study, which will remain on the market in one category or another for the time being, will be re- viewed and appropriate changes made in the labeling. Senator NELSON. So, any labeling- Dr. EDWARDS. I was going to say in addition to that, our current labeling policy on new drugs is a much tougher one than that in previous years in the FDA. Senator NELSON. So, all labels that have been criticized by the NAS-NRC as being inaccurate for one reason or another will be revised. Dr. EDWARDS. All of those will be revised and we are moving as I indicate later in my testimony, toward class labeling. In other words, and tetracyc1ine is probably the best example, for a tetra- cycline drug, be it a brand name or be it generic, the labeling should be the same. I think this will do a great deal to clean up and to make more meaningful the labeling for drugs. Senator NELSON. I do not know that I follow you on that. You mean that now if there are several brand names of tetracyclines that they may have different labeling? Dr. EDWARDS. There may be some differences in labeling between various brands of the same drug. We are changing this. We are moving in the direction of class labeling across the board. Senator NELSON. I do not know what the present practice is. It never occurred to me to look. Does the labeling require, then, that the generic name of the com- pound be on the label? Dr. EDWARDS. Yes. Do you want to add anything to this Dr. Simmons? Dr. SIMMONS. Yes. Mr. Chairman, on the class labeling specifically, what we are trying to accomplish is this. At the present time-take tetracyclines for example, on which you had a lot of testimony, there are about five different chemical formulations of tetracycline. Now, all of them have minor differences which present and old labeling show, and on which advertising claims have been made. The important thing, however, is that these minor differences, though there, are clinically insignificant. Therefore, there is no reason why a physician should choose one as opposed to any other. Now, since there are, I think, over 50 tetracyclines available in these five different chemical classes, what we are trying to do is to simplify the labeling to point out to the doctor, in a simple, concise way, that basically they are all the same. He can expect the same result from any of them and he should base his therapeutic judg- ments on that statement. That is what class labeling is and that is what we are trying to accomplish with it. Senator NELSON. Well, if the distinctions in the formulations are of no clinical significance, are they permitted to make a claim in the labeling that they are? Dr. SIMMONS. They will no longer be allowed to. Senator NELSON. They will not be permitted to do that any more. 59-581-71-pt. 20-2 PAGENO="0018" 7974 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. GORDON, Is there any evidence that the physician bases his prescribing practices on the contents of the label? Dr. EDWARDS. I think we have to remember that the Physicians' Desk Reference, which I believe is probably the most commonly used source of drug information by the practicing physician, is made up principally, or composed of, the labeling on various drugs. So, I think looking at it from that standpoint, I suspect that we could say that he does use the labeling. How frequently the physician uses the package insert per se I do not know. I do not think we have any basis for a statement on that. Dr. Simmons points out, and it is an extremely important point, that the labeling does in fact indicate what may be in the advertising and promotional material for the drug. This is doubly important, not just for the physician per se, but also in terms of all promotional material for a particular drug. Senator NELSON. I do not follow that. You are saying that they cannot promote the drug-make claims for the drug beyond what are authorized in the label? Dr. EDWARDS. What is in the label, exactly. Mr. GOODRICH. And they must make the same warnings and with the same emphasis and the same words in the promotion as in the package insert. So, the package insert sets the stage for all promo- tions and controls over promotion. That is, the journal advertising, the mail-outs, detailing, and so on. Senator NELSON. Who uses the insert? The physician usually does not see it, does he? Dr. EDWARDS. The physician or the pharmacist may or may not see it depending on what his own habits happen to be, but we hope the majority of physicians see it, particularly with more potent drugs. Senator NELSON~ Does the PDR print the whole package insert? Mr. Goo~RTCH. In general, yes. They are not required to have some of the things in the insert, like animal studies and things of that kind, but the essential indications, contraindications, warnings, pre- cautions, et cetera, all are required to be in the PDR exactly the same as in the labeling. Senator NELSON. You say they are required to be in the PDR. Mr. GOODRICH. If the drug is advertised in the PDR. There is no requirement that anything be put in the PDR but if the company desires to advertise by listing their drug in the PDR they must use the prescribed information. Senator NEr~soN. It is required, then, that if a company places an ad in the PDR, that the ad must conform to the labeling FDA has approved for that particular drug. Is that correct? Mr. GOODRICH. Yes. Senator NELSON. And, therefore, if they are going to advertise, they have to include certain parts of the package inserts. Mr. GOODRICH. Our position is that the PDR really serves the pur- pose of labeling on the physician's desk and, therefore, it must be in conformance with the labeling requirements. We do not allow in the PDR a brief summary that might be permissible in a prescrip- tion drug ad, but even in the prescription drug ads you are seeing PAGENO="0019" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7975 the brief summary more and more cont~iining the full story about the warnings and precautions because the regulations do require the same emphasis and the same wording for those essential warn- ings. Senator NELSON. Go ahead, Doctor. Dr. EDWARDS. Continuing on with regard to the drug efficacy study per Se, the panel reports evaluated the indications for use as "effective," "probably effective," "possibly effective," "ineffective," "ineffective as a fixed combination" and "effective but." The results of the evaluations are the following. Again, I emphasize, too, here our percentage numbers are based upon the total number of claims on these drugs of which there were some 16,500. Of those 16,500 claims, approximately 14.7 percent were found to be ineffective. Approximately 35 percent were found to be possibly effective. 7.3 percent, probably effective. 19.1 percent, effective, and 24 percent, effective "but." I might say at this time that we have returned the "effective but" ratings to the National Academy of Sciences for clarification but we did begin to implement the other reports in 1968. The NAS-NRC reports and our medical reaction to them are not self-executing. They trigger the administrative process of labeling and product reform. As soon as the first report classifying a drug as "ineffective" was announced, industry resistance appeared. The first line of defense was to throw the issues into hearings, from which protracted delays could be anticipated. There were court suits seeking exemption of a great number of drugs from the efficacy review-on the ground that they were excused by the grandfather clauses. The real test of the Agency's determination and abilit~y to translate the scientific reviews into patient benefits came in mid-1969 with the now quite famous PanaTha case. The Agency took two important steps to minimize hearing delays. It defined the scientific content of adequate and well-controlled clinical investigations to provide a regulatory base against which medical documentation would be meas- ured, and it established summary rules to limit its hearing procedures to those cases in which the sponsor of the drug could establish that there was a genuine and substantial issue of fact requiring a hearing. The PanaTha case was taken first to the district court and then to the court of appeals. After an expedited appeal, FDA prevailed. The principles on which we would proceed were then firmly established. There was a temporary setback in the District Court in Wilming- ton, Del., a short time before the PanaTha decision came down with the consequence that we had to repromulgate the interpretive and procedural rules. In May 1970, the rules were reissued; a pharma- ceutical manufacturers association challenge failed when the district judge sustained the rules in late October. Thus, only 8 months ago the roadblocks were removed and the stage was set to move ahead with the administrative proceedings in an expeditious fashion. From the drug efficacy study arose two areas of special concern; fixed dose combination drugs and the elimination of unnecessary internal delays in processing cases. Senator NELSON. May I ask a question, Doctor? The table on page 6, appears to show that almost 60 percent of the claims lack adequate PAGENO="0020" 7976 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY evidence of efficacy. That is, if you take the categories "probably effective," "possibly effective," "ineffective." Dr. Simmons, in his December 29 speech ~ said: Of the 16,000 therapeutic claims evaluated by the panels, approximately 11,000, or 70 percent, were found to lack adequate evidence of efficacy. Do you have a reconciliation of those two figures? Dr. EDWARDS. I suspect he was including in that category the "effective but" drugs. You see, on some of these drugs that were categorized by the Academy as "effective but," the staff of the FDA made an interpretation of their comments and placed them into the "possibly," "probably," "ineffective" or "effective" categories. Senator NELSON. I see. Dr. EDWARDS. So, I think that would account for the discrepancy in numbers. Senator NELSON. Thank you. Dr. EDWARDS. Moving on to these two problem areas, combination of drugs account for about 50 percent of the products involved in the National Academy of Sciences reviews. Though the NAS-NRC panels in general ruled against fixed dose combination drugs, 40 percent of America's best selling drugs are fixed dose combinations. It has been estimated that 40 to 50 percent of the prescriptions call for drugs in fixed combination dosage form. The limitations of effec- tiveness, the limitations of rational use and the built-in hazards that attend the use of some fixed combination dosage forms have long been recognized. They are discussed in the NAS-NRC report, they are discussed in resolutions by the AMA's Council on Drugs, in testimony before this committee, and certainly by many experts in the medical literature. I would, however, like to make it abundantly clear that FDA is not against all fixed dose combinations. Our problem is to develop and to implement a reasonable policy for dealing with fixed dose combination drugs to make rational prescribing possible. Senator NELSON. Is it not correct, however, that the NAS-NRC position thus far on fixed combination dosage forms is that the fixed combination that they have endorsed have been an exception to the rule? Dr. EDWARDS. That is correct. Essentially, our problem is to allow the marketing of those fixed combination drugs which fill a need among that patient population requiring concomitant therapy with multiple drug ingredients at the particular dosage levels offered. This must be done without permit- ting the marketing of irrational fixed dose combinations intended for patients who may have a condition amenable to treatment by one or more of the components but who has no need for the others. Cer- tainly, the hazards of unneeded drugs are all too well known to re- quire any extended discussion today. Mr. GORDON. Dr. Edwards, what is your new policy with respect to combinations and what do you hope to accomplish by it? Dr. EDWARDS. We are in the process of developing guidelines, if you will, as to what we consider an adequate combination drug. We will probably be publishing these in the Federal Register within the 1 See pp. 8426-8443. PAGENO="0021" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7977 next 2 weeks. The Pharmaceutical Manufacturers Association has asked that we look at what they suggest, which we will do with them the latter part of this week. In essence what we are saying is that in any combination drug, the variotis ingredients of the combination must be shown to exert some effect on the total effect of the drug. Mr. GORDON. You mean an additive effect or more than an additive effect? Dr. EDWARDS. Well, that any ingredients of a combination must in fact have some effect on the ultimate or total effect of the drug. Dr. Simmons, do you want to add to that? Dr. SIMMoNS. That no drug should be present in a fixed dose combination unless its presence clearly enhances safety or efficacy. And unfortunately, most combination drugs to this point have not developed that type of efficacy. Mr. GORDON. But convenience is not sufficient. Dr. EDWARDS. I think convenience is a factor. It certainly has to be considered all else being equal. I think, for instance, in .ped~atric drug therapy convenience frequently can come into play, but it cer- tainly is not a factor upon which we would base our decision. Senator NELSON. I am puzzled about that. If it is a fixed dosage form, are you saying that adequately controlled studies would have to be submitted to demonstrate that the combination of these drugs is additive or synergistic? Dr. SIMMONS. That is right. Mr. Chairman, maybe `the simplest way ,1 might be able to explain it would be that if you put two drugs together to treat pain, we would expect you to provide evidence that you get a better result with those two than you would with either of the active ingredients if that particular drug were used in an adequate dose. This is basically what we wish to have provided to us. Senator NELSON. But here you are reciting the case of an analgesic. Dr. SIMMONS. Yes. Senator NELSON. You are not talking, then, about establishing some rules to permit fixed combinations of anti-ineffectives? Dr. SIMMONS. Yes. That would follow the same rule, that you do not put two antibiotics together unless you can show that those two provide a better result than either one of the ingredients, either a better result in increased safety or increased efficacy. Senator NELSON. In order to put two antibiotics together in a fixed dosage form, do you mean to say that both of these antibiotics must be effective against the target organism? Dr. SIMMON. That is right. Senator NELSON. So that you would not permit the situation that occurred in the fixed combination of novobiocin and tetracycline which was Panalba. Dr. SIMMONS. No, we would not. There are two parts to the corn- bination policy, one, that there should be evidence that both con- tribute to the therapeutic effect, and two, that that specific formula- tion can be used rationally. In other words, where you must increase the dose of one antibiotic to take care of a certain organism, you do not carry along with it an increase in the dose of the other for which there is no indication to increase the dose. So, there are two require- ments in our combination policy. PAGENO="0022" 7978 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. In the studies thus far of the NAS-NRC, apart from topicals, were there any fixed combination drugs that met the standard that you are talking about? Dr. SIMMONS. Mr. Chairman, out of, I believe, over 1,300 combina- tion drugs reviewed, excluding topicals and parenterals only a hand- ful were rated effective. Senator NEI450N. A handful? Dr. SIMMONS. Yes. Senator NELSON. By the standards that you are reciting here. Dr. SIMMONS. By the NAS-NRC standards themselves. You see, they had a basic standard at the beginning of the study that there should be substantial evidence that each drug contributes to the therapeutic effect claim. Senator NELSON. And this is the standard that is being adopted or proposed for adoption by the FDA? Dr. SIMMONS. Yes. Senator NELSON. Now. Dr. EDWARDS. Right. Mr. GOODRICH. With some refinements. We want to improve on that to make sure that the combination itself is rational. For exam- ple, the oral contraceptive is a fixed combination product in which both components serve a useful purpose and for which the patient requires concomitant therapy in that combination. What we are essentially saying is that a fixed combination should not be giving the patient a variety of drugs when he or she needs only one, and if a variety are given, there must be a situation in which the patient requires concomitant therapy with the two drugs in this particular dosage form as Dr. Simmons said, either in terms of increased safety or increased effectiveness. Senator NELSON. Thank you. Dr. EDWARDS. We have spoken briefly of the combination problem. The problem of internal delays is frustrating, as you know, to all administrators. We have provided extra resources in the Bureau of Drugs to expedite the handling of these cases. This has and con- tinues to have high priority and these cases are handled as rapidly as possible. We have already published reports on 1,200 drugs and about 700 others are ready for publication. The remainder should be in the public domain by March of this year. But only last Thursday, the District Court here in Washington heard the American Public Health Association's complaint that we are not moving fast enough. That suit seeks to set aside the internal rules we have developed which allow additional time for the de- velopment of appropriate medical evidence to support claims evalu- ated as "possibly" and "probably" effective. Senator NELSON. These are the two that are questioned in the suit or are all standards you have set questioned? Mr. GOODRICH. These are the main ones questioned. Actually, the suit questions the 30 days on the ineffectives and it does not question the rulings of effective. rfhe suit says that once there is a finding by the NAS-NRC of anything other than wholly effective, we should take the product off the market without further delay. Our response was that in those products classified possibly and probably effective PAGENO="0023" COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY 7979 we should exhaust the scientific method to get an answer one way or the other before moving those drugs out of the marketplace, since they do have some real possibilities of proving out effective. Senator NELSON. Let us see. What is the time schedule now Mr. GOODRICH. 6 months on the "possibly effective" and 1 year on the "probably effective," and those times may have to be adjusted at the end of that time frame, depending upon what research has come out during the 6 months or during the 12 months. For example, if at the end of 6 months there is good research underway giving a reasonable assurance that it will prove out the effectiveness, the Commissioner has said he would extend the time in terms of what would be needed to finish that piece of research. Dr. EDWARDS. I think this is terribly important. We certainly do not want to take any effective drugs off the market. By the same token, we certainly are not going to procrastinate any longer. I realize it is very reasonable to say, look, they have had 6, 7, 8 years in which to develop this particular evidence but I think the fact of the matter is that the industry by and large did not take this very seriously until recent months, and I think that we have a re- sponsibility at this point in time to the patient and we certainly do not want to be caught in a position of having taken effective drugs off the market. Now, granted, how many of these are effective is another question. Senator NELSON. Go ahead. Dr. EDWARDS. Moving on to the subject of drug quality, reliability of claims of effectiveness, of course, are of first importance, but we must be equally concerned with product reliability. We have developed and published improved regulations applicab1e to good manufacturing practices. We have several programs to enforce those requirements. The first is the Intensified Drug Inspection program. This is an effort to im- prove overall industry performance by concentration on specific manufacturers. In this process the FDA learns practical problems of implementing what may be considered theoretical requirements. The industry learns what concerns the FDA in a concrete rather than an abstract fashion. I think object lessons may be applied across the board. Marginal operations can be brought into compliance and hopeless ones identified and eliminated. Since July of 1968, FDA has initiated intensified inspection of some 287 drug manufacturers and associated commercial testing laboratories. In 147 of the terminated cases, voluntary compliance with the Good Manufacturing Practices regulations was achieved through a dialogue between FDA district personnel and plant man- agement. In some 44 remaining cases are 23 firms which are now the subject of legal action, and 21 firms which are giving up the drug business because of their inability to come into compliance. Senator NELSON. You refer to an intensified drug inspection pro- gram and improved regulations applicable to good manufacturing practice. Can you elaborate on that a bit? Dr. EDWARDS. Would you like to, Dr. Simmons? Dr. SIMMoNs. Yes. The current Good Manufacturing Practice regulations which we have just repromulgated, Mr. Chairman, are PAGENO="0024" 7980 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY such that if a firm follows these, it can reasonably be expected that they will produce an up to potency product batch after batch. This is what we aimed to achieve. We try to capture the best available techniques in drug manufacturing into these current good manu- facturing practices. Senator NELSON. I note that a number of producers-21 firms-are giving up the business because they could not comply. Is most of the production for most of the drugs in most of their dosage forms fairly mechanized and automated at this stage? Dr. SIMMoNS. By and large, yes. Mr. GOODRICH. That is quite variable in terms of different methods. The regulations do permit the use of highly automated equipment, highly automated testing procedures, but they are not designed to require that degree of technology if drugs of adequate quality can be produced through other systems. The Good Manufacturing Practices regulations deal with the nitty-gritty of good production, that is, a proper building, proper equipment, proper cleaning of the equipment, proper controls of the raw materials going into the mixing batch, proper control over the labeling, regulation of the type of personnel, and so forth. They are designed to be compliable by the small manufacturer as well as the large but there are certain minimum things that must be observed by all manufacturers to assure drug quality. Now, the 21 firms that have not been able to comply either have not had the willingness or the finances to meet these minimum re- quirements and the public can accept nothing less. Senator NELSON. Are there any requirements that must be met by a manufacturer of a drug prior to marketing his drug? Mr. GOODRICH. Oh, yes. Senator NELSON. What are they? Mr. GOODRICH. Of course, if it is a new drug, then he has to make a commitment at the going-in stage of production that he will ob- serve a protocol of manufacturing control that will assure reliability. If it is an antibiotic drug he must submit each batch to us for batch certification. If he is dealing with drugs that are not new drugs, that is, the old products, he must for all drugs meet the conditions of current good manufacturing practice and if he does not, the drug is adulterated and can be taken off the market, he can be enjoined or prosecuted. So the good manufacturing practices are the basic rules that apply to every drug manufacturer, large or small. Senator NELSON. But when somebody decides to go into the busi- ness of manufacturing drugs, at what stage do you become ac- quainted with this? Mr. GOODRICH. He must register with us before he starts. We have to react with an inspection as soon as possible to make sure that he does have the knowledge of what it is all about and he is inspected against the standards of current good manufacturing practices. The law requires one inspection at least every 2 years, which is far too infrequent, but we are putting the resources into this as we have been to improve on the performance. The Intensified Drug In- spection program is one that concentrates at points where we think the risks of violation are the highest. PAGENO="0025" COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY 7981 Dr. EDWARDS. But the manufacturer does not have to provide us with a list of those products that he is manufacturing. Senator NELSON. He does not ~ Dr. EDWARDS. Does not. That is why, when looking at this from a little longer range, I think that the Food and Drug Administration eventually will have to have at least the opportunity to certify all drugs. That does not mean that we, in fact, would want to certify every drug through a certification program, but rather to selectively certify, and I think that some kind of a registration program is cer- tainly necessary. Senator NELSON. Well, in effect, you have that authority now, do you not? That is to say, you go into the marketplace or go into the factory and select a sampling of drugs and have them assayed to see whether they meet USP standards. If they do not, you have the authority to say you cannot put them on the market or if they are already there, you must take them off. Dr. EDWARDS. We certainly do. Mr. GOoDRICH. We have the authority as you say, to go there and obtain samples and analyze the samples. If the product is not under new drug or antibiotic control it can be distributed and if we find it in violation, we have the legal mechanisms to take it off the market. But there is an opportunity, if we had the resources, to expand our inspection authority which would concentrate on these points of drug manufacture where the importance of the performance to the pa- tient is the highest and the likelihood of failure of the drug is the highest, something comparable to the certification, without having that express authority. Yes, we do have that ability if we had the personnel and the funds to carry it out. We have recently had an episode with digoxin, which Dr. Edwards will discuss, in which we found it necessary to examine the products of all manufacturers to bring them all into compliance. Senator NELSON. I was just trying to get it clear, Doctor, what you were saying about this. Dr. EDWARDS. I really was not referring so much to certification per se as the registration process as such. I think that while we have to inspect them once every 2 years, we have very little to say in terms of what they are manufacturing. Mr. GooDRICH. And the other point he had in mind there was that with certification the burden is on the company itself to make an analysis, submit that analysis plus the sample to us. Now, with our existing mechanisms we would have to go in and obtain the sample, make our own analysis, and, of course. we could check the analysis that the company made under its Good Manufac- turing Practices requirements. But certification has advantages in that the company must submit batch by batch the product to us rathei~ than our sending inspectors out to obtain the sample, and they would be under an embargo from shipping the drug until they got back the results of our certificate. Those are points of difference. Senator NELSON. Is it correct that under present law a firm could go into the business of manufacturing drugs, and if they were an old established drug, could put them into the marketplace and the PAGENO="0026" 7982 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY firm might be in business for two years before it had any contact with the FDA? Mr. GOODRICH. Possibly. We do have internal instructions on how to deal with a newly registered firm which bring the inspection as soon as the district can handle it, but it does not assure that there will be an inspection before the company makes its first batch of pills or before it makes its first interstate shipment. We certainly should strive to have that carried out as an internal matter. Senator NELSON, Would it not be sound law to simply require that nobody can put drugs into the marketplace until there has been an inspection? Mr. GOODRICH. Yes. Dr. EDWARDS. That is really what I primarily had reference to. We have to have some control over these products before they actu- ally get into the market, more than we have now. Mr. GORDON. Do you also envisage registration of each drug? In other words, as it is now, you merely register the plant but do you envisage having each drug registered? Is that what you are aiming at? Dr. EDWARDS. This again, is what I was referring to. In other words, we register the plants. Mr. GORDON. That is right. Dr. EDWARDS. We have to have some inventory, if you will, as to what the plant is doing. The only way we can do that is by having some idea of the particular products that are being manufactured by the plant. Mr. GORDON. As it is now, you do not know who is manufacturing what, is that it? Dr. EDWARDS. Well, in some cases we do, in some cases we do not actually. Mr. GOODRICH. Anything that is an antibiotic or new drug, of course, we know. The products that we may not know about are the products for which there is no requirement that they inform us in advance. Those drugs that were under the basic grandfather clause of the 1938 Act, that is, any drug produced prior to that date did not require new drug clearance, and there are some grandfather pro- visions in the 1962 Kefauver-Harris amendments. We are litigating in that area to narrow those exemptions as much as we can, but to answer quite specifically, yes, there are some pro- ducers of phenobarbital and thyroid and other products that we do not have a full inventory of and we do not have a full inventory of their labeling or of their medical justification for putting the par- ticular labeling into the marketplace. There was no requirement for that and we have an after-the-fact enforcement responsibility on those drugs. Dr. SIMMONS. Mr. Chairman, you asked what control does the FDA have on a new drug. On any New Drug Application that comes in, before that drug can be manufactured we do inspect the plant to make sure that they can turn it out as they claim they will in the New Drug Application. In addition to that, we have a continuing surveillance mechanism whereby we have a regular inspection system nationwide. We will PAGENO="0027" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7983 take a sampling of a class of drugs from the market, analyze it and find problems that way. What we do not have is the mechanism we have in antibiotics where every batch produced must be cleared by us before it is marketed. Other drugs can be marketed and then we have to find the problem after the fact. And this is what we are referring to. Senator NELSON. What kind of mechanical problem does it present to the FDA to batch-test all anti-infectives? Dr. SIMMONS. Well, we do ~1,O00 a year here in Washington and we are able to handle that quite expeditiously. It works quite well. Senator NELSON. That also applies to all imported anti-infectives, too? Dr. EDWARDS. Right. Senator NELSON. Go ahead, Doctor. Dr. EDWARDS. The Food and Drug Administration's drug sampling and testing programs constitute another effort to find out just how well this system of quality assurance is working. While we appreci- ate that no monitoring system is without deficiencies, we are seeking the best approach, both medically and statistically, in this impor- tant part of the program of quality assurance. Our National Center for Drug Analysis (NCDA) located at St. Louis, plays an important role in our total effort to assure the quality of drugs. We are very hopeful that this center can be significantly expanded in the months ahead. At this center we have a modern, sophisticated, facility equipped with automated analytical instrumentation to which we are adding computerization. This will enable us to conduct a large-scale national drug surveillance program. This program is already underway and we hope to expand it for use in conjunction with our new formulator oriented drug an~dysis program. What this is in fact, Mr. Chairman, is that heretofore we in our drug analysis have gone to the retail level to get our drug samples. tinder this new program we are going straight to the manufac- turer to obtain our sampling materials. Compliance operations continue to encourage industry cooperation to the maximum extent possible. Voluntary recalls have been the most commonly used method for removing defective or mislabeled drugs from the market and usually the quickest and most effective way to protect the public. There were some 951 recalls during the current fiscal year, some 707 in 1969, and some 711 in 1968. Every recall is reviewed to see how it could have been prevented. When one is found that illustrates an important problem, a recall case is pre- pared and distributed throughout the country. Drug firms have wel- comed such guidance and 40 case studies were available at the end of fiscal 1969, 46 at the end of fiscal 1970. The very important drug, digoxin, has presented an interesting problem that I think gives you some idea how our drug surveillance and National Center operate. Digoxin tablets, an important pharmaceu1~ical drug, are manufac- tured by some 37 firms. For more than a year content ui~iformity difficulties resulted in many recalls. Nearly all the maraifaèturers of this product were having serious difficulty meeting product uni- formity specifications. PAGENO="0028" 7984 COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY Our National Center for Drug Anaiysis~ and our Washington laboratories, led the investigation of this problem. It became evident that manufacturing problems resulted from the mixing of the in- gredients, which contained only about one active part to 400 inactive parts. All the firms involved cooperated by voluntarily withholding distribution, and discontinuing the manufacture of digoxin tablets, until the problem could be solved. FDA met with industry representatives to discuss both manufac- turing and analytical techniques. Our people recommended a modi- fication of the mixing techniques in the early stages of manufacture which provided the solution. In order to check the process, FDA, with the concurrence of industry, has certified each batch since then before shipment. Both the U.S. Pharmacopeia and the National Formulary are seeking clinical tests such as excretion and absorption profiles on human beings to evaluate clinical effect. In addition, they are at- tempting to develop in vitro tests which approximate the in vivo situation. Senator NELSON. You mean the USP and NF are seeking these tests on all drugs? Dr. EDWARDS. I think eventually that would be their ultimate goal. They are doing this by drug categories at this point in time but they are attempting to increase the scope of what are the various factors that go into developing uniformity for these drugs. Senator NELSON. Well, then, will these become additional factors in meeting tSP and NF standards? Dr. EDWARDS. That is right; yes. We have made our own efforts to assure that chemical drug equiva- lents, when administered in the same amounts, will provide essen- tially the same availability as measured by blood levels, excretion, and absorption profiles, et cetera. We have developed certain in- house biological availability requirements for abbreviated new drug applications but information and techniques thus far in this whole area have been slow in coming and must be considered preliminary. On the basis of currently available evidence, the quality of marketed drugs in regard to their purity and the uniformity of content of active ingredients is not suspect. This includes all marketed drugs, generic as well as brand name. Even though there have been indica- tions that different brands of a few drugs in chemically equivalent formulations have given significantly different biological responses, we have reason to believe this is not a frequent phenomenon. The next subject I would like to briefly address ourselves to, Mr. Chairman, is this problem of communications with the profession and other Federal purchasers. All of the Food and Drug Administration's scientific work in new drug approval and surveillance, and all of the NAS-NRC evalua- tions, are in fact to no avail unless the results are communicated to the prescribing physicians. Drug information is communicated in a variety of ways-in full disclosure package inserts, in advertising messages, and, of course, by detail men. The package insert is the key to what can and what must be corn- municatel to assure safe and effective drug therapy. As I indicated, PAGENO="0029" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7985 the NAS-NRC noted that most of the current package inserts re- quire significant revision. As I say, that is being done. Too often they are promotionally slanted. They sometimes are models of clarity when it comes to claims of effectiveness, but models of obscurity in the discussion of limitations, side effects, contraindications, et cetera. In our judgment, our interim labeling regulations will help to cor- rect this problem. Our first task here is, to develop uniform labeling for classes of drugs so that the prescriber will understand that tetracycline, for' example, by whatever trade name it is sold has the same indications and the same warnings, et cetera. We are developing such labeling in the course of the NAS-NRC reviews. We have also increased our advertising surveillance to make sure that the appropriate message, as approved in the package insert, is reflected in the important phases of promotion. We and the manufacturers involved are studying the problem of detailing, to attempt to assure a balanced oral message to the busy practitioner. And finally, we have the important problem of adverse reaction reporting from the prescribers themselves and of communicating the experience so reported in a timely fashion to others who use the drug. We can offer no solution to this at the moment, but we are in the process of planning and developing the system necessary to solve this problem. Communication to other Federal officials involved in drug' pur- chasing, of course, is a simpler problem. The Federal Register is the official vehicle through which we first publish our position with respect to the safety and efficacy of drugs. We have recently supplemented this in an effort to make sure that affected people are notified with a list representing those drugs which lack substantial evidence of effectiveness, or that an unfavor- able benefit-risk ratio exists. Mr. GORDON. Dr. Edwards, do you tell the press about important actions which you announce in the Federal Register? Dr. EDWARDS. Practically all of the time a press release is prepared when any important drug or other important announcement is placed in the Federal Register. Mr. GORDON. I am thinking specifically of the potassium thiazide combination diuretics about which you had some~ kind of an agree- ment with the industry recently. You bad a notice in the Federal Register but I did not notice anything in the press. I did not even know about it until someone told me about it. And then also the Darvon. I did not even know that there was a statement in the Federal Register about Darvon, which I understand appeared in April 1969, umt~il I got the NAS-NRO report last summer. Mr. GooDRICH. On the thiazide diuretics, the two leading brands in the market, Esidrex-K, Hydro-diuril-Ka, were removed from the market soon after the PanaTha case was decided back in the spring of last year. One product still is in controversy with us, a Squibb product under which they have submitted some data. I do not know what you have in mind in terms of an agreement. The agreement was that they would take the product off the market, PAGENO="0030" 7986 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY recall it from the marketplace. This was with Esidrex-K, Ciba, and Merck & Co., Inc. did the same with Hydro-diuril-Ka. In the case of Darvon, that announcement was made, as you indi- cate in 1969, I believe, and we did not have a press release at that time. We are trying to be more alert to the important drugs as they come out to attempt better communication. But the NAS-NRC evaluations themselves are made available both to the press and to the affected people and anyone else who is interested enough in them at the time they are published in the Federal Register. Dr. EDWARDS. We have established a working relationship with the AMA Medical News in which weekly or every other week they will publish in that publication a list of products that were found ineffec- tive. In the case of Darvon we are currently again revising the label- ing on Darvon, bitt- Mr. GORDON. Is this information reaching the hands of every doc- tor in the country? Dr. EDWARDS. Probably not. I suspect that we should be using far more than we have the "Dear Dr." letter, and our new "Current Drug Information" letters which as you know, we started in 1970. We are working to publish that more frequently on a number of different subjects. The "Dear Dr." letter is another, of course, mechanism for communicating with the practicing physician. We have not been totally impressed with the value of this as such. It is a very expen- sive way of doing it. We are trying to come to grips with what method is the most dollar wise-considering the limited dollars that are available in the Agency, what is the most effective way of communicating with physicians. It is a tough problem to come to grips with. Mr. GORDON. How about States and municipalities? They have a similarity of interests, do they not? Dr. EDWARDS. This information was sent to State purchasing offi- cials, Secretary of State Departments of Health, and Secretary of State Boards of Pharmacy. Mr. GORDON. We are not sure doctors are getting this information, are we? Dr. EDWARDS. No, we are not, very frankly. It is a weakness and one that I can only say at this time that we are trying to correct. I think over the years the practicing physician has not looked to the FDA enough for reliable drug information and this is one of the areas in which we have got to reestablish our image as being in fact the center for reliable, meaningful drug information. Unfortunately, in the past I think it has tended to be the drug detail man and in our judgment, we have to swing this back. Senator NELSON. What is the legal status of a dosage form that is no more effective than a placebo? In other words, NAS-NRC says a 3~ milligram tablet of propoxyphene hydrochloride, that is Darvon, was shown to be no more effective than a placebo. It is in the market- place. `What is the legal aspect of that? Mr. GOODRICH. The legal aspects are that any claim of effectiveness for any type of drug must be supported by substantial evidenc6 as we have indicated. As I understand the justification for the 32 milli- gram, it is to permit some dosage flexibility, but this is a matter that we must look into in terms of going over the claims. PAGENO="0031" COMPETITiVE PROBLEMS IN THE DRUG INDUSTRY 7987 I think there is no question that if Darvon in whatever dosage is claimed to be an effective analgesic, there must be evidence that it performs better than a placebo as an analgesic. Dr. EDWARDS. A~ I indicated, Mr. Chairman, we are in the process right now of negotiating with the manufacturer to further revise the labeling on this particular product. Senator NELSON. I shall put in the appropriate place in the record the news release 1 from the Eli Lilly Co. in response to criticism of that drug. There are a couple of interesting sentences in it. I will not bother to read it all, but it says: The fact that some investigations fail to show a difference between 32 milligrams of Darvon and a placebo or "sugar pill" is not surprising. All analgesics give similar results at their lower ranges of effectiveness. Thus, a placebo often performs as well as a single aspirin tablet. This does not mean that the aspirin tablet is a placebo. It merely shows that analgesia research, being based on subjective evidence, is not at all that precise at the lower ranges of dosage. As for the view that Darvon should not be prescribed "routinely" in pref- erence to other analgesics, we agree. The evidence is that we prescribe Darvon routinely as the anal- gesic of choice in Veterans hospitals around the country. All you need to do is look at the amount. But it is being studied further, is that what you are saying? Dr. EDWARDS. Absolutely, and as I said, the labeling on this drug will very shortly be changed again. Dr. Simmons, do you have any other comments in that direction? Dr. SIMMONS. No. Mr. GOODRICH. I might make one more point. In our adequate and well-controlled study regulation, there is a requirement for compar- ing the drug, the claims of effectiveness, either with a placebo or with something else and if it is claimed to be an effective drug, it must be and is compared with a placebo. Of course, it must perform substantially better in order to have any claim supported. Senator NELSON. Have the physicians been informed that the 32 milligram propoxyphene hydrochloride is not more effective than a placebo? Dr. SIMMONS. Mr. Chairman, Darvon is a very interesting subject from its inception. If you ask us, has the physician been adequately informed of the late changes in Darvon, I think we would honestly have to say no, and we are taking steps to see that that gets ac- complished. Dr. EDWARDS. I think that Dr. Simmons did not go quite far enough. When Darvon was initially placed on .the market and it was promoted as a drug compared to codeine, and as having the potency of codeine, and yet was a non-narcotic drug, I think that this was probably the first error as it relates to the subject of Darvon. We have come to grips with that particular problem in labeling. We have not as yet come to grips with this problem of its effective- ness relationship to aspirin, and so forth, but I think very shortly we will have that problem corrected, at least as far as the labeling is concerned. Senator NELSON. Thank you. Go ahead. 1 See p. 7993. PAGENO="0032" 7988 COMPETITIVE PROBLEMS IN THE D1UJG INDUSTRY Dr. EDWARDS. Mr. Chairman, we have gone on in our testimony to indicate what the Department of Health, Education, and Welfare has done as it relates to the list of ineffective drugs which I will not go over at this point in time, but will conclude by answering spe- cifically the questions that you posed in your invitation that we appear here. Namely, we have learned that constant attention must be given to all forms of drug promotion to keep it current, reliable, and useful. We believe that a future NAS-NEC evaluation can only be avoided by constant surveillance and timely action. Federal policy toward rational prescribing requires attention to drug quality, to sound med- ical documentation of all allowable promotional claims~ ~md to greatly improved communications with the physicians prescribing these drugs. Government, as a major purchaser of drugs, should and must insist upon the Icast expensive of equivalent drugs and upon rational choices among different drugs which satisfy the same medi- cal needs. Our role is to assure the reliability of all drugs available in the marketplace and the dissemination of fully informative label- ing and promotion to enable the prescribers to make wise choices among the array of products available to them. Thank you. Mr. GORDON. What lessons have we learned from the drug efficacy study? Dr. EDWARDS. Well, I think as I indicated in my concluding re- marks, I think that we have learned that, first of all, the two subjects of safety and effectiveness have to be considered together and you cannot consider one without' the other, and I think that unfortu- nately, this was not appreciated prior to 1962 and put us in the position that we are in right now. I think it also indicates, as indicated to us, that a far better defini- tion has to be had of such subjects as what are adequate and well- controlled studies, and the meaningfulness of monitoring. I think all of these things have been highlighted in this drug efficacy study. Dr. Simmons, do you want to add anything to that? Dr. SIMMONS. I think in addition to what the Commissioner has already said, basically what we learned was that there are many problems that currently exist in therapeutics that need solutions. I think it taught us that the old system of having authority only to pass on safety was not adequate to the task, that somebody needed the authority to pass on efficacy. We also learned that the uncontrolled observations and testimonial endorsements are not adequate to the needs of the 20th century, that we do in fact need substantial evidence, well controlled evidence, before we know what we are doing with drugs. We learned that, as the Commissioner already mentioned, labeling in the past has generally failed in the primary purpose of letting those who have to use the drug know how to use it intelligently. I think it also told us that the combined efforts of the Federal Govern- ment and the private sector can help improve this system and in fact, is necessary. I think the most important thing it showed us was that the medical profession needs a better, more balanced and objective source of good drug information. This is what we hope to be able to provide in the months ahead. PAGENO="0033" COMPETITIVE PROBIiEM~S IN THE DRUG INDUSTRY 7989 Dr. EDWARDS. I think another thing, Mr. Chairman, that I would have to add is that the Food atid Drug Administration is a regu- latory agency having the responsibility of monitoring a multibillion dollar industry. In order to do this we have to have adequate re- sources which I do not think in the past we have necessarily had. Senator NELSON. For example, the inspectors that inspect the plants are paid for by the GOvernment? Dr. EDWARDS. Yes. Senator NELSON. There is no asseSsment. Dr. EDWARDS. There is no assessment, although we have been loo1~- ing into various financing mechanisms that could be utilized by ~he Food and Drug Administration. It still is not assessable to the manu- facturer. The only part of our operation that is paid for by the manufac- turer is our antibiotic certification, insulin certification~ and color additives are certified and paid for by the industry. Senator NELSON. How can the objective of rational prescribing be achieved unless the question of relative efficacy is considered, espe- cially in view of the thousands of drugs in the marketplace. Previ- ously we were talking about the Darvon case, but there are lots of others. How does the physician make an election as to what the best mild analgesic is unless there are some relative efficacy studies and the information is available? Dr. EDWARDS. I think your point is well taken. I think this is an area that we have to get into much more than we have been in the past. Obviously, this indirectly influences many of our decisions today. We certainly cannot totally ignore the relative efficacy ques- tion when we are evaluating any new drug. But as you know, we do not have the authority, at least I believe I am correct, in keeping from the market any drug that is considered to be safe and efficacious, but compared to what is another question, and I think that very i~rankly, we are the only reliable soUrce which the practicing physi- cian should be able to look to to obtain some of this relative efficacy type information. Senator NELSON. Is there any sound reason. for, permitting the introduction into the marketplace of a drug if there is another drug in the marketplace that is just as good and there is no proof that this one is better? Is there really any rational reason for permitting it to be marketed? Dr. EDWARDS. I think this is probably the reason that, and some people disagree with me, is probably the reason that we have some `20,000 drugs on the market today when maybe half or fewer would be enough. No. I do not think there is any rational justification for it. On the other hand, you know better than I, I am sure, that industry spokesmen would disagree with this position. Mr. GoRDoN. Mr. Chairman, I would like to read from a statement that Dr. Walter Modell made before the Kefauver committee way back in 1961 in which he says: Occasionally molecular manipulation does bring about a significant advance, but usually a far more substantial change is needed for a real improvement. 59-551--71--pt. 20-3 PAGENO="0034" 79g0 COMPETITIVE' PROBLEMS IN THE DRUG INDUSTRY But simply because a drug is new, It is not necessarily better ~than those already available, safer. or even just as good. Often it is even less effective and sometimes more hazardous ~than the parent drug. Now, this is the important part, I think. But they also do harm by their very existence in the drug market. I take the stand that as a general principle everything that adds to the difficulty in dealing with and understanding drugs also makes drugs more dangerous. Thus, the excessive number of needless drugs constitutes a present danger. We can make the useful drugs both less dangerous and more efficient by weeding out the useless, the ineffective and the duplicates, and by so doing, make it possible for the physician to learn in depth about the potent drugs he will prescribe for his patients. We must add only those new drugs that really t~dd something more than their mere presence. How do you feel about that particular statement by Dr. Modell? Dr. EDWARDS. In general, I certainly would agree with him. Un- fortunately, we lived for several decades in which this basic principle was not either appreciated or was not observed, and I think it is going to take us some time to put some rationality back, if I can use that word, back into the drug scene, and it is a difficult problem and one that I really sincerely believe that we are slowly coming to grips with, but it is going to take some time. Mr. GORDON. Has your agency adopted any measures to give tech- nical assistance to small business enterprises? What I have in mind is to assist small firms in meeting FDA requirements, as, for example, when a patent expires, or to assist small firms to start producing drugs so as to make them available on a more competitive basis? Have you done anything along these lines? Dr. EDWARDS. Dr. Simmons can speak to that in just a moment. We certainly are making every effort possible to assist the manufac- turer, small and large, in coming to grips with some of our require- ments. We do not have a specific body or unit within the Agency that ~Ieals only with this particular problem. I would only say that I wish we had, but again in the allocation of rather scarce resources we have not felt justified in developing a unit such as this. But I think it makes some sense. Would you want to add anything to that? Dr. SIMMONS. No. Senator NELSON. Has the number of inspectors that you have to inspect plants increased, decreased, or remained the same in the past half dozen years? Dr. EDWARDS. It has gone down. We have fewer inspectors today than we had 5 years ago. Senator NELSON. Do you happen to have the figures with you? Dr. EDWARDS. No, but I can certainly provide them for you. Mr. Goodrich points out that while our total resources have gone up, the additional resources are in other programs. They are in some of the Public Health Service programs that we now have, such as the Shellfish Sanitation program and the Milk Sanitation program, but in terms of the actual number of inspectors that we have in our food and drug program the number has actually gone down. I can provide you with those specific figures, Mr. Chairman. Senator NELSON. I would like to have them for the record. (The subsequent information was received and follows:). PAGENO="0035" COMPETITIVE PROBLEMS IN THE DRUG' INDUSTRY 7991 DEPARTMENT OS? HEALTiI, EDUCATI&N, 4ND WELFARE, PuriLIc HEALTH SERVICE, rooD AND DRUG ADMINISTRATION, Rockville, Md., Jaituary 29, 1971. Hon. GAYLORD NELSON, Chairman, Monopoly Subcommittee, Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR SENATOR NELSON: During the testimony by Charles C. Edwards, M.D,, Commissioner of Food and Drugs, before your Subcommittee on January 18, 1971, it was requested that FDA furnish, fQr the record, the number of inspec- tors employed by J~DA over the previous Six years. This information is as 1~ollOws: INSPECTORS Domestic Import inspectors inspectors I Year: 1965 1966 756 693 49 1967 718 47 1968 628 49 1969 590 43 1970 577 42 33 I Import inspectors perform import wor k only. Thank you for your interest in our consumer protection activities. Please let us know If we can be of further assistance. Sincerely yours, M. J. RYAN, Director, Oiflee of Legislative Services. Senator NELSON. Is there any sound reason for the Department of Defense having its inspectors and the Veterans' Administration making plant inspections? Would it not make more sense if all the inspectors of all the plants were in one place, the Food and Drug Administration? Dr. EDWARDS. I think without any question it is a waste of re- sources, it is a waste of money to have this triple duplication by these three agencies. It really is the responsibility of the Food and Drug Administration to assure the American public, be it the Federal public or the private public, that drugs are in fact safe and efficacious and to have two other agencies involved in this is utter nonsense. I would like to have the resources that they spend for this par- ticular project allocated to Food and Drug Administration. Senator NELSON. Maybe we can help you. Mr. GORDON. Dr. Edwards, millions and millions of dollars are being spent by the public on long acting drugs. These are sold under many names like spansules, sustained action tablets, extenso tablets and oth~rs, The Government has spent considerable funds on these drugs also. We have had testimony that these long-acting dosage forms are unreliable, do not do what they purport to do and can be dangerous. Does the FDA have substantial evidence of the efficacy and ieli- ability of these drugs? Dr. EDWARDS. If I might, I would like to have Dr. Simmons speak to that particuiar question. Dr. SIMMONS. This problem we are well aware of, Mr. Gordon. It is a very difficult field and we know that many people who hav8 PAGENO="0036" 7992 CoMPETITIvE PROBLEMS IN THE DRUG INDUSTRY submitted evidence to us for efficacy of these compounds have been unable to show it and we have turned them down. There are a few, though, who have been able to pass our requirements and have a reliable product on the market, but there are very few. The majority of those currently on the market have not provided adequate evidence to the task and under the drug efficacy study of NAS-NRC we are requiring that they provide such evidence. It is a very difficult field and we would agree with your statement that in general they appear to be quite unreliable. Mr. GORDON. Now, with respect to advertising? Are you planning to include in your requirements that when a firm advertises a par.- ticular drug which has been rated "probably" or "possibly effective" by the NAS-NRC, that that statement will appear in the advertise- ment? Dr. EDWARDS. Yes. We have published our original Federal Reg- ister document indicating that we were going to require this, I think it was in October, and we will be republishing again indicating that we will require of the manufacturer that the National Academy of Sciences classification be included in any promotional information on the drug. There are several drawbacks to this because, for instance, a par- ticular drug can be advertised as long as reference is not made to the particular claim that was declared possibly or probably effective or ineffective and, in that case, the advertisement does not have to contain the rating by the National Academy of Sciences. But all of the drugs are going to be required to do this, Mr. Goodrich, would you want to add anything to that? Mr. GOODRICH. No, other than that we did receive comments, about 20 in number, covering a great many pages and as you can imagine most of them came from the pharmaceutical manufacturers, the proprietary association and drug companies, challenging both the legal basis for such a requirement and the factual justification for it. We were satisfied of the legal basis when we first published. We are still satisfied. We are in the process of working out a final docu- ment on it. Mr. GORDON. Consider this situation: claims have been made in the past, that is, before the NAS-NRC reports were published. These claims have been inculcated to a large extent upon the minds of physicians. As I understand it, from what you said, the firms can still advertise but as long as they do not advertise the claims again, they do not have to put in the rating of the NAS-NRC, is that correct? Dr. EDWARDS. If they use an acceptable label, one that is accept- able to the Food and Drug Administration, then, of course, this in effect is what we are trying to accomplish, that is, to make more meaningful the labeling on these particular drugs, so if they clean their labeling up and remove less than effective claims, the NAS- NRC rating need not be included. Mr. Goodrich, am I correct in that? Mr. GOODRICH. Yes. What he has in mind is that if an ad is made for a drug that had some claims rated "effective," some "possibly effective," some "probably effective," and some "ineffective" and the only claim advertised is the one for which the drug was found effec- tive, you need not have the possibly effective, the ineffective and the other claims in there with the disclaimer. We are striving to the end PAGENO="0037" COMPETITIVE PROBLEMS IN THE. DRUG INDUSTRY 7993 point where oniy effective claims are used but the point of the regu- lation is that any time a claim rated other than effective is used in promotion during this interim period of implementation, that is the 6- and 12-month period, there must be an appropriate qualification of that claim. Now, the other point you are addressing is, of course, an impor- tant point. Where the prescribing profile of the drug is basically changed, should there be some method of communicating to the physician? The answer, of course, has to be yes. But whether it should be in that ad which covers only effective claims, we do not think so.. There should be other mechanisms of communicating the new prescribing profile for, let us say, the sulfonamides or even the tetracychnes. Dr. EDWARDS. This will be, as I mentioned earlier this morning, all in a document that we intend to publish as soon as this is com- plete on all of the drugs that were considered by the National Academy of Sciences and their particular recommendation. Senator NELSON. Thank you very much, Dr. Edwards. We appreci- ate your taking time to come. The hearing will resume in this room at 10 a.m., tomorrow, with the Comptroller General. (Whereupon, at 11 :~fr5 a.m., the hearing was recessed, to reconvene at 10 a.m., Tuesday, January 19, 1971.) (Upon the direction of the chairman, information pertaining to the hearings follows:) [Press release dated Jan. 14, 1971] Nuws OF ELI LILLY & Co. Senator Gaylord Nelson has attacked the medical value of Darvon® (pro- poxyphene hydrochloride, Lilly) and criticized government agencies for buying it in a low dosage form be contends is "ineffective." The Senator quoted the National Academy of Science/National Research Council finding that the "32 mg. dose has often been found indistinguishable from placebo." He added that experts believe there is "no particul~ir reason to use it (Darvon) routinely in preference to (other analgesics) ." The Lilly Company makes the following reply: The smaller dose (32 mg.) of Darvon® (propoxyphene hydrochloride, Lilly) is made for special situations. It gives flexibility of dosage, enabling the physician to tailor the amount to the needs of the individual patient. Some patients find the 32 mg. dose quite adequate, although a 65 mg. strength Is most frequently used. In short, Darvon is effective in the way physicians use It. The fact that some investigators failed to show a difference between 32 mg. of Darvon and a placebo, or "sugar pill", is not surprising. All analgesics give similar results at their lower ranges of effectiveness. Thus a placebo often performs as well as a single aspirin tablet. This does not mean that the aspirin tablet is a placebo. It merely shows that analgesia research, being based on subjective evidence, is not at all that precise at the lower ranges of dosage. As for the view that Darvon should not be prescribed "routinely" In prefer- ence to other analgesics, we agree. No analgesic should be prescribed except after consideration of the particular needs of the particular patient. [From the New York TImes, Dec. 21, 1970] MANY DOCTORS IGNORE U.S. Lisr OF HAZARDOUS OR UsELEss DRUGs (By David A. Andelman) A list of 369 drug products considered ineffective or hazardous by the Food and Drug Administration apparently is being Ignored by a large number of doctors and their patients across the country. Some doctors go so far as to say. they consider the Federal agency's action In Issuing the list unethical. PAGENO="0038" 7994 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Reports from 18 cities, one month after the list was issued, also indicate that most people are unaware of the list's existence and are continuing to rely on the advice of private physicians on which drugs to take. "In the end I think the average patient relies more on the opinions of his physician than on public releases by F.D.A.," said Dr. William A. Limberger, president of the Pennsylvania Medical Association. "However, this at times injudicious release by F.D.A., does not enhaiice confidence in the medical profession." SOME WITHDRAWN Last week, the agency released a list of 173 drugs which had also appeared on its previous list of 369. This time the F.D.A. said the 173 drugs had been withdrawn from the market over the last two and one half years. The original list of 369, which received wider circulation nationally than last week's release, did not distinguish between drug products still being sold and those the F.D.A. had withdrawn from the market. The new list was made available, on request, to newspapers and interested individuals and organizations. Many doctors, pharmacists and hospital administrators who were inter- viewed were irate that they had not been informed of the F.D.A,'s list. Many bad never heard of it. Most of these were in areas where newspapers did not carry the full list, including such major cities as Los Angeles, Detroit and Baltimore. In Detroit, a spokesman for a drug store chain said that F.D.A. announce- ments often had the reverse effect of that intended. "DON'T TRUST F.D.A." "Quite often, as soon as the F.D.A. comes out with a list of drugs they've banned, we get a run on them," said Mel Richards, operating manager for the Michigan Revco Drug Chain with 21 branches in the Detroit area. "People get attached to certain drugs, and they don't want to give them up. Really, it shows that people don't trust the F.D.A. Neiher do I." "I think people are just getting used to them crying wolf," said Wallace Nelson, head pharmacist at Harold Meyer Drug Stores in Tacoma, Wash, In Oregon, the only newspaper in the state to publish the list was The Eugene Register-Guard in Eugene. An official of the Lane County Medical Society, which covers the city and environs, did not receive any calls from physicians, patients or hospitals as a result of the publication. In Akron, Ohio, The Akron Beacon Journal published the full list, and in nearby Wooster, Dr. James Robertson, senior clinician at Wooster Clinic, reflected the concern of many of his colleagues in other cities that the publi- cation of the F.D.A. list `in the form it took bordered on the unethical. "BREACH OF ETHICS" "I had to read it in the newspapers," said Dr. Robertson. "I think any agency that goes to the public forum for its endorsement is [involved in] a breach of professional confidence and ethics." But the reaction of most individuals who had seen the list was to continue to rely on the judgment of their physicians. Dr. Eugene Upanaveage, a pharmacist at Green's Pharmacy in Philadelphia, said a typical reaction of many of his customers was "My doctor told me this [item] is the best." He said his store had not stopped carrying the items listed. "Most of the physicians think the F.D.A. is `side-effect conscious'," he said. More concern was expressed in the survey over one drug that did not appear on the F.D.A.'s list-the oral diabetic drug tolbutamide, marketed by the Upjohn Company under the trade name Orinase. It is taken orally and widely used by diabetics as an alternative to insulin, which requires injection. The F.D.A., as well as the American Medical Association and the American Diabetics Association, said in October they concurred with findings of a study that cast serious doubt on the value of Orinase. At that time, F.D.A. urged caution in its use. Dr. John M. Rumsey of San Diego, who has many diabetic patients, said, "Most [diabetics] continued to thumb their nose at the Government and continued to use it, if their doctors~ felt, there was no danger to them." PAGENO="0039" C~MPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical hid. ustry) TtJESDAY, ~1ANUABY 19, 1971 TJ.S. SENATE, SUBCOMMITTEE ON MoNoPoLY OF THE SELECT COMMITTE1~ ON SMALL. BusINEss, Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m., in room. 1318, New Senate Office Building, Senator Gaylord Nelson (chair- man of the subcommittee) presiding. Present: Senator Nelson. Also present: Benjamin Gordon, staff economist; and Elaine C. Dye, clerical assistant. Senator NELSON. Our witness this morning is Mr. Elmer Staats, Comptroller General of the United States. Mr. Staats, the committee is pleased to have you here this morn- ing. I see you have name identification cards on the table so the reporter will know everyone. You may present your statement, Mr. Staats, however you desire. If you wish to extemporize from it or add to it at any time, feel free to do so and if any of your associates have any comments to make as you go along, that is perfectly permissible. STATEMENT OP RON. ELMER B. STAATS, COMPTROLLER GENERAL OP THE UNITED STATES; ACCOMPANIED BY GREGORY AHART, DEPUT! DIRECTOR, CIVIL DIVISION; DEAN CROWTHER, AS- SISTANT DIRECTOR, CIVIL DIVISION; AND PAUL SHNITZER, ASSISTANT GENERAL COUNSEL Mr. STAATS. Thank you very much, Mr. Chairman. Perhaps it would be well to identify my colleagues here at the table so if they care to add anything or you care to break in on any part of our statement for questions, we will be happy to try to respond. To my immediate left is Mr. Gregory Ahart, who is the Deputy Director of our Civil Division. To his left, Mr. Dean Crowther, Assistant Director of the Civil Division. To my right is Mr. Paul Shnitzer, from our General Counsel's Office, Assistant General Counsel. Mr. Chairman, us you requested, we. have planned in our state- ment today to discuss the efficacy, the economy, and ratioi~ia1ity of the drug procurement activities of the Federal Government. Specifi- (7995) PAGENO="0040" 7996 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY cally, you asked that we discuss the methods of procurement, the degree of competition obtained, participation by small business and the use of section 1498 of title 28 of the United States Code to procure drugs covered by patents. Our discussion today will focus upon the systems through which the Federal Government directly procures drugs from manufacturers and other suppliers. We would like to mention, however, that since our last appearance before this subcommittee in May 1967, we have conducted reviews of and issued reports on other aspects of the Government's drug-related activities. We have attached as appendix A to my statement, digests of these reports for your information.' There is a growing involvement by the Federal Government in drug procurement, encompassing its substantial role both as a direct provider of medical care and treatment to certain classes of persons and as a supporter of federally financed programs which include the provision of drugs for eligible beneficiaries. During the 3 fiscal years 1967 through 1969, the total estimated Federal expenditures for drugs increased from $514 to $975 million. A substantial portion of these expenditures were indirect in that they consisted of the Federal share of the costs of drugs provided to beneficiaries under the medicare and medicaid and certain other programs. Drug costs under the medicare and medicaid programs, for example, increased from an estimated $350 million in fiscal year 1967 to $750 million in fiscal year 1969. Although the major portion of Federal drug expenditures is in- direct, the expenditures for direct procurements have increased from $161 million in fiscal year 1967 to $203 million in fiscal year 1969. Three Federal agencies account for most of the direct drug procurement-the Defense Personnel Support Center, an activity under the Defense Supply Agency; the Public Health Service of the Department of Health, Education, and Welfare; and the Veter- ans' Administration. Each of these agencies operates its own drug supply system. The Defense Personnel Support Center centrally manages about 1,100 drug items and in fiscal year 1969 procured an estimated $103 million in drugs. The Public Health Service centrally manages about 600 drug items and in fiscal year 1969 spent an estimated $6 million for drugs, about 86 percent of which were obtained under contractual arrangements made by the Veterans' Administration. The Veterans' Administration centrally manages about 450 drug items and centrally procured an estimated $25 million in drugs in fiscal year 1969. The Veterans' Administration also administers Federal supply schedule contracts under which Federal agencies can satisfy their drug requirements through direct purchase from drug manufac- turers. Purchases under these contracts for fiscal year 1969 were estimated at $56 million. In addition to drug procurements which are centrally managed or administered, medical facilities of each of the three agencies can, in certain circumstances, locally procure their drug needs. `See information beginning at p. 805i. PAGENO="0041" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7997 * Previous testimony before this subcommittee has highlighted `the drug procurement system as an activity supporting physicians' deci- sions on the most appropriate drug therapy for their patients. Such a system has as its base the professional selection of drugs and, in support of that selection, a complementary supply activity. The objective of Government drug procurement should be to obtain at fair and reasonable prices, and in a timely manner, the proper and needed quantities of drugs that are of a satisfactory quality. Specifically, we believe that a drug procurement system should provide for: A selection process which emphasizes drug quality, safety, and efficacy and gives appropriate consideration to drug cost. Comprehensive and' accurate drug usage data to facilitate the selection of the most appropriate and economical method of supply with appropriate corresponding restrictions on all other available supply sources. The development of product specifications which insure that drugs are capable of producing the desired therapeutic' effect while encouraging the widest possible competition and lowest possible cost. Effective negotiation as the alternative contracting method in instances where competitive procurement is not possible; and Inspection and testing to establish manufacturer responsi- bility and capability to produce quality drugs. We have surveyed Federal drug procurement systems in the light of these criteria and would like to briefly describe our observations. I would like to emphasize that these observations are ,based on preliminary studies of the systems involved and cannot be c~nsid- ered as a complete review of such systems. Our work is Continuing, however, and we will undoubtedly have more observations and sug- gestions to offer at a later time. With respect to the drug selection process, we obtained informa- tion at the local level for five Federal medical facilities. Each of the facilities visited has established, its own system for judging which drugs are appropriate for use. Each system is under the administration of a central group, the name of which varies but may commonly be referred to as the pharmacy ançl therapeutics-the P and T Committee. The P and T C\ommittee's membership generally consists of the directors of the va~ious professional services of the medical facility and the chief pharmacist who acts as secretary. Some committees also have special n~nvoting members, suth as supply specialists and `nursing personnel, ~whose functions range from that of observer to' advisor in their are~s of expertise. * A principal func1~ipn of the P and T~ Committee is to administer the system for evalu~ting and selecting from among numerous drugs those considered mo~t useful in patient' care. The committee's selec- tions are reflected i~ a continuously revised compilation o~f drugs approved, for use wit~hin the medical. facility-the station fcsrmulary. In carrying out thi~ function, the P and T Committees generally receive some assistan~e from, headquarters level in the form of policy guidelines, regulatio s, and information published by ,variou~, pro- PAGENO="0042" 7998 COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY fessional medical service groups. Agency policy statements and regulations, where available, are generally limited to setting out the scope and authority of the P and T Committees. Headquarters may provide recall and adverse reaction information about specific drugs, and furnish data on the commercial availability and prices of drugs. However, the selection of drugs for inclusion in the station formulary is reserved to the P and T Committees. At military hospitals, the hospital commander is responsible for approval or disapproval of drugs recommended by P and T Committees. Most of the information on specific drugs which is made avail- able to members of the P and T Committees in their consideration of changes to the station formulary comes from two sources; pro- fessional journals and the drug manufacturers. Senator NELSON. May I interrupt a moment, Mr. Staats? How did you reach that conclusion? Mr. STAATS. On the basis of our reviews at a number of locations where our staff visited the facilities themselves. There were, what, seven? Mr. AHART. Five. Mr. STAATS. Five; and I believe this is confirmed also by inter- views with headquarters personnel here in the VA and in the Defense Personnel Support Center. Senator NELSON. This is the pharmacy and therapeutics committee of Veterans hospitals? Mr. STAATS. The VA facilities, say, for example. Senator NELSON. And military hospitals? Mr. STAATS. That would be an example, right. We can supply you a list of the facilities we visited, if you like. Senator NELSON. If you would. (The information referred to follows:) HOSPITALS AND CLINICS VISITED 1. Walson Army Hospital, Fort Dix, New Jersey 2. Philadelphia Naval Hospital, Phila., Pa. 3. Veterans Administration Hospital, Washington, D.C. 4. U.S. Public Health Service Outpatient Clinic, Washington, D.C. 5. Veterans Administration Hospital, Hines, Illinois Senator NELSON. As I understand it, a number of those physicians are coming out of private practice into military and Veterans facili- ties and then go back to private practice. Is that right? Mr. STAATS. These would be medical personnel at the facility. Senator NELSON. Yes, and a substantial number of them are not permanent physicians at these facilities. Mr. STAATS. You are quite correct. Senator NELSON. They come out of civilian practice or out of medical school, go into the military or into Veterans hospitals, serve their period of time, and go back to their medical practice, is that not correct? Mr. STAATS. That would he correct. Senator NELSON. And most of the testimony we have had on the prescribing practices of the physician indicated that the detail man is a very significant factor in influencing the selection of the drug. Then drug advertising, as well as professional journals, ranked behind the detail man. PAGENO="0043" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7999 When you say professional journals here, which ones are you referring to? Mr. STAATS. Well, these would be the medical journals. I would have to turn to my colleagues here for the specific journal based on the studies. Our work was done on the Waison Army Hospital, Fort Dix, N.J., the Philadelphia Naval Hospital, in Philadelphia; the Veterans' Administration Hospital here in Washington; and the U.S. Public Hea]th Service outpatient clinic here in Washing~ ton; and the Veterans' Administration Hospital in Hines, Ill. These are the five facilities we visited in developing our data on this point. Senator NELSON. Are there not representatives of the drug manu- facturers detailing these drugs at each one of these facilities? Mr. STAATS. Yes. Our next sentence here so indicates. "The drug companies supply most of their information to individual physicians through sales representatives." These. are the detail men that you just referred to; and by direct mail advertising. Senator NELSON. Your conclusion is that most of the information for the pharmacy and therapeutics committee comes from profes- sional journals and drug manufacturers. In drug manufacturers, you are including detail men as a means of promotion? Mr. STAATS. Yes. Senator NELSON. Among the professional journals, was the Medi- cal Letter listed as a source of information by the personnel you have talked with? I~fr, STAATS. I cannot answer that personally. Mr. CROWTHER. The professional journals, especially societies like the American Medical Association, are probably the ones that are most relied upon. But there is a wide number of journals that they receive, including the one you mentioned, Senator. Senator NELSON. You talked with members Of the pharmacy and therapeutics committee, I take it?' Mr. CROWTHER. Yes. Senator NELSON. To determine what considerations went into their judgment on the selection of drugs for that institution? Mr. CROWTHER. That is correct. Senator NELSON. Did all of them, or `some of them, or any of them name the Medical Letter as a regular Source of information in selecting drugs? Mr. CEOWTIIER. It was not specific'ally pointed' but to us as such. There are a great number of journals: that are available to P and T Committees, including that particular journal that you mentioned. Senator NELSON. I' am rather puzzled as to how they use the journals in selecting drugs. There are 1,100 items on the Defense Supply Agency's list of drugs. The journals do not just list these drugs and compare them, but run articles on drugs by distinguished authorities. How would they use the journals in the selection of this list? I cannot imagine them saying that in "our decisionmaking process we are going to check articles in the journals." Mr. CR0wTfiER.' Well, there is no question about~ the fact that there is a great deal' of reliance placed upon the information re- ceived from the drug manufacturers' detail men. There is informa~ tion available in the journals, however, that will comment on a PAGENO="0044" 8000 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY specific drug and there may be a writeup on some of the clinical tests made of it including the adverse reactions that have been ~eceived-but that is not to say that every drug is listed or is written up in each of the journals or in any of the journals, as a matter of fact. There is some information in the journals that is relied upon and that is the information that was passed along to us. Senator NELSON. Well, quite obviously, of course, if you select a therapeutics committee-if it is a good therapeutics committee- you have professional men on the committee who come to it with expertise in their field. Mr. CROWTHER. Right. Senator NELSON. So you could have a good formulary based upon the knowledge of the distinguished group of experts who study the literature and have the latest information available on drugs. Mr. CROWTHER. That is correct. Senator NELSON. This sentence, though, says that most of the information on specific drugs which is made available to members of the P and T Committees in their consideration of changes to the station formulary comes from two sources, professional journals and the drug manufacturers. In the drug manufacturers' case I assume from the next sentence that the persuasive factor there is the detail man? Is that correct? Mr. CROWTHER. Yes. Senator NELSON. So, when you "refer to changes in the station formulary," what precisely are you talking about? Are you talking about additions to the formulary or selectinu of a particular drug from a class of drugs available for a specific purpose? Is that what we are talking about? Mr. CROWTHER. Well, essentially, it means additions to or deletions from the formulary. Senator NELSON. But within the formulary there may be several compounds that treat the same problem or there may be the same compounds under 25 names that treat the same problem. Some- body has to select one or two of those out of the 25, do they not? Mr. CROWTIIER. Yes, sir, they do. Senator NELSON. So, are we not talking about the process of adding to the formulary or selecting the particular brand or what- ever that will be in the formulary? Mr. CROWTHER. Well, the selection of the particular brand that is in the formulary is quite comprehensive. Many of these formularies include literally hundreds of drugs in various dosages and strengths, and various combinations. They are not restrictive in many senses. The P and T Committees of both the Defense Department and the Veterans' Administration are making efforts to be more careful about the drugs that are included on the formularies, but up until now the formularies have been very comprehensive with a long list of drugs that are made available. So to say that the formulary itself is the selection process be- tween specific drugs may be a little misleading because the individual physicians themselves, of course, reserve i~he right to make these selections and in the event that a drug is not in the formulary, physicians still reserve their right to prescribe any drug. PAGENO="0045" cO1\~PETITIVE PROBLEMS IN THE DRUG INDUSTRY 8001 The P and T Committee obviously wants to include those drugs in the formulary that will be adequate for the prescribing physicians, and, of course, the P and T Committee is composed generally of the directors of the professional services as well as the chief pharmacist and hopefully they have a complete comprehensive listing. Senator NELS~N. Well, of course, you could have a comprehensive listing by just having one compound that is effective for each one of the problem situations that confronts the physician. On the other hand, you could also have a comprehensive one by having every brand name of all the same compounds that do the same thing~ could you not? Mr. CROWTHER. Yes. Senator NELSON. That is what you are saying. Mr. CROWTHER. Yes, sir. Senator NELSON. You say they have hundreds of drugs on th~ formulary. For example, if they have an anti-inflammatory drug, you are saying they will have several anti-inflammatories, perhaps versions of the same compound, all doing the same thing, or of different compounds or combinations doing the same thing, with the same therapeutic result. Is that what you are saying? Mr. CROWTHER. That is correct, yes, sir. Senator NELSON. Then I just would like to know how the formu- lary is determined. We had testimony here that I'm sure you are familiar with. In the case of both the Veterans' Administration and Department of Defense (but again the record will speak for itself), ~tnd when I raised the question about formularies, the witness said, well, "we cannot tell the doctors at a local hospital what should go on the formulary. They come to us as physicians in practice on their own. They are with us 2, 3, 4 years. They are not going to be dictated to about what particular drug should go on the formulary. Or they come here out of medical school and do not want to be dictated to." I gathered from all the testimony that in the circum- stances where you did not have strong leadership at the local level, what you really had was a formulary made up of every drug that most of the doctors suggest they would like to use. Is that what you found out? Mr. CROWTHER. Well, essentially, that is the way the drugs get on the formulary. There are exceptions; for example, information received from the Food and Drug Administration on ineffective drugs. These drugs will be removed from the formulary. So the P and T Committee does have some voice, but at the same time, they try to make the formularies as comprehensive as they can to be able to be within the prescribing habits of their physicians. Now, that is not to suggest there is no peer review at the Veter- ans' Administration or the Defense Personnel Support Center supported hospitals, because they do concern themselves with the drugs that go into the formulary. I guess our concern stems from the fact that the formularies are so lengthy. There are just so many drugs included. It raises the question of the need for all the drugs in the formularies. Mr. G0RrON. Amongst the sources of information that you list here you do not include the Food and Drug Administration as a source of information. Is that the way it is supposed to be? PAGENO="0046" 8002 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. CROWTHER. Well, they do receive information-more re- cently-now. They have not been supplied with any substantial amount of information from the Food and Drug Administration until recently. Within the past few months, the Food and Drug Administration is disseminating more information. It is available to these people upon request, but some of it is being disseminated at this point in time. Until now, essentially the information came from the sources we suggest in the statement, but they do have an input from the Food and Drug Administration and these lists of "ineffective" drugs are now available to each of the Government facilities; Mr. GORDON. If I recall correctly, I think Dr. Edwards stated yesterday when he appeared before this subcommittee, that the Food and Drug Administration has more information about drugs than anybody else. Now, do you think that it might be a good idea for the FDA to advise Government agencies which drugs are the best drugs to buy in the various therapeutic categories ~ Mr. STAATS. Of course, there is also the Food and Drug Admin- istration's study which Dr. Edwards outlined to the committee yesterday which had been made available to the agencies, but this is a fairly recent date. The agency issuances that I have here are all dated within the past few months, for example. The Food and Drug Administration's listing as you probably know, was dated November 1, 1970. So there has been this input and the appropriate directives have been issued by the Veterans' Administration and the Defense Department and the Public Health Service. But I believe what you have in mind goes a step further and that is in the actual development of the formulary which would extend beyond the listing which came out of the FDA-NAS study, if I understand you correctly. Mr. GORDON. Yes. These lists are merely negative. These are drugs that are ineffective and they should not be used. I am thinking of it in a positive way. Mr. STATTS. I do not know that we can say that we have given our final thought to this point. But I believe our conclusions-and we have talked to Dr. Edwards-would be that there is an oppor- tunity here for the FDA to play a more positive role than they have to date. But this will translate itself into funds and personnel and to establishing working relationships with the procuring agencies. I do not sense any reluctance or reticence on the part of Dr. Ed- wards and his people in moving into a more positive role, if I may put it in those terms. Senator NELSON. Over the past 4 years we have had a number of very distinguished witnesses, well regarded in their respective disci- plines from all over the country, express their concern about the continuing education of physicians in all fields. Since these were hearings on drugs, they expressed a concern about continuing edu- cation of the physician in the field of drugs, which is particularly difficult, since there has been such a spectacular proliferation of new drugs and molecular modifications of old drugs, and new PAGENO="0047" COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY 8003 combinations and new names, that it `is very difficult for anyone to keep abreast of the drugs, what their appropriate use is and whether they are better than old drugs, and so forth. An important problem, then, is continuing educatIon in the drug field to assure good patient care, and appropriate utilization with the multiplicity of drugs which are available. Another idea is to bring all the expertise of the various disciplines together to estab- lish a formulary, which would include a selection of the best proven drugs for the appropriate treatment of the variety of circumstances for which the drugs are used. It is distressing to anyone who is concerned about the best utilization of drugs, the best care of the patient, and the best practice of medicine, that every time we have any testimony on these formularies, a good percentage of them end up not being formularies at all but just a list of the available drugs that the local practicing physician through his expertise or bias, desired to use. A recent dramatic example is the massive purchasing of Darvon by the Veterans' Administration and the Department of Defense. We cannot find anybody who is considered an expert who wants to come before the committee and justify that purchase, in- cluding the purchasers themselves. I have received letters from doctors who say: "I use Darvon all the time and will be glad to come and testify that it is good," but none of the experts will come and testify that they can justify the use of Darvon, though there ~may be special cases where Darvon may be used such as in the case of a person ~ho cannot use aspirin, but not as the drug of first choice as a mild analgesic. What I d not understand is how we are ever going to achieve rational prescribing unless the profession itself insists that the experts on the drugs will establish the formulary, and, further, say to the individual physician, "If you, as a physician practicing in this hospital, desire to use another drug, justify it, not with testi- monials but with the appropriate, controlled studies that would war- rant departing from the formulary." All the best men in the profession say that is the best way to accomplish this, but somehow they do not do it. I think it is a very sad commentary that the profession itself cannot summon up the courage to tackle the question head on. This is becoming a catastrophic situation; this multiplicity of drugs, wasteful spending on them, using them for the wrong purpose and the profession, itself defaulting in its responsibilities. If you cannot do it in the Army, or in the Veterans hospitals, then one must despair that it can `be done any place in this country. Please proceed. Mr. STAATS. Recently, Mr. Chairman, a series of actions impact- ing on the operation of P and T Committees and the formulary system have been taken or are planned within each of the major Federal drug procurement agencies. For example, each of the agen- cies has directed the distribution of the Food and Drug Administra- tion's recently published list of "ineffective" drugs to thefr local medical facilities-this is the one we referred `to a minute ago- with the recommendation or requirement that the drugs no longer be used. PAGENO="0048" 8004 COMPETITIVE PROBLEMS IN TUE DRUG INDUSTRY Public Health Service has also taken action to more fully develop possible approaches to effective drug utilization reviews, as recom- mended in the report of the Department of Health, Education, and Welfare's task force on prescription drugs. A research study of the methodology and feasibility of this technique is currently underway. We believe that the recent actions related to the drug selection process, if properly implemented, should improve control over drug operations at the local level. In implementing such actions we be- lieve that emphasis should be placed on providing physicians em- ployed by the Federal Government with appropriate information concerning available drugs to assist them in making decisions re- lating to drug therapy. Senator NELSON. May I interrupt? When you say the Public Health Service has taken action to more fully develop possible ap- proaches to effective drug utilization reviews as you mentioned in the report of the Department of Health, Education, and Welfare's task force on prescription drugs, what action have they taken? Mr. CROWTHER. The task force, as part of its effort, reviewed the utilization of drugs by various organizations with HEW. It made specific recommendations on supporting research projects to develop and test approaches to drug utilization review and emphasized the importance of supplying physicians with drug information and guidelines for rational prescribing. For the past few years HEW has been funding a comprehensive drug utilization review study. Also the agency recently issued a directive prohibiting the use of ineffective drugs by any Federal facility under the Department of Health, Education, and Welfare. This ban extends to possibly effective drugs as well as the ineffective drugs. The directive goes a little further, prohibiting the use of these drugs under any Federal program, which would include Medicare and Medicaid. Senator NELSON. Of course, a layman could come to the conclusion that you ought to recommend not using a drug that the National Academy of Sciences-National Research Council has said is ineffec- tive. What are they doing about the problem we are discussing? Mr. CROWTHER. Well, a number of the task force's recommenda- tions could result in greater uses of generic drugs. If you would like, we could supply the specific information on their recommendations. Senator NELSON. This is the 1969 report we are referring to of the task force on prescription drugs and I see a total of 25 recom- mendations. Mr. CROWTHER. Yes. Senator NELSON. I would have to refresh my memory by rereading them, but are they taking these 25 recommendations and attempting in some fashion to get them implemented? Mr. CROWTHER. They are implementing a number of the rec- ommendations. Senator NELSON. Is there any doubt about the recommendation 9. The Department of Health, Education, and Welfare should provide ex- panded support to medical schools, enabling them to include a course in clinical pharmacology as an integral part of the medical curriculum? PAGENO="0049" COMPETITIVE PROBLEMS IN THE. DRUG INDUSTRY 8005 Mr. CROWTHER. I really do not have the specifics on the status of implementation on each recommendation. We could obtain it for you, Senator, if you would like for us to. Senator NELSON. HEW. is testifying on February 1. We will write and ask them so that you will not have to duplicate it. But No. 10 goes directly to some of the problems we have been talking about: The Department of Health, Education, and Welfare should establish or support a publication providing objective, up-to-date information and guide- lines on drug therapy, based on the expert advice of the medical community. Of course, the Federal Government can do that right now in all of its Federal facilities. Mr. CROWTHER. That is correct. They have the facilities to do thaL Senator NELSON. I asked, when they were here, why they did not. call in the best clinical experts on all these classes of drugs in the United States and set up a formulary and then tell the veterans hospitals and the Army hospitals "this is the formulary, and if you wish to depart from it, you must submit to us your justification.'~ This is a recommendation. I would take it that is what this 196w recommendation means, but I suspect nothing has been done about it from the witnesses we have had here in the past few weeks. Mr. CROWTHER. Well, we have not looked into, as I say, the imple- mentation of each recommendation. We have looked at some of them and we certainly could look into any one of the specifics if you would like, but I really do not have the specifics on them now.~ Senator NELSON. We will wait until we have the further testi- mony in February. If we have some questions that develop after that, I suppose you would be perfectly willing to check, if it is within your jurisdiction. Mr. STAATS, Yes, indeed. Keeping physicians informed is most important because the physi- cians' decisions guide the drug selection process. Unless this process is based on the best information available, even an otherwise effi- cient supply function may be uneconomical. During our visits to local medical facilities we noted specific actions by P and T Committees which we believe are appropriate for wider application. Examples noted were: (1) The dissemination of information on drug studies including drug costs and (2) dis- semination of information on adverse drug reactions. Once determinations have been made through the selection process of the drugs which will be used, the drug supply activity must operate effectively to furnish the required items in the most eco- nomical manner. Requirements for frequently used drugs are gen- erally met through a central stock system which allows for quantity purchases. Veterans' Administration and the Department of Defense both have rBportlng systems for identifying drugs for inclusion in their centralized stock systems. In the Department of Defense, each of the three services has its own system and criteria for reporting, and they vary from each other. One result of this is that defensewide usage of a specific drug does not become known until one of the services recommends a drug ~9-581-7i~--pt. 20--4 PAGENO="0050" 8006 COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY for inclusion in the central stock system. Approval of only one service is needed to add a drug to the central supply system, but all services must concur in removing an item from the system. In fiscal year 1970, 66 drug items were added to the system and action taken to delete or discontinue procuring 106 drug items on a cen- tralized basis. We believe that under the current reporting systems, drug items that merit consideration for inclusion in the central stock system may not be included in the items identified for review and evaluation. This possibility could be removed and the reportng system improved by the use of standard criteria by the three services. The Veterans' Administration's primary source of information in its continuing effort to capture data on drug usage outside of its central stock system is a quarterly drug report based on reports from each of its medical facilities. This report is characterized by the Veterans' Administration as an important tool in the management of its drug program and shows all procurements from sources other than central stock. The Veterans' Administration uses this report to identify drugs which qualify for inclusion in the central stock system. We believe that the Veterans' Administration could make its comprehensive report more useful by requiring more uniform ad- herence to its regulations on reporting nomenclature and by pro- viding for the compiling of certain summarizations and exception reports which would make the identification of drugs for central stock management much easier. Also, available data indicates that the Veterans' Administration and the Department of Defense could take advantage of higher quantity drug procurements which could possibly result in lower prices by combining their needs for procurement purposes. For example, the Veterans' Administration contracted for 1,404 units of Lincocin at a unit price of $2.30-S days later the Defense Per- sonnel Support Center contracted for 4,464 units of the same drug from the same manufacturer at a unit price of $19.95. In another instance the Veterans' Administration contracted for 3,000 units of Tylenol at $6.14 each-about 1 month earlier the Defense Personnel Support Center contracted with the same manufacturer for 10,176 units of the same drug at $3.28 a unit. Now, while these cases, Mr. Chairman, both show that the VA was paying higher prices than the Defense Department, this would not necessarily hold in every case, but in these two examples which we cite for illustrative purposes, that happens to be the case. Senator NELsoN. Do you see any justification for a differential, for example,, of $6.14 a unit paid by the Veterans' Administration and $3.28 paid by Defense Personnel Support Center ~ Mr. STAATS. No, sir. That is the purpose of our bringing it out here. We feel that that would not have been necessary if they had shared information and procured this item together. Senator NELSON. We pointed out here, from a survey that we did almost 4 years ago-1967, that a number of municipalities or non- profit institutions and general hospitals, were procuring the same drug from the same company at dramatically different prices. We PAGENO="0051" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8007 had a number of examples. The response to that is, "well, quantity purchase justifies a reduction in the price." These differences, how- ever, were so dramatic that they~ could not be justified, and we had a number of instances where the large purchaser paid considerably more than the small purchaser-all of them municipalities or non- profit general hospitals, institutions of one kind or another, I was looking at a report not yet released-a preliminary study by one of the departments of the Federal Government-and I just want to give you another example which supports the record that we made on this point 3 or 4 years ago. The data indicates that the State of Texas, for example, paid $27.72 per 500 for 296,500 tablets of 10 milligram Librium- so that was $27.72 per 500 for 296,500 tablets- while BOston paid $19.50 per 500 for 25,000 tablets of the same product. So, they bought less than a tenth as much and paid about $8 per 500 less than the State of Texas did. Obviously, there is something wrong with the purchasing methods in one place or the other. Mr. STAATS. Obviously. Senator NELSON. Go ahead. Mr. STAATS. At least 150 drugs, we found, centrally procured by the Defense Personnel Support Center during, calendar years 1968 and 1969, were also centrally procured by the Veterans' Administra- tion during fiscal years 1968 and 1969. Both the Veterans' Administration and the Department of De- fense have established required priorities of supply Sources to be used by their medical facilities. These priorities reflect a policy of using the most economical supply source available. Such a policy is important because the commercial unit prices of drugs available at the wholesale level are generally higher than prices established under Federal Supply Schedule indefinite quantity contracts which, in turn, are generally higher than definite quantity procurements. To illustrate this fact, we compared prices listed on the Federal~ Supply Schedule with the highest prices paid under definite quantity contracts for 68 drug items over a recent 2 year period and found that the schedule prices averaged 63 percent higher. We recognize that procurements under indefinite quantity contracts have inherently higher manufacturers' costs of warehousing and administration which would account for some part of the difference between defi- nite quantity. procurements. Also additional warehousing costs are incurred by the Government on procurements for central stock under definite quantity contracts, but considering all these factors, a 63 percent difference seems significant in any event. The average price differential is particularly significant considering the amount of total purchases made under schedule contracts and the fact that many centrally stocked drugs are also available under the sched- ule contracts. We see no reason why Federal agencies should independently procure drugs from the same manufacturer and lose tli~ possible price advantages resulting from high quantity purchases. We believe consideration should be given to improving Federal drug procure- PAGENO="0052" 8008 COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY ment practices by providing for an exchange of information be- tween the Department of Defense and the Veterans' Administration as to the estimated annual volume of drugs to be procured in order that consideration can be given to combining quantities of certain drugs for procurement purposes, using the most economical method of procurement for each drug item. . Another key requirement to an efficient supply system is its ability to provide, wherever possible, purchase descriptions or product speci- fications which permit more than one manufacturer to bid effectively. Both the Defense Personnel Support Center and the Veterans' Administration establish their own specifications on drugs. Senator NELSON. Let me ask a question at this point. In your checking have you ever made a determination as to how many per- sonnel are involved in the purchasing of drugs in the Veterans Admin- istration and Defense Supply? What kind of group does that take? Mr. STAATS. You mean the qualifications and size, et cetera? Senator NELSON. Yes. What is the cost of a purchasing operation, for example, and how many personnel are involved? What is the cost at the Veterans Administration and the Defense Supply Agency? And what is the overhead cost? Mr. STAATS. The administrative costs involved? Senator NELSON. Yes. Mr. STAATS. I do not believe we have- Senator NELSON. Could you check that for us? Mr. STAATS. We will look into it and see if it would be feasible to do it and if so, we will provide it. I see no reason why we could not get that information. Senator NELSON. Fine.1 Mr. STAATS. Both agencies require compliance with the applicable standards of the U.S. Pharmacopeia and the National Formulary to which each agency adds its own additional requirements. The professional personnel assigned this responsibility within the De- fense Personnel Support Center and the Veterans' Administration are chemists or pharmacists. The Veterans' Administration develops a specification when the demand for a generic product is sufficient to warrant central man- agement or administration and when no patent exists or the patent has expired. The Veterans' Administration has established specifi- cations for about 100 of its centrally managed drugs procured on a generic basis. In addition, specifications have been developed on 46 drug products administered under Federal Supply Schedule con- tracts. The Defense Personnel Support Center establishes a specification or purchase description on every drug item in its central stock system. Both agencies informed us that they use a number of sources in constructing their specifications. In addition to the monographs of the U.S. Pharmacopeia and National Formulary, other sources for constructing specifications include the Food and Drug Admin- istration, drug manufacturers, the National Institutes of Health, and the American Chemical `Society. 1 The General Accounting Office has informed the staff that this material is being prepared but will not be available before this volume is published. PAGENO="0053" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8009 When a drug is standardized for the military supply system, the manufacturer is contacted and requested to supply sufficient infor- mation so that the item's essential characteristics can be prepared. We explored with Defense Personnel Support Center officials the question of whether, because of the substantial reliance upon information obtained from manufacturers, military specifications or purchase descriptions are restrictive and, in effect, result in a pro- prietary specification. These officials contend that the specifications and purchase descriptions are constructed in such a manner that any firm knowledgeable in the drug industry could manufacture the drugs. Without a detailed study of this matter, we have nO basis upon which to either dispute or validate this contention. It is clear that the degree of competition obtained in the drug procurement area is less than competition obtained for many other Government supply items. The total dollar value of drug procure- ments for central stock by the Veterans' Administration and the Defense Personnel Support Center in fiscal year 1970, amounted to about $94 million. About 7 percent or $6.4 million of the central stock procurements were made under contrncts awarded pursuant to formal advertising procedures. The remainder were* made under contracts negotiated with the sole source of supply or under con- tracts awarded after the solicitation of proposals. Among the reasons for the limited amount of competitive, pro~ curement are, of course, the fact that many drugs are patented products and the fact that legal and administrative requirements must be met in order to obtain Food and Drug Administration approval. Also, many procurements are made by brand name either because only one brand of a particular drug is available or because of the prescribing physicians' preference. For example, about 70 per- cent of the drug items centrally stocked by the Veterans' Adminis- tration have been designated for procurement on a sole source bilsis in order to obtain specified brand name drugs. In addition, competitive contract awards account for about 25 percent of the procurements under the Federal Supply Schedules. Most of the other contracts, which are included for the purpose of making manufacturers' product lines available to the Government at prices less than market, are negotiated without the benefit of competition. The Defense Personnel Support Center sought to increase compe- tition on their centrally managed drug items when, in January 1969, approximately 1,100 firms were invited to indicate their interest in bidding on 401 items, 290 of ~which were classified as single' source. Replies were received from 104 companies. Fourteen com~panies re- quested to be added to the bidders list for 35 of the 401 drug items. Two other companies requested to be added to the bidders list for eight drug items not included in ,the solicitation. The other~ 88. re- sponding companies either did not produce the item; reaffirmed their interest in supplying the drug items for which they were already on the bidders list; or ,expressed no, interest in supplying any of the products to the Government. Senator NELSON. May I interrupt? Back on page 11 you state: We explored with the Defense Personnel Support Center officials the ques-, tion of whether, because of the substantial reliance upon information obtained from manufacturers, military specifications or purchase descriptions are re- PAGENO="0054" 8010 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY strictive and, in effect, result in a proprietay specification. These officials contend that the specifications and purchase descriptions are constructed in such a manner that any firm knowledgeable in the drug industry could manufacture the drug. Well, I think you made a perceptive observation. I have here ex- cerpts from a speech made to the 21st annual meeting of the Defense Supply Association and reprinted in The Review for November- December 1968. The speech is by Col. W. V. Breyfogle, Chief, Divi- sion of Medical Materiel, Defense Personnel Support Center, De- fense Supply Agency, in which he addresses himself to the question you raise in your remarks here. I would like to read them for the record and it seems to me it supports the question you raise. The first problem that has been bothering us for some time is our inability to procure competitively. The policy of the Department of Defense, as it has been for many years, is that we will obtain competition on our procurements to the maximum extent possible. The major problem in our failure to procure competitively is the nature of the specifications that we are using. It has been said in the past that our specifications are too restrictive in nature and thereby restrict competition. There is some validity in this statement. Before you can understand why we have a problem in procuring competitively, however, you must understand how items are selected for standardization and stockage in our DSA depot system. The items that are standardized by the Defense Medical Materiel Board and stocked in the DSA depot system were, for the most part, developed by industry or indpendent research organizations for use by the civilian medical profession and for sale in the marketplace. These items were presented to the Board for study and the determination was made that they would be stocked for use in our system. Therefore, the specifications that are developed of necessity describe a certain manufacturer's item. Most of the information used in writing these specifications was furnished b~y the developer. Therefore, even if we have a, pardon the expression, generic specification, in many cases it merely describes the generic equivalent of a brand name- which I think isa rather telling comment on the very point you raised. I ask that this be printed in full in the record at this point. (The document referred to follows:) [Reprinted in The Review, Nov-Dec. 1968, PP. 161-162] SPEECH DELIVERED AT THE 21sT ANNUAL MEETING OF THE DEFENSE SUPPLY AssocIATIoN (By Col. W. V. Breyfogle, 1J.S.A., Chief; Division of Medical Materiel, Defense Personnel Support Center, Defense Supply Agency) In the time allotted me this afternoon, I thought I would review our pro- curement program, give you some kind of an estimate of what we expect the program to be this year, and then discuss some of the problems that are paramount in our minds at present and expect to be bothering us for the next few months. This chart (No. 1) will show the procurement program for the past two fiscal years and the mix by commodity within the total program. You will notice a rather dramatic shift Into the Drug commodity during the past fiscal year. We went from 47% of the total in FY 67 to 55% in FY 68. The other commodities stayed relatively the same, with the exception of Surgical Dressings. The next chart (No. 2) shows our performance for the first quarter of FY 6~ against the last fiscal year. The first problem that has been bothering us for some time, Is our inability to procure competitively. The policy of the Dept. of Defense, as it has been for many ~1ears, is that we will obtain competition on our procurements to the maxim urn extent possible. The major problem in our failure to procure PAGENO="0055" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8011 competitively is the nature of the specifications that we are using. It has been said In the past that our specifications are too restrictive in nature and thereby restrict competition. There is some validity in this statement. However, before you can understand why we have a problem in procuring competitively you must understand how items are selected for standardization and stockage in our DSA depot system. The items that are standardized by the De1~ense Medical Materiel Board and stockade in the DSA depot system were, for the most part, developed by industry or independent research organizations for use by the civilian medical profession and for sale in the marketplace. These items were presented to the Board for study and the determination was made that they would be stocked for use in our system. Therefore, the specifications that are developed of necessity describe a certain manufacturer's item. Most of the information used in writing these specifications was furnished by the developer. Therefore, even if we have a, pardon the expression, generic specification, in many cases it merely describes the generic equivalent of a brand name. The Comptroller General has repeatedly held that specifications of this type are not bad so long as the specifications did not go beyond the minimum essential needs of the government. It must be assumed that as these items are selected for standardization by the Qefense Medical Materiel Board, a physician or group of physicians have made the decision that the item being standardized meets the minimum essential needs of the government. Therefore the resulting specification must describe the item being standardized. Once again, the Comptroller General has held that if a specification describes a particular manufacturer's product, and if the product being described does not go beyond the minimum essential needs of the government, tbeü the specifica- tion cannot be considered to be unduly restrictive. In the past few weeks we have been taking a hard look at all of the Items we have been procuring non-co~npetitive1y from only one source. Many of these items are patented; also, a large number of the drug items require either an approved New Drug Application or licensing by the National Institutes of Health prior to manufacture. We have eliminated these three categories and are focusing our attention on those where there is no apparent reason ipr producers not bidding on these items. We have distibuteci special procureme,nt forecasts on these items with a letter to everyone On our; bidders' list encour- aging competition for these items. I encourage every one of you to take a hard look at these and see if there is something on the list that you have the capability to produce. My next subject is one that has been dear to my heart for a long time. Many times you people have complained about the length of time it takes to make an award after the bids have been opened. For the most part this delay is caused by the fact that we do* not pre-qualify bidders. Anyone can get o~i our bidder's list, or reque~t solicitations as a result of reading' the Commerce Business Daily, or even come in to the Center and picI~ up a copy of a bid. Because we do not pre-qualify bidders, when an individual submits a low responsive offer, and we have no experience as to his capabl:lity to produce an acceptable product, we must go through the exhaustive procedure of pre-award samples and surveys. This is the reason you are continually receiving, requests for extensions of your bids. I know this bothers you because you must commit production capacity in the extent that you do receive the award. It bothers us, too, because Increased procurement leadtime must be covered with inventory and this increases our investment. For several years we have been in the process of developing a system of pre-qualifying bidders, whereby only bids from qualified bidders will be considered, and manufacturers of unknown capability can be qualified outside of the procurement arena. This will allow us to make our awards fa~ter, reduce inventory and be more responsive to your desires. I would like to bring to your attention another item whi~th will be of much interest. On 16 January 1968, the Defense Supply Agency Contractor Experience List (DSACEL) program was established. The purpose of this program is to assist Contracting Officers in the `selection of responsible con- tractors by identifying firms whose performance under PSA contracts has been less than satisfactory. Contractors included on the DSACEL are not barred from bidding on or submitting proposals for future conti~acts. Contract performance records of firms included on the DSACEL will be reviewed quarterly. It is the desire of DSA that deficiencies which were the cause Of PAGENO="0056" 8012 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY firms being placed on the list are corrected in a timely manner. Both DPSO and the DOAS offices can recommend to DSA Headquarters firms for inclusion on the DSACEL. The first step in our goal towards achieving a Qualified Manufacturers List has been completed with the issuance of our standards for Pharmaceutical manufacturers. These have been develciped by our people and have been coordinated with the Food & Drug Administration and the Defense Medical Materiel Board. We intend to use the standards for pre-award surveys until we get all of the defects worked out of them. Then these standards will become the basis for the development of a QML. We expect to develop a completely coordi- nated plan with the Defense Medical Materiel Board and submit it to our headquarters in Washington in the very near future. Thank you for your attention. Are there any questions? (Charts omitted.) Mr. STAATS. Thank you, Mr. Chairman. On page 13 of my statement, to resume. Some of the reasons advanced with respect to the absence of competition on a large number of drug items include: -restrictions imposed by law or regulation, such as patents on New Drug Applications; -inadequate plant facilities and no desire to make the re- quired investment to upgrade the facilities; -the lack of qualified personnel to make any drugs; and -the expense of introducing a new product with no assurance of reasonable return through sustained contract awards. P~fI1e advantages of seeking the widest possible competition in drug procurement can be demonstrated by available data from which we identified nine drugs procured over a comparable period of time both competitively and on a sole source basis. The drugs purchased from sole source suppliers by the Veterans' Administration are esti- mated to be 60 percent higher than the average price obtained after formal advertising or the solicitation of competitive proposals by the Department of Defense. Appendix B of my statement shows the nine drugs and comparative prices.' It should be noted that the quantities purchased by the two agencies are different, which may account for some part of the price differences. This statement and conclusion on the 60 percent applies, of course, only to these nine that we selected. We are not necessarily implying here that the VA did a poor job because, as mentioned previously, we found other cases where the opposite was true. We see no reason why different Federal agencies, and this is our essential point, Mr. Chairman, should independently procure the same drug in a different manner, and possibly from the same manu- facturer, and lose the advantages associated with procurement of larger quantities and, where possible, increase competition. Without effective competition, there is a question of the Govern- ment assuring itself that the prices being obtained are fair and reasonable under negotiated procurements. Public information is available on selected areas of drug pricing-an example would be wholesale prices. In determining whether the negotiated price is the best attainable by the Government, comparison of the bid with these prices reflects reasonableness by inference. Although there is no 1 See information beginning at p. 8058. PAGENO="0057" COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY 8013 assurance that these prices are reasonable, our survey indicates that these prices serve as the basis for most of the price reasonableness determinations made by the Veterans' Administration and the De- fense Personnel Support Center. Mr. GORDON. Mr. Staats, would you consider this a good test of reasonableness? Mr. STAATS. We would not think so, no. I am not sure, though,. that we are prepared to answer today, at least, exactly what would be a better alternative. Perhaps my colleagues here would want to comment on this. But. we think that they should have gone further than simply the whole- sale prices. Senator NELSON. The wholesale price in the retail marketplace- is that what we are talking about? Mr. STAATS. I think that is right. Mr. CROWTHER. Yes, sir. Senator NELSON. Well, does not all the accumulated evidence on competitive bidding reject the wholesale price as a reasonable standard in any event? Mr. CROWTHER. As a reasonable standard, yes, sir. Senator NELSON. Let me cite an example. In the same month that Schering was selling Meticorten in New York City for $17.90 a hundred to pharmacies, the firm offered to sell it to New York City for $1.20 a hundred. Schering lowered the price from $17.90 a hundred to $1.20 and lost it on a bid at 45 cents from another company. Now, if you were using their wholesale price, quite obviously it is not reasonable. There are other examples of that. Mr. CROWTHER. I think both the VA and Defense Personnel Support Center found this to be true and that is one of the reasons in their competitive bidding they have been successful in substan- tially reducing the prices for central stock. A problem here, of cOurse, is the amount of procurements that are made under the Federal Supply Schedule where there are in- definite quantities. These contracts are negotiated with specific drug manufacturers without knowledge of the specific quantities of a drug that may be procured. Senator NELSON. But is it not perfectly obvious that because of the method of promotion and sale in the retail marketplace, the wholesale price cannot be used as a standard of reasonableness for anything, because you may not have any serious competition in the retail marketplace? Though you may have 25 versions of the same compound manu- factured in the country, some of them generic and some of them brand name, the company that dominates the retail marketplace is the company that had the patent and had the doctors prescribing it for 17 years with the brand name. When the patent expires, the doctor continues to prescribe it by the brand name. He does not even know the patent has expired. He generally does not know that the drug can now be bought competitively: there are .20 other brands at half, a third, a tenth, a fiftieth of the price. He continues to write the brand name that he's used for years. PAGENO="0058" 8014 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY In addition, there are 44 States in which the law says you cannot substitute. So, although there is available to the Defense Supply Agency and to New York City, perhaps 25 versions of the same compound-under generic and brand names-competitive bids are possible. In the retail market, on the other hand, competition does not exist, and that is why the price can be 25 times as much as in the institutional market. Therefore, if you use the wholesale price as a standard, you have no guideline at all. If the VA and the DSA are using it as a standard, they ought to get rid of it in a hurry because the taxpayers are getting cheated by it. Mr. CROWTHER. There is no question about the fact that the selec- tion process determines which drug is to be procured, and there are a large number of sole source drugs that are used in all Gov- ernment facilities. Certainly, that raises the question of competition. The problem on the wholesale price as a standard, however, is there is not much of an alternative at this point for sole source drugs. They can negotiate with the manufacturer but until we change the selection process, we are in a difficult position to say that there is a better standard to use, with all the defects that exist in the whole- sale standard. Senator NELSON. Well, if it is sole source but available in Europe, the Federal Government can compare the domestic price with the price over there. Mr. STAATS.' That is true. Senator NELSON. And it has been done a couple of times. If there is anything that will make the seller reasonable in a hurry, it is to buy overseas, if the domestic price is exorbitant. If a drug which is available overseas, meets USP and NF standards, is, for example, one tenth the American price, it seems to me that Defense Supply Agency and the Veterans' Administration ought to say to the Ameri- can company: "You are the sole source here, but if you are going to charge this price we are going to buy it in Europe." Some of our witnesses thought this was a good idea, but they had never checked the European prices of the drugs they were buying. It seems to me that that would be the first thing they should do: If the foreign price is dramatically lower than the domestic price, then consideration should be given to purchasing the drug abroad. Would that not be a reasonable approach? The law provides that the Federal Government is not bound by the exclusive license of the American manufacturer or the patent of the American manu- facturer. Is that not correct? Mr. CROWTHER. The problem with that, of course, is that we are not in much of a position to say that if a patent infringement suit were to follow, the results of the suit may actually reduce the price. We have not had that- Senator NELSON. No. I am talking about the right of the Federal Government to purchase even though x company is the sole supplier in the United States by license, and nobody else may sell it in the marketplace, or even though x supplier in America has the patent in America. If the same drug is available in another country, the PAGENO="0059" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8015 Federal Government can pur~hase it, if it desires to do so. Is that not what the law is? Mr. STAAT5. I would like to ask Mr. Shnitzer, our Assistant Gen- eral Counsel, to respond, if I may. Mr. SITNITZER. Mr. Chairman, I believe that is a correct state- ment and I think that there have been some instances where pur- chases have in fact been made overseas. Senator NELSON. Yes, We have had testimony here that we paid 12,000 percent more than ~he European or world price on an item that was sole source in this country. That is, it went into the AID program and the foreign country paid 12,000 percent more than the world price for the same compound. Mr. SHNTTZER. Of course, where the Federal. Government pur- chases something which is under patent here from someone who is not a patent holder or licensee, it is subject to suit in the Court of Claims and there may be a reasonable- Senator NELSON. If they buy it from a supplier here~? Mr. SHNITZER. If they buy it from a supplier who is not the patent holder or a licensee of the patent holder. Senator NELSON. This was my question. If it is available in the. marketplace in Europe, our Government as purchaser is not bound to buy it from the sole supplier here, is it? Mr. SHNITZER. Yes, sir. Your position is correct. They are not bound. I am simply pointing out that in determining the difference in cost, you may have also to consider the fact that the Govern- ment may be liable to suit in the Court of Claims from the patent holder or the licensee-it would be the patent holder. Senator NELSON. Not if the law exempts them. Mr. SHNITZER. The U.S. Government is permitted to make the purchase under 28 U.S.C. 1498. However, the law specifically gives the right to the patent holder to bring an action in the Court of Claims against the United States for recovery of the value, let us say, of the patent. Senator NELSON. Have there been any such suits? Mr. SHNITZER. Yes. There have been two suits, one whióh was settled, the other which is still pending. Mr. STAATS. Mr. Chairman, I have information here on the settle- ment of the one case which involved the Norwich Corp. as a patent holder, and the Eaton Laboratories, which is licensee. The Eaton price for 100,000 tablets-this is the drug nitrofurantoin-the Eaton price per 1,000 tablets was $76.30. The foreign source price per 1,000 was $18.50. Senator NELSON. FTom 76- Mr. STAATS. $76.30 versus $18.50. This is, of course, a very sub- stantial difference. The settlement price in this case was $192,500, which represents about 2' percent of that difference. So that even though there was a settlement here and a suit brought, in that par- ticular case at least, the Government was much better off. Senator NELSON. You mean they paid 2 percent of the difference between the $18~50 aild the $76.30? Mr. STAATS. It represents 2 percent of the domestic price. The settlement represents 2 percent' of the~ domestic price. But the price PAGENO="0060" 8016 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY differential between the foreign procurement and domestic procure- ment was almost 400 percent, you see. Mr. GORDON. Mr. Staats, does not this really amount to compul- sory licensing for governmental purposes? Mr. SHNITZER. Yes. I think what it amounts to is a taking under eminent domain. The Government takes something. The concept was when the law was enacted, and it was enacted in 1918, that the Government should not be prevented from satisfying its needs be- cause of the possibility of infringement of a patent. Senator NELSON. I still do not know what the law in the case is~ You say they have a right to sue. Mr. SHNITZER. Yes. Senator NELSON. But law was established by the case. Did they end up negotiating settlement before judgment? Mr. SHNITZER. Yes. The parties arrived at a settlement. A consent judgment. The court did not render an opinion in the case. It simply was a settlement. Senator NELSON. If the Government settled for 2 percent they must have had some suspicions they were not going to do too well if they went to judgments, did they not? Mr. SHNITZER. I believe this was a reasonable conclusion. Senator NELSON. No established law, then? No decision of any Federal circuit court? Mr. SHNTTZER. There is no decision. of the Court of Claims with respect to the purchase of foreign drugs or the purchase of drugs of a foreign country. Senator NELSON. Considering the differential, which I have seen any number of times in 4±ecking the foreign prices, would it not be advisable for the Government to be sued so that it could be settled as to what the law is rather. than continuing to buy sole source here at these exorbitant prices? Mr. SIINITZER, I should make it clear, Mr. Chairman, there have been a large number of suits. I was limiting myself to consideration of suits with respect to drugs purchased in Europe. Now, there have been a lot of others. Senator NELSON. Have any of the suits against the Federal Gov- ernment or any department gone to judgment? Mr. SHNTTZER. Yes. Senator NELSON. And how did, they come out? Mr. SHNITZER. A large number have gone to judgment. In many instances the plaintiff-complainant was paid. Senator NELSON. Paid what? Mr. SIINITZER. He was paid an amount which the court determined was proper under the statute. The concept, of course, is to compen- sate him reasonably for the use of his patent. In terms of percentages, I have not made a complete study of this, but it 1ooks to me as though it would not be uncommon to expect that the settlement or that the judgment would represent something around 5 or 10 percent of the purchase price. Senator NELSON. You mean 5 or 10 percent of the differential be- tween the price that the exclusive licensee was selling for in this country versus the price in Europe? Is that what you are saying? PAGENO="0061" COMPETITIVE PROBLEMS IN THE DEUG INDUSTRY 8017 Mr. SHNITZER. No. I think in this case I am talking about 5 or 10 percent of the price which would have been paid initially to the patent holder or to his licensee. Senator NELSON. Is that not what I said? Mr. SHNITZER. Possibly you did. It was not my interpretation. Senator NELSON. I want to be clear in my own mind. Are you say- ing that if the price of this product were $100 in the United States, and $50 in Europe, in these lawsuits the exclusive licensee in this country, would be paid 5 or 10 percent of that differential, which is $50. Mr. SI-INITZER. No. I am saying of the hundred. In other words, he would be paid-again, as I say, this is a subjective determination. I have not made any analysis of the amounts recovered by the plain- tiffs and I am sure it would vary in this- Senator NELSON. Five or 10- Mr. SHNITZER (continuing). Percent of the $100. Senator NELSON. Of the $100. Mr. SHNITZER. Yes. Senator NELSON. Which would amount to a relatively small per- centage of the differential. Mr. SHNITZER. Yes, sir; in the sample-in the illustration you gave. Senator NELSON. In the illustration I gave at 10. percent, he would get paid $10. Mr. SHNITZER. Yes. Senator NELSON. Is that right? Mr. SIINITZER. Yes, sir. Senator NELSON. So, the Government would save $40, is that cor- rect? Mr. SHNITZER. I would say so. Senator NELSON. You ought to try it more often. Mr. STAATS. Mr. Chairman, we have been talking about negotiated procurements where patents are involve~t but in the area where patents are not involved, where the patent has expired or no patent is held, we also have some uncertainty as to the application of the truth-in-negotiation law, that is, Public Law 87-653, because that law exempts any item where there is a catalogue price which is of- fered in substantial quantities to the public. The law has a cutoff of $100,000 currently but here again, is an area where the law has not been finally settled as to the extent to which the Government would be entitled to have information on the supplier's costs. The truth-in-negotiations law, as you undoubtedly know, went to the situation of negotiated contracts in excess of $100,000 where the Government as a part of the negotiation could require the con- tractor to supply his costs, his known costs. Now, that has not been applied in the case of procurement of drugs irrespective of the patent question because of the fact that they do have catalogue prices and these drugs are Offered in substantial quantities to the public. I thought I should bring this point out because here is an area of substantial negotiated procurement where the 1962 legislation ap- parently-I say apparently, because it has not been fully tested- does not apply. PAGENO="0062" 8018 cOMPETITIVE PROBLEMS IN THE DREG INDUSTRY Senator NELSON. Well, do I understand you correctly that the General Accounting Office has authority under the present law to examine all negotiated contracts for drugs and medicines and to require price and cost information from the suppliers who are sup- plying medicines? Mr. SHNITZER. Sir, there is a statute which was enacted in 1951 which says in effect that any negotiated contract awarded pursuant to either the Federal Property Act or the Armed Services Procure- ment Act, which would cover the two major acts, has to contain a provision which gives the General Accounting Office access to the books, documents, papers and records of the contractor or his sub- contractors which relate to the contract. However, in terms of the cost and pricing data, there is the Mm- shall bill, which would provide access to the cost actually incurred in order to verify the accuracy and currency and completeness of the data provided. However, of course, if the contract were exempt from the provisions of the Truth-In-Negotiations Act in the first place, then this latter provision would not have any application. Mr. STAATS. This is the one I was referring to a minute ago. Senator NELSON. But the purchasers of drugs are not exempt, are they? Mr. SHNITZER. Well, if the price is based on current catalogue prices and these are items which are sold in substantial quantities to the general public, this is a basis for exempting that procurement from the Truth-In-Negotiations Act. However, this would not have any effect on our other right to examine the books, documents, papers and records of the contractor or his subcontractors with respect to transactions under the contract. Mr. STAATS. What Mr. Shnitzer is saying, Mr. Chairman, in other words, is that even though we had access to the records pertaining to the contract, neither we nor the procurement agency, VA or De- fense, for example, would have the right to insist that the supplier furnish the Government with their current known costs of produc- tion. Mr. SHNITZER. In the negotiation of the contract. Mr. STAATS. At the time of the negotiation of the contract. After the contract is negotiated, obviously then we do have authority with respect to all the pertinent records pertaining to that contract, but still we could not go behind the supplier's statement of what his costs are in the contract entered into by the Government. Senator NELSON, What good is it, then? Mr. SHNITZER. I think it is very good for the purpose of deter- mining what costs the contractor actually incurred in the perform- ance of the contract as compared to the contract price. We can do that. Senator NELSON. Are you referring to the costs the seller in a nego- tiated contract incurred as a consequence of tI'ie negotiations? Is that what you are saying? Mr. SHNITZER. No. What I am saying is, and we do have a case which ultimately went up as far as the Supreme Court, is that under our 1951 authority, the contract is required to include a provision which gives the GAO the right to examine records of costs, direct and indirect, generated in the performance of that contract. So if a contract is awarded to con'ipany A and it comes within the purview PAGENO="0063" COMPETITIVE PROBLEMS IN TILE, DRUG INDUSTRY 8019 of this-it is a negotiated contract for, let us assume, $100,000-we would have a right then to go back and examine the records of com- pany A-the cost records, direct and indirect, to determine how much it cost him to perform that contract and, of course, that would be- Senator NELSON. You are not talking about production costs? Mr. SIINITZER. We are talking about production costs, we are talking about direct costs and indirect costs incurred in the perform- ance of the contract; yes. Senator NELSON. But did I understand that there is still another provision of the statute that when these are published prices, you cannot go back? Mr. SHNITZER. No. This is a separate statute. There are two stat- utes. One statute relates to the Truth-In-Negotiations Act, Public Law 87-653. Most. of these contracts, I believe would be exempt, at least, many of them would be exempt, from ~the provisions of Truth- In-Negotiations Act because the price is based on catalogue price, and so on. However, regardless of whether the prices are based on catalogue prices, regardless of the application of Truth~In-Negotiations Act, we still have a provision in the contract, so long as it is negotiated, which gives us access to the contractor's records. Senator NELSON. But access in order to determine his cost of pro- duction? Mr. SIINITZER. Yes, sir. Mr. STAATS. The distinction- Senator NELSON. I thought you said that that was not the case. You are saying that this provision requires that in negotiated con- tracts the supplier must agree that you may examine all of his pro- duction costs before or after? Mr. SHNITZER. After. Mr. STAATS. After. And this is the essential point. Senator NELSON. But he still has to supply you the cost of pro- duction figures. Mr. STAATS. That is right. After the contract award, Mr. Chair- man, whereas the Truth-In-Negotiations Act laws goes to the nego- tiation itself, and here is the question of the exemption that Mr. Shnitzer and I have referred to~ Senator NELSON. Well, now, the largest number of purchases by the Veterans' Administration and the Defense Department are re- peat purchases. That is, every year the purchase of certain anti- biotics and certain analgesics, are repeated. I would suppose such is the case for 90 odd percent of such drugs. Has any one of these agencies ever requested the GAO to post- audit the negotiated contract for costs? Mr. STAATS. The answer, I guess, is no. We could do it on our own. To be candid we could do this on our own after the award of the contract. Senator N1~LSON. Well, in view of your examination of the pul- chasing practices of the various agencies, do you think it would be a valuable service to do some of this kind of checking on negotiated contracts, at least the big ones? Mr. STAATS. This is something we have had some discussion on, Mr. Chairman. PAGENO="0064" `8020 COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY Senator NELSON. Do you have any present plans to go ahead and `explore this? Mr. AHART. Mr. Chairman, as the Comptroller General mentioned, we are continuing our work in examining drug procurement sys- tems and as part of that work we will be giving consideration to utilizing the authority which we have under the provision of the 1951 act which Mr. Shnitzer mentioned, and actually examine the costs of certain of the drug manufacturers. We have not decided how far we are going to go on this and the final plans are indefinite, but this will be given consideratIon as part of this continuing work and I am sure some of it will be done. Senator NELSON. As the Comptroller General's statement demon- strates, there has been a dramatic increase in the taxpayers' expendi- tures for drugs-direct and indirect purchasing-in the period 1967 to date, going up by $400 million, from, I believe your figure was ~514 million, to $975 million. I believe that was the figure-almost a $400 million increase in `a 2- or 3-year period. I realize it may be a very complicated matter, but it would seem to me that all companies ought to be served notice that the GAO is going to utilize this statute. I think that we ought to take a look at some of those costs. Nobody has ever been able to get their manufacturing costs. But when you see them selling drugs at $17.90 a hundred to the pharma- cies and offering to sell at $1.20 in the same month and same city to an institutional buyer you have some idea of what the costs might he. I think it would be a service to the taxpayer to take a look at that `and I am glad you have it under consideration. Mr. STAATS. Thank you, Mr. Chairman. Would you like for me to continue? Senator NELSON. Yes, please. Mr. STAATS. At the bottom of page 14 we refer to small business participation. Competition through formally advertised procurements seems to have a decided effect on the participation of drug manufacturers classified as small business. When drug supply contracts are awarded competitively', small business is often able to effectively compete. For example, in fiscal year 1970 more than half of the dollar volume of the Veterans' Administration's formally advertised procurements of centrally stocked drugs were awarded to drug manufacturers `classified as small business concerns. Only 3 percent of the negotiated procurements for centrally stocked drugs were awarded to small business concerns. Since negotiated procurements constituted more than 96 percent of the total, small business received only about 4 percent of the total procurements of centrally stocked drugs. During fiscal year 1970 the Defense Personnel Support Center initiated 1,076 procurement actions, each having a value of $10,000 or more, with domestic drug manufacturers~ Small business was in- volved in 137 of these actions-representing about 7 percent of the total procurement dollars of about $71.6 million. For contracts amounting to $19 million awarded under advertised procedures or negotiated with competition by the Defense Personnel Support `Center during fiscal year 1970, small business received about 17 per- ~cent of the dollar volume or a total of $3.3 million. PAGENO="0065" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8021 Senator NELSON. What is the rationale given by the purchasing agency for such a high percentage of purchases made on a nego- tiated basis? Mr. CROWTHER. This goes back to the sole-source manufacturers. So many brand names are selected by the prescribing physicians that it leaves very little for competition. Senator NELSON. Certainly nowhere near 96 percent is sole source unless you use the brand name and call that a sole source. Mr. CROWTHER. In some cases that has occurred, sir. Senator NELSON. Well, that puzzles me. If you take the various therapeutic categories, there are relatively few in which there is only one drug for the treatment of a particular ailment., unless you are saying as Colonel Breyfogle suggested, that specifications have been drawn up that only a brand-name manufacturer can fulfill. That would, therefore, become a sole source. Mr. CROWTHER. Well- Senator NELSON. I do not understand that. Mr. CROWTHER. In the Defense Personnel Support Center, for all of their drugs in central supply they write specifications and put them out for competitive bids, if possible. They do not receive a great deal of competition, but at least, they go out for competitive bids on most drugs they stock centrally. The Veterans' Administration writes specifications only on those drugs that are outside of a patent. Either the patent has expired or there is no patent. Drugs with specifications constitute a small num- ber of the total drugs managed or administered by the Veterans' Administration. Senator NELSON. When you say the Defense Supply Agency writes specifications, what do you mean by that? All you have to do is ask for a drug by its generic name and say that it must meet TJSP or NF standards. Are there any more requirements than that? Mr. CROWTHER. Well, quite often- Senator NELSON. Well, aside from the fact you want certain milli- grams dosage and certain dosage forms, what is the complication about the specifications? Mr. CROWTHER. This is quality control more than anything else. Senator NELSON. USP standards. Mr. CROWTHER. They go a little tighter than 13SF standards in several circumstances, tightening even the manufacturer's standards in several circumstances. The Defense Department itself goes in and inspects the plants and does batch testing of drugs. Senator NELSON. Does the Defense Department have certain stand- ards that have been published that are different on potency, for example, than liSP? Mr. CROWTIIER. Well, it is not the potency as much as the proce- dures, the mechanisms of how the~ drug is manufactured in order to get consistency throughout the drugs, throughout each batch. They are concerned with the precision with which the drug is manufac- tured. They are satisfied with the potency and its therapeutic value but they want to make certain that they obtain that potency and thera- peutic value, so they are very concerned in writing the specifications to- Senator NELSON. What standards do they use for potency? 59-581 0-71--pt. 20-5 PAGENO="0066" 8022 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr CROWTHER Well, the mechanisms with which the drug is prepared I think the answer is that they specify such things as how long a drug compound must run in the centrifuge and at what temperatures Also they require that the processes be tested to be cer tam that the compounds fall within certain tolerance levels They are also concerned that each drug and the related manufacturing process meet the specifications So, I think the answer- Senator NELSON. I am very puzzled about that. You are talking about the disintegration rate? Mr CROWTHER Yes, sir, that is pait of it Senator NELSON Now, the DSP and NF have a disintegration rate You mean to say that the Defense Department has experts who have decided on a different standard? I am not objecting, if it is better, but I would like to see the proof Mr CROWTHER Well, I cannot say that the specific example is used in each specification Quite often the specifications refer to the standard that have been published but sometimes they add to those standards to gain consistent quality in the drugs they procure Senator NFl SON Has anybody taken a samphng of the drugs they procure and then a sampling that is procured for any good generd hospital )ust using IJSP standards and determined that one is differ ent or better than the other ~ Mr CROWTHER Well, I believe the reverse has occurred The De fense Department has determined that certain batches are unaccept able and they have been re)ected because those batches do not meet their standards There are several tests that each drug must meet and these tests are included in the specifications Senator NELSON That is interesting The Commissioner of the Food and Drug Administration was here yesterday saying that so far as the generic drugs and the brand name drugs that are in the marketplace are concerned, we have no cause and no evidence to believe that one is any better than the other That is not an ex'ict quote I would be very suspicious myself that what you are describing is what Colonel Breyfogle was referring to, that they set stand'irds that only a certain brand name can meet so there is no competition DSP will come here and testify that the best known standards in the world are DSP standards Now, you say that the Defense Supply Agency has ~ better standard When you have a situation where 96 percent of the contracts are negotiated and the Federal Government is not using the law to check the cost behind those negotiations, I have a suspicion that the taxpayer is getting euchered out of an `Lwful lot of money I think the Veterans' Administration and the Defense Department ought to appear here with a panel of DSP and NF experts and tell us what it is that they are doing that is so bene ficial If they are right, then DSP and NF probably ought to `tdopt their standards and the FDA ought to go along with it But when I look at the high percentage of negotiated settlements and the fact that GAO has never been called upon to look at the costs to see if the prices are reasonable, I think there is some reason to be concerned about the possibility of excessive, wasteful expendi- ture of taxpayers money Does this strike you that way ~ I do not expect you to have the facts about these various standards the military talks about that PAGENO="0067" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8023 have to be so much different that you end up with sole suppliers, while, at the same time, there are other manufacturers in the market- place. Mr. AHART. If I may comment, Mr. Chairman, I think I can clarify this a little bit. I think basically, what the Defense Depart- ment is doing is establishing the specifications, is adopting the stand- ards which are in the IJSP. Senator NELSON. They are what? Mr. AHART. They are adopting the standards in the tSP or NF, but they are adding to that the testing protocols which they are going to use in satisfying themselves that the manufacturer, whether he be a brand name manufacturer or generic name manufacturer, is actually meeting these standards in the production of the drug. So, as Mr. Crowther pointed out, it is basically the technique which they are using to assure themselves that regardless of the plant from which they get the drug--whether it is a brand-name, big company, small company or whatever-the drug in fact, by follow- ing these testing protocols, does meet the standards which have been established. Now, most of these standards will be the tSP or NF standards for drugs which are listed in those two compendiums but it is the testing protocols, the quality control tests which they are going to require to make sure they are getting the product to meet those standards for which they are paying. I do not think it is a question of developing independent standards in most cases, but setting up the regimens, protocols that make sure that the product they get meets these standards. Senator NELSON. Well, I do not think anybody would object to inspection of plants. In fact, there ought to be much more of it and the FDA ought to have more inspectors to insure quality control so that they are in the position of being able to guarantee to the pro- fession and the public that whatever goes into the marketplace meets appropriate standards as only careful inspection and supervision can guarantee. And so, if the objective-I assume it is-of the military is to be sure everybody is meeting the standard, that is fine. But I am a little concerned that some artificial barriers may be getting into the specifications so that you end up, as you do here, with 96 percent negotiated and no real assurance that the end product is on the average any better than the product being purchased by New York City or a good general hospital that has a good pharmacy depart- ment. The situation, as I see it, is that we have mostly sole source negotiated purchasing. Government financed purchases are rising rapidly, and although we have a statute that permits examination of costs to see whether or not the profit is reasonable, the GAO has never been asked to use it. That kind of a situation, I would think, raises a very serious problem, besides having within it the seeds of eliminating competi- tion and denying economic opportunities to perfectly qualified pro- ducers if abused. I do not say that it is being abused because I do not know anything about it. It could be abused unconsciously. It would eliminate competition and end up with lots of high prices, especially when you do not use the statutes and we do not check PAGENO="0068" 8024 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY what is going on in Europe and do not exercise the right to buy in Europe. Those sellers have got it coming and going both ways for them. I think you ought to take a good look at it. Mr. STAATS. The absence of satisfactory prices from domestic drug manufacturers has led both the Veterans' Administration and the Defense Personnel Support Center to the procurement of certain drugs from foreign sources. However, neither the Veterans' Admin- istration nor the Defense Personnel Support Center are currently making extensive use of foreign sources for their drug procurements. In recent years the Veterans' Administration has bought only one drug from a foreign source and does not actively solicit foreign bids in its procurements. The Defense Personnel Support Center furnished this subcommit- tee with information relative to its foreign procurement of five drug items during 1968 and 1969. During 1970 only one of these items, tetracycline hydrochloride, has been procured from a foreign source. Another of these items has been obtained during 1970 from a domes- tic manufacturer because the bid by the foreign sources were not considered low after considering the Buy American Act provisions and related policies. The remaining three items were not procured from any source during 1970. One factor in the small use of foreign sources is the Government's exposure to possible action under section 1498 of title 28, United States Code. This section provides that whenever an invention de- scribed in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner, the owner's remedy shall be by action against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. Since our last report to you on this subject, dated July 12, 1967, in which we explained the background and purpose of section 1498 of title 28, there have been two suits against the Government by drug patent holders for infringement of their patents rights. One of these suits involving purchases of nitrofurantoin was settled by the parties for $192,500 in September 1969 and the other one involving purchases of meprobamate is still pending. As an integral part of their drug procurement systems both the Veterans' Administration and the Defense Personnel Support Center have established programs for assuring the capability of Government contractors to supply a drug product of acceptable quality. These programs vary somewhat in their approach but have a common ob- jective. At the Defense Personnel Support Center the quality assurance program, and I think that is what we have really been talking about here in the last few minutes-includes an evaluation, through pre- award surveys of the plant and preaward testing of product samples, of the contractor's ability to supply a specific drug item. Preaward surveys and preaward samples may be generally re- quired when: (1) The contractor has never before furnished the item being procured; (2) a doubt exists as to the quality control, housekeeping procedures, or financial position of the prospective PAGENO="0069" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8025 contractor; or (3) the item is to be furnished from or manufactured in a different plant. The Defense Contract Administration Service has about 80 quality assurance representatives, who are either chemists, chemical engi- neers, or pharmacists, and function as drug inspectors. They perform preaward surveys at the request of the Defense Personnel Support Center and are charged with the responsibility for inspecting and approving all drug items manufactured under Defense contracts. In performing their inspections the quality assurance representa- tives are required to inspect each drug lot. During fiscal year 1969 a total of 168 preaward surveys were made-149 of which were performed on domestic manufacturers which were classified as either small or large business. Sixty-two small business firms were subjected to 90 surveys. Forty-seven of these surveys resulted in disqualifications. Twenty-six large busi- nesses were subjected to 59 surveys, 25 of which resulted in disquali- fications. Reasons for disqualification included poor quality control; poor housekeeping; sample failure; unacceptable subcontractor; and inadequate capacity. The Veterans' Administration inspects each contractor plant. with regard to its entire operation and for its entire product line. Senator NELSON. May I interrupt a moment? "Reasons for dis- qualification included poor quality control; poor housekeeping; sample failure; unacceptable subcontractor and inadequate capacity". How many of the small businesses who were rejected were based on inadequate capacity? Mr. STAATS. You will note there, Mr. Chairman, just above there in the same paragraph, 62 small business firms were subjected to 90 surveys and 47 of these resulted in disqualification. Senator NELSON. Yes, but what were the grounds for disqualifica- tion for the 47? Mr. STAATS. I see your point. Mr. Ahart, I believe, has this. Mr. AITART. There were-out of the 90 inspections, Mr. Chairman, seven instances where small business was disqualified, where one of the reasons was the inadequate capacity. And for the other side of the coin, out of the 59 inspections of large business there were nine cases where one of the reasons for disqualification was inadequate capacity. Senator NELSON. Was this inadequate capacity for the particul~r order the Government was interested in? Is that what you are say- ing? Mr. CEOWTHER. Or the ability to manufacture that particular drug in some cases. They may not have the line or a specific manu- facturing method for a particular drug and in that sense they are disqualified because of lack of capacity. Senator NELSON. Could you submit for the record a breakdown of the reasons for disqualifications in each of these cases, because the raw figures do not tell very much. What is your definition of a small business? Mr. STAATS. We took the Defense Department classification of small business here as related to pharmaceutical manufacturers. Senator NELSON. What is it, 500 employees or less? Mr. STAATS. No, 750 employees. PAGENO="0070" 8026 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON I could not draw much of a conclusion from the phrase "inadequate capacity or sample failure" Sample failure- does that refer to a sample off the line ~ Mr CROWTHER Yes, sir, off a particular drug line Senator NELSON. And now, what was the sample failure, based on a IJSP or NF standard or some standard that the military has? Mr AHART This would be the failure of the product, the pre award sample, to meet the standards which have been established in the specifications which as I mentioned are largely drawn from the TJSP or NF, using the testing protocols which the Defense Depart ment has established in their specification or in the purchase descrip- tion Senator NELSON When you say inadequate capacity, are you re ferring to inadequate capacity or inability to make this particular kind of a drug as well as amount ~ Mr AHARI I am not sure we are in a position to give all the cir cumstances which might give rise to an inadequate capacity deter mination but I am sure that one of them would be the manufacturer's inability to provide the particular drug in the quantities which the procuring agency requires. It might go to some of the other things which Mr Crowther mentioned, such as the ability to produce this particular product on the lines which they have available in the p1ant It could be either one of those I think we would be happy to submit for the record in as much detail as we can, the various kinds of things which come under this category as well as the other reasons for disqualification of these plants. (The subsequent information was received and follows:) DEFENSE PREAWARD SURVEYS OF DOMESTIC DRUG MANUFACTURERS CLASSIFIED AS LARGE OR SMALL BUSINESS FICSAL YEAR 1969 Preaw ard surveys Large Small Total Manufacturers surveyed Results of survey Qualified Disqualified Total 26 62 88 25 "~ 47 " 72 90 149 Reasons by survey applicable to- Disqualification by survey Large Small Total Quality control 2 7 Quality control and housekeeping 6 27 Quality control, and product sample 1 Quality control housekeeping and capacity 1 2 Quality control housekeeping and subcontractor 1 Quality control, subcontractor, and capacity 1 Product sample 3 Product sample and subcontractor 3 Product sample and capacity 1 Subcontractor 2 5 Capacity - 9 33 1 3 1 1 3 3 1 7 -~--~ 25 47 72 PAGENO="0071" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8027 Unacceptable subcontractor Capacity An examination of 21 preaward survey or product sample reports listed the following specific explanations for disqualification by area: Area of disqualification Specific reasons cited Quality control Inadequate inspection program. Inadequate production records. Inadequate testing or testing program. Inadequacies in packaging. Inadequacies in written quality control procedures. Unauthorized people having access to label room. No program for maintenance and calibration of scales. housekeeping Spillages not immediately removed from production area. Uncovered trash bins in bottle packaging area. Trash barrel emptied too close to production line. No program for periodic employee medical examinations. Unsanitary raw material containers. Product sample Container, container caps, or container label-. ing did not comply with purchase descrip- tion requirement. Product failed specification requirements such as hardness test, storage test, color test, consistency, material defects, solubility test, etc. Subcontractor was not required to issue adequate inspection instructions. Unsatisfactory production capability-no pro- duction plan; inadequate test equipment; plant fully utilized for current and future production; employees on strike. Inability to meet required delivery schedule- no production plan; time required to correct quality control deficiencies would jeopardize delivery; plant has insufficient capacity to meet the delivery schedule; plant has a bad performance record; firm had not obtained a commitment for glass. Unsatisfactory performance record-delin- quencies on past contracts; production problems in manufacturing specification item. Unsatisfactory plant facilities and equip- ment-firm did not have necessary punches and dies; on-hand equipment fully com- mitted to other orders. NOTE. The above schedules do notrefiect the relative seriousness of the deficiencies. The preaward survey is an evaluation of the proposed contractor's capability to perform. Each deficiency reported is evaluated as to its effect on the proposed award. The contracting officer must weigh all of the information and advisory recommendations supplied to him in selecting a contractor. Senator NELSON. It raises several questions, I would suppose: Are the standards, being used sound, and then if they are sound, are the same companies putting the same drug into the retail marketplace? Is there any exchange of this information between the Defense Supply people and the Food and Drug Administration? Mr. AHART. I understand that there is no routine mechanism by which the Defense Department's inspection results get to the Food and Drug Administration or to the Veterans' Administration, as PAGENO="0072" 8028 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY the case may be. Certainly, it would be a good idea and I understand that Dr. Edwards expressed the opinion that FDA should eventually get into the position where they can give this kind of assurance to everybody in the country for any drugs which do not reach the marketplace. I think certainly, as you indicated, this is a good objective for the Federal Government to strive to. Senator NELSON. So, for example, here you have sample failure, but you say that the central procurement is using USP or NF stand- ards. If there is a sample failure and that supplier is rejected on the grounds that the product did not meet USP or NF standards, then would it not be critically important that the Defense Department notify the FDA forthwith? Otherwise those drugs are going into the marketplace not meeting TJSP and NF standards and nobody knows it. Mr. AHART. I think this would be valuable information to the FDA and if it is in the Government's hands I think it should be made available. I understand there is no routine mechanism to make all inspection data available now. As to whether there is provision for exception reporting where the case seems to be particularly bad, I think we would have to check on that and see what has been done. Senator NELSON. I think you were at the top of page 18 or bottom of page 17. Mr. STAATS. Bottom of page 17. Let me reread that one sentence, Mr. Chairman. The VA inspects each contractor plant with regard to its entire product line. This is done prior to the contractor being awarded any contracts so that the Veterans' Administration can be assured that the supplier is suitable for any of the products it may offer to the Government. These initial contractor plant inspections represent about 60 percent of all inspections. The remaining inspections are reinspections on a cycle basis. All inspections evaluate such areas of contractor operations as the ade- quacy of quality control, test facilities, and sanitation. All plant inspections are made by two Veterans' Administration pharmacists. During fiscal year 1970, the two pharmacists performed 134 in- spections at 122 contractors' plants. The inspections resulted in 37 disapprovals, the most common reason being the lack of following adequate quality control procedures. Veterans' Administration does not utilize military inspections of domestic plants except as a supple- ment to its own inspection. Veterans' Administration does rely upon Department of Defense inspections of foreign plants. The Food and Drug Administration performs testing of selected drug samples for the Veterans' Administration. Brand-name drug items which are centrally stocked are tested on a~ sample basis once a year. Each order of generic drug items which are centrally man- aged is tested. Drug items under Federal Supply Schedule contracts administered by the Veterans' Administration are rarely tested except that the products of any new contractor under schedule contracts are tested. A compilation of testing reports received by the Veterans' Admin- PAGENO="0073" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8029 istration from the Food and Drug Administration for 1970 through December 29th shows a total of 784 tests made-254 brand-name and 530 generic. The total rejections were 29 for a rate of 3.7 percent. All rejections were on generic drug items. The Department of Defense and the Veterans' Administration ex- change inspection information only upon specific request. The De- partment of Defense previously supplied the Veterans' Administra- tion with a list of plants inspected by it but this practice was dis- continued about 2 years ago. At present there is no routine exchange of inspection information. Senator NELSON. Have you any exp1an~tion for that? Mr. STAATS. Pardon? Senator NELSON. Any explanation for that? Mr. STAATS. I do not have an explanation for it. Mr. CROWTHER. No, sir; we really have not examined further into it. We have not examined into the reasons why it has not been kept up. Mr. STAATS. We will be glad to check into that further and supply any further information we could for the record, if you like. We really have not had a chance to pursue it that far. (The subsequent information was received and follows:) DEFEi~T5E PERSONNEL SUPPORT CENTER LISTING OF MANUFACTURERS SUpJECTED TO PREAWARD SURVEYS SUPPLIED TO VETERANS ADMINISTRATION REAsoN FOR DIscoNTunrANcE We were informed by Defense Personnel Support Center personnel that the information which they prepared had a potential for misinterpretation and for this reason they discontinued the practice of routinely furnishing it to VA. Defense inspects a manufacturer to evaluate his ability to supply a specified drug Item. When disqualified, the manufacturer was declared unsuitable for that drug item only and not for the rest of his product line. However, the listing previously furnished to VA did not disclose either the disqualified product or the reasons for disqualification, which may have been unique to Defense Personnel Support Center requirements, such as inability to meet Defense packaging standards. Currently, Defense Support Center supplies Federal agencies including VA with data obtained on pre-award surveys upon specific request. Senator NELSON. The FDA is inspecting, the Veterans' Admin- istration is independently inspecting, and the Defense Supply Agency is independently inspecting. It would seem to me that we need some clearing house for the results of the inspections, do we not? Mr. STAATS. That is essentially what we are suggesting in our next paragraph here. We believe that consideration should be given to establishing, ap- propriate guidelines to facilitate the routine exchange of contractor inspection and product testing information among Government agencies involved with the control or procurement of drug products. Also, we believe that consideration should be given to the possibility of eventually turning over the entire responsibility to the Food and Drug Administratioti for drug contractor plant inspections and product testing including testing of contract quality control proce- dures in order to satisfy each procuring agency's requirements and take the greatest advantage of the food and drug inspection system that has been established. PAGENO="0074" 8030 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY This concludes our formal statement, Mr. Chairman, but we are suggesting in this last paragraph essentially that the Food and Drug Administration be considered as the type of clearing house to which you refer. Senator NELSON. rfhat is, that the results of all inspections of other agencies be routinely referred to the Food and Drug Administration. Mr. STAATS. And that can serve as a central repository of this type of information. Senator NELSON. How many plant inspectors does the VA have? Mr. AHART. They have two pharmacists basically, that do the in- spection of the plants, Mr. Chairman. They also, as I think the Comptroller General pointed out, draw upon the facilities of the FDA to do the product testing for them. So, it would be the two VA inspectors plus whatever use they make of the Food and Drug Ad- ministration facilities. Senator NELSON. I take it the Veterans' Administration's inspec- tions are not general. They are aimed only at a specific contractor who proposes to supply them, is that it? Mr. AHART. They make an initial inspection of a plant for every prospective contractor and they also reinspect existing contractors from time to time. I am not sure what that cycle is. I think it is somewhere around 3 to 5 years. Senator NELSON. How many inspectors does DOD have? Mr. AHART. I am not sure we have the breakdown on that. As the Comptroller General mentioned, they have got about 80 people in- volved in the testing and inspection functions. As to how many of these actually perform the plant inspections as opposed to performing the drug testing functions, I do not think we have that split. Senator NELSON. Then, with three agencies inspecting and prac- tically no exchange of information, there is no way of one agency knowing whether the other agency may have recently inspected the plant they propose to inspect now, is that right? Mr. AITART. That is correct, Mr. Chairman. Mr. GORDON. On page 9 you stated that the VA and DOD should combine their purchases of drugs which they both buy. Do you see any objections to including other Government agencies like the Public Health Service? Mr. STAATS. No. We would not see any objection to that. The Public Health Service currently buys, as I understand, about half of their drugs through the VA system but we would not see any objection, certainly. The volume in the case of PHS is significantly less but that does not really detract from the conclusion that it would be probably a good idea. Mr. GORDON. The States and municipalities are having great difficulty in getting enough funds to provide necessary services. Now, the figures that we have show that the States and municipali- ties pay considerably more for drugs than either the VA or DOD. Is that your understanding, also? Mr. STAATS. I do not have any figures as to the total volume of State and local government drug procurement. The subject is one that needs a lot of study. PAGENO="0075" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8031 There are some legal questions involved. The subject of the Federal Government's facilities being used by State and local gov- ernments has come under some discussion in the Commission on Government Procurement which as you know, is just getting under- way with its study. And the expectation is that the Commission will come to the Congress with some recommendations as to how the Federal Government's facilities for procurement could be used by State and local governments, particularly where there is grant- in-aid money involved and, of course, grant-in-aid funds are very substantial, as you know, running more than $25 billion a year. The GSA, the General Services Administration, has already taken steps in this direction, which appear very promising. So, in principle, I would see no reason why this would not be a profitable line of study, even if i~ meant that it would have to ask Congress for some legislation to overcome some legal problems that would be involved with Federal Government using its funds, you might say, in advance to procure stocks and then reselling them to States and local governments. Mr. GORDON. It could be done in another way. For example, a State can request the Federal purchaser to order drugs for the State. That is all the Federal Government has to do. The drugs could be sent directly to the State, which would pay the manu- facturer directly. It would be just a question of the Federal Gov- ernment ordering on behalf of the State or municipality. Are there any legal objections to that particular method? Mr. SHNITZER. I think, Mr. Gordon, that there may be some substantial question about it. We note that there are some specific statutes which authorize in a given instance an agency of the Fed- eral Government to make procurements on behalf of local govern- ments. The Federal Highway Act, 23 U.S.C. 308(b), is an instance. Our feeling is that if it is necessary for the statute to include such a provision, we believe that there may be a good reason for having some doubt about whether or not absent such a specific provision that it could be done because it may be regarded as utilizing a government facility for something other than the purposes intended by Congress. Senator NELSON. I think part of the shared taxes program we are talking about. Mr. SHNITZER. It could very well be. Senator NELSON. Thank you very much, Mr. Staats, for a very informative and valuable presentation to the committee. If we have some further questions that occur to us after we examine the rec~- ords, I take it we can submit the questions and you will supply the answers for the record. Mr. STAATS. We will be very happy to respond. Senator NELSON. Our next hearing will be on February 1, with the AID and Public Health Service as witnesses. (Thereupon, at 12:10 p.m., the hearing was recessed, to recon- vene on Monday, February 1, 1971.) (The complete prepared statement and appendixes submitted by Mr. Staats follows:) PAGENO="0076" 8032 COMPETITIVE PROBLEMS IN THE DR1JG INDUSTRY United States General Accounting Office Washington, D.C. 20548 For Release on Delivery Expected at 10 AN EST January 19, 1971 STATEMENT OF ELMER B. STAATS, COMPTROLLER GENERAL OF THE UNITED STATES BEFORE THE MONOPOLY SUBCOMtIITTEE SELECT COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE ON DRUG PROCUREMENT SYSTEMS OF FEDERAL AGENCIES Mr. Chairman and Members of the Subcommittee, I am pleased to appear here today in response to your request to discuss the drug procurement systems of Federal agencies. As you requested, we plan to discuss the efficacy, econ- omy, and rationality in the drug procurement activities of the Federal Government. Specifically you asked that we dis'. cuss the methods of procurement, the degree of competition obtained, participation by small business and the use of sec- tion 1498, of title 28 of the United States Code to procure drugs covered by patents. Our discussion today will focus upon the systems through which the Federal Government directly procures drugs from manufacturers and other suppliers. We would like to mention, however, that since our last appearance before this Subcom- mittee in May 1967, we have conducted reviews of and issued reports on other aspects of the Government's drug-related PAGENO="0077" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8033 activities. We have attached as Appendix A to my statement digests of these reports for your information. There is a growing involvement by the Federal GovernS- ment in drug procurement, encompassing its substantial role both as a direct provider of medical care and treatment to certain classes of persons and as a supporter of federally financed programs which include the provision of drugs for eligible beneficiaries. During the three fiscal years 1967 through 1969, the total estimated Federal expenditures for drugs increased from $514 to $975 million. A substantial portion of these expenditures were indirect in that they con~ sisted of the Federal share of the costs of drugs provided to beneficiaries under the Medicare and Medicaid and certain other programs. Drug costs under the Medicare and Medicaid programs increased from an estimated $350 million in fiscal year 1967 to $750 million in fiscal year 1969. Although the major portion of Federal drug expenditures are indirect, the expenditures for direct procurements have increased from $161 million in 1967 to $203 million in fis.' cal year 1969. Three Federal agencies account for most of the direct drug procurement-'~the Defense Personnel Support Center, an activity under the Defense Supply Agency; the Public Health Service of the Department of Health, Education, and Welfare; and the Veterans Administration. Each of these agencies op.- erates its own drug supply system. The Defense Personnel Support Center centrally manages about 1,100 drug items and in fiscal year 1969 procured an estimated $103 million in drug. The Public Health Service 2 PAGENO="0078" 8034 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY centrally manages about 600 drug items and in fiscal year 1969 spent an estimated $6 million for drugs, about 86 per. cent of which were obtained under contractual arrangements made by Veterans Administration The Veterans Administra- tion centrally manages about 450 drug items and centrally procured an estimated $25 million in drugs infiscalyear 1969 The Veterans Administration also administers Federal Supply Schedule contracts under which Federal agencies can satisfy their drug requirements through direct purchase from drug manufacturers. Purchases under these contracts for f is- cal year 1969 were estimated at $56 million. In addition to drug procurements which are centrally managed or administered, medical facilities of each of the three agencies can, in certain circumstances, locally pro- cure their drug needs. Previous testimony before this Subcommittee has high- lighted the drug procurement system as an activity support- ing physicians' decisions on the most appropriate drug ther- apy for their patients Such a system has as its base the professional selection of drugs and, in support of that se- lection, a complementary supply activity The objective of Government drug procurement should be to obtain at fair and reasonable prices, and in a timely manner, the proper and needed quantities of drugs that are of a satisfactory quality Specifically, we believe that a drug procurement system should provide for - - a selection process which emphasizes drug quality, safety, and efficacy and gives appropriate considera- tion to drug cost. 3 PAGENO="0079" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8035 - - comprehensive and accurate drug usage data to facili- tate the selection of the most appropriate and econom- ical method of supply with appropriate corresponding restrictions on all other available supply sources. - - the development of product specifications which insure that drugs are capable of producing the desired thera- peutic effect while encouraging the widest possible competition and lowest possible cost. - - effective negotiation as the alternative contracting method in instances where competitive procurement is not possible, ~nd - - inspection and testing to establish manufacturer re- sponsibility and capability to produce quality drugs. We have surveyed Federal drug procurement systems in the light of these criteria and would like to briefly describe our observations. I would like to emphasize that* these observations are based on preliminary studies of the systems involved and can- not be considered as a complete review of such systems. Our work is continuing, however, and we will undoubtedly have more observations and suggestions to offer at a later time. Drug selection With respect to the drug selection process, we obtained information at the local level for five Federal medical fa- cilities. Each of the facilities visited has established its own system for judging which drugs are appropriate for use. Each system is under the administration of a central group, the name of which varies but may connuonly be referred to as the Pharmacy and Therapeutics- - the P and T- - Committee. The P and T committee's membership generally consists of the directors of the various professional services of the med- ical facility and the chief pharmacist who acts as secretary. 4 PAGENO="0080" 8036 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Some committees also have special non-voting members, such as supply specialists and nursing personnel, whose functions range from that of observer to advisor in their areas of ex- pertise. A principal function of the P and T committees is to ad- minister the system for evaluating and selecting from among numerous drugs those considered most useful in patient care. The committee's selections are reflected in a continuously re- vised compilation of drugs approved for use within the med- ical facility- - the station formulary. In carrying out this function, the P and T committees generally receive some as- sistance from headquarters level in the form of policy guide- lines, regulations, and information published by various pro- fessional medical service groups. Agency policy statements and regulations,where available, are generally limited to setting out the scope and authority of the P and T committees. Headquarters may provide recall and adverse reaction informa- tion about specific drugs, and furnish data on the commercial availability and prices of drugs. However, the selection of drugs for inclusion in the station formulary is reserved to the P and T committees. At military hospitals, the hospital commander is responsible for approval or disapproval of drugs recommended by P and T Committees. Most of the information on specific drugs which is made available to members of the P and T committees in their con- sideration of changes to the station formulary comes from two sources; professional journals and the drug manufacturers. The drug companies supply most of their information to indi- vidual physicians through sales representatives (detailmen) and by direct mail advertising. 5 PAGENO="0081" COMPETITIVE PROBLEMS IN THE DRtYG INDUSPRY Recently a series of actions impacting upon the opera~- tion of P and T coimnittees and the formulary system have been taken or are planned within each of the major Federal drug procurement agencies. For example each of the agencies has directed the distribution of the Food and Drug Administration's recently published list of "ineffective" drugs to their local medical facilities with the recommendation or requirement that the drugs no longer be used. Public Health Service has also taken action to more fully develop possible approaches to effective drug utilization re- views, as recommended in the report of the Department of Health, Education, and Welfare's Task Force on Prescription Drugs. A research study of the methodology and feasibility of this technique is currently underway. We believe that the recent actions related to the drug selection process, if properly implemented, should improve control over drug operations at the local level. In imple- menting such actions we believe that emphasis should be placed on providing physicians employed by the Federal Government with appropriate information concerning available drugs to as- sist them in making decisions relating to drug therapy. Keeping physicians informed is most important because the physicians'decisions guide the drug selection process. Unless this process is based on the best information available, even an otherwise efficient supply function may be uneconomical. During our visits to local medical facilities we noted specific actions by P and T committees which we believe are 6 59-581 0-Il--pt. 20-6 PAGENO="0082" 8038 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY appropriate for wider application. Examples noted were (1) the dissemination of information on drug studies including drug costs and (2) dissemination of information on adverse drug re- actions Procurement and supply system Once determinations have been made through the selection process of the drugs which will be used, the drug supply ac- tivity must operate effectively to furnish the required items in the most economical manner. Requirements for frequently used drugs are generally met through a central stock system which allows for quantity purchases Veterans Administration and the Department of Defense both have reporting systems for identifying drugs for inclu- sion in their centralized stock systems In the Department of Defense, each of the three services has its own system and criteria for reporting, and they vary from each other One result of this is that Defense-wide usage of a specific drug does not become known until one of the services recommends a drug for inclusion in the central stock system Approval of only one service is needed to add a drug to the central supply system, but all services must concur in removing an item from the system In fiscal year 1970, 66 drug items were added to the system and action taken to delete or discontinue procuring 106 drug items on a cen- tralized basis We believe that under the current reporting systems, drug items. that merit consideration for inclusion in the central 7 PAGENO="0083" COMPETITIVE PROBLEMS IN THI~ DRUG INDUSTRY 8039 stock system may not be included in the items identified for review and evaluation. This possibility could be removed and the reporting system improved by the use of standard criteria by the three services. The Veterans Administration's primary source of informa- tion in its continuing effort to capture data on drug usage outside of its central stock system is a quarterly drug re- port based on reports from each of its medical Eacilities. This report is characterized by the Veterans Administration as an important tool in the management of its drug program and shows all procurements from sources other than central stock. The Veterans Administration uses this report to identify drugs which qualify for inclusion in the central stock system. We believe that the Veterans Administration could make its comprehensive report more useful by requiring more uni- form adherence to its regulations on reporting nomenclature and by providing for the compiling of certain summarizations and exception reports which would make the identification of drugs for central stock management much easier. Also, available data indicates that the Veterans Admin- istration and the Department of Defense could take advantage of higher quantity drug procurements which could possibly re~ sult in lower prices by combining their needs for procurement purposes. For example, the Veterans Administration contracted for 1,404 units of Lincocin at a unit price of $22.30--five days later the Defense Personnel Support Center contracted for 4,464 units of the same drug from the same manufacturer at a unit price of $19.95. In another instance the Veterans Ad- ministration contracted for 3,000 units of Tylenol at $6.14 8 PAGENO="0084" 8040 COMPETITIVE PROBLEMS IN THE DI[UG INDUSTRY each- - about one-month earlier the Defense Personnel Support Center contracted with the same manufacturer for 10,176 units of the same drug at $3.28 a unit. At least 150 drugs, centrally procured by the Defense Personnel Support Center during calendar years 1968 and 1969, were also centrally procured by the Veterans Administration during fiscal years 1968 and 1969. Both the Veterans Administration and the Department of Defense have established required priorities of supply sources to be used by their medical facilities. These priorities re- flect a policy of using the most economical supply source available. Such a policy is important because the commercial unit prices of drugs available at the wholesale level are generally higher than prices established under Federal Supply Schedule indefinite quantity contracts which, in turn, are generally higher than definite quantity procurements. To illustrate this fact, we compared prices listed on the Federal Supply Schedule with the highest prices paid un- der definite quantity contracts for 68 drug items over a re- cent two year period and found that the Schedule prices aver- aged 63 percent higher. We recognize that procurements under indefinite quantity contracts have inherently higher manufac- turers costs of warehousing and administration which would account for some part of the difference between definite quantity procurements. Also additional warehousing costs are incurred by the Government on procurements for central stock under definite quantity contracts, but considering all these factors, a 63 percent difference seems significant in any event. The average price differential is particularly sig- nificant considering the amount of total purchases made under 9 PAGENO="0085" COMPETI~PIVE PROBLEMS IN THE DRUG INDUSTRY 8041 Schedule contracts and the fact that many centrally stocked drugs are also available under the Schedule contracts. We see no reason ~hy Federal agencies should indepen- dently procure drugs from the same manufacturer and lose the possible price advantages resulting from high quantity pur- chases. We believe consideration should be given to improv- ing Federal drug procurement practices by providing for an exchange of information between the Department of Defense and the Veterans Administration as to the estimated annual volume of drugs to be procured in order that consideration can be given to combining quantities of certain drugs for procure- ment purposes, using the most economical method of procure- ment for each drug item. Product specifications Another key requirement to an efficient supply system is its ability to provide, wherever possible, purchase descrip- tions or product specifications which permit more than one manufacturer to bid effectively. Both the Defense Personnel Support Center and the Vet- erans Administration establish their own specifications on drugs. Both agencies require compliance with the applicable standards of the United States Pharmacopeia and the National Formulary to which each agency adds its own additional re- quirements. The professional personnel assigned this respon- sibility within the Defense Personnel Support Center and the Veterans Administration are chemists or pharmacists. The Veterans Administration develops a specification when the demand for a generic product is sufficient to warrant cen- tral management or administration and when no patent exists or the patent has expired. The Veterans Administration has established specifications for about 100 of its centrally 10 PAGENO="0086" 8042 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY managed drugs procured on a generic basis. In addition, specifications have been developed on 46 drug products ad- ministered under Federal Supply Schedule contracts. The Defense Personnel Support Center establishes a spec- ification or purchase description on every drug item in its central stock system Both agencies informed us that they use a number of sources in constructing their specifications In addition to the monographs of the United States Pharmacopeia and National Formulary, other sources for constructing specifications include the Food and Drug Administration, drug manufacturers, the National Institutes of Health, and the American Chemical Society. When a drug is standardized for the military supply system, the manufacturer is contacted and requested to supply sufficient information so that the item's essential charac- teristics can be prepared We explored with Defense Personnel Support Center offi- cials the question of whether, because of the substantial re- liance upon information obtained from manufacturers, military specifications or purchase descriptions are restrictive and, in effect, result in a proprietary specification These offi- cials contend that the specifications and purchase descrip- tions are constructed in such a manner that any firm knowledge- able in the drug industry could manufacture the drugs With- out a detailed study of the matter, we have no basis upon which to either dispute or validate this contention 11 PAGENO="0087" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8043 Competition and negotiation It is clear that the degree of competition obtained in the drug procurement area is less than competition obtained for many other Government supply itams. The total dollar value of drug procurements for central stock by the Veterans Administration and the Defense Personnel Support Center in fiscal year 1970, amounted to about $94 million. About 7 per- cent or $6.4 million of the central stock procurements were made under contracts awarded pursuant to formal advertising procedures. The remainder were made under contracts nego- tiated with the sole source of supply or under contracts awarded after the solicitation of proposals. Among the reasons for the limited amount of competitive procurement are of course, the fact that many drugs are pat- ented products and the fact that legal and administrative re- quirements must be met in order to obtain Food and Drug Admin- istration approval. Also, many procurements are made by brand- name either because only one brand of a particular drug is available or because of the prescribing physicians' preference. For example, about 70 peräent of the drug items centrally stocked by the Veterans Administration have been designated for procurement on a sole-source basis in order to obtain specified brand~.name drugs. In addition, competitive contract awards account for about 25 percent of the procurements under the Federal Supply Sched- ules. Most of the other contracts, which are included for the 12 PAGENO="0088" 8044 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY purpose of making manufacturers' product lines available to the Government at prices less than market, are negotiated with-. out the benefit of competition. The Defense Personnel Support Center sought to increase competition on their centrally managed drug items when, in Jan- uary 1969, approximately 1,000 firms were invited to indicate their interest in bidding on 401 items, 290 of which were clas- sified as single-source. Replies were received from 104 com- panies. Fourteen companies requested to be added to the bid- ders list for 35 of the 401 drug items. Two other companies requested to be added to the bidders list for eight drug items not included in the solicitation. The other 88 responding com- panies either did not produce the item; reaffirmed their inter- est in supplying the drug items for which they were already on the bidders list; or expressed no interest in supplying any of the products to the Government. Some of the reasons advanced with respect to the absence of competition on a large number of drug items include --restrictions imposed by law or regulation, such as pat- ents on new drug applications; --inadequate plant facilities and no desire to make the required investment to upgrade the facilities; --the lack of qualified personnel to make many drugs; and - -the expense of introducing a new product with no assur- ance of reasonable return through sustained contract awards. The advantages of seeking the widest possible competition in drug procurement can be demonstrated by available data from which we identified 9 drugs procured over a comparable period of time both competitively and on a sole-source basis. The drugs purchased from sole-source suppliers by the Veterans 13 PAGENO="0089" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8045 Administration are estimated to be 60 percent higher than the average price obtained after formal advertising or the solici- tation of competitive proposals by the Department of Defense. Appei-tdix B of my statement shows the 9 drugs and comparative prices. It should be noted that the quantities purchased by the two agencies are different which may account for some part of the price differences. We see no reason why different Federal agencies should independently procure the sanie drug in a different manner, and possibly from the same manufacturer, and lose the advan- tages associated with procurement of larger quantities and, where possible, increase competition. Without effective competi'tion, there is a question of the Government assuring itself that the prices being obtained are fair and reasonable under negotiated procurements. Public in- formation is available on selected areas of drug pricing--an example would be wholesale prices. In determining whether the negotiated price is the best attainable by the Government, comparison of the bid with these prices reflects reasonableness by inference. Although there is no assurance that these prices are reasonable, our survey indicates that these prices serve as the basis for most of the price reasonableness determinations made by the Veterans Administration and the Defense Personnel Support Center. ~all business participation Competition through formally advertised procurements seems to have a decided effect on the participation of drug man- ufacturers classified as small business. When drug supply contracts are awarded competitively, small business is often able to effectively compete. For example, in fiscal year 1970 more than half of the dollar volume of the Veterans Ad- ministration's formally advertised procurements of centrally 14 PAGENO="0090" 8046 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY stocked drugs were awarded to drug manufacturers classified as small business concerns Only 3 percent of the negotiated procurements for centrally stocked drugs were awarded to small business concerns Since negotiated procurements constituted more than 96 percent of the total, small business received only about 4 percent of the total procurements of centrally stocked drugs. During fiscal year 1970 the Defense Personnel Support Center initiated 1,076 procurement actions, each having a value of $10,000 or more, with domestic drug manufacturers Small business was involved in 137 of these actions--represent- ing about 7 percent of the total procurement dollars of about $71 6 million For contracts amounting to $19 million awarded under advertised procedures or negotiated with competition by the Defense Personnel Support Center during fiscal year 1970, small business received about 17 percent of the dollar volume or a total of $3 3 million ~rug Procurem~ts From Foreign Sources The absence of satisfactory prices from domestic drug manufacturers has led both the Veterans Administration and the Defense Personnel Support Center to the procurement of certain drugs from foreign sources. However, neither the Veterans Administration nor the Defense Personnel Support Can- ter are currently making extensive use of foreign sources for their drug procurements. In recent years the Veterans Administration has bought only one drug from a foreign source and does not actively so- licit foreign bids in its procurements The Defense Personnel Support Center furnished this Sub- committee with information relative to its foreign procurement of five drug items during 1968 and 1969. During 1970 only one 15 PAGENO="0091" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8047 of these items, tetracy~line hydrochloride, has been procured from a foreign source. Another of these items has been ob~ tamed during 1970 from a domestic manufacturer because the bid by the foreign sources were not considered low after con~ sidering the Buy American Act provisions and related poli.. cies. The remaining three items were not procured from any source during 1970. One factor in the small use of foreign sources is the Government's exposure to possible action under section 1498 of title 28, United States Code. This section provides that when~~ ever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner, the owner `s remedy shall be by action against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. Since our last report to you on this subject, dated July 12, 1967, in which we explained the background and pur~ pose of section 1498 of title 28, there have been two suits against the Government by drug patent holders for infringe.. ment of their patents rights. One of these suits involving purchases of nitrofurantoin was settled by the parties for $192 , 500 in September 1969 and the other one involving pur.. chases of meprobamate is still pending. Federal inspection and testing programs An an integral part of their drug procurement systems both the Veterans~ Administration and the Defense Personnel Support Center have established programs for assuring the ca- pability of Government contractors to supply a drug product of acceptable quality. These programs vary somewhat in their approach but have a common objective. 16 PAGENO="0092" 8048 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY The quality assurance program at the Defense Personnel Support Center includes an evaluation, through pre-award sur- veys of the plant and pre- award testing of product samples, of the contractor' s ability to supply a specific drug item. Pre-award surveys and pre-award samples may be generally required when (1) the contractor has never before furnished the item being procured; (2) a doubt exists as to the quality control, housekeeping procedures, or financial position of the prospective contractor; or (3) the item is to be furnished from or manufactured in a different plant. The Defense Contract Administration Service has about 80 quality assurance representatives, who are either chemists, chemical engineers, or pharmacists, and function as drug in- spectors. They perform pre-award surveys at the request of the Defense Personnel Support Center and are charged with the responsibility for inspecting and approving all drug items manufactured under Defense contracts.In performing their in- spections the quality assurance representatives are required to inspect each drug lot. During fiscal year 1969 a total of 168 pre-award surveys were made- -149 of which were performed on domestic inanufac- turers which were classified as either small or large busi- ness. Sixty-two small business firms were subjected to 90 surveys. Forty.~seven of these surveys resulted in dis- qualifications. Twenty-six large businesses were subjected to 59 surveys, 25 of which resulted in disqualifications. Reasons for disqualification included poor quality control; poor housekeeping; sample failure; unacceptable subcontrac- tor; and inadequate capacity. The Veterans Administration inspects each contractor plant with regard to its entire operation and for its entire 17 PAGENO="0093" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8049 product line. This is done prior to the contractor being awarded any contracts so that the Veterans Administration can be assured that the supplier is suitable for any of the prod. ucts it may offer to the Government. These initial contrac~ tor plant inspections represent about 60 percent of all in~ spections. The remaining inspections are reinspections on a cycle basis. All inspections evaluate such areas of contractor operations as the adequacy of quality control, test facili.' ties, and sanitation. All plant inspections are made by two Veterans Adminis. tration pharmacists. During fiscal year 1970, the two pharmacists performed 134 inspections at 122 contractor's plants. The inspections resulted in 37 disapprovals, the most common reason being the lack of following adequate quality control procedures. Vet~. erans Administration does not i~tilize military inspections of domestic plants except as a supplement to its o~n inspection. Veterans Administration does re1y~ upon Department of Defense inspections of foreign plants. The Food and Drug Administration performs testing of selected drug samples for the Veterans Administration. Brand-P name drug items which are centrally stocked are tested on a sample basis once a year. Each order of generic drug items which are centrally managed is tested. Drug items under Federal Supply Service Contracts ad~ ministered by the Veterans Administration are rarely tested except that the products of any ne~ contractor under Sched~ ule contracts are tested. 18 PAGENO="0094" 8050 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY A compilation of testing reports received by the Vet- erans Administration from the Food and Drug Administration for 1970 through December 29th shows a total of 784 tests made--254 brand-name and 530 generic The tctal rejections were 29 for a rate of 3 7 percent All rejections were on generic drug items. The Department of Defense and the Veterans Administra- tion exchange inspection information only upon specific re- quest. The Department of Defense previously supplied the Veterans Administration with a list of plants inspected by it but this practice was discontinued about 2 years ago. At present there is no routine exchange of inspection informa- tion We believe that consideration should be given to estab- lishing appropriate guidelines to facilitate the routine ex- change of contractor inspection and product testing informa- tion among Government agencies involved with the control or procurement of drug products. Also we believe that consid- eration should be given to the possibility of eventually turning over the entire responsibility to the Food and Drug Administration for drug contractor plant inspections and product testing including testing of contract quality con- trol procedures in order to satisfy each procuring agency's requirements and take the greatest advantage of the food and drug inspection system that has been established. Mr. Chairman, this concludes my statement. I shall be happy to answer any questions that you or other members of this Subcommittee may have 19 PAGENO="0095" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8051 Appendix A cOIVWTROLLER GEliEF~4L'5 CONTROLS OVER THE MEDICAID DRUG PROGRAM REPORT TO THE OONGRESS IN OHIO NEED IMPROVEMENT Social and Rehabilitation Service Department of Health, Education,and Welfare B-l64031 (3) DIGEST WHY THE REVIEW WAS MADE Under Medicaid, the Department of Health, Education, and Welfare (HEW) shares with the States the costs of providing medical care to persons unable to pay. Because Medicaid expenditures for drugs, nationally, amounted to about $307 million in fiscal year 1969, the General Ac-j counting Office (GAO) reviewed the Medicaid drug program. About $14 million of that amount was spent in Ohio where GAO made its re- view. FINDINGS AND CONCLUSIONS GAO sought answers to three basic questions: --Are recipients of drugs eligible under Medicaid? --Are drugs reasonably priced? .~-Are controls over drugs adequate? On the basis of a statistical sample, GAO estimates that, during the year ended March 31, 1969, the welfare recipients comprising at least 4,300, and possibly as many as 9,300, welfare cases in Ohio were in- eligible for Medicaid services, including drugs. That situation is attributable primarily to a need for mere timely and accurate deter- minations of eligibility, on a continuing basis, by the county welfare departments, (See pp. 7 to 11.) Certain drugs purchased under Ohio's Medicaid program were not reason- ably priced because of several factors. --The State's policy of paying pharmacies for drugs on a cost-plus- a-percentage-of-cost basis is contrary to Federal and HEW policy because It gives the pharmacies an incentive to sell high-cost drugs to obtain a greater profit. GAO noted that 11 other States and th~ Virgin Islandspaid for drugs on that basis. (See pp. 12 and 13.) --The State's controls were not adequate for ensuring that prices billed to the State conformed to its formula for determining 8ear Sheet 20. PAGENO="0096" 8052 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Appendix A payment for drugs, that is,cost plus 50 percent. For example, average markups were 159 percent for Lanoxin, 233 percent for milk of magnesia, and 248 percent for digoxin. The State's policy of permitting pharmacies to charge a minimum of $1 for each prescrip- tion increased the difficulty of controlling costs. (See pp. 13 to 20.) --Nursing homes were not obtaining long-term maintenance drugs in economical quantities, because the State limits to a 30-day supply the drugs prescribed for welfare patients in nursing homes. (See pp. 23 and 24.) Also there is a need for HEW, in its studies of drug efficacy, to give priority to certain lower cost, frequently used drugs identified by the HEW Task Force on Prescription Drugs as offering potential for consider- able savings. (See pp. 20 to 22.) Ohio's controls over drugs under its Medicaid program were inadequate for either the State or HEW to determine whether (1) drugs obtained by nursing homes were administered to welfare patients and were effect,ve in their treatment, (2) drugs dispensed and billed by pharmacies were actually received by welfare recipients, and (3) only needed drugs were provided to welfare recipients. For example: --At four of six nursing homes visited, controls were not adequate for ensuring that drugs paid for b~ the State had been authorized by a physician. (See pp. 26 to 2g.) --At five of 14 pharmacies visited by GAO, controls were not ade- quate for ensuring that prescriptions were complete as to quanti- ties,dosages, forms, strengths, or dates. (See pp. 29 to 32.) --The State had not given county welfare departments adequate informa- tion for determining whether recipients were receiving only needed drugs. (See PP. 33 and 34.) RECOMMENDATIONS OR SUGGESTIONS GAO is recon~nending that the Secretary of Health, Education, and Wel- fare: --Provide assistance to Ohio and other States in revising, their drug- payment policies to conform to HEW policy. (See p. 24.) --Give priority in the conduct of HEW's drug-efficacy studies to those drugs identified by the HEW Task Force on Prescription Drugs as having considerable potential for savings and furnish physicans with information on the results of the studies. (See p. 24.) 21 PAGENO="0097" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8053 Appendix A --Issue guidelines for utilization reviews of drugs so that the States will have a uniform system for accumulating, analyzing, and reporting data for use by HEW and the States in evaluating this aspect of the Medicaid program. (See p. 34.) --Monitor the implemer~tation of these guidelines and give assistance to Ohio and other States, as needed. (See p. 34.) AGENCY ACTIONS AND UNRESOLVE'D ISSUES HEW stated: .~.~that guidelines for payments of reasonable charges for prescribed drugs were expected to be issued in the next several months; Ohio planned to abolish the $1 minimum for each prescription; and the States not in conformity with HEW regulations on drug prices had adopted, or were working toward adoption of, policies to bring them into conformity. (See pp. 24 and 25.) --that it agreed that its efficacy studies of brand-name and chemi- cally equivalent drugs should be completed and the results should be given to physicians. HEW, however, must make certain of the safety and effectiveness of all available drugs. GAO believes that giving priority, in HEW's drug-efficacy studies, to relatively low-cost, chemically equivalent drugs would not be inconsistent with HEW's responsibility and could result In significant economies in Medicaid drug costs. (See p. 25.) --that utilization review guidelines would be isst~ed in the near future; contracts had been awarded to four States for a pilot medi- cal surveillance and utilization review program which was expected to strengthen the ability of States to plan, administer, and moni- .tor the Medicaid program; and, the model system developed through the pilot program would be made available for adoption by all par- ticipating States. (See p. 35.~ --~that it planned to institute a closer monitoring and liaison pro- gram in each regional office to bring about a closer relationship with State agencies and to include more frequent visits and de- tailed reviews of State Medicaid operations. (See p. 35.) MATTERS FOR CONSIDER4TION HZ THE CONGRESS GAO Is sending this report to the Congress because of congressional interest in the Medicaid program. The report should be useful to the Congress in considering legislative changes to the program. Tear Sheet 22 59-581 0-71--pt. 20--7 PAGENO="0098" 8054 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Appendix A COMPTROLLER GENER4L'S OPPORTUNITIES FOR BETTER SERVICE AND~ 3EPORT TO THE CONGRESS ECONOMIES THROUGH STANDARDIZATION OF PHARMACY ITEMS AND CONSOLIDATION OF BULK COMPOUNDING FACILITIES Veterans Administration B-l33044 DIGEST WHY THE REVThW WAS MADE The General Accounting Office (GAO) reviewed certain operatibns of the Veterans Administration (VA) pharmacies in the Los Angeles, Chicago, and New York metropolitan areas to determine whether the economies and improved pharmacy service realized from pharmacy bulk compounding opera- tions could be. increased by greater standardization of drugs and medic- inals for patient treatment and by consolidation of such pharmacy ac- tivities atcentralized facilities. b FINDINGS AND CONCLUSIONS Although each VA station wnere GAO made its review had a therapeutic agent committee, only the stations in the Los Angeles area had formed an interstation therapeutic agent committee to increase the standardiza- tion of medications commonly used for patient treatment and had estab~ lished a centralized facility for the bulk compounding of drugs. GAO believes that there are opportunities for reducing the costs of drugs used by VA stations in metropolitan areas by the establishment of interstation tnerapeutic agent and pharmacy committees and central- Ized bulk compounding and purchasing facilities On th4 basis of the Los Angeles experience, GAO believes also that a centralizea facility would contribute to improved patient care by pro- viding needed medications not commercially available, more assurance of th~ quality Qf drugs compounded, and better support for research amd training activities. It is GAO's opinion that the use of interstation committees to encourage coordination and c.operation in pharmacy operations has applicability in many metropolitan areas, such as Boston, Chicago, New York, Philadelphia, and San Francisco, each of which has several VA medical facilities RECOMMENDATIONS OR SUGGESTIONS GAO Is recommending that the Administrator of Veterans Affairs require the formation of interstation therapeutic agent and pharmacy committees in geographical areas which have several VA medical facilities. 23 PAGENO="0099" COMPETiTIVE PROBLEMS IN THE; DRUG INDUSTRY 8055 Appendix A GAO is recommending also that the committees, when established, and with the encouragement and assistance of the VA Central Office, study the feasibility of establishing centralized bulk compounding and pu~ chasing operations within their respective geographical areas. AGENCY ACTIONS AND UNRESOLVED ISSUES VA stated that it concurred in GAO's recommendations and would estab~ lish such Interstation committees. M4TTERS POR CONSIDERATION BY THE cONGRE5S GAO is reporting this matter to inform the Congress of the action planned by VA to provide better medical service to veterans and to effect economies in the pharmacy program. 24 PAGENO="0100" 8056 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Appendix A GENERAL ACCOL~NTING OFFICE OPPORTUNITIES FOR ECONOMIES REPORT TO THE SECRETARY OF IN D~WG PROCUREMENT IN HE~4LTH~ EDUCATION~ AND WELFARE INDIAM HEALTH PROGRAM 6-164031 (2) DIGEST WHY THE REVIEW WAS MADE The Division of Indian Health (DII1)~ of the Health Services and Mental Health Administration has the ~sponsibility for providing health ser- vices to Indians and to Alaska natives. Previous reports issued by the General Accounting Office (GAO) on drug purchases by Federal and State agencies with Federal funds showed that there were opportunities for reducing drug ç~sts by revising procure- ment procedures. Since there appeared to be a similar opportunIty for econcmies in the program providing health care to Indian beneficiaries, GAO reviewed the drug procurement policies and pr~ctjces of DIH. in fiscal year 1968, the DIH purchased $2.7 millign worth of drugs for the benefit of Indians. FINDINGS AND cONcLUSIONS GAO found that DIM could realize economies by maktng ~e,veral improve- ments in its management of drug procurement. Opportunities exist for savings if DIM places greater emphasis on the benefits of centralized and competitive buying through the Public Health Service (PHS) supply center or through Veteraiis Administration (VA) supply depots. GAO believes that th~ volume of drug products purchased by field ins tallations `directly from manufactiir~rs and Local wholesale establishments--which is `apyroac~ing $1 mi1~jon ~ year--can be reduced. (See p. 5~) DIM has not adopted a system for determining which drug products are, or could be, commonly used at field i~stallations.~ GAQ believes that there is a need for considering the benefits to ~e d~riyed from the establishment of a program-wide drug formulary ~Mch. together with. better information on drug usage by field in%tallations would: help. in determining the drugs that could be procured. ~entral1y Qn, a. competi~ tive basis and generally `at lower prices thap for dri~,gs, c,t~irc.b,a~ed directly by field installations. (See p. 6' and p~ ~ 25 PAGENO="0101" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8057 Appendix A Drug pricing methods in same contracts with private pharmacies which furnish prescriptions to Indian beneficiaries were based on cost- plus-percentage-of-cost features that GAO believes are not conducive to economical drug purchasing. This pricing ~method may encourage the dispensing of higher cost drug products than may be needed to meet the requirements of prescriptions because the amount of markup by a pharmacy is contingent upon Its acquisition cost of the drugs. (See p. 12.) In some locations, recurring or repetitive-type prescriptions for Indian patients treated outside DIH facilities have not been filled by Indian health pharmacies. Present policy established by the DIM central office permits, but does not require, that this method of furnishing needed medications be used to achieve the benefit of lower cost than obtainable from private pharmacies. (See p. 16.) REGGM?~ff21DATIONSOR SUGGESTIONS / GAO recomeends that action be taken to strengthen controls over drug procurement by requiring officials responsible for administering the Indian health program to --maximize the use of centralized and competitive buying of drugs by purchasing them through the PHS supply center or VA supply depots. --establish a program-wide system, and consider adoption of a program-wide drug formulary, to determine which drug products are, or could be, commonly used by field installations and could be pur- chased at lower prices through the supply depots. --revise ~rlcing methods in contracts with private pharmacies by re. quiring that the reimbursement to the pharmacies be based on actual acquisition cost of the drug plus a fixed professional fee; and --use DIII p~iarmacies, whenever feasible, to fill recurring or repetitive-type prescriptions. During the review, GAO discussed its findings with DIM officials who indicated that consideration would be given to the above recom~manda- tions. 26 PAGENO="0102" 8058 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY APPENDIX B COMPARISON OF ]~UG PROCUREMENTS VA SOLE-SOURCE PROCUREMENT VS DPSC COMPETITIVE PROCUREMENTS SUM~BY Total Actual VA Amount $l,I~21,1~59 Total Potential VA Amount Using DPSC Average Unit Price At VA quantity 881, iQ5 Total Difference in VA Actual Amount and VA Potential Amount $53~,27~ Total Percentage Difference 60% PAGENO="0103" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8059 APPENDIX B COMPARISON OF DRUG PROCUREMENTS VA SOLE SOURCE PROCUREMENT VS DPSC COMPETITIVE PROCUREMENTS Date of Procurement Quantity Purchased Unit Price Amount of Contract Contract Method DPSC VA DPSC VA DPSC GLYCERYL G1IAIACOLATE SYRUP 650-064-8765 1-17-68 Negotiated 40,824 $ .35 5-29-68 Negotiated 16,224 .35 7-29-68 Negotiated 14,256 .35 10-25-68 Negotiated 6,312 .35 12- 9-68 Negotiated 24,456 .35 1-30-69 Negotiated 25,200 .35 4- 2-69 Negotiated 45,912 .35 6- 3-39 Negotiated 77,712 .35 4-10-60 Negotiatéd~ 120,304 $ .32 7 3-68 Negotiateda 123,840 .28 8-15-63 Formal Advertised 174,528 .25 8-15-68 Optionb 87,264 .25 2- 5-69 Formal Advertised 197,568 .22 4-25-69 Formal Advertised 345,600 .18 5-21-69 Formal Advertised 175,680 .21 6- 2-69 Negotiateda ______ 376,~320 .16 ______ _______ Total 250,896 1,601,104 Average Unit Price $ .35 $ .22 Potential VA Amount Using DPSC Average Unit Price at VA Quantity $55,197 Difference in VA Amount and VA Potential $~~6 Percentage Difference GLYCERYL GUAIACOLATE SYRUP 11-13-67 Negotiated 1,032 12-11-67 Negotiated 864 2-16-68 Negotiated 1,456 5- 1-68 Negotiated 1,680 7-29-68 Negotiated 760 1-30-53 Negotiated 156 4- 2-69 Negotiated 1,272 2- ~-68 Negotiateda 3-29-63 Negotiateda 7- 3-68 Negotiateda 7- 3-68 Optionb 7-16-68 Negotiateda _______ _______ _______ Total 7,220 Average Unit Price Potential VA Amount Using DPSC Average _______ Differenc~jn VA Amount and VA Potential Percentage Difference a Competition solicited - one or more kids received Option exercised under preceding con ract $14,288 5,678 4,940 2,209 8,560 8,820 16,069 27,199 $54,497 34,675 42,759 21,380 43,084 60,160 36,014 _______ 59 * 241 $87,763 $352,410 O)U)-UI~J-b~b9 $11.99 $12,374 11.99 10,359 11.99 17,457 11.99 20,143 11.99 9,112 11.99 1,870 11.99 15,251 3,000 $11.14 $33,420 5,200 10.86 56,446 7,424 7.33 54,414 3,712 7.33 26,355 5 132 7.75 ______ ______ 2~4~8 $86,568 $210,408 $11.99 $ 8.60 Unit Price at VA Quantity _______ 28 PAGENO="0104" 8060 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY COMPARISON OF DRUG PROCUREMENTS VA SOLE-SOURCE PROCUREMENT VS DPSC COMPETITIVE PROCUREMENTS Date of Procurement Quantity Purchased Unit Price Amount of Contract Contract Method VA - DPSC VA DPSC ~VA - DPSC TRIA!.tINOINE ACETONIDE 6505-985-7391 9.31 9.31 9.31 6.14 6.14 6.14 6.14 6.14 8-29-67 Negotiated 1,656 $15,417 11-8-67 Negotiated 1,632 15,194 12-11-67 Negotiated 1,440 13,406 2-16-68 Negotiated 854 7,951 5-24-68 Negotiated 2,160 13,262 9-11-68 Negotiated 2,712 16,652 10-29-68 Negotiated 2,568 15,768 2-13-69 Negotiated 3,000 18,420 3-21-69 Negotiated 6,456 39,640 6-13-68 Negotiated~' 3,792 4.45 8-19-68 Negotiated°' 3,552 4.20 10-15-68 Negotiated~ 5,760 3.45 1- 9-69 Forn,aL Advertised 10,176 3.28 2-17-69 Option0 ~,o88 3.28 9- 9-69 Formel Advertised 6,816 2.90 10-10-69 Negotiateda _______ 6 624 2.75 _______ Total 22,J4~7~ J~ö~ $155,710 Average Unit Price $6.93 $3.34 Potential VA Amount Using DPSC Average Unit Price at VA Quantit,~ ~7.2~911 Difference in VA Amount and VA Potential ~ Percentage Difference 1077. APPENDIX B CMERM U~±' 65~5-6~2~i94 10-23-68 Negotiated 3,312 $iJ~5 $4,140 1-23-68 Negotiateda 16,780 $i.o4 17,451 1-23-68 Optionb 10,320 1.04 10,733 6-13-68 Negotiateda 49,752 .90 44,237 3- 5-69 Negotiateda 58,752 .86 50,527 3-28-69 Optionb 73,440 .86 63,158 3-28-69 0ption~' 43,968 .86 37,812 8-28-69 Forual Advertised 5~ 760 .81 ______ 43,546 Total $4,140 $267,1~64 Average Unit Price $1.25 $ .87 Potential VA Amount Using DPSC Average Unit Price at VA Quantity $ 2,881 Difference in VA Amount and VA Potential $ ~ Percentage Difference 447, $16,874 14,918 19,872 33,377 16,689 19,766 139,712 a Con~etition solicited - one or more bids received b Option exercised under preceding contract 29 PAGENO="0105" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8061 APPENDIX B COMI'ARISON OF DRUG PROCUREMENTS VA SOLE-SOURCE PROCUREMENT VS DPSC COMPETITIVE PROCUREMENTS Date of Procurement Quantity Purchased Unit Price Amount of Contract Contract Method VA DPSC V ~PSC VA DPSC A~PXCILtIN ~A~sut~s 65O5-77O~8343 7-14-67 Negotiated 5,400 $12.48 $ 67,392 8-31-67 Negotiated 9,600 12.48 119,808 10-13-67 Negotiated 11,400 9.97 113,658 12- 7-67 Negotiated 16,800 9.97 167,496 5-23-68 Negotiated 17,568 9.77 171,639 7-23-68 Negotiated 15,168 9.19 139,394 1- 9-68 Negotiateda 4,800 $ 9.62 $ 46,176 1- 9-68 Negotiateda 9,600 9,45 90,720 3- 6-68 NegotiatedC 24,000 9.24 221,736 4-23-68 Negotiateda 22,752 8.86 201,559 4-23-68 optionb 11,376 8.86 100,780 9-25-68 NegotiatedC 26,112 7.18 187,484 11-14-68 Optionb 52,224 7.18 374,968 4-23-69 Formal Advertised 31,128 5.95 185,212 7-22-69 Formal Advertised 23,346 5.40 126,068 10-21-69 Formal Advertised ______ 5.23 ______ 14O~O54 Total 75,936 232,122 $779,387 $1,674,757 Average Unit Price $10.26 $ 7.22 Potential VA Amount Using DPSC Average Unit Price at VA Quantity ~ 5~8,258~ Difference in VA Amount and VA Potential 2~L~1~9 Percentage Difference 42% a Competition solicited - one or more bids received b Option exercised under preceding contract 30 PAGENO="0106" 8062 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY APPENDIX B COMPARISON OF EMUG PROCUREMEMTS VA SOLE-SOURCE PROCUREMENT VS DPSC COMPETITIVE PROCUREMENTS 9-1'~-67 Negotiated 2,880 ~$L32 $l~,378 10-13-67 Negotiated 10,800 1.52 ib,~i6 12- 8-67 Negotiated 11,520 1.52 17,510 2-19-68 Negotiated 12,1432 1.52 18,896 5- 9-68 Negotiated 114,6140 1.52 22,253 7-31-68 Negotiated 12,768 1.52 19,1407 9-18-68 Negotiated 18,1814 1.52 27,6140 10-29-68 Negotiated 14,560 1.52 6,931 2-18-69 Negotiated 22,320 1.52 87,905 ii-i~-68 Negoti~teda 71,0140 2-12-69 option io6, 560 12- 8-69 Negotiateda 35.J3~ .87 Total li~iö1~ 212,736 $22i,33~ Average Unit Price $1.52 p.85 Potential VA Amount Using L1PSC Average Unit Price at VA Quantity 93,588, Difference in VA Amount and VA Potential Percentage Difference l36~ KAOLIN MIXTURE WITH PEC 6505-299-9678 $1#,i58 5.50 14,158 5.50 14,125 5.50 14,125 5.30 8,003 $2.30 Total Average Unit Price $5.143 $2.30 Potential VA Amount Using DPSC Average Unit Price at VA Quantity~,~14oi_ Difference in VA Amount and VA Potential $~~68_ Percentage Difference 136 % Date of Contract Procurement Method Quantity Purchased Unit Price Amount of Contract VK~ DPSC ~K DPSC - DPSC PSYLLIUM HY~OPH~~ LOID WITH DEXTROSE $60,029 90,0143 8-11-67 1-17-68 9-21#-68 12-12-68 )~_ 1-69 1-19-68 Negotiated 756 Negotiated 756 Negotiated 750 Negotiated 750 Negotiated 1,510 For~1 Advertised 22,162 / $50,973 a Con~etition solicited - one or more bids received boption exercised under preceding contract 31 PAGENO="0107" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8063 COMPARISON OF DRUG PROCUREMENTS VA SOLE-SOURCE PROCUREMENT VS COMPETITIVE PROCUREMEN~ ENDIX B Late of Procurement ~~tity Purchased Unit Price or Contrac Contract Method VA DPSC VA ~?SC VA DPSC DIBtJCAINE OINPMRNT ~O5-299-95~5 10-16-67 $.22 $2,746 12-11-67 .22 2,640 5-22-68 .22 1,750 9- 6-68 .22 1,476 10-24-68 .22 1,848 12- 5-68 .22 1,426 3-26-69 .22 4,755 2-27-68 157,896 .14 3-14-68 ______ .14 _______ Total 315,792 Average Unit Price $.22 $.i4 Potential VA Amount Using DPSC Average Unit Price at VA Quantity $!9~~ Difference in VA Amount and VA Potential $ 6~052 Percentage Difference 57% IS0ffi0TE~B~0L }th~dCBL0RIDE INHAlATION USP 9- 1-67 ~67 $7,525 10-13-67 .67 965 12-11-67 .67 8,104 s- 8-68 .67 7,140 9-2~u.68 .67 7,622 12- 9-68 .67 5,692 2-27-69 .67 8,297 1- 3-68 $.45 1- 3-68 .45 4-l6~68 .41 12-18-69 ________ .41 ________ Total Average Unit Price $.67 $.43 Potential VA Amount Using DPSC Average Unit Price at VA Quantity $29,102 Difference in VA Amount and VA Potential $~ Percentage Difference 56% a Compotition solicited - one or more bids received b Option exercised under preceding contract C Se~ nsfde for small business Negotiated 12,480 Negotiated 12,000 Negotiated 7,956 Negotiated 6,708 Negotiated 8,4oo Negotiated 6,480 Negotiated 21,612 Formal Advertised Formal AdvertisedC $21,316 21,316 $42, ~32 Negotiated 11,232 Negotiated 1,440 Negotiated 12,096 Negotiated 10,656 Negotiated 11,376 Negotiated 8,496 Negotiated 12,384 Formal Advertised Optionb Negotiateda Negotiateda ~4,864 27,432 46,224 28,944 157,464 $24,415 12,207 18,859 11,86 $W~~W ~~7,34 32 PAGENO="0108" PAGENO="0109" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) MONDAY, FEBRUARY 1, 1971 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m., in room 1318, New Senate Office Building, Senator Gaylord Nelson (chair- man of the subcommittee) presiding. Present: Senator Nelson. S Also present: Benjamin Gordon, Staff Economist; Elaine C. Dye, Clerical Assistant; and Keith A. Jones, Minority Counsel. Senator NELSON. Our first witness this morning is Governor Lane Dwinell, assistant administrator for administration, Agency for International Development, Department of State. Governor, the committee is pleased to have you back again. Your statement will be printed in full in the record. You may present it however you desire. Would you please identify your associates for the reporter, so we will have the record straight. STATEMENT OP GOV. LANE DWI}TELL, ASSISTANT ADMINISTRATOR FOR ADMINISTRATION, AGENCY FOR INTEBNATIONAL DEVELOP- MENT, DEPARTMENT OP STATE; ACCOMPANIED BY LESLIE A. GRANT, DEPUTY GENERAL COUNSEL, AID; SEYMOUR BARONDtES, CHIEF, CONMODITY ELIGIBILITY AND PRICE BRANCH, OFFICE OF THE CONTROLLER, AID; NATHAN SALANT, ACTING CHIEF, INDUSTRIAL RESOURCES DIVISION, OFFICE OP PROCUREMENT, AID; AND EDWARD E. KUNZE, SPECIAL ASSISTANT FOR SMALL BUSINESS, OFFICE OP PROCUREMENT, AID Mr. DWINELL. Thank you, Mr. Chairman, for the opportunity to appear again before this committee. I would, as you suggest, present to the committee the several colleagues who are here who may help me in speaking to the program and answering' any ques- tions which the committee may have. On my right is Mr. Nathan Salant, who is the resources policy adviser in the Office of `Procurement. On my left is Mr. Edward E. Kunze, Special Assistant for Small Business, Office of Procurement, and on his left is Mr. Seymour (8065) PAGENO="0110" 8066 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Barondes who is Chief of the Commodity Eligibility and Price Branch in the Office of the Controller. I was accompanied also by-I think he will be here-Mr. Leslie Grant, Deputy General Counsel of AID. In accordance with the request of the committee we have sub mitted a prepared statement* which I am prepared to present to the committee Senator NELSON Go ahead Mr DWINELL (continuing) If that is your desiie, Mr Chairman It is our hope that the joint exploration of the new practices adopted by our Agency will make a significant contribution to your continuing review of the pharmaceutical procurement policies of the various agencies of the U.S. Government. We found our appear- ance before you last August helpful in reevaluation of AID policies and in the formulation of the new eligibility standards for pharma- ceuticals that I will discuss today First, may I summarize briefly my previous presentation of the mechanisms by which we finance the procurement of pharmaceuti cals. Most of the pharmaceutical transactions which AID finances are between private buyers in the aid-recipient countries and private sellers in the U.S. under AID loans made to the developing nations of the free world. These nations repay the loans made to them in dollars under special concessional terms which include repayment of principal over a period of up to 40 years and with interest rates of 31/2 percent per annum The private buyers however must pur chase their foreign exchange needs with local currency at the pre vaihng official rate of exchange Should they have to borrow this local currency, it would be at the interest rates in effect at the time-possibly 25 percent per annum or more. To emphasize, the private buyer does not benefit from any special concession insofar as loan terms or interest rates are concerned- he pays full value in local currency for all pharmaceuticals that he buys A relatively small proportion of our expenditures for pharma- ceuticals-currently about 15 to 20 percent-represent purchases made directly by AID or by other U S Government agencies pro curing on behalf of AID These purchases are sub)ect to compliance with the Federal procurement regulations AID does not tell the borrower countries or the private buyers in the countries what they should buy. The Agency maintains a schedule which lists all the items which it is prepared to finance. From this list, the importing countries are free to choose what they wish to procure with AID financing. Excluded from this list are such commodities as luxuries of all kinds, items for which the United States is a consistent net importer, dietetic foods, and danger- ous or ineffective drugs. The Foreign Assistance Act establishes a limit on the prices which AID will finance for commodities. Specifically, the act pro- vides in section 604(b) that No funds made available under tIns Act shall be used for the purchase in bulk of any commodities at prices higher than the market prices prevailing in the United States at the time of purchase, adjusted for differences in the. cost of transportation to destination, quality, and terms of payment. PAGENO="0111" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8067 Senator NELSON. May I ask a question at this point? How do you determine the market price? Mr. DWINELL. The market price is determined by a review made by the Commodity Eligibility and Price Branch headed by Mr. Barondes who is present. In the case of pharmaceuticals, as was indicated in our previous appearance before you, Mr. Chairman, we are guided either by published prices or by prices which are submitted to us by the exporter. Intensive review is made. Documen- tation is required to show what comparable sales may have been. Previous to the new rules which I am about to explain to you with regard to pharmaceuticals themselves, it was determined that the prevailing price would be the price at which at least 51 percent or more of comparable sales were made. Senator NELSON. What does that mean? Fifty-one percent or more of what? Mr. DWINELL. Of comparable sales of a given product. Senator NELSON. The market price would be 51 percent of- Mr. DWINELL. No. If there are varying prices, we would require that the prevailing price be the price at which at least 51 percent of sales of that commodity had been sold. Senator NELSON. How do you find that out? Mr. DwINELL. By investigation, by various means. Senator NELSON. I am still confused about what the market price is. Do you use published list prices. What is the market price? Mr. DwINi~L. Where there are published prices, yes, Mr. Chair- man. Where not, it is required that the exporting company submit price data. Mr. Barondes, who is in immediate charge of that function, can amplify this point if you would desire. Senator NELSON. Is this all bulk prices, not finished products? Mr. DWINELL. Yes, Mr. Chairman. It is all bulk pharmaceuticals. We do not finance any longer-and have not for several years- under our commodity import program-transactions involving pharmaceuticals in finished dosage form. Senator NELSON. That is what I am puzzled about. Then how do you find out what the market price of the bulk product is? Mr. DWINELL. Based on-- Senator NELSON. Who is buying it so there is a market price? One drug company buying it from another? Mr. DWINELL. Quite frequently that is the case. A subsidiary in a lesser developed country which has a loan for commodity imports from AID, may get an export license from the government of that country to import pharmaceuticals from the parent company in the United States. Senator NELSON. But that does not determine the market price that you are relying upon here. Mr. DWINELL. Well, Mr. Chairman, it determines the market price in that the exporting company sells the product not only under AID financed sales but it sells to other purchasers around the world. There is a pattern of pricing for those exports which can be deter- mined. Senator NELSON. Do you check the bulk price of these com- pounds as sold by other foreign countries in the world market? In PAGENO="0112" 8068 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY other words, if the compound is being purchased here through the AID program, do you check to find out what the price of that com- pound is, if it is made in other countries such as France and Ger- many, Italy, and so forth, and compare their bulk prices with the bulk price in this country? Mr. DwINELL. No, Mr. Chairman. We are concerned only with the prevailing price for exports from the United States. But might I say, Mr. Chairman, that we are now talking about our old price rules and I am about to present some new rules w~hich have con- siderably tightened up on these transactions. Senator NELSON. You were reading from section 604(b) of the act, and the act uses the language "market prices prevailing in the United States." We are just trying to find out how you determine what the market price of a bulk commodity is. Mr. DWINELL. Mr. Chairman, I attempted to explain that we obtain information from various sources on the prices at which that commodity is sold. Senator NELSON. In other words, if you are buying a bulk com- pound do you require them to show you their books on the prices that they have charged for this product to any buyer, any place? Mr. DWINELL. Yes, we do. Senator NELSON. Do you ever take a look at a situation in which a supplier of compounds also produces a finished product and then bids to the Department of Defense or New York City at a price dramatically lower than what they charge in the retail market? Do you understand what I am talking about? They make a drug that is marketed under their brand name in the retail market. Then they bid to the Defense Department or to a big city buyer or hospital which constitute a relatively competitive marketplace. This is unlike the retail market where their brand name may dominate because that is the name that is widely prescribed and best known. How- ever, when the firm offers competitive bids to the Department of Defense or Veterans' Administration, New York City or a big gen- eral hospital, its price will end up one-half-perhaps one-fifteenth of what it is charging in the retail market. Do you ever examine that structure to find out- Mr. DwINELL. Mr. Chairman, you are talking now about domestic sales? Senator NELSON. Right. Mr. DWINELL. We are financing export business and the sales prices which we review and with which we are concerned are based on the best information we can get as to prevailing export prices. Senator NELSON. If there is one producer of a compound and just one price set by the one producer, you do not go beyond that. You do not look to see what that same compound is being sold for in the European market by another producer? Mr. DWINELL. Under our new rules, Mr. Chairman, which I am to explain to you later on in my statement, we look at domestic produced pharmaceuticals which may be pharmacologically equiva- lent, generically equivalent, if you will, and we also under the re- vised rules take into account the world price. Senator NELSON. Under the new rules you take into account the world price? PAGENO="0113" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8069 Mr. DWINELL. We do, sir. Senator NELSON. Go ahead. Mr. DWINELL. As was indicated at the earlier hearing, we have had pricing problems under our general price rules with the pharma- ceutical industry. Relatively more claims have been issued for over- charges in pharmaceutical transactions as a result of our postaudit review than for any other commodity we finance. Mr. G0IWON. Why is that? Why the drug industry? Why do you have more problems with the drug industry than with any other industry? Mr. DWINELL. Because it is a unique industry, unique in that it has-pricing policies quite different from those of many other industries. Also, I might say that of all the pharmaceuticals that we finance, a large percentage is rather standard, highly competitive pharma- ceuticals where we have very little problem with pricing. We have had problems, as was brought out in the previous hearing, with regard to certain patented items. It is to try to control the pricing in that area that we have instituted these new rules which I am about to explain to the committee. Relatively more claims, as I have indicated, have been issued for overcharges than for any other commodity we finance. Now, this review is a continuous process and more claims on past transactions will be issued if warrranted. Details on our claims and refunds received were submitted to the committee previously. As I have said, pharmaceuticals are products of an industry which is unique in its character and pricing practices. We have, therefore, established for this industry specific pricing rules to govern the eligibility of pharmaceuticals for AID financing. These were pub- lished in the Federal Register of December 31, 1970. They are con- tained in an appendix to this statement. (The appendix referred to follows:) APPENDIX-DEPARTMENT OF STATE, AGENCY FOR INTERNATIONAL DEVELOPMENT NOTICE-DETERMINATION OF COMMODITY ELIGIBILITY FOR BULK PHARMACEUTICAL PRODUCTS Pursuant to § 604(f) of the Foreign Assistance Act of 1961, as amended by § 301(a) of the Foreign Assistance Act of 1968, AID has stated in § 201.11(k) of Regulation 1, 22 CFR § 201.11(k), that each commodity "shall be approved in writing by AID for each sale transaction as eligible for AID financing." The statutory language in § 604(f) requires AID to approve each commodity "as eligible and suitable for financing." It Is current AID policy not to finance pharmaceutical products in finished dosage form. The Agency has, however, been financing most bulk (I.e. not in finished dosage form) pharmaceutical products. By means of this announce- ment, AID advises parties who may be interested in participating in sale trans- actions of bulk pharmaceutical products under AID financing that henceforth AID will apply the following criteria in determining whether, under regula- tory and statutory standards, this Agency should find a product described on the Commodity Approval Application, AID Form 11, to be "eligible and suit- able" for AID financing: (1) AID will not finance from an authorized source country a bulk pharma- ceutical product at an FAS price which exceeds by more than 10% the FAS price at which the product, hy whatever description, is generally available from any other free world country. With respect to a product patented in the U.S., AID will compare FAS prices between the U.S. product and the 59-581 0-71-pt. 20-8 PAGENO="0114" 8070 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY identical product available in any free world country, provided such non-U.S. price was established by the patent holder or his licensee. (2) AID will not finance from an authorized source country a bulk pharma- ceutical product at an FAS price winch exceeds the lowest FAS price at which the same product, by whatever description, is available from the same source country. (3) AID will not finance from an authorized source country a bulk pharma- ceutical product at a price which exceeds the price at which another lower priced product can be obtained from any free-world source, if there is evi- dence that the lower-priced product, although of different generic description, is, for the purpose intended, pharmacologically a substantial equivalent to the higher priced product for which AID approval is solicited. Items which AID has determined to be subject to this rule will be indicated in the implementing document issued by AID ~ hich authorizes the use of AID funds for the pro curement of pharmaceutical products. (4) AID will not finance a bulk pharmaceutical product at a price which exceeds the lowest price charged by the supplier in any export sale of the item to any country whether or not such sale has taken place undei AID financing A supplier under this rule may exclude in his calculation of his lowest price, the lowest priced 5% of his sales volume within the most nearly relevant sales period. The "lowest price" shall take into account all sales by the supplier of the product in export, without regard to any trade mark or other differentiation between items which are pharmacologically identical. (5) With respect to any bulk pharmaceutical product for which AID does grant commodity approval under the foregoing special rules, a supplier shall continue to execute AID Form 282 which binds the supplier to the price tests set forth in Subpart G of AID Regulation 1. Upon post audit, a supplier of any bulk pharmaceutical product shall be held to the price tests set forth in that subpart of the regulation. AID expressly reserves its right to determine any product unsuitable for AID financing within the meaning of ~ 604(f) whether or not the price for the product complies with the foregoing special rules. AID will endeavor to provide a supplier upon request preliminary advice as to whether the price, at which the supplier proposes to sell a product in export, will be eligible for approval under the foregoing special rules prior to his entering into a contract to sell. AID will not supply this type of advice unless the supplier provides with his request to AID an indication that the solicitation may reasonably result in an agreement to sell. AID intends to coordinate its eligibility standards for bulk pharmaceutical products with the Food and Drug Administration and shall attempt to amend on a continuing basis its policy and regulations to reflect new evaluations concerning the safety and efficacy of pharmaceutical products which it finances. AID will continue to supply its Missions and aid-recipient governments with such various information as may become available to AID concerning the safety and efficacy of end-use products manufactured from ingredients eligible for AID financing. Effective Date: This Notice shall enter into effect upon publication in the "Federal Register." MAURICE J. WILLIAMs, Deputy Administrator. Published December 31, 1970. Mr DWINET L After indicating that it is AID policy not to finance pharmaceutical pioducts in finished dosage form to the private sec tor, the published notice provides new pricing standards for bulk pharmaceuticals that are substantially as follows: Rule No. 1 provides that AID will not finance a bulk pharmaceuti- cal product at a price which exceeds by more than 10 percent the price at which the product is generally available from free world countries. In applying this test, we exclude prices of pharmaceuti- cals sold in violation of TJ.S. patents. Senator NELSON Now, the purpose of this new practice is to avoid that situation in which foreign buyers were purchasing-we have PAGENO="0115" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8071 some examples at 8 and 10 and 12,000 percent higher than the world market price, is that correct? Mr. DWINELL. The whole thrust of these new regulations is to eliminate those glaring differentials which were brought out at the previous hearing. Mr. GORDON. May I ask a question here with respect to patents. This paragraph does not seem to distinguish between product patents and process patents. If a U.S. firm has a process patent, perhaps of little importance, will this entitle it to the special treat- ment you just mentioned concerning prices of pharmaceuticals sold in violation of U.S. patents? Mr. DWINELL. Yes; we are directed by statutes specifically in that respect. Mr. GORDON. Well, suppose a drug is developed overseas and is licensed on an exclusive basis to a firm in this country. Examples are Orinase or Lasix. How does that apply in such a case? Mr. DWINELL. Since that is a legal matter, Mr. Gordon, I wonder if I could ask Mr. Grant to address himself to that question. Mr. GRANT. Well, Mr. Gordon, what we are doing here is giving effect to the spirit of Section 606(c) of the Foreign Assistance Act. Section 606(c) prohibits AID from expending funds with respect to pharmaceutical products abroad which are produced in violation of a U.S. patent. The section provides that we may not expend funds for any pharmaceutical product manufactured outside the United States if the manufacture of such a product in the United States would involve the use or be covered by an unexpired patent, unless the manufacture is expressly authorized by the owner of the patent. As you know, there apparently has been some great difficulty with respect to patented U.S. drugs being produced abroad in viola- tion of the patent. Now, Section 606(c) is a provision which the Agency did not ask for. The Congress passed it and it is part of the mandate to us. The AID policy rule which Governor Dwinell just read to you with respect to excluding sales of a pharmaceutical sold abroad in violation of the U.S. patent from the group of sales which AID takes into account in measuring the maximum price AID will finance is simply a way of helping to carry out the purpose of that statute. Mr. GORDON. Let me give you a specific example. Suppose you have a drug like chlorpromazine sold under the trade name of Thorazine, of which incidentally, the patent has already expired. Before the patent expired, the price to the Canadian Government by the developer was a little over $2. The developer who is in France licensed an American company on an exclusive basis and the Ameri- can company charged about $32 to the American Government. Now, in considering the prices, would you consider only the American price of $32 or would you consider the price overseas of somewhere around $2 even though the patent holder was a foreigner? Mr. GRANT. Well, are you postulating a situation, Mr. Gordon, where the sale abroad is in violation of a U.S. patent? Mr. GORDON. No. PAGENO="0116" 8072 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. GRANT. If you are not, then we are not talking about that situation. The statute does not talk about it and our price rule does not talk about it. Mr. GORDON. Well, which price would you count, the $2 price or the $32 price in the United States? Mr. GRANT. What we are now concerned with, as I say, is a situation in which as far as this rule is concerned, we say we will not finance a bulk pharmaceutical product from the United States at a price more than 10 percent higher than the price at which it is generally available in free world countries. And in calculating what that price is-the price at which it is generally available from free world countries-we do not count those sales abroad which would violate a U.S. patent. If they would not violate a U.S. patent they become part of the basket of prices by which we would determine the price at which it is generally available in free world countries. Mr. GORDON. Thank you. Mr. DWINELL. To continue, Mr. Chairman, as an example of how this rule operates, the drug tetracycline, certified by FDA, is avail- able from many sources, both U.S. and non-U.S. The world market price for this item ranges between $25 and $35 a kilogram (about 2.2 pounds). Most applications that we have received for the pro- posed sales of this drug have been at a price of $100 a kilogram or more. All such applications are rejected under this rule. Rule No. 2 states that AID will not finance a bulk pharmaceutical product at a price which exceeds the lowest price at which the same product, by whatever description, is available from the same source country. This standard establishes clearly that we do not pay premium prices for a brand name drug if the same drug is available under its generic description at a lower price. It is particularly applicable to drugs in the "public domain" such as vitamins, penicillins and certain antihistamines all of which are available from many sources ]f bought by generic description. As a specific example, a leading antihistamine is sold under its brand name at $100 per kilogram. The same drug is available at about $30 to $35 per kilogram if bought by generic description. Under this rule, AID finances the drug at the lower price only. Under Rule No. 3 AID will not finance a bulk pharmaceutical product at a price which exceeds the price of another product if there is evidence that the lower-priced product, although of different generic description, is, for the purpose intended, pharmacologically a substantial equivalent to the higher-priced product. Under the criteria of standard (3) we have declared at the present time 14 drugs ineligible for financing. Two additional drugs have been declared unsuitable for financing within the meaning of Sec- tion 604(f) of the Foreign Assistance Act because there are equally effective lower cost drugs available for the purposes intended. These 16 drugs are `listed in my statement. Senator NELSON. You say they are ineligible for further financing. When did they go on the ineligible list? Mr. DWINELL. As of December 31, 191'O. PAGENO="0117" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8073 Senator NELSON. And is that because of the price? Mr. DWINELL. Yes, Mr. Chairman. As I point out later, it is for price reasons only, because we certainly have no findings as to any inadequacy of those drugs. Senator NELSON. In other words, there are equivalent drugs that are cheaper? Mr. DWINELL. This means that AID would finance these drugs if they were offered for sale at the lower prices prevailing for their generic pharmacological equivalents. We just do not anticipate that this will be done. Senator NELSON. You mean they would be eligible for considera- tion if they reduced their price to the competitive price of the equiva- lent drug. Is that what you are saying? Mr. DWINELL. That is what I am saying. Now, I will read that list, Mr. Chairman, which will demonstrate the fact that I am not an expert in this field. Senator NELSON. I have read the list. (The list of drugs follows:) Generic name Brand name Chiortetracycline Aureomycin Doxycydline Vibramycin Methacycline HCL Rondomycin Demethylchlortetracycline Ledermycin, Declomycin Rolitetracycline Bristacin, Syntetrin, Valacycline Oxytetracycline Terramycin Ohiorcyclizine Histantine Cyproheptadine HOL Periactin Dexchlorpheniramine Maleate Polaramine Triamcinolone Aristocort, Ledercort, Kenacort Dexamethasone Decadron Paramethasone Haidrone Betamethasone Celestone, Valisone Methyiprednisolone Medaprin, Medrol Propoxyphene Darvon Ethoheptazine Zactane, Zactirin, Equagesi Mr. DWINELL. The first six drugs that I listed are tetracyclines for use in treating infectious diseases. The next three are antihista- mines for use in treating allergic conditions. The following five are corticosteroids important in the treatment of rheumatic diseases. The last two items are analgesics-pain killers. The merits of most of the listed drugs were discussed at earlier hearings of the committee. The testimony at the hearings and the findings of the NAS-NRC, along with information obtained from such expert sources as the Medical Letter, offer substantial expert opinion that lower-cost drugs which are equally effective, are readily available for the indications ascribed to the 16 ineligible drugs. I should like to offer some examples: Experts say that tetracycline HCL is the drug of choice among all the tetracyclines. Although tetracycline HCL is available here and abroad at about $30 to $35 a kilogram, we have been asked to finance various other forms of tetracyclines at prices ranging from $100 to $2,250 a kilogram. PAGENO="0118" 8074 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. Did you previously buy tetracycline HCL at th~ $2,250 price per kilogram? Mr. DWINELL. Other forms. Senator NELSON. Or other forms? Mr. DWINELL. Yes. At higher prices. Senator NELSON. As I understand this-if you were to purchase tetracycline HCL, it could not then, under your new rule, exceed by more than 10 percent of the price at which it is available in the foreign marketplace, is that correct? Mr. DWINELL. That would be one criterion of the four. The drug of choice for corticosteroids is prednisone and here, too, the difference in prices are equally striking. Prednisone sells for $550 to $600 a kilogram. We have received and denied requests to finance triamcinolone, one of the drugs in this category, at prices over $30,000 a kilogram and betamethasone, another drug in this category, at a price of $30,980 a kilogram. I would indicate and emphasize, Mr. Chairman, that we have re- ceived but we have denied requests to finance at those prices. The same price situation prevails in the antihistamines. An effec- tive drug in this category is chiorpheniramine maleate, which is available at about $30 to $35 a kilogram. One of the variations of this drug is dexchlorpheniramine maleate, which sells for $650 per kilo- gram and which according to expert opinion is not superior to the lower priced drug. In all these cases, we finance only the lower priced drugs. Under new rule No. 4 AID will not finance a bulk pharmaceutical product at a price which exceeds the lowest price charged by the supplier in any export sales. The lowest priced 5 percent of his sales volume may be excluded by the supplier in the calculation of his price under this rule. That is for the reason that certain isolated distressed or special situation sales could be excluded if they did not exceed the 5 percent. Now, under our previous pricing standards, we would not finance pharmaceuticals whose prices exceeded the prices generally charged. Under this test, and this is a point that I referred to earlier, under this test the eligible price was generally interpreted to be the price that would cover at least 51 percent by volume of the sales of the item. This test provides adequate protection for most commodities whose price variations fall within a relatively narrow range. Pharmaceuticals, as we have indicated, are different. We found that prices for many pharmaceutical items differed from one im- porting country to another by as much as 10 to 1. We could ascribe the wide difference in price to a number of factors such as patent restrictions, supplier-importer affiliations, and differing competitive conditions from one country to another. A striking example is the price of trihexyphenidyl hydrochloride which ranged from about $303 to $1,800 per kilogram. Under rule No. 4, the price of this item could not exceed the lower of the two prices. The new eligibility standards, which became effective on Decem- ber 31, 1970, are particularly significant for two reasons: (1) They provide a new and more stringent eligibility test for pharmaceuticals. PAGENO="0119" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8075 (2) They create a practicable procedure for applying to pharma- ceuticals the authority for product prequa~lification contained in Sec- tion 604(f) of the Foreign Assistance Act of 1968. In other words, Mr. Chairman, we can now apply our price tests before rather than after delivery. Formulation of the new standards with their more stringent cri- teria enables us to continue to finance pharmaceuticals with some assurance that the interests of all parties in procuring essential and suitable items at reasonable costs are safeguarded. With this assur- ance, we are continuing to finance pharmaceuticals-products of American industry that are considered vital to health and popula- tion control programs supported by AID. I wish to make it clear that AID does not find fault with any of the drugs we discuss today except for their prices. We ourselves do not evaluate the relative efficacy of drugs or the cost-benefit ratio of one drug compared to another since we have no special expertise in this area. Rather we rely on the advice and guidance of recognized experts. It would be helpful to us if there were official cost-benefit studies of drugs which we could consult. In the absence of such studies, we must rely on the best published expert information available from semiofficial or private sources. We will continue to make decisions as to the ineligibility of specific drugs whenever experts indicate excessively high prices for drugs for which equally satisfactory lower cost substitutes are available. The Agency also has under review a relatively new problem in the pharmaceutical area-the status of drugs declared "possibly effective" by the FDA as a result of NAS-NRO findings.. These are drug's for which there is little evidence that they are effective for any of their claimed indications. Drugs in this category have not been taken off the U.S. market. We note, however, that the Surgeon General has announced a policy for HEW that no Federal funds be expended for purchasing drug products classified "possibly effective." By memoran- dum of December 11, 1970, all department agencies of the HEW were so notified. Our Agency now is reviewing the action that it should take to complement actions of other U.S. Government agencies, such as HEW, to bar the financing of any bulk ingredient which is virtually synonymous with a dosage brand designated as "possibly effective" by the NAS-NRC. The work we have done on pricing standards for pharmaceuticals since the hearings of last August provides a foundation for future activities that may encourage increased participation in our pro- grams by the small business community. I would like to be a little more specific on this point. All 16 drugs which have been referred to and which have been declared ineligible under our new price, rules are the exclusive products of large companies. The lower priced drugs of choice that are logical replacements are generally made by small business firms. These small business firms now have increased prospects that their products will be considered for purchase by im- porters. , As a second example, we already have evidence that at least one large company finds it unattractive to sell some of its products at PAGENO="0120" 8076 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY generic prices to meet our new limitations. These companies may withdraw certain brand items from AID programs and thereby open the door to small business firms. We in AID would be pleased to have greater participation by American small business in our programs. We have assisted and will continue to assist our small business firms to share in AID financed export opportunities within the limits of our authority and to the extent consistent with our statutory obligations and basic objec- tives of the foreign aid program. We recognize, for example, that most small business firms do not have representation throughout the world. They need an independent and inexpensive means of learning which foreign importers are buy- ing the products they are interested in selling. To fill this need, we publish the details of proposed AID-financed purchases in our re- lease called AID financed export opportunities. These are available without charge to American small business. Also available free are our procurement information bulletins which provide general information on programs in specific countries together with the names and addresses of importers, by categories of commodities imported. Both releases are useful tools to small business firms interested in exports. A second way in which we help small business firms is by making information on their products available to prospective purchasers. We maintain in all our missions in the field commercial libraries that are widely consulted by importers. U.S. small business firms are encouraged and urged to make their products known to importers by sending to these libraries or directly to named importers copies of their brochures, catalogs, descriptive literature, and price lists. Still another area of aid to small business covers such activities as counseling and consultations on a person-to-person basis, work shops, appearances before trade associations and businessmen's forums, resolutions of specific problems that may be encountered and both general and specific guidance on trading under the foreign aid pro- gram. Since the role of AID is primarily that of a financing agency, our emphasis is logically directed toward assuring that U.S. small busi- ness is informed of sales opportunities that arise out of our programs. However, we are also concerned with obstacles to small business participation in our programs and try to remove these obstacles when feasible. I think our new price standards will serve not only to promote better procurement but will also aid those small pharmaceutical firms that seriously wish to participate as suppliers in AID programs. To be successful, such firms must promote their products actively, perhaps even to the extent of embarking on joint enterprises with pharmaceutical laboratories in lower income countries. We are ready to work with small firms that demonstrate this kind of interest and to help resolve any problems that are generated by unnecessary or unwarranted AID requirements or regulations. Mr. Chairman, this concludes my prepared statement. If you have any further questions on the pricing of pharmaceuticals, my asso- ciates and I will endeavor to answer them. Mr. JONES. Governor, do you have any idea what dollar volume PAGENO="0121" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8077 would have been effected if your guidelines had been in effect throughout fiscal year 1970? Mr. DWINELL. Well, if you look at it on the basis of AID dollars given for AID financing, there would be no effect because if these pharmaceuticals had not been procured, the borrowing governments would have used the funds, issued export licenses, for other purposes. If you are asking what is the difference between the old prices and the new, I am not sure whether or not we have made any estimates on that. It would be relatively small because the volume in these items is quite small. Mr. BARONDES. It is almost impossible to estimate. We do know that 16 drugs which have been declared ineligible comprised approxi- mately a million dollars a year in our procurement program. If these rules had been in effect earlier it is doubtful whether any of these drugs would have been financed. We probably would not have spent the million dollars on the 16 drugs but we would have spent it on cheaper drugs, or spent it on iron and steel or any other product, tractors or whatnot. We do know that at least 50 percent of our procurement has been in what you might call public domain items, items which are gener- ally available, which we have financed very often at world market prices or even below world prices. Then you have that other group of drugs which are the patented drugs where we anticipate very substantial cuts on specific drugs. Many of the companies may withdraw these drugs from the AID- financed market. So it is hard to say exactly what we would save. Obviously we would save something. Mr. JONEs. So you have roughly a million dollars' worth of fi- nancing with respect to these 16 drugs? Mr. BARONDES. That is right. Mr. JONES. Would you have any idea what percentage difference there would be between the prices of these drugs and the drugs which might have been alternatively purchased? Mr. BARONDES. Well, in some cases, it may be only a few percent. As you have seen from the testimony, in other cases it is several thousand percent. As I said, I do not know what they would buy, what the importing countries would buy if the suppliers would not reduce their prices on these 16 to the eligible prices. I would guess, frankly, that these drugs are just going to be out of the program. Mr. JoNEs. So it is not inconceivable that this new program could free perhaps half a million dollars for additional drug purchases. In other words, you could be supplying more drugs at lower cost to the countries which participate in these AID programs. Mr. BARONDES. I would not want to give a precise figure but obvi- ously the purpose of this whole approach is to save money. So I pre- sume there will be savings. Senator NELSON. On page 9 you state: We do not evaluate the relative efficacy of drugs or the cost-benefit ratio of one drug compared to another since we have no special expertise in this area. Dr. Edwards said that: We at FDA have a responsibility to do what we can to assure that the federal purchasers are fully informed about the products they buy. PAGENO="0122" 8078 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY That was his testimony at page 9022 of the transcript. Then he also said: I think that very frankly we are the only reliable source which the practicing physician should be able to look to to obtain some of this relative efficacy type information. In your program of purchasing drugs why don't you consult with FDA for advice? Mr. DWINELL. We do, Mr. Chairman. I think the thrust of what we were saying on page 9 is that we rely on all of the best evidence that we can get, from FDA, from the Medical Letter, from other sources. Senator NELSON. Is that a new policy? Mr. DWINELL. No, we always have. Senator NELSON. That puzzles me because if it were your old pol- icy, how did you end up buying a long list of drugs for which there was an equivalent drug just as effective? Mr. DwINELL. Well, may I say- Senator NELSON. And much cheaper. Mr. DWINELL. We were not concerned at that time with the rela- tion to efficacy. The expert advice that I am referring to was as to efficacy, not as to price, because following the general guidelines of the Foreign Assistance Act which directs our Agency to follow as closely as possible the normal standard practices of trade, it had been our practice to finance pharmaceuticals, as I have already pointed out, at what were determined to be prevailing prices, even if those prices seemed to be excessively high prices. We took that to be the general policy and we are directed to follow-to encourage normal business trade practice as a financing agency. Mr. BARONDES. I think even to this day I have yet to see a study by the FDA which speaks of the relative efficacy of the drugs. For example, for expert information on the relative efficacy of tn- amcinolone and prednisone, we have to rely on the Medical Letter. \Ve have discussed relative efficacy in terms of price. As to the statement of the FDA that they will-they should keep us fully informed, I am not certain now whether they are talking to the subject of efficacy and safety or whether they are also talking to the question of relative efficacy in terms of one drug as against the other and its relationship to the price. Senator NELSON. But you did decide that 14 drugs would not be purchased because, as I understand it, there were equivalent tetracyclines, for example, in six cases, at a much lower price. Is that the reason? Mr. DWINELL. That is correct, Mr. Chairman. And this is a special rule, as has been indicated, that has been put in for the financing of pharmaceuticals. Senator NELSON. How did you happen to select this grouping of drugs? Mr. DWINELL. As I understand it, those are drugs which we had financed before or been requested to finance for which we have determined that there are pharmacological equivalents by generic description at lower prices. This does not mean that this is an PAGENO="0123" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8079 all-inclusive list as far as any future action by our Agency is con- cerned. These were simply those that we had been requested to finance or had financed in the past. Senator NELsoN. So that I will understand fully what the policy is respecting this aspect of your authorizing or making AID funds available for purchases, will it be the practice to check for whatever available scientific information there is from the FDA or the Medi- cal Letter or other sources respecting the relative efficacy of two or more drugs sold for a specific therapeutic purpose and that if the price of one of them or two of them is excessive, you simply will list them along with these other drugs that you have listed here? Mr. DWINELL. That is correct, Mr. Chairman. And the thrust of our point on page 9 was certainly no reflection on the FDA or any other agency. We were simply pointing out that in pursuit of our objective which you have just mentioned, w~ want to have all the best information that is available and that we have had to rely on semiprivate sources. Senator NELSON. Who furnishes you the list of drugs that are to be funded? The foreign government itself? Mr. DWINELL. I would ask Mr. Salant. Mr. SALANT. We do not require the borrowing country to submit a list of the specific drugs to be imported under a commercial import program. We have a list by schedule B numbers of commodities that are eligible for financing if desired by the cooperating country. We exclude from this list those pharmaceuticals that have been deter- mined to be ineligible for one or more reasons, either because they were withdrawn from the market by FDA or because under these present rules they are determined to be excessively high in price, or because they happen to be fixed combination drugs or for some other reason which has been determined to be a factor of eligibility. But within the broad range of pharmaceuticals that are eligible, the importing c~ountry and their importers, may select any drugs without coming to us for specific approval. I am talking now of the commercial import program, sir. Senator NELSON. So this is not a program in which AID money is involved? Mr. SALANT. AID money is involved to the extent that it provides the foreign exchange used to purchase the drugs. The importers put up the local currency equivalent for that foreign exchange. There are two programs, Mr. Chairman, one in which we are very much concerned with the specific drugs to be financed. This is in our technical assistance projects and in our direct aid for health program activities. But in addition there is the program in which we finance imports for resale and it is in that latter category where we do not designate the specific pharmaceuticals that may or may not be purchased. Senator NELSON. But you still use AID money to pay the, local manufacturer? Mr. SALANT. We use AID money to finance the export sale. Senator NELSON. Does it become a ]oan? PAGENO="0124" 8080 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. SALANT. It is a loan to the country. Senator NELSON. But this is for the commercial market in that foreign country? Mr. SALANT. That is correct. Senator NELSON. So in that case, if they are ordering some very expensive drug, it does not come under the rules we are talking about? Mr. SALANT. It does come under these rules at the present time. These rules definitely apply in all such instances. Senator NELSON. As I recall, about 80 percent of the AID financed drug sales in foreign countries are sales really from American manu- facturers to their own subsidiaries in the foreign country. Is that not correct? Mr. SALANT. I do not recall the exact figures. I think that is approximately correct. About that amount would represent sales from parent to affiliates or to subsidiaries. Senator NELSON. Just as a policy matter, what is the need for the Federal Government through its AID program to finance these exports from an American manufacturer to its own wholly owned foreign subsidiary? If a firm has a subsidiary in a foreign country, won't it supply whatever drugs they want or they need? Mr. SALANT. No. Not necessarily. I think perhaps we had better view this as two independent companies that may have some rela- tionship but the company abroad is subject to the rules of the country in which it operates. It can obtain foreign exchange only in accordance with the rules that exist in that particular country. It must import as any private firm in that country imports in the sense that it may need to get an import license. It would have to buy foreign exchange. It would have to adhere to all the laws and regulations of the country in which it is located. Furthermore, at the present time we rarely have a situation of a wholly owned subsidiary operating abroad. In almost all instances it is a joint venture operation with the U.S. firm holding up to 50 percent of the control in the company, but with most countries re- quiring that at least 51 percent of the enterprise be owned by nationals of that country. Thus, regardless of affiliation, we actually have two separate com- panies dealing with each other under contractual arrangements which tie them together from the standpoint of purchasing and possibly from the standpoint of the product that is produced. Mr. GORDON. Mr. Salant, may I interrupt you for a second. Mr. SALANT. Certainly. Mr. GORDON. When you mentioned 51 percent being owned or that has to be owned by the foreign- Mr. SALANT. By nationals of the country. Mr. GORDON. That is from now on, isn't that correct? Mr. SALANT. No. It has been in effect for a good long period of time. Mr. GORDON. But isn't it correct that most of the subsidiaries of American parent companies are wholly owned by the American companies? PAGENO="0125" COMPETITIVE PROBLEMS IN . THE DRUG INDUSTRY 8081 Mr. SALANT. You are talking about the pharmaceutical field only? Mr. GoIwoN. Yes. Mr. SALANT. I honestly do not know. Perhaps Mr. Kunze-no. I do not have information on that. I can only say that current laws for most of. the low-income countries in which we have programs prescribe that new ventures must be owned at least to the extent of 51 percent by local nationals. I would assume that there is a carryover in some of these countries of old firms. But this does not change the fact, Mr. Gordon, that they must still operate in ac- cordance with the laws of the country, that they do not have for- eign exchange on their own, that they have to go through the regu- lar procedure of obtaining licenses and of purchasing with their local currency of foreign exchange for any imports. Senator NELSON. I think that it is important that AID is modi- fying its rules. I am not sure how well they will work, but I think it is an important step in the right direction which needs to be monitored very closely. Quite obviously, this was a very delightful, cozy, profitable arrangement for everybody except the poor con- sumer in the aided country and the American taxpayer. Here you have a situation in which the subsidiary was ordering drugs made by the parent company-obviously as many sole source or brand name type drugs as possible-so that we have in the testimony, as you know, examples where they were paying 500, 2,000, and 12,000 percent more than the world market price. So everybody was a winner except the poor consumer because when it went into the retail marketplace at that inflated cost figure, the American com- pany made a huge profit right off the bat and the foreign country got a 40-year loan at 3~/2 percent. Mr. SALANT. Excuse me, sir. That was the country that got the loan, not the company. Senator NELSON. Yes. Everybody was a winner except the poor foreign consumer and the American taxpayer, under that previous arrangement. I am glad to see that you have modified the policy and T certainly think it is important that you continue to monitor it very carefully because it appeared to be quite unfair to the con- sumer in those countries and to the American taxpayer as well. So I think it would be of some value to review this in a year to see just how well the policy is working out. Thank you very much. I appreciate your taking the time to come this morning. Mr. DWINELL. Thank you, Mr. Chairman. Senator NELSON. Our next witness is Dr. Jesse L. Steinfeld, Sur- geon General, U.S. Public Health Service. Dr. Steinfeld, the committee is pleased to have you here this morning. First, however, at this point in the record I ask that a brief statement by me be printed in the record with the accompany- ing letters from Dr. Charles Edwards, Dr. Steinfeld, and the president of the Pharmaceutical Manufacturers Association. (The information referred to for inclusion in the record at this point follows:) PAGENO="0126" 8082 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY STATEMENT BY SENATOR GAYLORD NELSON Ihe President of the Pharmaceutical Manufacturers Association has recently complained to the Fxecutive Branch of the Government as well as to some members of Congress that the new policy of refusing to use public funds for drugs for which there is at present no proof ot efficacy is untair to the drug industry His argument is that since the ~ ood and Drug Administration has given the industry additional time-30 days-for "ineffective" drugs and 120 days for "possibly effective" drugs, the United States Government should continue to use these drugs as if they were really effective The Kefauver-Harris Amendments to the Food, Drug and Cosmetic Act, which requires that all drugs on the market must have substantial evidence that they are effective as ~el1 as safe was enacted in 1962 Ibe drug industry was put on notice at th'tt time Over eight ~ ears have elapsed and the required scientific evidence was not-or could not be-supplied to support the claims for many drugs Dr Charles C Edwards Commissioner of the Food and Drug Administration in a recent letter to me stated that In the real sense the industi y failed to mount any effort to provide the necessary evidence of effectn eness Rather they continued to request hearings revise labeling or otherwise avoid the issue of supplying substantial evidence of effectiveness No drugs of any economic significance were voluntarily re pi'~ `1 ~ ~-1 ,`t ~ pv(~fq)~ in th'~s~' cases where the matter was resolved In the courts such at~ some combination antibiotic products We therefore COil~ ~ ~t QiUudflt to p~uii51i ut. decisions we made based on the NAS-NRC review Now the industry's trade association not only is asking for more time to come up with the evidence that such drugs are effective but also insists that public funds be continued to be spent on them In reply to such requests Dr Jesse L Steinfeld the Surgeon General wrote to the president of the Pharmaceutical Manufacturers Association and I ~s ould like to read the last two paragraphs of Dr Steinfe1d s reply for which I ~msh to commend him The policy stated in my memorandum is intended to improve patient care in those programs supported with Federal funds It does not constitute good medical practice to administer drugs that ha\ e not been shown to be effective for the purposes for which they are prescribed. I do not agree that the Departmental policy is unfair to the drug mann facturing industry as you allege Even if it were I would then have to weigh that against the unfairness of giving sick people drugs that have not been shown to be effectii, e I would have to decide in favor of the sick people SURGEON GENERAL PUBLIC HEALPH SmivIcE DEPARTMENI OF HEALIH EDUCATION AND WELFARe Washington, D.C., January 28, 1971. Mr. C. JOSEPH STETLER, President Pharmaceutical Manuj'acturei s Association Washington, D.C. DEAR MR STETLER Xour letter of January 21 1971 requests me to modify my memorandum of December 11 1970 stating Departmental policy about the use of Federal funds to purchase drug products classified as ineffective or possibly effective The request is based on your view that the result of the policy will be to effectively remove any ineffective or possibly effective products from the market `lou also state your view that my memorandum is unfair to the drug manufacturing Industries The policy stated in my memorandum will not effectively remove drugs from the market It applies only to drugs purchased with Federal dollars and these make up a re1ativel~ small volume of the drugs sold in the United States The policy stated in my memorandum is intended to improve patient care PAGENO="0127" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8083 in those programs supported with Federal funds. It does not constitute good medical practice to administer drugs that have not been shown to be effective for the purposes for which they are prescribed. I do not agree that the Departmental policy is unfair to the drug manu- facturing industry as you allege. Even if it were, I would then have to weigh that against the unfairness of giving sick people drugs that have not been shown to be effective. I would have to decide in favor of the sick people. Sincerely yours, JESSE L. STEINFELD, M.D., Surgeon General. PHARMACEUTICAL MANUFACTURERS AsSOCIATION, Washington, D.C., January 21, 1971. JESSE L. STE1NFELD, M.D., Surgeon General, Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare, Washington, D.C. DEAR DOCTOR STELNFELD: We have reviewed with some concern your memo- randum of December 11, 1970 setting forth Departmental procedures concern- ing the handling of drug products classified as "ineffective" or "possibly effec- tive" by the Food and Drug Administration. We are concerned because it appears that the Department intends to refuse to pay for drugs so listed by FDA even though: (a) The decision with respect to some of the products is not final, pending FDA evaluation of further information supporting the product's effectiveness, which has been supplied by the drug's manufacturer. (b) A "possibly effective" rating, as your memorandum itself notes, may involve only a single claimed indication for the product, while other claims for it have not been ruled out, and new studies are being undertaken. If drug products now said to be "ineffective" are, when the regulatory process is completed, finally judged to be "effective", then your action will have seriously and irreparably harmed the products in question without justification. If HEW refuses to honor claims for a drug rated "possibly effective" when the claim in question has not been rejected and studies are being initiated in accordance with regulatory policy, HEW will have denied due process to the manufacturers and will have grossly damaged the product's reputation without even the most tenuous of justifications. Ironically, Doctor Steinfeld, your actions will have their worst effects on the firms that have acted most responsibly in this matter. The drugs involved here are those for which drug companies have provided the material necessary to obtain an approved New Drug Application; and for which they submitted, in accordance with the Go~ernnient's requests, information showing the claims being made and the supportive evidence upon which those claims rest. Further, these firms cooperated in every way possible with the panels and staff of the efficacy review committee, and with the staff of the FDA. The result of your action, if prematurely carried out, will be to effectively remove these products from the market; yet similar or identical competitive products, manufactured by firms that have given this effort no cooperation, will be rewarded for their irresponsibility by being permitted to continue on sale. Your memorandum is extremely unfair to this industry, it seems to us, and goes far beyond the intent of the efficacy review and the Department's legal authority. I therefore request that you modify that memorandum to make clear the Department's intention to honor claims for payment for drugs until their effectiveness status has been finally determined in accordance with estab- lished prescribed regulations, Inasmuch as we understand that the Social Security Administration and the Medical Services Administration Intend to implement your policy state- PAGENO="0128" 8084 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ment, I trust that you will take the requested action at the earliest practi- cable time. Sincerely yours, C. JOSEPH STETLER, President. P.S. I am enclosing a PMA release which discusses the FDA list of "in- effective" drugs for your information. (Enclosure: omitted.) FOOD AND DRUG ADMINISTRATION, DEPARTMENT or HEALTH, EDUCATION, AND WELFARE, Washington, D.C., January 29, 1971. Hon. GAYLORD NELSON, Chairman, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR SENATOR NELSON: Thank you for your January 26, 1971 request for comment on a letter and press release from C. Joseph Stetler, President, Pharmaceutical Manufacturers Association, concerning the Food and Drug Administration's review of the efficacy of drugs approved between 1938 and 1962. Congress in 1962 clearly expresses its intent that drugs then on the market, or thereafter introduced, be safe and effective. A grace period of two years was allowed for the industry to submit the scientific evidence to support claims made for drugs on the market at that time. No real effort to comply with this requirement occurred on the part of members of the Pharmaceutical Manufacturers Association or others. There- fore, it became necessary in 1966 for the FDA to turn to the National Academy of Sciences for assistance in evaluating the effectiveness of drugs approved between 1938 and 1962. Even after the evaluation of those drugs by the NAS-NRC Drug Efficacy Study Group and in view of their criticism of drug labeling and the quality of evidence submitted in support of effectiveness for label claims, industry resistance continued. Our early actions were challenged in the courts. In the real sense, the industry failed to mount any effort to provide the necessary evidence of effectiveness. Rather, they continued to request hearings, revise labeling, or otherwise avoid the issue of supplying substantial evi- dence of effectiveness. No drugs of any economic significance were voluntarily removed from marketing, except in those cases where the matter was resolved in the courts, such as some combination antibiotic products. We, therefore, considered it prudent to publish the decisions we made based on the NAS-NRO review. I do not view with alarm the disclosure that some drugs, found ineffective for label claims, were not in commercial distribution at the time this list was released. I would be surprised or even alarmed if at the time the list was released, all drugs listed were still being marketed. The Drug Amend- ments of 1962 plainly put drug manufacturers on notice that substantial evidence for effectiveness claims was required. To this end, we applaud those voluntary actions by responsible manufacturers to remove from marketing products lacking the necessary evidence of effectiveness. The first Federal Register announcements of intention by FDA to initiate proceedings to ~s4thdraw approval of the new drug applications or to repeal the antibiotic regulations were published early in 1968. Thus a considerable period has elapsed during which evidence supporting effectiveness claims could have been developed. The time for removal of these ineffective products from the market is now overdue. Action must be taken. However, I believe it would be inadvisable not to exhaust the scientific method before ruling drugs off the market. If data is submitted supporting effectiveness claims, FDA will take steps to reclassify them if warranted by the evidence. I am convinced that it makes good sense to allow the drug companies to conduct the necessary studies to definitely answer the question whether a drug rated as "possibly" or "probably" effective, is effective or ineffective. Procrastination will not provide the answer, we must see progress. Public confidence in our Nation's drug supply cannot be achieved while PAGENO="0129" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8085 ineffective drugs remain in our hospitals and neighborhood pharmacies. Public confidence must be built upon the firm foundation of adequate, scientific evidence clearly supporting the effectiveness claimed. The sooner this is accomplished the greater will be the pnblic confidence in the entire medical establishment, be it the drug manufacturer, physician, pharmacist, or the Food and Drug Administration, We sincerely desire to enlist the support of all members of the medical community to lend their support to the accomplishment of this objective. Thank you for your interest In our consuhaer protection activities. PleaSe let us know if we can be of further assistance. Sincerely yours, CHARLES C. EDWARDS, M.D., Commissioner of Food and Drugs. U.S. SENAvE, SELECT COMMITTEE ON SMALL BUsINEsS, Washington, D.C., January 26, 1971. Hon. CHARLES C. EDWARDS, Commissioner, Food and Drug Administration, Washington, D.C. DEAR Dn. EDWARDS: I would very much appreciate your comments on the attached letter which I have received from the President of the ~?harmaceutica1 Manufacturers Association. Kindest personal regards. Sincerely, GAYLORD NELSON, Chairman, Monopoly Subcommittee. PHARMACEUTICAL MANUFACTURERS ASS0QIATION, Washington, D.C., January 21, 1971. Hon. GAYLORD NELSON, Chairman, Monopoly Subcommittee, Senate Select Small Business Committee, Old Senate Office Building, Washington, D.C. DEAR SENATOR NELSON: In connection with your present series of hearings concerning the Food and Drug Administration's review of the efficacy of medicines marketed between 1938 and 1962, there have been numerous state- ments in the press and before your Committee which, I think, tend to over- state the situation. The primary example of this is the liSt, of products made available late in November, 1970, by FDA, in which some 359 products are described as "ineffective." Newsmen and patients quite understandably were led to conclude that several hundred of the drugs their physicians were prescribing are useless. In fact, as a result of a survey by PMA of its member firms, we can state that fully two-thirds of their products named on the FDA list had been with- drawn from the market before the list was released. Indeed, dozens of them have been off the market for over two years, some have not been offered for sale for a decade or more, others have never been marketed in the United States. The number in real question, then, is small. For PMA firms, it is ninety- two; and were double counting, due to repetition of multiple forms of the same drug, eliminated, the number of actual products involved would be still smaller. But there is a more Important point than the number of products that are in question. That is the status of such products, in the legal sense. The regu- latory procedures involved here permit the manufacturers of products judged "Ineffective" to submit additional data in Support of their claims, and call for FDA to make an evaluation of that data before issuing a final ruling. With respect to most of the 92 PMA-firm products in question, we are advised that the manufacturers have submitted additional supportive infor- 59-581-71--pt. 20-9 PAGENO="0130" 8086 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY mation to FDA~ Pending evaluation of that data, the products remain available, and, we bèlie~e, will in mans cases finally be ruled effective. Due process requires,. it seems tO hs, that no physician be required to end his use of any of these drugs against his will at this, time. We are therefore concerned when we read of the premature elimination of drugs on the Novem- ber FDA list-and even the elimination of drugs judged "possil)ly effective" in some instances-from the procurement schedules of Federal agencies. For those products ultimately judged effective, the . damage done to them by that premature delisting will have been as unwarranted as it was substantial. I enclose a copy of a press release which discusses this subject in a little more detail. We would be appreëiative if you would make this letter and the release a part of the Subcommittee's printed record at the appropriate place. Sincerely yours, C. JOSEPH STETLER, President. Enclosure. cc: Members of the Monopoly Subcommittee of the Senate Select Small Business Committee. ~Press release] PMA CHALLENGES PRODUCT LIST IssUED BY FDA WAsHINGToN, D.C., January 15, 1971.-Two-thirds of the products made by its member companies that were included in a recent list of so-called "ineffective drugs" issued by the U.S. Food and Drug Administration are already off the market, the Pharmaceutical Manufacturers Associstion an- nounced today. President C. Joseph Stetler made public an analysis of the list of 359 prod- ucts distributed recently by the FDA to federal agencies and to the mass communications media. rrhe list contained prescription and nonprescription drugs and such assorted other products as tooth pastes and mouth washes, all deemed by the FDA to be lacking "substantial evidence of effectiveness" or having "an unfavorable benefit to risk ratio." Representing regulatory actions published by the FDA in the Federal Register for the period from January 1968 to the end of 1970, the list has received wide publicity. "This publicity has had the effect of giving the public the erroneous im- pression that a new, large-scale action, based on incontrovertible scientific evidence, is being taken against hundreds of products still in use," Stetler said. The FDA list was based on an evaluation for effectiveness of drug products by the National Academy of Sciences-National Research Council. The list in some cases represented varied dosage forms and package sizes for the same drug, which reduces considerably the total of 359 items, the PMA noted. The PMA analysis showed of the 359 items listed, 292 were manufactured by its member companies. Three of the products made by PMA members were never marketed in the United States. Another 25 ceased to be marketed before January 1968, some as long as 20 years ago. Eliminating those non-available items, a total of 172 products on the FDA list were removed from the market Over the past three years. Ninety-two remain on the market. In the latter category, in virtually all instances the manufacturer Is respond~ ing to FDA requests to make available more data to demonstrate effectiveness, Stetler said. Some labeling and formulation changes have been and are being made. A few products have become the subject of regulatory or judicial redress. "We are confident that a great many of these products, which have been used successful by doctors for many years, will remain in use," Stetler said. The analysis showed that four products rated "effective" by the NAS/NRC showed up on the FDA's ineffective list. Forty-three products rated "effective, but", five found "probably effective", and 22 deemed "possibly effective" were placed by the FDA in the same category. Stetler pointed out that of the group of 292 PMA company products, 59 received an "ineffective" rating by the NAS/NRC and another 159 involved the concept of "ineffective as a fixed combination." A considerable scientific debate is underway over the entire fixed combi- nation question, with expert opinion on both sides of the issue. PAGENO="0131" COMPETITIVE PROBLEMS IN T~EIE DRUG INDUSTRY 8087 "The way the FDA has translated the often qualified NAS/NRC findings into summary regulatory action against individual products remains the most controversial aspect of the review process", Stetler declared. Many contested drugs have bee~n voluntarily withdrawn from the market by manufacturers because the tëquired lengthy clinical trials and studies are not feasible, in part because of a shortage of qualified investigators. While the PMA dId not survey non~PMA member companies producing ~7 products on the FDA list, a bu~eakdown would probably be similar to that for PMA companies, it was pointed out. Senator NELSON. Your statement will be printed in full in the record, doctor. Go ahead and present it however you desire. STATEMENT OP DR. IESSE L. STEINFELD, SURGEON GENERAL, PUBLIC HEALTH SERVICE, AN]) DEPUTY ASSI$TANT SECRETARY FOR HEALTB AND SCIENTIFIC AFFAIRS, DEPARTMENT OP HEALTH., EDUCATION, AND WELFARE; ACOOMPANI'Efl BY WIN~~ TON B. RANKI~, SPECIAL ASSISTANT TO TE~ ASSISTANT S~CRE- TARY FOR HEALTH AND SOIENTIP~C APThI~S, BEW; AND ALLEN J. BRANDS, PHARMACY LIAISO1V REPRESENTATIVE, P115, HEW I)r. STEINFELD. Thank you, Senator Nelson. With me on my left is Mr. WiiitQn Rankin, Special Assistant to the Assistant Secretary for Health, HEW, and on my right is Mr. Allen J. Brands, Pharmacy Liaison Representative of the U.S. Public Health Service. If I may, I would like to proceed with the statement. Once more, Mr. Chairman, I am pleased to appear before, this committee to discuss the drug procurement activities of our De- partment. Our Department. has adopted the policy that it .will not spend Federal funds for purchasing drug products classified as `~ine~ective" or "possibly effective" by the Food and .Drug Administration. This policy applies to our direct care programs, the `contract care pro- grams under. the direct care programs, the Federal grant programs and the medicare and medicaid programs for both inpatients and outpatients with the following two exceptions: (a) Federal funds may be expençle.d to purchase "ineffective" and "possibly effective" drug products for use in the pursuit of ap- proved clinical research projects. (b) Federal funds may be expended to purchase a "possibly effective" drug product when no alternate means `of therapy with drug products in the "probably effective" or "effective" classification is available. This policy is in full effect now with respect to direct purchases of drugs and we are in the process of making it effective for the reimbursement programs; this latter case takes more time since there are regulations that must be changed and there is the pr9b- 1cm of giving adequate notice to numerous individuals and offices that are entitled to seeJ~ Federal moiieys under the reimbursement programs. We have already supplied your staff, Mr. Chairman, with a copy of my memorandum of December 11, 1970, stating the departmental PAGENO="0132" 8088 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY policy. We have another copy here for the information of the corn- inittee if you wish it.1 The Health Services and Mental Health Administration of the Public Health Service has established a committee with members drawn from the several programs that make direct purchases of drugs: Bureau of Prisons; Coast Guard;* Division of Emergency Health Services; Federal Health Programs Service; Indian Health Service; and National Institute of Mental Health. This committee will insure compliance with departmental policy on drug procurement and on drug utilization by: a. Developing uniform basic policy on: 1. Pharmacy and therapeutic committee responsibility. 2. Drug product admission to formularies. 3. Drug utilization review committees. 4. Formulary review. 5. Nonformulary drug product purchases. b. Reviewing a sample of present formularies with respect to: 1. Duplication of drugs with therapeutic equivalency. 2. Combination drug products. 3. Ineffective and possibly effective drugs. 4. Probably effective drugs when an effective drug is avail- able for the same use. c. Monitoring the purchasing of nonformulary drugs. d. Approving the selection of drug products to be stocked at the HSMHA Medical Supply Service Center. In addition to participating in the HSMHA committee, the pro- grams that operate hospitals and clinics have established their own committees to: a. Supplement the policy of the HSMHA committee. b. Review, monitor and approve station formularies and additions of drug products to formularies. c. Review reports of drug utilization review committees. d. Review the purchasing and use of nonformulary drugs. e. Review present formularies with respect to: 1. Duplication of drugs with therapeutic equivalency includ- ing a cost comparison. 2. Combination drug products. 3. Ineffective and possibly effective drug products. 4. Probably effective drug products when an effective drug of therapeutic equivalency is available. The reviews and studies of these several groups of experts are now underway. Additionally HSMHA is developing mechanisms to `assure that future grants and contracts which are likely to involve the procurement of drugs will require compliance with the depart- mental policy stated earlier. Mr. Chairman, your staff has advised me of your interest in the steps our Department has taken and plans to take with respect to the recommendations of the task force on prescription drugs. The task force was composed of a group of scientists and other experts drawn from within the DHEW. It was assisted by 160 non- 1 See appendix I, exhibits provided by the Public Health Service, pp. 8233-8422. PAGENO="0133" COMPETITIVE PROflLEMS IN THE DRUG INDUSTRY 8089 government experts. After 20 months of studies covering seve~ral broad fields of health and health related activities it submitted a report to the Secretary of HIIEW on February 7, 1969. In transmitting the report to the Secretary, the Chairman of the task force, Dr. Philip Randolph Lee, former Assistant Secretary for Health and Scientific Affairs, identified the two most significant findings and recommendations as: The finding that a drug insurance program under Medicare is needed by the elderly, and would be both economically and medically feasible, and the recommendation that such a program be instituted. The finding that the once-confusing matter of clinical equivalency is far less complex than had been anticipated, and that as a result of current laboratory and clinical studies-initiated in large part in response to requests by the Task Force-the problem is well on its way to solution. I am sure you are aware that the present administration is devel- oping health insurance recommendations. These are to be submitted to the Congress at a later date. I am not in a position to discuss details of the recommendations at this time. With regard to clinical equivalency of drugs, there also has been much work. Food and Drug Commissioner Charles C. Edwards discussed this when he testified here last month. There are many other recommendations in the report of the task force on prescription drugs that we have found to be worthwhile, and I will speak to a number of them shortly. First, however, I would like to mention a serious problem that this administration has encountered. The Nation lacked a carefully planned national policy on health. This has severely hampered the exercise of effective Federal leadership in health. Such national health policy as we found seemed to be the end product of bargain- ing processes covering a period of many years in which ongoing programs were treated as essentially inflexible commitments, and any change or leadership which occurred resulted from the addition of increments to existing programs, or the inauguration of new programs. We have found it necessary to restudy the role of the Federal Government in the entire health area. Actions with respect to pre- scription drugs must be considered in the light of all the other health options available to the Federal Government. Decisions about pre- scription drugs must not be reached in isolation from other health matters such as prevention of illness, health research, and health insurance. Rather, the Government's health `program must be con- sidered as a whole, when its separate elements are under review. Out of this process will come a well-organized national approach to health. Since this review process is still underway, I am sure you will understand why it is not possible for me to make final comment today on every recommendation of the task force. However, I am in a position to outline the significant progress that has occurred. The task force on prescription drugs made 25 recommendations. Responsibility for conducting a continuing study of drug costs, average prescription prices, and drug use as suggested in the first and 22d recommendations, was assigned to the Social Security Ad- PAGENO="0134" 8000 coMPETITIvE PROBLEMS IN THE DRUG INDUSTRY ministration which began working on these problems in the summer of 1969. Senator NELSON. Have any of those studies been completed? Dr. STEINFELD. One of them has been completed. It is a Prescrip- tion Drug Data Summary, dated July 1970, and we have a copy of it here for the committee. Senator NELSON. Prescription T)rug Data Summary. Dr. STEINFELD. Yes, sir. Senator NELSON. What was that study about? Dr. STEINFELD. It was a review of prices and utilization of drugs by ages of patients for the past several years, in hospitals and in outpatient care, by States, types of programs, and indicating the sales in terms of manufacturers, wholesalers, retailers, and so forth. And then it describes the drugs by various categories, whether for the central nervous system, neoplastic disease, infectious disease, et cetera.1 It is primarily a fiscal summary which would be used along with other information for development of further policy. Mr. GORDON. May we have a copy? Senator NELSON. Your statement says "responsibility for conduct- ing a continuing study of drug costs, average prescription prices, and drug use as suggested in the first and 22d recommendations was assigned to the Social Security Administration." Is this their con- tinuing responsibility so far as task force recommendations were concerned? Dr. STEINFELD. Mr. Chairman, we have a departmental task force working on drug utilization which takes into account drug cost, prescription price and drug use. This comprises people from SRS, SSA, FDA, the various agencies conducting research in health serv- ice delivery (the health service research and development activity in HSMFIA), and our own office and we attempt to coordinate and correlate through this overall committee. Senator NELSON. OK. Go ahead. Dr. STEINFELD. Research on retail drug prices is being conducted through Social Security Administration-supported methodology studies which may permit measurement of the true economic costs associated with operation of~ prescription departments in commu- nity pharmacies. Findings from these studies are expected by the early part of February of this year. Social Security Administration staff has conducted various studies related to drug product cost. Research includes analyses of drug industry pricing techniques as manifest in pharmaceutical procure- ment by Federal agencies (AID, DPSC, GSA, OEO, PHS, and VA) and selected local and State governmental units. In addition, studies are underway dealing primarily with economic issues on selected therapeutic categories. These deal with drug classes such as antibiotics, thiazide diuretics, corticosteroids, tranquilizers, oral antidiabetics, as well as Vitamin B12. Efforts will be made in the future to gather primary data which will permit a comparison to be made of the economic cost of pro- 1 See pp. 8260-8288 PAGENO="0135" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8091 ducing and distributing pharmaceutical products, on the one hand, and market prices on the other. Mr. GORDON. May I interrupt you there? Dr. STEINFELD. Certainly. Mr. GORION. How are you going to get these costs? Do you have mandatory powers to get it? Do you ask the manufacturers to give it to you? As I understand it, this is rather sensitive information which the drug firms would be very reluctant to give. Dr. STEINFELD. You are absolutely correct, but we believe that a number of the smaller drug firms which have just gotten into the business of manufacturing generic products will cooperate with us. From the information we. obtain on these products, we think we can extrapolate to some extent to some of the larger manufacturers and brand name products. It will be a difficult problem, however. Mr. GoRDoN. But you can get a general idea of the manufacturing costs? Dr. STEINFELD. We think we can from some of the smaller manu- facturers producing generic products, yes, sir. One report, Prescription Drug Data Summary, was published last rear. I have just supplied a copy for the committee's information. The 1971 edition will go to press in April. Two other studies are being developed for publication: These reports cover Profits in the Drug Industry, 1959-69 and Comparison of Doniestic and Foreign Prescription Drug Prices. We expect another report, Te~hrnques and Problems in Federal Drug Procurement, to become available later this year. Recommendation NO. 4 called f~r the enactment of legislation requiring that the containers of dispensed prescription drngs be labeled with the identity, strength, and quantity of the product unless the prescriber waived this requirement. The Department's proposed Drug Identification Act of 1969 (S. 3297 in the 91~t Con- gress) included athetidments to the Federal Fóbd, Drug, and Cos- metic Act which would have implemented this recommendation fully. Hearings were held on S. 3297 and related bills on April 28 and 29, 1970, by the Subcommittee on Health of the Senate Committee on Labor and Public Welfare. No further action was t~ken on this legislation in the 91st Congress. This legislation was last week re- submitted to the Congress by the President. Encouragement of the wider use of prepackaged dispensing was suggested in recommendation 5. Our Department subscribes whole- heartedly to this recommendation. The Health Services and Mental Health Administration Supply Service Center has requested bids on both prepackaged and bulk sizes of drugs when purchasing. Most bid solicitations are returned with no bid on the prepackaged sizes, or the cost differentials be- tween the prepackaged and bulk sizes are. too great for the pre- packaged forms to be economical. The Supply Service, however, purchases 60 items prepackaged, where it is economical. The National Center for Health Services Research and Develop- ment is currently supporting six grants designed to improve the efficiency and effectiveness of community and hospital pharmacist operations in accordance with the 6th recommendation. PAGENO="0136" 8092 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY These projects cover a wide variety of program interests, such as pharmacy manpower, arrangements for pharmacy services, and utilization and quality of pharmacy services. More specifically, within the past several months the Center has cosponsored with the Univer- sity of California, San Francisco, a Conference on Pharmacy Man- power. A copy of the summary will be supplied to the committee.1 Three conclusions emerged from the conference and are being pursued in the National Center at this time. One is the need to describe a clinical role for the pharmacist. A task force was con- vened by the Center in November 1970 to begin discussions of this topic and related matters. Further, the Center is in the process of identifying locations where the concept of such a clinical role can be tested, and an evaluation can be made of the effectiveness of this role for the pharmacist, as well as its economic feasibility. The Center has been exploring concurrently the potential for developing and testing other models suitable for pharmacy services and is giving attention to a model for a community drug formulary pro- gram. Recommendation 10 suggested that our Department support a publication providing objective, up-to-date information and guide- lines on drug therapy based on the expert advice of the medical community. This is being done. The Food and Drug Administration established a publication in February 1970 entitled "Current Drug Information." This publication is intended to communicate to physi- cians up-to-date and accurate information on matters that may affect the prescribing of drugs. It is sent to 360,000 physicians~ 60,000 pharmacies (including hospitals), departments of pharmacology in medical schools, and to all schools of pharmacy. There have been four such publications issued (oral contracep- tives, L-Dopa, lithium carbonate, and sulfonylurea drugs). In each case, physicians were brought up-to-date on the drug's indications, adverse reactions, recommended dosages, precautionary measures to be taken in administering the drug, and reference information. We have copies for the committee of these publications.2 Mr. GORION. Can this be done for other classes of drugs? For example, the tetracycline family? The penicillins, corticosteroids? Dr. STEINFELD. Yes, sir. We plan on doing this irrespective of whether we have a formulary or compendium. Mr. GORDON. And you will compare, as I understand it, the rela- tive merits-safety and efficacy-of the drugs within each thera- peutic category; is that correct? Dr. STEINFELD. We will review the indications, contraindications, efficacy, safety~ uses, all of these things. This, of course, is being done in part in the reworking of the labeling as a result of the NAS-NRC study but where there are classes of compounds to be compared, this is something that we will undertake. Senator NELSON. How will the FDA's current drug information publication compare with the Medical Letter, for example? Will it do the same thing? Dr. STEINFELD. It will be distributed to all physicians free of charge as it is now for those who ask, and it will probably restrict 1 See pp. 8289-8328. 2 See pp. 8324-8331. PAGENO="0137" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY S093 itself to one subject at a time. It will not be a substitute for the Medical Letter. Senator NELSON. On page 10, your last sentence is: "The Center has been exploring cQncurrently the potential for developing and testin~ other models suitable for pharmacy services and is giving attention to a model for a community drug fQrniulary program." What does that mean? Are you talking about a formulary that can be used at the local level? Dr. STEINFELD. Yes, and to be used in a number of pharmacies in an individual community. The easier problem is to work it in mdi- vidual institutions or groups of institutions such as the Public Health Service or VA hospitals. It- would be more difficult when one moves out into a community. Senator NELSON. That is what I am curious about? JTow will you do this? What are the mechanics for establishing the formulary? Who is going to use it? Dr. STEINFELD. Well, I think since it is an It. & D. program, the questions that you raise are the ones that must be answered: Will there be resistance on the part of physicians? How will pharma- cists react to it? And so forth. Mr. Brands, can you amplify on this subject? Mr. BRANDS. Yes, sir. There has been a study done, I believe, in Virginia. The Medical Society and. the Pharmacy Association got together to see if they could work out a formulary; this would be a limited number of drugs, not a total formulary but a limited num- ber of drugs that would be used in practice. In Delaware they have done the same thing with a few drugs for generic prescribing. This is in Wilmington, Del., where the Medical Society and the Pharmacy Association have gotten together and tried to work out the meehanics so that they can have a formulary and generic prescribing, if you wish, just like they have in the hospitals. It works similarly, except on a larger scale, as it does in the hospitals. Senator NELSON. Well, all right. Who made up the formulary in 1)elaware and Virginia? The local medical association, county, and the pharmacists-in association with whom? Dr. STEINFELD. It was the two together, working together, that worked out the details, what would be included in it. Senator NELSON. What is the progress, on this model for commu~ mty drug formulary program. It is an R.. & D. program. You are going to test this in some parts of ,the country? Dr. STEINFELD. We can get you a progress report on the ones- the models that Mr. Brands described; In addition, at Los Angeles County they are attempting to move from `Los Angeles County General Hospital into certain copimunities, Sa~ Gabriel Valley just east of the county, in an attempt to see if the formulary used there can be applied in other areas in the Metropolitan Los Angeles area. (rrhe sub~eq~ient information w~ i~ecei~ed' `and, follOws:) ~ ~OR~ULARY ~ TJ~h14W~ARE PRAcTITIONS1iS - Discussions at n~ joint meeting' of the DelaWare- Medical' Soek~ty and the DelaWare Pharmaceutical Society resulted iii the -f~rinati:on Of thi `lnterdleci~1i- nary group of health professionals with r~ponsibility to de~lOp guidOliues in the areas of drug prescribing and dispensing and rational drug therapy. PAGENO="0138" 8094 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY The group is named the Delaware Formulary Advisory Board and has as members four physicians, four pharmacists, one dentist and one osteopath with each member being appointed by the respective Delaware professional society. The objective of the Board is to devise a method by which quality drugs can be prescribed and dispensed at reasonable cost. The plan calls for a pilot program whereby by mutual agreement selected drugs would be recommended to the health professionals by virtue of their quality and relative reasonable price. To date the pilot study includes seven items. The program is voluntary. If the prescriber gives permission to use a formulary drug, the dispenser is expected to supply the one suggested by the Board. The program is to have an educational component for the health practi- tioners so the objective can be achieved. The education has not been imple- mented because of the need for funding. There has been some concern about whether or not this program is in violation of the Sherman Anti-Trust Act. Enclosed is 1n~ormation on the Board. 1. The Delaware Formulary Advisory Board. A memorandum dated January 19, 1971, from the Medical Society of Delaware. 2. Guidelines for the Creation of a Formulary for Delaware Practitioners. 3. Protocol to be Followed by Delaware Formulary Board in Considering a Product for Listing in the FOrmnulary. MEDICAL SOCIETY OF DELAWARE, Wilmington, Del., January 19, 1971. Re: The Delaware Formulary Advisory Board. To Whom It May Concern: `The Delaware FOrmularl~ Advisor~r Board was created a couple of years ago by the respective State Associations representing medièine~ osteopathy, dentistry and pharmacy.. The purpose was to devise a method by which quality drugs could be prescribed and dispensed at reasonable cost. The plan of operation was to create a voluntary and pilot program whereby mutual agree- ment seleCted drugs could be recommended to our various professions by virtue of their established quality and relative reasonable price. To date the pilot study includes seven items. If the prescriber gives permission for use of a formulary drug, the dispenser is expected to supply the one sug- gested by the Board. After a year of active implementation of this program, a study will be undertaken to compare the cost factors. The Medical Society of Delaware is on record as approving this as a volun- tary and pilot program as ~an experimental means of helping to maintain quality and reduce health costs. WILLIAM 0. LAMOTTE, Jr., M.D.. President-Elect. GUII)ELINES FOR THE CREATION OF A FORMULARY FOR DELAWARE PRACTITIONERS OF MEDICINE, OSTEOPATHY, DENTISTRY, AND PHARMACY INTRODUCTIOI~T As members of the health team, physicians, dentists and pharmacists have been traditionally allied by their mutual efforts to provide the best of health care and treatment services to the public. The advent of modern day drug treatment has brought not only new hope and renewed health to many, but also has underscored the value of the professional bonds among all members of the health team. It is, therefore, logical that those health professions dealing with modern chemotherapy should strive not only for excellence In this care, but also to recognize their obligation to provide this care at a minimum cost to the public. Recent action by the Federal Government has underscored the general concern of the public in the cost of drugs. It would, therefore, appear that any moves which could be made at the local level to reduce patient drug cost without sacrificing the quality of therapy would be well received by the PAGENO="0139" COMPJ~TITIVE PROBLEMS IN THE DRUG INDUSTRY 8095 public. Naturally, the greater the number of health practitioners who partici- pate in such a program, the greater the ultimate effect on drug Costs to the general public. It is, therefore, th& purpose of tti~ proposal to further meet ~the ob1igatioi~ of all health practitionerS to the public, that is excellence of drug care at a minimum of cost. OnJECTIVES 1. To provide a compilation of drugs by physicians and pharmaCists which will ultimately redu~e pafient Costs still maintaining the present-day excellence of drug therapy. 2. To advise, inform and educate practicing health prqfessionals of the professional and: economic advantages possible through the utilization of an approved pharmaceutical formulary. 3. rj~0. encourage the utilization of a drug formulary by practicing health professionals in the best interests of the patient. 4. To promote the cooperation and coordination between* members of the health professions in providing optimal health care services. 5. To meet the obligation of all health practitioners to the public, that is to provide the highest standard of health care services at the lowest possible cost. 6. The successful functioning of the formulary idea is solely dependent upon the voluntary cooperation and support of the individual members of the respective professional organization BACKGRO~JND Hospitals now operating under the Medicare Prograur .are required to have a Drug List which is prepared by a Pharmacy & Therapeutics 4jommittee of the medical staff or by a like committee. The sole purpOse in this require- ment of the Federal MedicarO Program was to encourage hospitals to develop approved drug lists. rihese lists usually result in an approximate drug savings of ten percent to the institutions so utilizing them. These lists are designed to allow the patient to recCive the least expensive of a variety of trade name products, all representing the sam~e chemical entity and of. proven therapeutic efficacy. ~Tbis is usually done by the physician writing his order in non-proprietary (generic) terminology. lIe is assured~ a quality product in that the Pharmacy & Therapeutics Committee must specifically approve the mgnufacturer from which the drug is purcbasecI~ prior to the pharmacy dispensing a drug ordered on a non-proprietar~T basis. The utilization of such a drug list results in a reduction in patient costs by the following ways: 1. Reduction in inventory levels of the various trade names for one drug and the subsequent dispensing of only the one approved, if the prescriber so designates. 2. Purchase of greater quantities since, ideally, one drug will be ordered (one trade name) instead of a number of trade name products of the same drug. Greater quantity purchases will usually result in lower costs. 3. Institution of a bid system where all of the possible companies supplying one drug would compete for the right to be the sole supplier of that drug when the prescriber so designates through the use of non-proprietary terminology. Systems such as the one just described have been in operation for many years throughout the country in hospitals of all sizes and have resulted in decreased drug costs. The systems have, in most cases, been well received by the treated public and by medical and dental practitioners utilizing them. The extension of such a system to ambulatory patients has been successful in hospital outpatients and could be expected to be successful outside of the hospital setting. ORGANIZATION OF TIlE FOEMIJLARY ADVI5OR~ ~BoAhm1) 1. This body shall be titled the Pormulary Advisory Board. 2. The chairman of the board shall be a responsible member of the consumer public to be selected by the presidents of the respective professional orga- nizations represented on the committee. He shall serve for two years and be an ex-officlo member. PAGENO="0140" 8096 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 3. The board shall be composed of four physicians who are members of the iViedical Society of Delaware, three pharmacists who are members of the Delaware Pharmaceutical Society, one dentist who is a member of the Dela- ware Dental Society, and one osteopath who is a member of the Delaware Society of Osteopaths. These members will be selected by their respective professional organizations. 4. Each member shall be appointed for a three-year term of office. Initially, members of the board shall be appointed for staggered terms of office of one, two and three years. 5. The presidents of the respective professional organizations or their representatives shall be ex-officlo, non-voting members. 6. r2he secretary shall be a pharmacist. He will be an ex-officio member of the board and will be selected by the Delaware Pharmaceutical Society. The term of office of this member will be two years. * 7. An executive committee of the board to be. composed of the chairman, the secretary, and a non-pharmacist member. of the board to be elected by its members. This committee will be responsible for the preparation of the agenda. 8. The board will meet not less than once per quarter, Emergency meetings may be called as required by the chairman or by the request of a majority of the board members. FUNCTIONS OF THE BOARD 1. The Formulary Advisory Board evaluates, reviews and approves drugs proposed for addition to the formulary based on criteria as suggested by the purposes of this formulary. 2. Drugs favorably acted up will be alphabetically listed in the formulary based on non-proprietary terminology with the name of the supplier. 3. Requests that a drug be added to or deleted from the formulary may be made in any of the following ways: (a) A letter stating such submitted by a professional who is a member of one of the health professions represented on the board. This letter should be forwarded to the secretary. (b) The secretary may bring to the board's attention a drug on which a decision is necessary. (e) Any member of the board can make such a request. 4. An agenda shall be distributed to the board by the* secretary after review by the executive committee at least ten days prior to the next meeting. 5. Revisions in the formulary shall be distributed by the secretary of the board within a time limit specified by the board. This distribution may be through local professional journals, correspondence or any other appropriate method determined by the board. 6. The board shall operate independently and not be subject to the control of any of the organizations represented on it except as by the appointment of members. 7. Minutes of the meetings will be kept by the secretary. OPERATION OF THE FORMULARY A. Administration 1. Drugs will be listed in the formulary by non-proprietary name, trade name and manufacturer. A cross-reference trade name non-poprietary name will also be present. 2. Physicians and dentists desiring to order a drug under the ~elaware Formulary system may do so by one of two ways: (a) By prescribing the drug by non-jiroprietary name utilizing the Formulary Prescription Blank. Medical practitioners desiring their pre- scription to be considered as falling under the formulary system must check this blank appearing on the prescription order forms: "OR FORMULARY EQUIVALENT". PAGENO="0141" COMPIITITIVE PROBLEMS IN TBELffiUG INDUSTRY 800? (b) By dosignating on a r~giilar presei~iptlon blank his desire that the drug dispensed. be. that approved by the lforipulary Board. He ~o~2ld do this b~ a number o~ methodologies sudh as ëirc~ing th~ drug, `~*iting Formulary on t~,ie pr~scriptiOn blank or by any Other itieans so indicated by the Board. 3. Mditions to and de~etions from the 13~ormul~ry will be disseminated tO alL members. of the a~s~ci~tions represen,~ed by periodic mailings. 4 An up to date formulary reflecting ~ll additions mid deletions will be maintained and provided, to all physicians, dentists and pharmacists. PROTOCOL To BE FOLLOWED `IiY DELAWARE FORMULART IN CoNsIDERI~ A `PRbDUCT' FOR LIsTING IN ~HE PORMIJLARY 1. All communication between the Board and applicants for listing will be cOc~rdinated and centralized through the Formulary Board secretary, or alter- natively through the chairman. 2. Applications for listing of a product may be received either unsolicited; or may be solicited b~ the secretary at the* request of the Formulary Board. 3. Upon receipt, applications will generally be reviewed for completeness by the secretary, and he may request any missing or incomplete information from the applicant. 4. In brief summgry form, the secretary will proceed to notify the Board members on 0 weekly bOsis of ltpplications received. (This will enable any Board member having pertinent information regarding the applicant or his product to bring such information to the attention of the secretary without undue delay.), 5. The secretary will assemble appropriate and sufficient background infor- mation regarding the applicant to enable a reasonable judgment to be made as to the qualifications, integrity~ and reptitation of the applicant. (The amount of information needed here will vary considerably depending upon the cir- cumstances; applicants Who have been previously considered or who enjoy well established reputations will require much less information than initial applicants or applicants whose reputations are less well known.) Towards this end, the secretary may: (a) review the weekly listings of "Drug Recalls" as released by the FDA, noting any past reference to the applicant or the drug product, and the reasons for any recall or recalls (to indicate nature and severity of any past problems) (b) consult with the FDA local or District office in which the applicant `is geographically loCated to ascertain appliCant's general performance record and compliance with FDA's regulations for Good Manufacturing Practices; (c) consult with the Defense Personnel Support Center of, the `Defense Supply Agency (in Philadelphia) to ascertain whether the applicant `i~On the list of `approved bidders of the DPSC; (d) consult with other gOvernment' or private (e.g., hospitals) procure- ment groups or other qualified consultants having knowledge of `the applicant or the drug product; (e) request general-as well as any specific-background information from the applicant as to history of the firm, identification of ifs. .ofllces, nature of its corporate structure, etc. 6. The secretary will complpte for review, and evaluation by the FO'ñt~Iary Board all informhtiofl which he, assembles' ~ wbjch the appl~cañt ~Ü~ip1tes. 7. Upon review the ~`ormu15xy' Board `may deci~,e to ~`` . ` (a) approve the `product for listing in the Formulary; or (b) disapprove the product for listing in the Formulary; or (c) recommend that. further' information or data be obtained, and defer action, pending receipt and evaluation of `such additional information. (Such' information might include such things as a site visit to the applicant's plant, laboratory' testing of the samples supplied, etc.)' PAGENO="0142" 8098 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY COMMUNITY FORM ULARY-CHARL0TTESVILLE, VA. A joint comalittee of physicians and pharmacists representing the Albe- fmarle County Medical Society and the Charlottesville-Albemarle Pharmaceuti- neal Association was appointed in 1967 to review problems of mutual interest ~with particular attention to be paid to generic prescribing. The committee did not Intend to prepare a formulary of drugs approved for use, but to prepare a list of drugs that could be prescribed and dispensed generically that would assure a quality product and savings to the patient. Most prescribed drugs were controlled by patents or were in the form of ~proprietary combinations. A list of eleven drugs was prepared and approved that would offer a Teasonable savings to the patient. These were oral bpffered penicillin G, tetra- cycline; meprobamate; prednisone; dioctyl sodium sulfosuccinate; chioral :hydrate; secobarbitol; phenobarbital; dextroampbetaminè; reserpine; and Tauwolfia. The program was voluntary. The percentage of prescriptions written generi- cally for the drugs on the list increased from 36.4 pecent before the study to 49.5 percent six months after the study began. A report of the Charlottesville program was published in the New England ~Journal of Medicine, June 26, 1969. A copy of the article is enclosed. IFrom the New England Journal of Medicine, June 26, 1969, pp. 1442-1446] SPECIAL ARTICLE-A PHYSICIAN-PHARMACIST VOLUNTARY PROGRAM TO IMPROVE PRESCRIPTION PRACTICES* (By Calvin M. Kunin, M.D., and J. Walter Dierks, M.B.A.) Abstract-A joint resolution prepared by a committee made up of physicians and pharmacists in Charlottesville-Albemarle County, Virginia, dealt with im- provements in prescription writing, labeling of prescriptions and the use of generic drugs. Only eleven widely used generically available drugs were found to offer enough of a cost advantage to the patients to warrant inclusion in a list of recommended generic preparations. Nevertheless, it was demon- strated that when these were prescribed, pharmacists passed on savings to the consumer. Prescribing of recommended generic drugs increased from 36.4 per cent before the study to 59.8 and 49.5 per cent three and six months later. This experience may serve as a prototype for similar voluntary programs and may be extended to a wide variety of drugs to achieve realistic analysis of differential costs of generiè and brand-name preparations. If the physician and pharmacist are to use generic drugs, they must also be assured that these agents have a biologic availability equal to that of brand-name preparations. The generic prescribing of pharmaceuticals is an issue that has gained increasing attention in recent years. The federal Government, since the passage of Medicare, has looked on generic prescribing as one approach toward reducing costs of administering present programs.' The problem is com- plex since it encompasses areas such as patient rights, established prescribing practices, quality and cost control and the economy of the pharmaceutical indus- try.2 The practicing physician is particularly concerned with these problems * From the departments of Preventive Medicine and Medicine, University of Virginia School of Medicine, Charlottesville (address reprint requests to Dr. Kunin at the De- partment of Preventive Medicine, University of Virginia, Charlottesville, Va. 22901). Work conducted in partial fulfillment of requirements for the degree of Master of Business Administration, George Washington University. `United States Department of Health, Education, and Welfare, Office of the Secretary, Task Force on Prescription Drugs, Third Interim Report, Coverage of Drugs Under Medicine, Washington, D.C.: Government Printing Office, December 31, 1968. 2 Small Business, Select Committee on, Senate. Competitive Problems in the Drug Industry: Hearings before yubcommittee on Monopoly, 90th Congress, 1st session, on present status of competition in pharmaceutical industry. Part 8. Washington, D.C.: Government Printing Office, 1968. PAGENO="0143" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8099 since he must have assurance that his generic prescriptions will be filled with a high-quality product and that the savings in cost will be passed on to his patient. The pharmacist is concerned because he IS responsible. for selection of a generic preparatiOn ensuring both quality and savings to the patient and yet yielding a reasonable income to himself. A joint committee of physicians and pharmacists, representilig the Aibe- marie (Virginia) County Medical Society and the Charlottesvllle-Albemarle Pharmaceutical Association, was appointed in September, 1967, to review problems of mutual interest with particular attention to be paid to generic prescribing. It soon became evident that only a few commonly used drugs could be considered. Most agents were still controlled by patents, or were in the form of proprietary combinations. The cost differential of most was minimum in relation to frequency of use of the generic or brand preparations. Eleven drugs that appeared to offer a reasonable price differential to the patient were recommended pe~cillln G oral buffered teti acycline, mepro bamate; prednisone; dioctyl sodium sulfosucciñate; chioral hydrate; seco- barbital; phenobarbital; clextroamphetamine; reserpine; and rauwoifla. The joint resolution was adopted by the Albemarle County Medical Society on May 2, 1968, and a slightly modified version was approved by the Charlottesville-Albemarle Pharmaceutical Association on February 19, 1969. The resolution is as follows; RESOLUTION Introduction The physicians and pharmacists of this region reaffirm their dedication to serve the public by prescribing and providing the very best drugs and biological agents at the lowest possible cost. The increasing complexity of modern day medicine has stimulated a review of problems of mutual concern to physician and pharmacist which affect the publie interest. A Committee of these organizations has met to resolve these issues within the framework of the voluntary free enterprise system. Agreement has been reached on the following items: 1. Improvements in prescription writing 2. Labeling of prescriptions 3. The use of generic drugs Other issues discussed, but not resolved, include fixed fee schedules by pharmacists. It Is hoped that these recommendations will improve the practice of medi- cine and pharmacy and that communication between physician and pharma- cist will continue to be productive. I. The Prescription Blank The Committee has agreed to the following principles: 1. PrescrIption blanks should not be marked with names of pharmacies or appliance dealers (such as optometrists). 2. Prescription blanks shall not be accepted from drug house representa- tives that are prewritte'~ with brand name drugs. Stamped prescription blanks prepared by physicians for routinely used drugs may, however, be used. 3. Physicians are urged to adopt a prescription form containing informa- tion on refill, size labeling, and expiration notices. It is recommended that the form be purchased by physicians from local printers without financial assistance from pharmacists. 4. Multiple prescriptions should not be written on a single blank. II. Labeling of the Prescription The Committee recommends that prescriptions given patients be labeled with the name of the drug unless the prescriber specifies otherwise. This practice will be helpful in emergency sltuations such as poisoning and treat- ment of acute episodes at the hospital. It is not uncommon for physicians to have patients bring in medicine prescribed by another doctor. It is time consuming and often frustrating to have to call the pharmacy to look up PAGENO="0144" 8100 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY the prescription, number or .to guess what the drug might be from the shape or color of the pill or capsule. The Committee recognizes `that in some in- stances, it may be desirable not to put the drug name on the label. Accord- ingly, the following procedure is recommended: All prescriptions will carry the drug nam~e, unless the physician indi- cates otherwise by che~king appropriate space on the prescription form. III. Generic Drugs Every drug has at least two nanies; the brand name, given by the manu- facturer, and the generic name which identifies the drug regardless of the source of distribution. A usually more complex chemical name may also be given. Every drug has .a generic name, but the brand name is reserved for us,e by the manufacturer or distributor. Protection by patent laws pemits only one manufacturer to market or license distribution by other companies using the generic name. In some instances, prescriptiOn of generic name drugs* may result in substantial savings to the patient. The physician and pharmacist must, however, be assured that `the quality and potency of a generic equivalent drug is as good as that sold by the prime manufacturer. The Committee has attempted to `resolve the problem of providing the patient with the cost advantage of generic equivalent drugs while assuring quality by the following mechanism: The pharmacists agree that these prescriptions will be honored with quality product from a well recognized manufacturer. This will be accomplished by continued discussion by subcommittees of this associa- tion and the Albemarle County Medical Society. In addition, review of the generic drugs currently in use by pharmacies in this community will be undertaken by the pharmacists. They will consult with the committee periodically concerning the best generics that can be purchased at a reasonable price. A survey of differential costs to the patient using the new system will be conducted at intervals with cooperating pharmacies, and use of the system by physicians will be reviewed periodically to determine the efficacy of the program. Cooperating pharmacists agree to permit members of the Committee to undertake these surveys provided that no individual store or physician is identified. This report will deal with the effect of this voluntary program on pre- scription practices in the community. METHODS study Area rihe city of Charlottesville is the county seat of Albemarle County, Virginia. The 1968 population of the city and county is estimated at 79,300, with an additional 8000 students at the University of Virginia. Geographically, the county is located in the center of the state, Charlottesville being 120 miles southwest of Washington, D.C., and 72 miles west of Richmond, Virginia. Approximately 100 physicians are engaged in the private practice of medicine in the area. There are 152 full-time attending staff physicians at the University Hospital and 222 house staff and clinical fellows. Ten retail pharmacies serve the community in addition to pharmacies located at the University and Martha Jefferson hospitals.' The Albemarle County Medical Society draws its membership from both the University and the private sector of practice. Monthly meetings are well attended and marked by warm personal friendship among all elements of the medical profession. So-called "town-gown" friction is virtually absent. Officers and committees are well integrated between the two groups. The Charlottesville-Albemarle Pharmaceutical Association is a relatively young organization, representing all retttil pharmacies and hospital pharmacists. Meetings are held as the need arises, about three or four times a year, with attendance usually exceeding 75 per cent of the membership. PAGENO="0145" COMPETITIVE PROBLEMS IN T~IE DRUG INDUSTRY 8101 Postal Survey Shortly. after the resolution wa&~á~ôpted b~7 th~ AThemar1~ Co~inty Medical Society, copies were mailed to ati members to'getlTLér with a poatpaid card that queried physicians concerning tbeir plans to use the recommended ~pre- scription forms, their opinion of the program ami their interest in having it publicized in a e~qjitable medical journal. Identifying signatures were re- quested on the cards. Prescription Audit A total of 3000 prescriptions, divided in groups of 1000, were analyzed dl~tring three separate intervals: March 28 to April 25, September 4 to O~tober 15, and November 22 to December 28, :1968. The initial survey covered the period immediately before the passage of the joint resolution, and the latter two at intervals of three and six months after implementation. Audits were conducted at two retail pharmacies. Store "A" is lOCated in the immediate vicinity of the University. It could be expected that prescrip- tions being filled at this location would reflect prescription practices of physicians at the University Hospital and clinics, would be filled for patients representing a cross-section of the community and would also represent the prescribing habits of phy$icians in private practice since the store offered delivery services throughout the area. Store "B" was selected because it was located in the downtown area of the city, close to the local community hospital (Martha Jefferson), represented a stirvey site le~s under the influence of University prescribing practices, also offered 4eljvery service throughout the community and drew its clientele from a cross~section of the community. On precoded forms information was then collected on study period, outlet, source of prescription, specific drug, generic or brand name, price and days covered by prescription size. Prescription prices were broken down by "cost per day," the cost of the prescription, the number of tablets or capsules prescribed and the number to be taken daily being used. RESULTS Physician-Opinion Survey Responses to a mail survey of opinions regarding the joint resolution by members of the medical society are shown in Table 1. Replies were more complete from private practitioners than from members of the University staff. Both groups of respondents, however, indicated a positive attitude to the program in wanting to see it published. Physicians in private practice expreNsed Willingness to follow the recommendations regarding prescription writing. The University staff already uses such forms. No formal survey of opinion of pharmacists concerning the resolution was conducted, Interviews indicated enthusiasm among many, and a somewhat more cautious approach by some. The overall attitude of the pharmacists was willingness to survey the generic drugs that they stocked to ensure high quality. A subcommittee of the pharmacists reviewed generic preparations already in stock to deter- mine that they had been obtained from reliable sources. TABLE 1-RESPONSE BY MEMBERS OF THE MEDICAL SOCIETY TO A MAIL SURVEY OF OPINIONS REGARDING THE JOINT RESOLUTION Private Practitioners University Staff Survey Numb~er Percentage Number Inquiries mailed 103 100 217 100 Replies 68 66 55 25 Information should be published: Agree 52 76 40 73 Disagree 6 9 4 7 No response 10 15 11 20 Agree to use new prescription form: Will change 43 63 Already used 12 18 Will not change 8 12 No response 7 59-58l-----71-----pt. 20------1O PAGENO="0146" 8102 COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY Audit of Pre8cription8 Most prescriptions were written by community physicians. They accounted for the same proportion during each study period (Table 2). Generic arid study drug prescriptions contributed less than 10 per cent of the total. TABLE 2.-AUDIT OF PRESCRIPTIONS BEFORE AND AFTER PASSAGE OF THE JOINT RESOLUTION BY THE MEDICAL SOCIETY (1,000 PRESCRIPTIONS IN EACH AUDIT) [Percentj Item of audit Before resolution 3 months after 6 resolution months after resolution Source of prescriptions: Community physicians University hospital Attendingstaff House officers Other All generic prescriptions Study prescriptions 76. 0 22.2 (13.6) (8. 6) 1.8 6. 2 7. 7 76. 8 21.3 (12.2) (9. 1) 1.9 10. 4 9. 2 77. 4 21.6 (15.7) (5.9) 1.0 9. 4 10. 5 Analysis of generic versus brand-name prescriptions of study drugs for each period is shown in Table 3. Only one third of these were prescribed generically before the resolution was adopted, but this figure rose to 59.8 per cent in three months and Was 49.5 per cent six months later. The decrease in generic prescribing in the third study period may have been due to the promotion of an inexpensive brand of tetracycline (Sumycin). Tetracyclines accounted for half the study prescriptions during this period, which also coincided with the influenza season. There were 53 prescriptions written for tetracycline (brand or generic) during this audit period. Of these, 34 were filled with the inexpensive brand referred to above, 16 were written on a brand-name basis, and 18 were prescribed by the generic name. TABLE 3.-AUDIT OF PRESCRIPTIONS BEFORE AND AFTER ADOPTION OF THE JOINT RESOLUTION BY THE MEDI- CAL SOCIETY, ACCORDING TO USE OF STUDY DRUGS Before resolution Use of drugs Number Percentage 3 months after resolution Number Percentage 6 months afte Number r resolution Percentage Study prescriptions: Total 77 By private practitioners - 55 By University staff 22 Prescribed generically: Total 28 Private practitioner& -- 18 University staff 10 100.0 92 100.0 105 - 100.0 71. 4 28. 5 60 32 - 65. 2 34. 7 87 18 82. 9 17.1 16. 4 55 59. 8 52 49.5 32. 7 45.4 47 8 78. 3 25. 0 43 9 49. 5 50. 0 A total of 274 prescriptions for the 11 study drugs were filled among the 3000 audited. Of these, 215 (78 per cent) were limited to only four drugs; tetracycline; penicillin G, buffered; meprobamate; and prednisone (Table 4). It can be seen that in each case, the cost of the patient per day, as charged by the pharmacist, was less for the generically prescribed drug. Thus, it is clear that the pharmacists honored their agreement as set forth in the joint resolution. PAGENO="0147" TABLE 4.-AUDIT-OF COST TO PATIENT OF DRUGS PRESCRIBEIJ BY GENERIC. OR BRAND NAME BEFORE AND AFTER ADOPTION OF THE JOINT RESOLUTION BY THE MEDICAL SOCIETY .....~.. ~ .~ Before resolution ..... ~ 3 months after resolution .. ~ 6 month~s after resolution -. Total Drug and type of prescriptions . Average cost Numbef of to patient prtscriptions per day Average cost Number of to patient prescriptions per day Average cost Number of to jatient prescriptions per day av Number of prescriptions erage Average cost to patient Tetracycline: Generic Brandname Penicillin G, buffered: Generic Branciname Meprobamate: Generic Branduame Prednisone: . Generic Brandname Total 14 $0.45 9 .75 9 - .25 8 .47 1 .20 9 .29 . 3 .23 2 .38 . 31 $0.49 II .57 ~ 15 .19 8 .54 2 .35 3 .90 5 .05 0 30 $0.35 75 23 .50 43 13 .23 37 12 .50 28 ~ 2 .21 5 1 .30 13 4 .08 12 0 per $0.43 .57 .22 .50 .26 .43 .10 85 2 215 .38 z Cl) 0 0 0) 0 PAGENO="0148" 8104 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY DISCUSSION Several points clearly emerge from this study of a voluntary agreement between physicians and pharmacists in Charlottesville-Albemarle County, Vir- ginia. The first is that both groups in the community are willing to act jointly to improve prescription practices. Secondly, the potential for pre- scribing generic drugs is severely limited by the small number available that would provide an economic advantage to the patient. Efforts by some manufacturers to lower prices of brand-name drugs iii competition with other brands and generic drugs must be taken into account. Thirdly, pharmacists, at least among those audited, passed savings in cost to the consumer when generic drugs were prescribed. It must be emphasized that this experiment was conducted in a relatively small community where "town-gown" friction is minimal and communication is good between various groups. Also, since the study drugs made up only a small proportion of total prescriptions, little local control could be exerted over most drugs. In this sense, very little effect should be expected on the average cost of prescriptions in the community. in addition, the manufac- turers of tetracycline and corticosteroids provide such a wide variety of proprietary analogues and fixed dosage combinations that it is difficult for the physician to know the relative efficacy of the generically available patent compound. Despite these limitations, the following forms of voluntary programs could emerge. First of all, other medical societies and pharmaceutical groups can begin to appoint joint committees to consider this prototype plan for their area. This might extend to regional groups established under Comprehensive Health Planning legislation.3 Secondly, local study groups can consider a voluntary community formulary system, perhaps based on a fee system for prescriptions, using the minimum number of variations of each type of drug. Good advice may be obtained from well informed hospital drug and formnulary committees. Thirdly, there must be a clear guarantee that generic drugs are equivalent to brand-name prescriptions, both in capsule or tablet potency and in biologic availability as determined in studies in man. Fourthly, there must be evidence that prescription of an approved generic preparation will result in substantial savings to the consumer. Finally, one of us (C.M.K.) believes that it would be extremely helpful to the practicing physician if every drug advertisement was required, by volun- tary action of medical journals and other media, to indicate the average price of the drug to the pharmacist on the basis of small and large purchases of the preparation, of regional differences and of the cost per day of the recommended doses. This proposal must take into account the wide range in prices offered by manufacturers to their various outlets. The price a state institution, hospital or chain pharmacy pays, for example, is usually considerably less than that charged to a community pharmacy. Visibility of drug pricing would permit the physician to weigh cost advantage with claims made for the wide variety of single agents and combinations offered to him. The members of the Joint Committee of the Albemarle County Medical Society and the Charlottesville-Albemarle Pharmaceutical Association were as follows: Calvin M. Kunin, M.D., chairnlan; Jesse Cumbia, M.D.; Richard Morris, M.D.; Edward Cawley, M.D.; John Owen, M.D.; George Minor, M.D. (ex-offlcio); Armistead P. Booker, M.D. (ex-offlcio) ; Sam Crickenberger, Ph.G.; Carson Payne, Ph.G.; James Hubbard, Ph.G.; Jacqueline Young, Ph.G.; and J. R. Ponton, Ph.G. (ex-offlcio). Senator NELSON. Do you mean that the hospital is attempting to get local communities to adopt, or physicians to use, the Los Angeles General Hospital formulary? Dr. STEINFELD. They are exploring what the problems would be associated with the introduction of formulary and generic pre- scription from communities in the southern California area. It is certainly far easier, to do in a single institution where the physicians are full time. There are many problems associated with trying to Jacobs, A. R., and Froh, R. B. Significance of Public Law 89-749: comprehensive health planning. New Eng. ,1. Med. 279 :1314-1318, 1968. PAGENO="0149" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8105 work this out but they, too, as the areas that Mr. Brands described, are experiments with, models to see what the problems are in trying to carry it through. Senator NELSON. One of the. obvious among many problems, is that the hospital can procure the drugs for its formulary as a sub- stantial buyer, with the knowledge `that the compound will be pre- scribed. In the retail marketplace, on the other hand, you may pre- scribe generically and end up with a brand name because the brand name is a popular one and so you have not gained anything. .Dr. STE'INPELD. This certainly can occur. There is, a problem of education of physicians, education of pharmacists, and a whole series of working relationships that must be carried through. Senator NELSON. With respect to these two experiments in Vir- ginia and Delaware, were they locally initiated or were they ini- tiated from some other source? Mr. BRANDS. Those were locally initiated, sir. Senator NELSON. So here you are talking about initiating a model project yourself; i~ that it? D~. STEINFELD. Well, the Los Angeles County one would be locally initiated, too, but what .we try to do is stimulate the communities to initiate such experiments in delivery. Senator NELSON. How long has that Virginia project been under- way? Mr. BRANDS. As I recall, it was just about 2 years ago when it was started. This was the beginning, the planning stage. Now, how long it has been in operation, this I would have to find out and let you know. Senator NELSON. You do not have any reports? Mr. BRANDS. No, sir. Senator NELSON. Where is it being done in Virginia? Mr. BRANDS. I believe it is Richmond. Senator NELSON. In `association with the Medical College at Richmond? Mr. BRANDS. I do not believe the Medical College is involved. It may be as an adviser but the Pharmacy Association and the County Medical Society were the organizers. Senator NELSON. But you say your role is to induce this kind of experimentation? In what way? How will you do that? Dr. STEINFELD. Well, there are a number of medical schools, or ~ountv medical societies interested in the problem in association with pharmacy groups and pharmacists and we, through the De- partment's interest in the same problem, informed these groups that funds are available for such kinds of experimental programs. In this way I think we, can encourage them, help them to complete ftinding applications, tell them what problems we know about, what problems people who have attrn~pted to do thi~ in the past have encountered. , , , ~o it is kind of a mutually~ reinforcing ~ctivil~y.~ There are a num- ber of places in the country in addition to those Mr Brands men tioned which are int~erested i~i ~oarrying `out ~experiments of this type. Senator NELSON. i lease proceed. , , ` , Dr. S~EINFELD. Thank `~rou. ` ~`` "` ` , PAGENO="0150" 8106 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Physician and other professional reaction to the FDA publica- tion has been encouraging. A sizable amount of correspondence has given FDA some measurement of the publication's readership effec- tiveness. And, nearly 1,000 requests have come in from other health professionnis seeking to be placed on the mailing list. FDA also plans to publish a comprehensive report on all drugs reviewed by NAS-NRC, along with the summary from ~ AS-NRC on the drug efficacy study. This will supplement the recent FDA publication of tb~ list of drugs found ineffective by NAS-NRC re- view which has been sent to county and State medical societies, hospitals, and other government agencies, and is available to others who request it. Senator NELSON. You say FDA also plans to publish a compre- hensive report on all drugs reviewed by NAS-NRC. Is that part of their current drug information publication? Dr. STEINFELD. This would be a separate document, Senator Nd- san, which would encompass the total drug efficacy review, a sum- mary plus a, list of the various drugs in the various categories. We are planning, at least at this point, to distribute it to all physicians. Senator NELSON. Will this come out as one big publication? Dr. STEINFELD. One publication. Senator NElsoN. And what is its purpose? Dr. STEINFELD. Its purpose is to inform the practicing physician of those drugs which were found ineffective or probably effective, or possibly effective, to inform him of the criteria which were used by the various panels in making these recommendations~ and to inform him of the problems the panels encountered as they have submitted their evaluations in their original report to the Commis- sioner of the FDA. I think it will serve a very useful purpose. Senator NELSON. This review is not over yet, is it? Will they have a series of publications on this subject? Dr. STEINFELD. Well, we think the review will be over fairly shortly. We hope to publish the remaining list of drugs in the next few months. Senator NELSON. So this will cover all the drugs covered by the Kefauver amendments, 1938 to 1962? Dr. STEINFELD. This will cover the drugs reviewed by the NAS- NRC and be really what we think is a final summary. Of course, new knowledge may result in changes and there would have to be supplements. Perhaps the bulletin that the FDA publishes could be used for that purpose, but it would be an extensive document because of the number of drugs involved. Senator NELSON. Well, of course, on each one of the drugs that each panel considered, the NAS-NRC made a statement. This will be a more elaborate discussion; is that correct? Dr. STEINFELD. This will be a summary document which will be written primarily to help the physician t~ give him the background data which the NAS-NRC used in making its judgments as well as their judgments. It will not be the total mass of material trans- mitted from the National Academy of Sciences to the FDA. It will be just a summary, hopefully usable and used by the practicing physicians. PAGENO="0151" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8107 Senator NELSON. Go ahead. Dr. STEINFELD. FDA has for some time been issuing routine pub- lications on adverse drug reactions reported to FDA, general news releases, and, in extreme emergencies, telegrams to county and State medical and pharmacy societies. This overall goal of communicating with the physician is being developed in a new unit established for this purpose in the FDA's Bui~eau of Drugs. The Assistant to the Director for Medical C?m- mumiications is responsible for continual development of communica- tion techniques designed to reach the physician and to promote rational drug therapy. Tlie Department is taking the approach that continuing education is the best method of bringing about rational drug therapy. As you know .very well, most people, especially physicians, resent edicts of "you shall" or "you shall not." We plan to appeal to the logic of the Public Health Service physician by bringing to his `attention the results of important published studies on individual drugs and classes of drugs. The information will be conveyed by a short cov- ering statement that summarizes the study or studies with a copy of the published article attached. Copies of the NAS-NRC report and Federal Register material pertaining to the drug may also be in- cluded. Three .~uch statements have been prepared and distributed for the prograp-is in ~}1ealth Services and Mental Health Administration an amphetamines, mixed dose combination drug products, and on propoxyphene hydrochloride. I have copies for the eommittee available here.~ These statements are designed to bring potential problem areas in drug usage to the attention of physicians and. pharmacists in the Public Health Service. You have already been advised by Commissioner Edwards that the ~FDA is giving priority to insuring the biological equivalency of drugs sold under the same name. This meets recommendation 14, that present clinical trials to determine the biological equivalency of important chemieal equivalents should be continued. Mr. GORDON. Dr. Steinfeid,' may 1 interrupt a moment? Do you see any trend in the direction of "more rational drug therapy? Actually I have three que~tioñs. That is one of the three. Two. is it yOur opinion that `FDA will have to take the lead in brrnging this about? And three, would it not be helpful if the Gov- ernment presented a good example in its usage and purchasing of drugs.? Dr. STEINFELD. First, I do think that we are making progress in rational prescribing. We are making i~ particularly as a result of the Kefauver amendments and the requirements that drugs shall be proven efficacious as well as safe for use. I certainly agree that~ the Government should be a leader in good rational prescribing practices and it is apparent from the hearings which you have been carrying out these past several months that the Government has not always been a leader in this area. 1 See pp. 8831-8339. PAGENO="0152" 8108 COMPETITIVE PROBLEMS IN THE DRIJG INDUSTRY I think what we need is a consortium of universities, certain prac- ticing physicians who are knowledgeable and have carried out ade- quate controlled clinical trials along with the FDA and possibly NAS-NRC in order to obtain the best kind of drug knowledge avail- able in the country. I do not believe a single Federal organization has within it all the necessary knowledge or expertise to make the kind of judgments that I think we would want to have made for drug prescribing. So we will have to develop this expertise through a continuing interaction such as with the NAS-NRC with its aca- demic physicians and the FDA in carrying out the second role which you described. This Department and the Congress are providing financial sup- port to FDA for necessary educational and inspection operatio~is. Within this level of support significant improvements in quality control are being instituted and maintained in drug manufacturing and packaging establishments. The following are among the initia- tives being taken by FDA: (1) An Intensified Drug Inspection Program (IDIP) has been quite effective in bringing the need for quality control to the atten- tion of drug industry management~ This program involved the assignment of inspectors to selected drug manufacturing establish- ments on an extended basis to detect and assist in the correction of manufacturing defects. This inspectional surveillance covered all manufacturing steps; that is, the examination of raw materials, for- mulation mixing, production of dosage forms, and quality control procedures. (2) Revised good manufacturing practice regulations for the drug industry were published in the Federal Register on January 15, 1971. I have a copy here for the committee's information.' (3) The development and dissemination to the drug industry of drug recall case histories has been begun. These cases analyze the causes of drug manufacturing defects and describe the remedial actions taken. They serve as a useful industry information and edu- cational device. (4) Drug manufacturing and quality control workshops have been held in various sections of the Nation in which over 1,900 drug industry employees participated. Approximately 7,000 key drug industry personnel have also attended showings of the FDA film, "Good Manufacturing Practices." Recommendation 17 asked, for a test of the proposed drug classi- fication system. The system is being tested in a drug utilization review study now underway. A' report is due next month. The Department has developed an appropriate drug coding sys- tem as proposed in recommendation 18. It is designed to meet the need for a single, comprehensive nomenclature, and coding system for identifying drug products covered' by departmetital drug-financ- ing programs and private third-party programs. Use of the code can enable high-speed data handling equij~rner~t to process millions of clainis ~nd other pieces of drug infth~mation with tremendous speed, `accuracy, and'. eu~omy. ` 1 See pp. 8339-8347. - PAGENO="0153" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8109 The National Drug Code System was developed under the direc- tion of the Nomenclature and Coding Subcommittees of the Task Force on Prescription Drugs and there was close cooperatIon with representatives of drug manufacturers and distributors, private in- surance companies, and government agencies. Recommendation 18 also suggested that the Department introduce appropriate legislation to require coding of all drugs in interstate commerce. Such legislation *was introduced in the 91st Congress, and as mentioned earlier, has now been resubmitted. The drug code just discussed has been adopted. The Department has published and distributed two editions of the National Drug Code Directory. The second edition, published in June 1970, includes coding data for more than 18,400 drug products marketed by some 265 companies. We have supplied copies of this document earlier to the committee.' Many manufacturers have begun to use national drug code identi- fications in catalogs and promotional material. Some firms have voluntarily placed product identification symbols of the code on tablets and capsules. Use of the code is voluntary, however, and we cannot at this time require it on labeling or on tablets and capsules. Recommendation 20 requested that the National Center for Health Services Research and Development support pilot research projects looking toward the development of good prescription drug utiliza- tion review methods. Shortly after the task force report appeared, the Center supported a comprehensive study of drug utilization review. The study was published in April 1970 in a document entitled "Drug Utilization and Drug Utilization Review and Control." I have a copy here for the information of the committee.2 Since July 1970 the Center has provided consultation to a num- ber of universities and community hospitals and other groups re- garding their responsibilities in relation to drug utilization review. Other studies have been and are being supported not only by the National Center for Health Services Research and Development as suggested in recommendation 20 but also by the Social Security Administration and the Social and Rehabilitation Service of HEW. A number of examples are: A study at the University of Rochester on patient care research in adverse drug surveillance. A study at the University of Alabama Medical Center of a hos- pital pharmacy-based drug communication service. A study at the University of Kentucky Research Foundation of guidelines for practical hospital unit dose systems. A study at the University of Mississippi of the pharmacist's role in hospital pharmacy committees. A study at the University of Pittsburgh of socio-economic analysis of EDP-based drug utilization. A study at Johns Hopkins University of the development of a methodology for evaluating the drug prescribing patterns of physi- cians in a given community. 1 The document, "National Drug Code Directory, 2d Edition," June i970, has been retained in committee files. 2 See pp. 8348-8422. PAGENO="0154" 8110 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY A study at the University of Arkansas Medical Center Hospital of a proposed intrahospital drug distribution system. A study at the Los Angeles County General Hospital of drug utilization review with on-line computer capabilities. A study at the University of California School of Medicine of patterns of influence among pharmacists, physicians, and patients. A study being conducted in four States-Colorado, Rhode Island, Oklahoma, and West Virginia-by the Medical Services Administra- tion of the Social and Rehabilitation Service, together with staff members and a contractor, Publication Engineers, Inc., to develop model utilization review systems that may be adapted for all States with Medicaid programs. A study by Toiiche Ross & Co. on interim requirements for the medicaid surveillance and utilization review reporting system. Further, a Drug Utilization Review Committee was established last fall in my office with representatives from FDA, HSMHA, SRS, and SSA to study developments to the present and recommend further steps that should be undertaken by the Department. Recom- mendations of this Review Committee will be utilized in determin- ing what further measures may be required by our Department. The complex of drug activities that was assigned to FDA in February 1969 continues to be administered by that agency as suggested in recommendation 21. (Certain reassignments resulting from the formation of the Environmental Protection Agency have no impact upon FDA's drug activities.) The skills of experts both within and outside the Department of Health, Education, and Welfare are being used to augment the scientific capabilities of the Food and Drug Administration as pro- posed in recommendation 23. We have participated in and utilized information from many interdepartmental committees and we plan continued use of such groups. Examples include a study group on drug research and study group on medical services, both of which tapped the resources of several segments of the various health agencies within this Department. Senator NELSON. What was recommendation 23? Dr. STEINFELD. To use more experts both within the Department and outside in augmenting the scientific capabilities of FDA. The concern is that FDA was carrying out many of its responsibilities without adequate consultation with other experts. We have recommendation 23, I can read it if you would like. Senator NELSON. Yes. Mr. RANKIN. The recommendation is: Efforts should be strengthened to assure that the skills of experts both within and outside of the Department of Health, Education, and Welfare are used to augment the scientific capabilities of the Food and I)rug Administration. Senator NELSON. Please proceed. Dr. STEINFELD. Interdepartmental committees have also been used to supplement the scientific capabilities within FDA. An ad hoc committee on toxicological procedures employed experts from the Environmental Protection Agency and the Department of Agricul- ture as well as industry representatives. Their report is not yet complete. PAGENO="0155" COMPETITIVE PROJ~LEMS IN THE DRUG INDUSTRY 8111 The Commissioner of Food and Drugs has been delegated author- ity to establish ad hoc committees to advise him on matters of im- portance and urgency. Earlier I thought I could not address recommendation 24 of the task force report which suggested establishment of additional FDA. basic and clinical laboratories to augment its research capability. However, on January 27, the President announced the establishment of the National Center for Toxicological Research at the Pine Bluff Arsenal in Arkansas. The President's budget request for fiscal year 1972 contains an additional $4 million for the FDA for a long-term program to determine the cumulative effect of chemical additives, and to estab- lish levels of such additives which can be safely tolerated by man. The Pine Bluff facilities will be equipped to make low-dosage studies on large populations of animals, what has been called the mega-mouse experiments in some quarters. The dosages will much more nearly approximate quantities consumed by man. The results of these studies, therefore, should provide much better support for developing consumer protection policies with regard to various kinds of additives. This facility should be an important laboratory addi- tion to our resources for assessing potential hazards to man which may exist or which may develop. Senator NELSON. WelL that lab is already there. Dr. STEINFELD. Yes. That lab is engaged in the disposal of the biologic warfare stockpile currently. Senator NELSON. But there is going~ to be a series of studies con- ducted there on food additives and their effects? Dr. STE1NFELD. On food additives and other chemicals, yes, sir. The idea is that as soon as the place is certified to be free of any hazard, both FDA and EPA will begin renovating and constructing tim necessary facilities to carry out large scale animal testing. Senator NELSON. Food additives and what other things? Dr. STEINFELD. Well, there are other chemicals to which we are exposed which may get into our water supply. Senator NELsON. Are you talking about herbicides, pesticides? Dr. STEINFELD. Pesticides and recently the things we find in deter- gents. I think any of the chemicals to which we are exposed in large measure should certainly be tested. The thing we have not done, Senator Nelson, is compare the interaction of a number of these chemicals and this is one of the real problems. The problem was not NTA alone but NTA picking up methyl mercury or other metals and transporting it where it ordinarily would :not go. So the inter- actions are a big area that still must be studied. Recommendation 25 proposed a study~ to reappraise the efficiency of methods now used in our Department to evaluate the safety and effectiveness of pharmaceuticals. In December 1969, the Secretary authorized convening of a study group (HEW study group on re- search and regulation) to act on this recommendation. This study group was made up of representatives of the Department (OS, NIH, and FDA), industry, higher education, and consumer groups. It met regularly from. January to May 1~97O and filed a report with the Commissioner of Food and Drugs ~du~rix~g June 1970. The report is still under consideration at this time. PAGENO="0156" 8112 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. Chairman, I have outlined the status of our actions on 16 of the 25 recommendations of the task force. The remaining recom- mendations relate to matters currently under study in the admin- istration's development of a coordinated health program for the Nation. As explained earlier, I am not prepared to state depart- mental or administration policy on these matters at this time. It is evident that both the legislative and the executive branches are greatly concerned that good drugs be supplied the American people at reasonable prices. The interest and attention of this com- mittee have without doubt been a large factor in the increased attention our Department is giving to its own drug procurement practices. As indicated in the statement I have just made, and in other testi- mony you have heard, there are a number of activities being under- taken concurrently within our Department that should increase the effectiveness of Federal dollars used to purchase drugs and serve as an aid to more rational utilization of drugs in medical practice generally. Some of the more significant developments are the steps FDA is taking to be sure that drugs are effective; improved methods of detecting and reporting adverse effects from drugs; improved com- munication with physicians on drug questions; the recognition that drug utilization review is an essential tool to insure better therapy at less cost; and the improvement of our management practices in the various components within the Department. I believe, Mr. Chairman, that we are making significant prog- ress. And I want to thank you for your patience in allowing me to read this very long statement. Senator NELSON. Thank you, doctor. Do you have any questions, Mr. Gordon? Mr. GORDON. Dr. Steinfeld, on page one you talk about a Medi- care-Medicaid program for inpatients and outpatients-that is, not reimbursing for those drugs which have been found to be ineffective and possibly effective. Now, how would you be able to monitor these drugs? Isn't it going to be rather difficult because they are on a reimbursement basis? Dr. STEINFELD. Well, the Social Security Administration and Social and Rehabilitation Service at this point are working with us to try to figure out the best system to implement this decision. It will be difficult to monitor but I think it will be worthwhile and that it will improve patient care. *Mr. GORDON. Are there any figures to indicate how much money will be saved by this new policy-either in direct purchases or as reimbursement? Is it possible to make an estimate? Dr. STEINFELD. Mr. Gordon, I am not certain at all that any money will be saved. I think the primary result of this decision will be to improve patient care. The physicians who are picking ineffec- tive or possibly effective drugs for various indications will now have to choose either effective or probably effective drugs and they may cost less than, as much as, or even more than, the drugs that are now being used. But this is not a cost reduction device. It is primarily an improvement in the quality of care that we are seeking. PAGENO="0157" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8113 Mr. GoRDoN. What do you plan to do about the "probably effective" drugs? For example, do you see any reason for using a "probably effec- tive" drug if there is an alternative drug known to be effective? Dr. STEINFELD. This is a real problem. In the NAS-NRC review they found, as you know, many studies which were really not too well carried out. They were not certain that the drug was really effective for the indication for which it was proposed. So that what we are requiring for the probably effective drugs is that. the com- panies, if they propose to continue manufacturing them, provide use data, good data, which would demonstrate the drug is indeed efficacious for the indication for which it is proposed. They have a year in which to either, provide that data or provide protocols showing that the data will be forthcoming. Now, I can conceive of instances where a patient may be allerg~e to an effective drug for a particular complaint and that therefore the physician may have to use a probably. effective drug. I could conceive of some instances of cost differentials, perhaps, some in- stances where a physician is convinced that something really does work, and has a great deal more experience with what is called a probably effective drug than with an effective drug, and thus might continue using it-so that I can see instances where probably effec- tive drugs would continue to be used until such time as we have adequate data to determine either that it is effective or it is not. Mr. GORDON. But they will be used except when you know that an effective drug is available and the patient is not allergic to it, and so forth? Dr. STEINFELD. Ideally the physician would use the effective drug. I think the panel felt probably effective drugs most likely with some additional information would fall into the effective category. In earlier years the companies did not have to demonstrate effec- tiveness in the way they do now, so a number of the studies on which approvals were based, we would now fault in terms of present knowledge and present scientific criteria; these' will have to be brought up to date or the drugs will then be placed in another category. Mr., GORDON. Now, the HEW task force report gives as one example of irrational prescribing-this is on page 24 of the task force report-the use of a costly duplicative or "me-to" product when an equally effective but less expensive drug is available. You prob- ably heard this morning that All) will no longer finance such drugs. Dr. Edwards told us when he was here on January 18 that- The Government as a major purchaser of drugs should and must insist on the least expensive of equivalent drugs and upon rational choices among different drugs which satisfy the same medical needs. I am quoting him. What do you plan to do about this form of irrational drug usage and purchasing~ Dr. STEINFELD. You are raising here for the non-Federal direct programs, the whole question of the formulary, which is certainly one of the things we have under intensive consideration as one of the parts of the overall health program which the President will cover in his message, but I do not think I can address that issue~ now. I think that is the formulary issue. PAGENO="0158" 8114 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. GoRDON~ Are you saying we should have a formulary for Government purchasing? Dr. STEIN~ELD. No. Mr. GORDON. You say it is a formulary issue. What are you saying? Dr. STEINFELD. I am saying this is one of the things we have under discussion and that I cannot say what the Government's position will be at this point. I am sorry. Mr. GORDON. Now, Dr. Steinfeld, as you know, neither the TJSP nor the National Formulary recognizes sustained release prepara- tions as being reliable dosage forms. Expert testimony before our subèommittee has confirmed this view and Dr. Edwards told us on January 18 that the majority of those currently on the market have not provided adequate evidence, and in general, they appear to be quite unreliable. These are generally expensive drugs on which the Federal Gov- ernment has been spending considerable funds. Do you think the use of these drugs by the Government is rational? Dr. STEINFELD. Well, let me tell you what our policy has been. The NAS-NRC did not look at sustained release drugs; they looked at the individual drug in its regular form. So as a matter of policy, the FDA put the sustained release version of any compound in a `ower category from the rating given the regular form. For example, if a drug was "effective," the sustained release one would be rated "probably effective." If it was "probably effective," the sustained release form would be rated "possibly effective," a "possibly effective" would be rated "ineffective" and the manufac- turers would then be required to provide us with adequate informa- tion showing that in fact the sustained release compound did do what it was supposed to do-provide a concentration over a period of time. They are, as you pointed out, erratic, difficult to standardize with different people, and I think very likely we would find fewer uses for such compounds. Where they can be shown to work, I can conceive of places where they would be useful-nursing homes, for example. Rather than having somebody distribute drugs four or five times' a day, the sustained release compound would be extremely useful, if indeed it works. So I think there are places where it would be useful but we are going to have to require evidence that indeed they do perform as advertised. Mr. GORDON. But until they show that they cannot perform, what do you recommend the Government do? Dr. STEINFELD. We are going to proceed as we have with the classification I just described. We are going to- Mr. GORDON. Do I understand you recommend the Government not buy such drugs until they are proveii to be effective, reliable, et cetera? Dr. STEINFELD. Mr. Gordon, those which are in the ineffective or possibly effective category we would not buy. Those that are probably effective we could buy now. None of them would be "effective" be- cause all of the sustained release drugs are one category lower in the NAS-NRC scale than the regular dosage forms. PAGENO="0159" COMPETITIVE PROBLEMS. IN THE DRUG INDUSTRY ~81 15 We are going to be purchasing rela~ively few of these arid we certainly will require within the very near future adequate evidence that they indeed do work. Senator NJ~LSON.~ Tire probthly effeetive classification category has 1 year? Is that it? Dr. STEINFELD~ Yes, sir. Mr. GORDON. Does flEW buy or pay for Peritrate in any of its programs? Dr. STEINPELD. I cannot answer that. Do you know, Mr. Brai~d~? Mr. BRANr~S. We had none reported in our list. The purchases may have been so small, however, that it was not recorded, It was not picked up in our search of the purchase orders. Mr. GORDON. You would not know if you are reimbursing fof it, either? Mr. BRANDS. We would not know if we were reimbursing for it. Mr. GORDON. Dr. Edward Freis, Senior Medical Investigator at VA Hospital here in Washington, told us that the controlled studies indicated that Peritrate is not effective compared to a placebo. So apparently he regarded that as an ineffective drug. Would that be in the same class as the other ineffective drugs judged by the National Research Council and you would refuse to reimburse for that drug? Dr. STEINFELD. I would have to look that one up specifically, Mr. Gordon, but if it fell in .those categories, possibly effective, effective, we would refuse. Mr. GORDON. It was not reviewed by the NAS-NRC? Dr. STEiNFELD. Peritrate was not? Mr. GORDON, No. Dr. STEINFELD. We will have to-n~aybe it was after, developed after 1962. Mr. GORDON. I think it could have been developed before 1938. Dr. STEINFELD. Before 1938? Mr. GORDON. I do not know. It might have been. One more question. What steps have you taken since you ap- peared here in August to buy more competitively? Dr. STEINFELD. I am afraid I did not hear you, I am sorry. Mr. GORDON. Since your appearance here in August, what steps have you taken to buy drugs on a more: competitive basis? Dr. STEINFELD. Mr. Brands is our purchaser. Mr. BRANDS. Our steps taken at the HSMHA Supply Service Center at Perry Point, are really the same as they have been-to request bids for the drugs that are purchased other than those that are purchased from the Department of Defense in Philadelphia. We have 102 companies that are on the bidding list at the Supply ServiceS Center. They do put a notice in the trade journals that they will receive bids from companies interested in bidding on pharmaceutical products. Such companies should notify the Supply Service Center at Perry Point, Md. Now, of the 102 companies that are on the bid list, there are 53 that are in the small business category and 49 classified as large businesses. PAGENO="0160" 8116 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. GORDON. Are you buying these on a formal advertising basis? Mr. BRANDS. Yes, sir. These are bought on a formal advertising basis by the Supply Service Center at Perry Point for drugs that are supplied by them. Mr. GORDON. Now, on a dollar basis what percentage of the total purchases are advertised? Mr. BRANDS. I would have to get that for you, sir. I do not have that now. (The subsequent information was received and follows:) PURCHASES BY FORMALLY ADVERTISED BIDS BY HEALTH SERVICES AND MENTAL HEALTH ADMINISTRATION SUPPLY SERVICE CENTER Formally advertised bids to purchase drug products accounted for 33.1 percent of the purchases at the Supply Service Center. Below is a breakdown of the drug purchases. Value Percent Formally advertised bids $384, 503 33.1 Informally advertised bids 140, 550 12.1 Veterans' Administration 8,851 .8 Department of Defense 627,260 54.0 Total 1,161,164 100.0 Informally advertised bids are for amounts of less than $2,500 and are sent to about three to five manufacturers for quotations. Many of the drug products purchased from the Veterans Administration and the Department of Defense were probably purchased after formally ad- vertising for bids. Dr. STEINFELD. I could add one point. We will look into the Pen- trate both as a single compound and in sustained release form and provide a report to you as to why it was not looked at by NAS-NRC, as to what we propose to do. (The subsequent information was received and follows:) Peritrate was reviewed by the NAS/NRC. However, the Food and Drug Administration has not yet implemented the recommendation. Peritrate Tablets were approved for marketing in August, 1951; Peritrate Sustained Action Tablets in October, 1955, and Peritrate Sustained Action with Phenobarbital Tablets in March, 1962. Dr. STEINFELD. Of course, in addition to Dr. Freis's comments, we would want to review the literature and determine whether indeed it was subject to the law between 1938 and 196~ arid all of the other evidence that NAS-NRC considered in making its judgments. We will review that. I would add as a corollary to Mr. Brands' statements regarding what we have done to make our purchases more rational, that we have certainly tried, as in the recent memorandum of December, to rule out purchases of ineffective and possibly effective drugs. Senator NELSON. Thank you very much, doctor. Dr. STEINFELD. Thank you. Senator NELSON. Our hearings will resume tomorrow in this room at 10 o'clock. (Whereupon, at 12:20 p.m., the Subcommittee on Monopoly of the Select Committee on Small Business adjourned, to reconvene the following morning at 10 a.m., Tuesday, February 2, 1911.) PAGENO="0161" COMPETITIVE PROBLEMS IN THE DRUG ~is~a~ 8117 (Upon the direction of the Chairman, information pertaining to the hearings follows:) 3)EPARTMENT OF Hi~AL~ui, EI)UOATIO~, AND WELFARR, PUBLIO HEALTH SnRVIOE, Fooi AND DRUG ADMIN~STBATION, Roclcvifle, Md., May12, 1971. Hon. GAYLORD NELSON, Chairman, subcommittee on Monopol~j, ~eiect Committee on ~mefl Business, UJ~1. senate, Washington, D.C. ThsAn SENATOR NELSON; This Is in reply to your February 23,, 1971 request for comments on problems raised by letters sent to Comm1s~ioiler Edwards on February 10 and 19, 1971, by the Pharmaceutical Manufacti~irers Associat1on~ Washington, D.C. We forwarded an interim reply to you on March~10, 1971. We are enclosing a copy of Commissioner Edwards' March 18, 1971~ response to these letters. If we can furnish any additional assistance, pl~4se let u~ know. Sincerely yours, M. J. RYAN, Director, Office of Legislative ~S~ervioes~ DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, PUBLIC HEALTH SERVICE, Foon AND DRUG ADMINISTRATION, Rockville, Md., March 18, 1971. C. JOSEPH STRTLER, President, Pharmaceutical Manufacturers Association, Washington, D.C. DE4R Mn. STETLER: Your letters of February 10, 1971, and February 19, 1971, comment on our testimony before the Nelson Subcommittee on January 18, 1971, and my letter of February 5, 1971, to Senator Nelson. The first letter charges us with a tendency to escalate the role of the agency in drugtherapy, beyond the point where Congress has given us authority. You are particularly concerned with our interest in problems of reltttlve ~elficacy, over- prescribing of drugs, generic equivalency, and class labeling. You also criticize us for reineving possibly effective drugs from Federal .programs and for our releases explaining the NAB/NRC findings. We are confident that we are proceeding~with the Implementation of the 1962 Drug Amendments in the way that Congress intended. We have now substantial judicial support for that bellef~ With regard to the question of relative efficacy, it is our interpretation of the intent of Congress that we could not exclude a new drug from the niarket on the ground that it was relatively less effective than another available drug (except when the benefit-risk ratio requires this), but we can and do require fall dise~osuLe laheling and pyomotion for new drugs whi~h in many Instances requires a discussion of precisely where the new drug belongs in'relatlon to other available drugs in safe and effective clinical use; Most advertising of newly- marketed drugs.iseornpntjtive, requiring i~s to g~ye consideration to the validity of claims of relative efficacy. Over..prescribing should be of as much concern to manufacturers as to us. It. can only lead to more problems for all of us. Our. 4iscussion ~f this problem was * not linked with the social problem of drug abuse, but to p~motion, prescribing, and use of drugs of limited or no value and to the consumption of too many drugs, often for~no purpose or for the wrong purpose. On drug equivalency, we i~oted that this prob~epa is bei~g~Udr~ed in a number of ways-through good manufactur- ing practice regulations, intensified drug inspections, and increased surveillance from our National Center for Drug Analysis, for example. And we concluded by saying that on the basis of the evidence available, the quality of marketed drugs in r~gard to purity and uniformity of composition is not suspect. We think it is a disservice to the public to use a few episodes where drug eqaiivaleney was drawti in to question to imply that the whole drug supply is in doubt. We disagree with your conclusion that because a few instances have~occurred; this is probably a very frequent phenomena. You raise the question regarding our ability to test all batches of imported antibiotics; this has been going on for several years. En our opinion class labeling is necessary to provide the profession with ieliable and understandable prescribing information. The practice of presenting different 59-581-71--pt. 20-11 PAGENO="0162" 8118 CO1~ETITIVE PROBLEMS IN THE DRUG INDUSTRY labeling of drugs of essentially the same therapeutic effectiveness and safety is confusing and misleading to physicians and doesn't lead to informed patient care. We agree with you that your firms have been helpful in developing the rules applicable to current good manufacturing practice. We acknowledge our role in the development for many of the package inserts that are now found to be inadequate and misleading. Under authority of the current law which permits regulation of claims of effectiveness, we hope to correct this problem. Your letter of February 19 is disappointing to us. All of the points you have made have been argued strenuously before at least two Courts of Appeals and a District Court. There is no need for us to answer them here, as we have in Court. But what is important is to get on with the DESI project. We have been willing to accept NAS/NRC evaluations of claims as "effective," without insisting upon proof by adequate and well-controlled clinical studies. But where the evaluation is less than effective, the product must `be withdrawn unless an adequate data base to support the claims can be developed. The sooner your companies turn to this task, the better it will be for all of us. At Senator Nelson's request, I am forwarding a copy of this letter to him. Sincerely yours, CHARLES C. EDWARDS, M.D., Cem4nissioner of Food and Drugs. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, PUBLIC HEALTH SERvIcE, FOOD AND Dnuo ADMINISTRATION, Rockville, Md., March 10, 1971. Hon. GAYLORD NELSON, Chairman, Subcommittee on Monopoly, Select Committee on Small Business, United States Senate, Washington, D.C. DEAR SENATOR NELSON: This is in reply to your February 23, 1971 request for comments on problems raised by letters sent to Commissioner Edwards on Feb- ruary 10 and 19, 1971, by the Pharmaceutical Manufacturers Association, Wash- lngton, D.C. Answers to these letters are in preparation and we will respond further to your request after these replies have been formulated. If we can furnish any additional information, please let us know. Sincerely yours, M. J. RYAN, Director, Office of Legislative Services. U.S. SENATE, SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C., February 23, 1971. Dr. CHARLES C. EDWARDS, Commissioner, Food and Drug Administration, Department of Health, Educa- tion, and Welfare, Washington, D.C. DEAR DR. EDWARDS: Enclosed is a letter I received from the President of the Pharmaceutical Manufacturers Association, to which he attached his letters to you of February 10 and 19, 1971. Since it is planned to place this material into the printed record of the Sub- committee's hearings, as requested, I would appreciate your comments on the problems raised by the PMA's letters. This is to insure a fair and balanced presentation of the subjects under discussion. Very truly yours, GAYLORD NELSON, Chairman, Subcommittee on Monopoly. PHARMACEUTICAL MANUFACTURERS AssOCIATION, Washington, D.C., February 19, 1971. Eon. GAYLORD NELSON, Chairman, Monopoly Subcommittee, Senate Select Small Business Committee, Old Senate Office Building, Washington, D.C. DEAR SENATOR NELSON: At the time of the hearings of the Monopoly Subcom- mittee of the Senate Small Business Committee which were conducted on Feb- ruary 1, 1971, you circulated a statement dealing with correspondence from the PAGENO="0163" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8119 PMA relative to Government agency policy on the procurement of drugs listed as "ineffective" and "possibly effective". Attached to your release was a letter to you from Dr. Charles C. Edwards, Commissioner of Food and Drugs, dated January 29, 1971. This letter purported to review the actions of the pharmaceutical industry with respect to the submission of proof of effectiveness for drugs approved for marketing between 1938 and 1962. In our opinion, Dr. Edwards' letter does not present a balanced review of the history of the drug industry activities in this regard. We would appreciate it, therefore, if you would insert the enclosed letter to Dr. Edwards in the printed transcript of the hearings for the February 1, 1971 session of the Monopoly Subcommittee. Sincerely yours, C. JOSEPH STETLER, President. PHARMACEUTICAL MANUFACTURERS ASSOCIATION, Washington, D.C., February 19, 1971. CHARLES C. EDWARDS, M.D., Commissioner of Food and Drugs, Department of Health, Education, and Wel- fare, Rockville, Md. DEAR COMMISSIONER EDWARDS: This is in reference to your letter of January 29 to Senator Gaylord Nelson commenting on a PMA press release and my earlier letter concerning recent efficacy review actions of the FDA and the Public Health Service. We take issue with your statement that "no real effort to comply" with the efficacy requirements of the 1962 Amendments was made by pharmaceutical manufacturers. Prior to your appointment as Commissioner of Food and Drugs, the pharma- ceutical industry met with officials of the Food and Drug Administration in order to achieve an orderly compliance with the 1962 Amendments. I wrote to FDA Commissioner Larrick on November 29, 1963, requesting that the Agency and the industry work together to formulate a program that would meet the Intent of the law in an effective way. Unless Such a program is devised, I wrote, "many companies will be spending time and money wastefully in doing unnecessary things, while others may do nothing and have a rude awakening ten months hence when suddenly they are asked to justify the continued marketing of estab- lished products." Commissioner Larrick agreed to a meeting, and representatives of the Agency and the industry met on January 23 and February 6, 1964. The attitude was one of cooperation and the exchange of Ideas was helpful to both sides. A point of prime significance that was discussed at the meetings was the defi- nition of the "substantial evidence" requirement of the law. FDA General Coun- sel Goodrich made it clear at both meetings that well-documented clinical experi- ence, which would lead experts fairly and reasonably to conclude that the claims are valid, would be considered in answering the efficacy question. Indeed, such evidence was to be controlling in some situations. Accordingly, clinical studies were not commenced by manufacturers on products for which well-documented clinical experience exiSted. I might mention that minutes of these two meetings were reviewed by the Office of the Commissioner and no changes or objections were offered. The min- utes were, of course, shared with the member firms of this Association of the time of the meetings for their guidance in attempting to fulfill purposes of the law. Further evidence of the FDA's willingness to recognize well-documented clini- cal experience was given in a press release issued by the Agency dated Febru~ ary 28, 1904, which presented the `FDA position on effectiveness requirements for pre-19G2 drugs. It clearly equated "clinical experience" with "substantial evi- dencé of effectiveness" on its first page~ Moreover, the essence of the policy described at the meetings had already been laid down in FDA regulations published January 10, 1964, concerning per- missible claims that could be made in advertisements for pre-1962 prescription drug products. They provided in part that "an advertisement may recommend or suggest the drug Only for those uses contained in the labeling thereof . . . for which there exists substantial clinical experience, adequately documented in medical literature or by other data (to be supplied to the FDA, if requested), PAGENO="0164" 8120 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY on the basis of which it can fairly and responsibly be concluded by qualified experts that the drug Is safe and effective for such uses". Amended regulations covering the same subject contain substantially the same provision. Relying on the record so established, the companies proceeded to submit such material as they had reasonable grounds to believe were required. Virtual silence on this subject followed, until the FDA announced its desire in 1966 to turn the massive task of reviewing the evidence over to the NAS/ NRC. The industry commended FDA for this decision, incidentally, and gave its full cooperation to the planning and implementation of the arrangement, con- trary to the implication of your letter. The NAS/NRC Report specifically ac- knowledges "the unrestrained but unobtrusive cooperation of the FDA and of the pharmaceutical industry. Both have responded quickly and sensitively to all requests for information but have never been importunate". The efficacy review consumed two years, and one of the most interesting general conclusions arrived at lends additional credence to the view that cer- tainty as to the meaning of the law is lacking. Let me quote from the portion of the NAS/NRC Drug Efficacy Study, discussing the definition of "substantial evidence": "The Legal Definition of ~ubstantiaZ Evidence of Effectiveness-The definition in the law is an exacting one. Had the panels adhered rigidly to it, a great many claims would have been rejected on the grounds that they were not supported by substantial evidence based on `well-controlled investi- gations . . . by experts qualified by scientific training and experience to evaluate the effectiveness of the drug involved.' "In a number of areas of drug action (e.g., psychotherapeutic effects), there is no agreement on what constitutes a well-controlled investigation. More generally, the many imponderables of clinical Investigation influence the validity of studies that may appear to be well-controlled methodologically and stath~ticaily. If one reviews the hearings on the Bill that led to the Amendments, it becomes evident that it was the intent of Congress to be per- missive in the application of the wording of the law. Specifically, Congress did not intend that the word `substantial' should be read to moan `predomi- nant'. It is clear from the debates that claims for effectiveness should be accepted if a substantial amount of well-documented favorable evidence is presented, even though there may also exist a weighty body of inconclusive or negative evidence. In the words of Alanson W. Willcox*, General Coun- sel, Department of Health, Education, and Welfare: This provision states that there must be a bona fide, resp~nsibIe and adequately based medical judgment in support of efficacy before a drug ma~ be put on the market, but if this condition is met, a minority opinion may prevail. It should be emphasi~ed that the law relates primarily to new drugs that have been submitted for approval on the basis of only limited premarketing clinical trials. The drugs that have been reviewed in the Study, on the other hand, have been on the market for 5 to 30 years. In many cases, no reports on well-controlled studies of their efficacy for the claims cited for their use could be found in the presentations of the manufacturers or in the medical literature, and yet many of them have received wide acceptance in medical practice. This situation presented the panels with a very difficult problem. How much weight should they give to the opinion of the marketplace? The final arbiter of the value oi~ a drug is the consensus of the experience of critical physicians In its use in thç~ practice of medicine over a period of years'. Approval of a new drug for release to the market is only a license to seek this experience. When the panels were faced with this situation, they have sought to grant liberty but to restrain license by assigning a rating of `Probably effective' or `Possibly effective' on the basis of their own clinical experience with the drug and their evaluation o~ the opinions of their peers." Does not this suggest that the firms might reasonably have concluded that the efficacy evidence in hand, together with the clinical record, though certainly not of 1971's sophistication, might constitute "well documented" evidence, as the NAS/NRO Report put it, or "bona fide, responsible and adequately based" evi- *Charles Wesley Dunn lecture, Law School of Harvard University, Cambridge Massa- chusetts. ~5 March 1963. PAGENO="0165" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8121 dence in HEW General Counsel Willcox's words? Surely individual drug flrm~ are not expected to be more perceptive than th~ sum of the opinions of the panels of consultants to the National Academy of Sciences. The virtually complete change in the FDA's posture on the effectiveness ques~ tion was not evident during the years between 1962 and i~968. On September 19, 1969, FDA proposed new regulations. District Judge Latchum~ in~bls January 16f 1970, opinion called tbe~ "new standards of evidence necessary to demonstrate the effectiveness of drug products . . . applied retroactively so as to place hi jeopardy the continued marketing of thousands of drug products Introduced ôe- fore 1962 with FDA approval and the effe~tiveuess of which FDA has not yet challenged". The fact that FDA had éhanged the rules was recognized by Judge Latchun, who noted that, among other things, FDA had not uniformly Insisted on evidence of the kind laid down in the September 19 regulations in the past, that its 1966 calls for information supportiug claims was very broad and that they "did not indicate that consideration. . . was to be limited to evidence derived solely from closely controlled clinical investigations. . . ." He also observed that the NAS/ NRC panels plainly relied on opinion and impressions in some evaluations, so t~iat h~ the regulations were to have been enforced uniformly and literally, ~DA might well challenge drugs which the NAS/NRC panels had rated as totally effective. Finally, with the May 8, 1970 publication of regulations on this issue, I3TIA made final its intention to selectively reject well-documented clinical experience a~s a test of effectiveness. Companies were then clearly on notice that unless a special exemption from the new criteria were successfully sought, they could be required by FDA to provide 1970-quality evidence for any pre-1962 drug, the clinical record of the product being of no significant moment In deciding the fate ~f that medication. I submit that this record shows that the indns~try has made reasonable at- tempts to work with the Agency to. meet, the intent of the law, contrary to yOur letter's assertions, i~nd that the ground rules bavebeen, cl~angec~ubstantiafly by FDA so a~s to make the industry's efforts to comply qver the last several years appear inconsequential. . One final point. We note that the Food and Drug Adininistratiofi never fails to cite th~e Food and. Drug Act in justification of its. actions. May we remind you that it is this same statute which provides industry with the right to hear- ing~s and court review. ~et when. we exercise, this right, we are criticized by you and oth~~ representatives of FDA. In view of the need for the Record to reflect some balance on this issue, I am asking Senator Nelson to insert a copy of this letter in the transcript of the February 1, 1971 hearings of the Monopoly Subcommittee of the Senate Small Business Committee. . Sincerely yours, . C. JDx'JI STEPLER, P~tesident.. PHARMACEHT±CAL MANU~AOiU1~ERS AssocL&TI~oN, Washington, D.C., Fe~ruary 10, 1971. CHARLES C. EDwARDs, ~1.D., Commissioner of Food, and Drugs, Department of YieaZth1 Education, and Wel~ fare, Rockvifle, Md. DEAR Docvou EDWARDS: We have read witb considerable interest your testi- mopy of January 18, before the Subcommittee on ~onopoly of the~ Senate Small Business Committee. While we found several pouts with which we are in agree- ment, we also noted a number of comments that arequite di~turbing.. I am,r~ferring~not only to portion~ of your ~Tepftred stat?meRt, but to the over- all tenor of your remarks, as well as those of Dr. Simmons, and Mr. Goodrich. They revealed, or so it seemed to. us, a thrust ~hat goes beyond the statutory authority given the Food and Drug Administration by the Congress. This includes a tendency to unçluly escalate the role of the agency in drug therapy. I trust you will agree with me that there are' high risk factors-to medicine and to patients-if the FD4 attempts to evpand its mandate. into arbitrary, wide- ranging dictates in such mat~ers as relative efficacy, certification .of all drugs, class labeling, drug equivalency, and,. even marketing. Given the subtleties of PAGENO="0166" 8122 COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY drug therapy and the imprecision of the art of medicine, we believe the FDA should limit its missiOn to what Congress specified and intended. The FDA may not be consciously building a case for the doctrinaire control of all aspects of drug therapy, but it would be difficult to draw any other con- clusion from the testimony of January 18. For example, on the issue of relative efficacy, FDA's assertion of authority would enable It to become the decision maker as to bow many drugs should be On the market and from what source as well as what medical practitioners may prescribe in any given case. Such action would contravene the clear intent of the 1962 Amendments to the Food, Drug, and Cosmetic Act. Even a cursory review of the legislative history shows that Congress decided unequivocally not to give the FDA such authority. We also object to the causal linking of such a grave social problem as drug abuse to the alleged "over-prescribing" of legitimate medicines. Given the current mores, attitudeS and conditions of society, we would have the drug abuse prob~ lem of the same dimensions regardless of the status of prescription drugs. Con- sequently, this linkage permits conclusions and implications which are unfair and which I hope were not intended. Early in your testimony you estimated that prescriptions will increase from two billion to three billion per year~ in five years-as if this were inherently bad. I would assess such growth as a consequence of expanding health care, in private and governmental programs, to growing populations, to rising family incomes, and to. the overall effectiveness of drug therapy in prevention and treatment disease. The studies you cite on adverse reactions, hospital-acquired infections, and number of drugs received by hospital patients cannot be applied to the total pa- tient population. As you know, these are IsOlated studies of limited magnitude which hardly meet standards of "substantial evidence". While a few examples of agency-industry cooperation are noted, the overall tenor of the statement and. the r~sponses to questioning suggest a derelict industry which must be held In line by a vigilant agency, whose wisdom and rectitude surpass that of the éompanies. It would have beeh appropriate to mention, for example, the extensive cOoperative effort that went into the prep- eration of the recently published regulations on Good Manufacturing Practices. Nowhere is the scientific and technical proficiency of the industry acknowledged as integral to the regulatory area. Yet, as you know, our companies are constantly improving the quality and. diversity of our drug supply and with a dedication that is surely the equal of the effort exemplified by the FDA. Moreover, regula- tions in general are based on the experiences and practices of competent manu- facturers. The inLdeptb inspection program to which you refer is possible because of the cooperation of ou~ member firms as training sites for FDA personnel. We find the discussion of brands, generics, and equivalency especially con- tradictory. Much of the testimony discloses the practical problems of assuring the safety and equivalent effectiveness of all drugs, and it aTho discloses how far we are from achieving such a goal. The extent of recalls, inspections leading to the closing of plants and numerous instances of equivalency failures, indicate that there are fundamental differences among manufacturers. Hence, there must be fundamental differences in the quality of drugs. Skills, experience and com- petence do count. Even your recital of the situation with Digoxin simply reempha- sizes the subtle problems of producing quality medicines. Drugs that go through the NDA process are not always equal, much as FDA wishes that they were. Many studies. show otherwise, and we will document this matter shortly in a new PMA publication. As you know, Food and Drug Administration experts recounted one important study in the January 11 issue of JAMA. Surely this example of oxytetracycline unequivalence signalled the potential extent of the problem, just as earlier studies did on Ohioromycetin and its "copy" products. If studies undertaken so far illustrate significant differences in biological re- sponse, what would happen if all drugs had to undergo such rigorous testing? A projection of the results so far compiled points to the probability of a very frequent phenomenon, not an infrequent one, as suggested. I find it disturbing that you did not emphasize the fact that the agency cannot possibly assure biolog- ical equivalency, even for NDA'd products, in the foreseeable future. On page 9056 of your testimony, in response to a question from Senator Nelson, you stated that batch-testing applied to all "imported anti-infectives" as well as domestic batches. This contradicts past testimony which indicated that FDA has PAGENO="0167" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8123 not been able to test all batches of imported antibiotics. Has FDA capability reached a level where this is now the case? It would be of interest to have FDA state specifically how many different drugs have `been tested and just how many of them were found to be equivalent. It is also highly questionable what can be accomplished by class labeling in as- suring drug equivalency. To suggest that such labeling is an umbrella, under which all prescribers can safely huddle, ignores reality. This type of labeling can hardly be equated with quality and equality assurances across the board. I have publicly commented on the actions which have been taken to remove drugs in the "possibly effective" category from Federal programs. This is clearly violative of due process and convicts drugs prior to final decisions on the issue of their place in therapy. We also question seriously FDA's recent handling of NAS-NRO panel results. The raw figures, and the words used in designating categories, have been ex~ tremely confusing not only to the general public, but to the hea1ti~i professions and the press itself. Press accounts have been notoriously inaccurate or misleading, at least in part, because the FDA has failed to put these figures into sufficient per- spective. I enclose the notices we have released on this subject in case they have not come to your attention. I note that your statement dealt at some length with the defects of labeling, without any reference to the role of FDA In its preparation and approval. It would certainly have been appropriate for you to stress that labeling represents honest effort made in good faith by both industry and the FDA at the time of preparation, and that of necessity, it is in a state of flux as new Information comes to the fore. Surely industry is just as anxious as FDA to have complete and up~ to-date labeling on its products. If labeling is obsolete, the responsibility of up- dating ~hould be shared by the FDA and industry. Your testimony raised additional questions with respect to combination prod- nets, marketing and other areas. However, the above indicates some Of the major reasons for our concern. Sincerely yours, 0. JOSEPEI STETLER, President. PAGENO="0168" PAGENO="0169" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical * Industry) ~U'ESDAZ PEBRUAIW 2, 1971 U.S. SENATE, * SUBCOMMITTEE ON MONOPOLY OF TIlE SELECT CO1SIMITThE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to recess, at 10:25 a.rn., in room 1318, New Senate OfficO Building, Senator Gaylord Nelson (thair- m~n of the subcommittee) presiding. Present: Senator Nelson. Also present: Benjamin Gordon, staff economist; Elai~no C. Dye, clerical assistant, and Reith A Jones, minority counsel Senator NELSON. Our witness today is Dr. Benjamin Wells, Deputy Chief Medical Director of the Veterans' Administration. Dr. Wells, your statement will be printed in full in the record. You may present it however you desire. I apologize for being late. I had to attend the opening of the meeting of the finance committee which w~s scheduled subsequent to the scheduling of this ~meeting. So I apologize foE :beihg 25 inintites late. Go ahead, Doctor You may present your statement however you desire. STATEMENT OP DR. BEIsUAMIN B. WELLS, DEPUTY OHIEP MEDICAL DIRECTOR, VETERANS' ANfINISTRATIOI~t, ACC0MI~ANIED BY DR 1'~AELL A L HABER, DZPT1~ ACMD PO1~ N~OrESS1ONAI1 SERVICES, DR 1011N D CUASE, AC1\~D1 PROPESSIONAL SERItICES, ROBERT A STATLER, DU~RCTOR, PRAZIYIACY SERVICE, ROEERT G LOUDON, OHIEP, RESEARCH IN PTJL1MONARY DISEASE~ DONALD P WHIT.. WORTB~, Dt1U~CTOR~, STJPPL~ SER~TICE; CL~~DE C. COOi~, DEPUTY DIRECTOR, SUPPLY SERVICE, PHILIP WA.RMAN, ASSISTANT GEN~ ~RAL COt3~NSEL, ROLAND P HARDTh1~G, ASSISTANT DIRECTOR, PHARM~ACY SERVICE, ROBERT G ROSE, MANAGER, VA MARKET~ ING CENTER, DR EUGENE M CAPFE~, JE, CHIRP, PSYCHIATRY DIVISION, AND DR J N COHN, CHIEF, HYPERTENS~tON AND ~LINICAt H~EMODYNAMICS * ** Dr. WELLS. Thank you, Mr. Chairmati. We èertainly understand the need for the delay. I would invite you to interrupt at any point in this document, so we can use the reading as a point of departure for discussion. (8I2~) PAGENO="0170" .8126 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. Chairman, we welcome the opportunity to appear again be- fore this subcommittee to discuss further the policies and practices of the Veterans' Administration in the selection and acquisition of drugs and medicines used in providing medical benefits to the Nation's eligible veterans. At the outset, I would like to state that this subcommittee's efforts have been salutary in stimulating a search- ing review by Federal agencies into their practices in the selection and use of drugs. In our own case, this review included examination into our current methods of collecting, evaluating, and disseminating information on the effects and efficacy of drugs, examination of the results in terms of which drugs were most commonly used in the Veterans' Administration, and a reexamination of our policies to see if they were sound and if we could improve upon their inter- pretation and execution. This subcommittee's expressed interest is in the drug purchasing practices of the Federal Government; The determination as to which drugs will be prescribed for patient therapy is a professional one and procurement practices are designed to obtain quality drugs re- quested by physicians, as economically as possible. The deve1opment of hospital formularies is monitored by the Therapeutic Agents and Pharmacy Reviews Committee with, the inclusion or exclusion of a drug being determined by knowledgeable peer action. Senator NELSON. Doctor, when you testified before, we raised the question of hospital formularies-the development of the formulary and therapeutics committee and the drugs that are placed on the formulary. As I recall, the explanation for a number of drugs of the formulary which were expensive or ineffective was that you didn't feel you could argue with the doctors who make the requests. Now, this statem~nt; here ciuld be interpreted to he saying that the selection of drugs is a professional one ~hit~h. would mean pro- fessional.~in the sense that yan; use the best professional . knowledge available and that the inclusion or exclusion of a drug is determined by knowledgeable peer action. If that is the case, how do you explain the substantial purchases of Darvon, Peritrate, Terramycin, for all of which there is an equivalent drug that is cheaper or, as in the case of Peritrate, the testimony of your own VA Hospital medical investigator is that they couldn't find any use for Peritrate? Dr. WELLS. Well, Mr. Chairman, `as you know, there are many areas of disagreement about the specific drugs as to their e~ecti~re- ness or efficacy, and that would certainly be true of Peritrate, less so of Darvon. . . Now, as to our committees: the committee that I refer to here is a committee at each hospital which monitors the drug program. In addition we have a central office committee that ~monitors the pro- grams from Washington for the hospitals in the field. Now, the person here who has had most action in this and who heads the group in our Washington office is Dr. John Chase. Per- haps he could give you a little background on how this committee has functioned in the past and at present. ` We will go into this a little further in the statement. PAGENO="0171" COMPETITIVE PROBLEMS IN THE DRUG iNDUSTRY 8127 Dr. Chase, would you care to address yourself to that?, Dr. CHASE. Senator, this is set up in a sequential fashion~ By that I mean administratively that each hospital , has a requirement to organize a therapeutics committee which is normally chaired by the chief of staff of the hospital, and the membership of the committee is composed of the c'hiefs of the major clinical services with the ,pharmacist being the recording secretary for the. committee. The actions o.f this committee are accomplished by the physicians of that hospital staff. If they wish to have a drug entered' into the formulary they must complete an application with supporting. docu- mentation which goes to the committee- Senator NELSON. Supporting documentation? Dr. CHASE. Supporting documentation on the drug. In other wdrds, a search of the bibliography, some indicati9n that this drug has iXierit and that they wish to use this particular drug with their patient groups and they want to have that drug entered into the formal structure of the hospital formulary.. ` The committee reviews this. it may have sufficient expertise within its own body to render a judgment or it may call upoil outside people to assist them in their actions. They may take several' forms of action: They may actually deny the inclusion of the drug in. the formulary. They may include it, or they~ may restrict the ~ise of the d~rug to a specific patient, or group of patients. * Most of our hospitals are urged to review their entire formulary on a recurring basis: I can't honestly say how frequently or how well this is done but we are constantlyf ..generkting from central office information which goes to the field, some `documei~ttation of which you have in your packet here, direeting~ them to' review, their drug practices both in terms of therapeutic effectiveness as well ~..as the cost-benefit relationship. ` , Senator NELSON. Well, I hear what you are sayiirg but frankly it doesn't impress me. What you are really saying, I think, is that you may or~ may not have a gbôd formulary based upon how it is run at the local level; that you are approving the purchase of drugs which the Medical Letter recommends and are not purchasing drugs for which the Medical Letter or other authoritative sources' say there are equivalent `drugs which are much cheaper. You say the doctor has to submit justification. Well, ~would you submit to the committee what justification any doctor in any one of' your hospitals supplied in the form of scientifically controlled studies showing that Peritrate was an effective drug, and that Darvon ~as better as an ordinary analgesic that aspirin, or that any of~ the tetracyclines' are better than tetracycline hydrochloride. We ~can't find any such "studies. So I am wondering what your doctors submitted to the formulary committee to convince them to put it on' the formulary.1 Dr. CHASE. Senator, I believe that, to repeat Dr. Wells' statement previously made, in this particular area of therapeutic effectiveness, 1 See appendix V, letter to Mr. Benjamin Gordon, Majority Counsel,. Monopoly Sub. committee, from Lyndon B. Lee, Jr., M.D., Assistant Chief Medical Director for Pro- fessional Services, Veterans' Administration, pp. 8406-8485. PAGENO="0172" 8128 COMPETLTIVE PROBLEMS IN THE DRUG INDUSTRY in certain categories of drugs there has been controversy. We readily recognize this. I also readily admit to you that it is possible in sub- mitting documentation to a therapeutics committee that selected portions of a bibliography are being submitted. However, we must rely upon the sincerity and the professional judgments of the superior people in our hospitals settings to use good judgment for the protection of the patient and to insure the fact that the patient gets the maximum therapeutic benefit at the most reasonable cost. Senator NELSON. Well, let's be. more precise. Dr. Edward Freis, senior medical investigator at your own Washington, D.C., hospi- tal, a member of the National Academy of Science-NRC panel on cardiovascular drugs stated as to Peritrate-that "The few con- trolled trials that have been done have failed to demonstrate that they are effective," referring to Peritrate and one other drug. Then I asked him: "Do the controlled studies indicate that they are not effective c?" "Dr. Freis: They are not effective compared to a placebo.'? Now, here you say you are relying upon your senior people, and yet you have the testimony of Dr. Freis, senior medical investigator, who says that Peritrate is compaTable to a placebo. Dr. WELLS. Mr. Chairman, I know that Dr. Freis made that state- ment, beca~use I read his testimony, also, but there are frank differ- ences of opinion at high levels on this. We have with us here Dr. 3. N. Cohn, who is an expert in the field of cardiovascular disease treatment and I would like to have him speak to this. He is also an associate of Dr. Freis. Dr. COHN. Senator Nelson, you will notice in Dr. Freis' state- ment that he said the few controlled studies that were performed, and while I would feel as strongly as you that we should be able to reach a rational decision whether a drug such as Peritrate is or rs not effective, in a strong statement such as that there is still con- troversy. There are rational, knowledgeable people who feel that this drug is effective and have published papers on demonstrated effectiveness in uncontrolled studies. Now, these are nOt acceptable as total scientific proof. Unfortunately it is much easier to prove effectivefiess of a drug than it is to prove ineffectiveness and in small controlled studies- Senator NELSON. Ii didn't understand what you said. Dr. COHN. It is easier to prove effectiveness of an agent than to prove categorically its ineffectiveness' and the response of some knowl- etigeable people in the field to controlled studies showing no response would be, yes, the drug is not `effective in all people and is not neces- sarily potent in a larger series, but in certain individuals the drug does woi~k and therefore the physician wants to use it. I personally do not use the drug but I cannot marshal any strong evidence to prove to another physician who quotes the literature and who states from the literature that this `drug is effective and quotes textbooks which describes this as the most potent and effec- tive long term treatment or prophylaxis for angina pectoris. I can't marshal strong evidence at the moment to tell him he is wrong and PAGENO="0173" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8129 I think it is a clear example of a situation where we need further research before we can make a definite decision whether this drug should be removed from our formulary. Senator NELSON. You can't come up with carefully controlled studies that demonstrate that it is effective, is that correct ~ Dr. COHN. I think that the controlled studies that have been done so far are unfortunately on too small a group of subjects to take a categorical position about its effectiveness. Senator NELSON. Would the controlled studies that have been done qualify it under the effectiveness provision of the Kefauver 1962 statute-substantial evidence of effectiveness ~ Dr. COHN. I think that at the moment-there is no demonstrated substantial evidence of effectiveness, but there is no clear-cut proof of ineffectiveness. There have also been controlled studies of nitro- glycerine which is a drug which almost all physicians accept as ef- fective in treatment of angina. There have been in the past con- trolled studies of nitroglycerine which have shown this drug to be no better than a placebo. There have been other controlled studies which have shown it to be effective and physicians today use this drug with a rather firm feeling that the drug is effective, And we have not really-this drug has not come into conflict because it is generally used. Peritrate is in the status of a drug which some controlled studies have shown to be ineffective but not enough studies have been done in a large enough series that all physicians are willing to accept the data -from these controlled studies. Senator NELSON.\ Well, what do you say about Darvon ~ Dr. COHN. I think I should turn that over to someone else. Senator NELSON. The testimony of medical experts, which remains uncontradicted-though there may be somebody in the country who can contradict it-is that the drug of choice for a mild analgesic is aspirin. Of course, there may be special cases where if somebody was allergic or something, you may use Darvon, and they recited a couple of special caseS. The witnesses could not explain the sub- stantial, very large purchases of Darvon by DOD and VA. I think DOD bought more than four and a half million dollars' worth and nobody could explain why they would - buy that much, when you could have bought the same amount of aspirin for $180,000. You could have saved about four and a half million dollars. Well, what is going on in the Department of Defense purchasing and VA purchasing to get all this Darvon? Dr. WELLS. Mr. Chairman, may I ~sk Mr. Statler, our Chief of Pharmacy, to take up this point. Mr. STATLER. Yes, Senator. On Darvon, VA's purchases in the past year admittedly have been around 51 million doses of Darvon and we are not trying to defend the large use of this drug. In the same period of time, however, we did buy around 110 mil- lion doses of other analgesics, notably aspirin. In the drug~~efflcacy study reports which the NAS-NRC sendstoFDA are~thes~ extracts in addition to the comments which we frequently heard about 32 milligram dosage not being as effective as a placebo. PAGENO="0174" 8130 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY I would like to read a couple of brief statements. One is that. "Darvon is an effective analgesic and can be used for recurrent and. chronic pain." They also state that Darvon compound, a combina- tion with aspirin or aspirin compound, "There is reason to believe, on the basis of either actual clinical studies and theoretical con- siderations, that the combination of Darvon with an antipyretic- analgesic of the aspirin type results in analgesic superior to that achieved by either drug administered alone." Now, this is what, of course, our physicians are faced with. They have a patient in pain. They usually prescribe aspirin. If they feel. they need something a little stronger they will probably prescribe a Darvon compound or use Darvon 65 along with aspirin rather than resort to codeine, because there are frankly some adverse effects from the codeine. In the same study they mentioned in comparing Darvon with co- deine~ that the relative potency of the two drugs indicated that Darvon is approximately one-half to two-thirds as potent as codeine and this is usually the way it is prescribed. We generally use a 65 milligram dosage of Darvon which is equivalent to about 32 milli- gram dosage of codeine. This is the recognized dosage. The contro- versy rages as the therapeutics committee tries to decide whether to standardize. You have clinicians who have used this drug effec- tively on patients, patients seem to feel better and they are faced with the decision do they want to discontinue Darvon and use only aspirin when there is proof of some effectiveness. Senator NELSON. I believe the testimony has been in agreement that 32 milligram dosage was no better than a placebo. So there is hardly any point in purchasing that. Mr. STATLER. We purchase very little of that dosage and gener- ally-most of the dosage prescribed is 65. If they use the 32 it is two capsules at a time primarily for an elderly patient having diffi- culty swallowing. It provides additional flexibility in dosage. If they feel they need a larger amount rather than 65, they can prescribe a 32 milligram capsule in addition to the 65. Senator NELSON. I think in the appropriate dosage form it is an effective analgesic. That is not the question. The question raised is whether it is justifiable for the Defense Department, for example, to buy $41/2 million worth, when they are simply substituting a more expensive analgesic for a less expensive dosage form of aspirin. Further, they are not selecting Darvon because Of some specific use. It is not the drug of choice as a mild analgesic. That is the question that I am raising here. I don't know how you prove all that but- Dr. WELLS. This is the point. Of course we have made every effort to educate our physicians through our committee here in Washington and through our publications to them. We speak of this a bit later. We point out that we do not recommend Darvon as an expensive substitute for aspirin but simply as an analgesic that may be used in addition to or with aspirin. PAGENO="0175" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8131 Senator N~LSON. The Medical Letter of January 23, 1970, says: No evidence has appeared since this review that establishes the superiority of 65 milligram doses of propoxyphene to two tablets of either aspirin or APO. And the Lilly Co. itself says: As for the view that Darvoñ should not be prescribed routinely in preference to other analgesics, we agree. But it is obvious from the level it is being purchased that it haa been prescribed routinely, anyway, it would see~n to me to be so. Dr. WELLS.\ We don't tidnk ~o. We think the routine prescriptioii is being discouraged about as actively as we can. So we don't feel that that will be a continuing problem. Mr. STATLER. Medical Letter incidentally, is one of the sources of information that all of our therapeutic agency committees have at their disposal. Most of our hospitals have bet~reen 80 and 100. of the leading journals as reference sources in addition to the peer reviews of clinicians actually using the drug, so information in Medical Letter is considered. We have seen comments, for example, in the minutes of the therapeutic committees indicating that a spe- cific drug was evaluated in the Medical Lette~r and they have dis- cussed this and either agreed. or did not agree or are iooking~ into it further. Senator NELsON. The Medical Letter also states that the oral tetracycline of choice is tetracycline hydrochloride capsules. They are as reliably absorbed and as clinically effective as any other* oral tetracycline. Dr. WELLS. We are quite aware of this as a problem and I would like to ask Dr. Robert Loudon, who is an expert in the field of anti- biotics, to speak to the point. Dr. Loudon. Senator NELSON. In other words, my question is, then, why should we be purchasing the other forms that are much more expensive. if not more effective? Dr. LotmoN. Senator Nelson, I think in the testimony before this committee Dr. Heinz lEichenwald who appeared earlier~ confirmed this belief, that the tetracyclines as a group have similar indications and that they have varying costs, varying prices. The question here, the specific question, about the reasons for these appearing on the formularies of Veterans' Administration hospitals, I think is of a similar order to the answers which have been made about the other instances of analgesics or Peritrate `appearing on the formulary. The tetracyclines which appear on the formulary offer a degree of flexibility to the individual physician who is prescribing these drugs for hi~ patients'. The relative usage of the different prepara- tions is something which we will .expect to change as a result of the testimony which has been produced here, the efforts which you have made in this direction, and the efforts which the VA is making to implement the findiiigs. Dr. WELLS. Mr. Chairman, may I add that I think it is important to note that during 1970 the Veterans' Administration bought just PAGENO="0176" 8132 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY a little over 13 million doses of all the tetracyclines and of this 12½ million were tetracycline hydrochloride. Senator NELSON. I hadn't remembered that figure. I know AID testified yesterday that there are a number of tetracyclines they were not going to buy any more because of the expense. Chlortetra- cycline, doxycycline, methacycline HCL, and three or four others. Well, I don't want to be misunderstood about this. I don't think this committee or any congressional group should in any way attempt to dictate the practice of medicine. All I am attempting to do is insist that good medicine be practiced and that the profes- sion itself insist on the highest standards because, at least so far as the Congress is concerned, these are taxpayers' moneys. Dr. Edwards in testimony before the committee a couple of weeks ago made the statement with which I agree, and I think you would, too, that- Government as a major purchaser of drugs should and must Insist upon the least expensive of equivalent drugs and upon rational choices among different drugs which satisfy the same medical needs. That is all I am talking about here, not that we should attempt in any way to tell the medical profession how to practice but that we are entitled to say to Government agencies who are using tax- payers' money that they, at least, follow the best scientific knowl- edge within the medical profession themselves. Dr. WELLS. I think we would wholly concur, and we certainly subscribe to the statement of the Commissioner. It is very much in line with our own policies. Senator NELSON. Well, then, do you scrutinize the formularies of the various Veterans' Administration hospitals as to what goes in the formulary and what, drugs are used in the hospitals? Do you have a careful scientific review of that at the national level? Dr. WELLS. Indeed we do. The Hospital Committee itself has a regular monthly meeting with minutes of all the transactions which are transmitted to the central office. Then the committee that Dr. Chase chairs reviews these in depth and uses. consultants for special points, so that this is an extremely well-monitored, carefully scru- tinized formulary. Senator NELSON. What do you do if you find something on the formulary that ought not to be there or that substantial amounts are being used when you know, within the profession, that there is an equivalent therapeutic agent that is `much cheaper? Dr. WELLS. Dr. Chase. Dr.' CIL~SE. We go back to the hospital, make contact with the chief of staff of the hospital, draw this to his attention and ask him to review this with the station committee. Senator NELSON. How often have you done that in the past few months? Dr. CHASE. Not often, principally because it is our impression that the competencies of these groups arç~ good and that since we have been stimulating them to review this in terms of the cost PAGENO="0177" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8133 relationship, that they have done a creditable job in this rela- tionship. I think this is pointed out actually, Senator, by the figures which Dr. Wells just gave you on tetracycline. Senator NELSON. All right. Please continue. Mr. JONES. Excuse me, Doctor. Before you continue your testi- mony, I would like to ask a couple of questions about Darvon. To clarify the earlier testimony, does the VA purchase 110 million units of aspirin and 51 million units of Darvon? Mr. STATLER. Right; 110 units of aspirin type analgesics, that is chiefly aspirin, and 51 million doses o~ Darvon products. Senator NELSON. Was that part of the- Mr. STATLER. We purchased 110 total analgesics other than Dar- von. That would be primarily aspirin and Tylenol, acetaminophen, as compared to 51 million doses of all the Darvon products. Mr. JONES. So that roughly speaking, for every two aspirin you dispense, you dispense one Darvon. Mr. STATLER. That is a fair assumption. Mr. JONES. I think that has been described as the routine pre- scription of Darvon and you have also stated you are going to dis- courage that in the future. What precise steps will you take to discourage that routine prescription? Dr. CHASE. This has been a continuing effort. This is by per- sonal contact with the field and by written communication. The whole question of Darvon has been a difficult one because of what appears to be therapeutic efficacy to the individual practitioner in dealing with his patient; and as I am sure you are well aware, pain being the kind of symptom it is, the physician is motivated to relieve pain as quickly and as effectively as he can, and after the preliminary trial of aspirin, comparable disease states and comparable type patients, the physician is motivated not uncom- monly to go to the top analgesic which he can find which is non- addicting, which is safe for the patient. This is also related to the high incidence of complicating diseases which we have in the VA, the relatively high frequency of ulcers and the aged patients. The physicians attempt to give the safest analgesic which they can. We are all aware and we have actually been preaching on the other side of the coin, be alert that aspirin produces gastric irritation and this can be a reason many times for not so small gastric bleeding. So a fine line has to be walked in how we wish to stimulate our physicians in the practice of medicine. Dr. WELLS. We have taken some steps in the last few months which we would like to outline. First, we directed our hospitals to remove from their local formularies all those drugs listed by the Food and Drug Administration in a publication dated Novem- ber 1, 19~T0, as lacking substantial evidence of effectiveness or as having an unfavorable benefit to risk ratio. I would like to sub- mit for inclusion in the record our directive on this, Department of Medicine and Surgery Circular 10-70-237, December 4, 1970. (The information above-referred to, follows:) 59-581 O-71----pt. 20-12 PAGENO="0178" 8134 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Veterans Administration CIRCULAR 10-70-237 Department of Medicine and Surgery Washington, 0 C 2062() December 4, 1970 )(JLtJ I ISi~I 1 SIC fl t iii I is NA / NU( I) s's 11 I I us v In II si I s 1 s isle I I TO Directors 1 ilospi tat us I)osist II just y Outpuut tnt 4 I hit ( S and Regional Of fices with Outpatient Clinlis 1 The Executive Committee on Therapeutic Ai,ents VACO has reviewed VA's policies regarding the use of drug products whose efficacy was questioned by various panels of the National Academy of Sciences (NAS), National Re- Search Council (NRC). 2 A copy of the dru~, efficacy study of the NAS/NRC submitted to the Connnissioner of Food and Drugs was sent to each VA Therapeutli Agent'; and Pharmacy Reviews Committee in 1969, and includes the names of the reviewing members. Their professional 4ualifications for this task are recognized as outstanding. 3 Since that time and with increasin~ frequency in recent month'; the FDA has been taking action to publicize and remove from the market drst,~ prod- ucts which they concluded lack substantial evidence of effectiveness as defined in the Federal Food, Drug and Cosmetic Act, or have an unfavorable benef it to risk ratio. Enclosed is a list of such drug products compiled by the FDA Subsequent lists will be distributed as they become available with an appropriate covering letter to assure that your pharnacist obtains all lists It should be borne in mind that additional clinical evidence sub- mitted by the manufacturer may result in a reclassification of some of these products If this occurs you will he promptly notified 4 The Executive Committee on Therapeutic A ents recommends the followinl procedures for immediate implementation at each VA facility: a. Drug products on the attached FDA list will he reviewed by the hospital Therapeutic Agents and Pharmacy Reviews Committee and if present, will be removed from the hospital formulary and threfore will be un available for prescrihln~ by VA staff physicians or d1spensln~ by VA pharmacies Whcrever reference is mads to physicians it will he inter preted to include dentists, pOdiatrists or others authorized by law to prescribe for pdticnts Any drug products tress tht list which the bc's pital committee desires to retain in the formulary will be submitted with justificati n for retention to the Lxecutive Committee on Thera- peutic Agents VACO for purposes of further revicw and action b Unless retaincd in the station forunulary when prescriptions for drug products on the attached FDA list are received from fee physicians treating service-cpnnected patients or private physicians treating AM patients, the physician concerned will be contacted by a VA physician or pharmacist VA policy al,ainst dispensin6 these products will be CIRCUlAR EXPIRES DECEMBER 3 1971 ATTACHMENT A PAGENO="0179" COMPETITIVE PROBLEMS J»=.t THE DRUG INDUSTRY 8135 explained to him and he will be given a choice ~i alternailve available medication. In those infrequent instances where physicians will not agree to an alternative medication, the drug product, if available, wil.l have to be obtained by the patient from a private pharmacy. 5, It Is not the intention o Central 0111cc to practice meui~ L~e 11 dictate from Washington the prescribing of drugs for individual patients. We are, however, deeply concerned about the continued use of drug products which, after a review by eminent medIcal specialists composing the Review Panels of HAS/NRC, have been determined by the fl~A to lack substantial evidence of effectiveness or have an unfavorable benefit to risk ratio, Pharmacists will keep Supply Service closely apprised of any act4'n taken by local committees that would affect drug derrancts. B. WELlS, M.D. Chief Medical Director Enclosure Distribution: COB: (10) only pLus (119) 75 SS (1OC5A) FSB: HA, DO, OC, OCRO PAGENO="0180" 8136 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Food an& Drug Administration Bureau of Drugs 5600 Fishers lane Rockville, Maryland 20852 November I, 1970 This list represents those drug products which the Food and Drug Administration has decided, after evaluations by the National Academy of Sciences-National Research Council Drug Efficacy Study Group, lack substantial evidence of effectiveness*, or that an unfavorable benefit to risk ratio exists. Accordingly, on the dates shown, FDA published in the Federal Register announcements of intention to initiate pro- ceedings to withdraw ~~roval of the new drug applications or to repeal the anti- biotic regulations. These announcements are intended to apply also to similar drug products marketed by the same or other firms. Some of the products have been removed from the market; others are the subjects of actions contesting our findings. In other cases the applicants are submitting data in an attempt to establish efficacy, or making changes to render the product acceptable. NAME OF DRUG ______ Achrocidin Compound Syrup Achrocidin Compound Tablets Achromycin Pharyngets Achromycin SV Capsules Achromycin Troches Achromycin with Phenylephrine HC1 and SC Achrostatin V Capsules Achrostatin V for Oral Suspension Aclor Capsules Acticort Actilamide Nose Drops Actilamide Oral Gargle Actilamide ThrOat Spray Actol Solution COMPANV Lederle Laboratories Lederle Laboratories Lederle Laboratories Lederle Laboratories Lederle Laboratories Lederle Laboratories Lederle Laboratories Lederle Laboratories Cole Pharmacal Co., Inc. Wilson Laboratories Broemmel Pharmaceuticals Broemmel Pharmaceuticals Broemmel Pharmaceuticals The S.E. Massengill Co. DATE 9/12/69 9/12/69 9/19/70 4/2/69 9/19/70 12/24/68 4/2/69 4/2/69 9/12/69 9/25/70 11/6/68 11/6/68 11/6/68 5/16/70 *As defined in the Federal Food, Drug and Cosmetic Act PAGENO="0181" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8137 NAME OF DRUG Adrestat Aerodrin Nasal Solution & Spray Albamycin G.U. Tablets Albamycin-T Capsules Albamycin-T Flavored Granules for Suspension Alertonic Alevaire (Tyloxapol 0.125 percent) Allergosil (Ethylene Disulphonate) Solution for Injection Amm-I-Dent Toothpaste Amm-I-Dent Tooth Powder Animozyl Am Plus Improved Capsules Amril Tablets Analexin 400 Capsules Analexin Syrup Analexin Tablets Analexin-HF Tablets Anergex (Poison Oak Extract for Injection) Antivert Tablets Antizyme Toothpaste Artamide-HC Capsules Aristogesic Steriod - Analgesic Compound Cap. COMPANY Organon, Inc. Burroughs Wellcome & Co. The Upjohn Company The Upjohn Company The Upjohn Company The Wm.~ S. Merrell Co. Winthrop Products, Inc. Spicer-Gerhart Co. Block Drug Co. Block Drug Co. High Chemical Co. J. B. Roerig & Co. Amfre-Grant Inc. Mallinckrodt Chemical Works Mallinckrodt Chemical Works Mallinckrodt Chemical Works Mallinckrodt Chemical Works Lemmon Pharmacal Co. Chas. Pfizer & Co., Inc. Lambert Pharmacal Co. Wanipole Laboratories DATE 7/10/68 8/21/70 12/24/68 12/24/68 12/24/ 68 9/12/69 7/17/ 68 9/12/69 7/21/70 7/21/70 11/22/68 9/12/69 9/27/69 11/21/69 11/21/69 11/21/69 11/21/69 9/5/68 3/27/70 7/21/70 3/28/70 Lederle Laboratories 3/28/70 PAGENO="0182" 8138 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG COMPANY DATE Aristomin Capsules Lederle Laboratories 8/29/70 Atropine and Phenobarbital Tablets Cole Pharmacal Co., Inc. 3/27/70 Aureomycin Pharyngets Lederle Laboratories 9/19/70 Aureomycin Triple Sulfas Tablets Lederle Laboratories 4/2/69 Aureomycin Troches Lederle Laboratories 9/19/70 Azotrex Capsules Bristol Laboratories 4/2/69 Azotrex Syrup Bristol Laboratories 4/2/69 Bacimycin Tabs. Walker Laboratories 7/2/70 Betadine Mouthwash/Gargle The Purdue Frederick Co. 8/4/70 Bicillimycin All Purpose Injection Wyeth Laboratories, Inc. 4/2/69 Bicillin-Sulfa Susp. Wyeth Laboratories, Inc. 4/2/69 Bicillin-Sulfas Tablets (oral) Wyeth Laboratories, Inc. 4/2/69 Bilcain Tablets Cole Pharmacal Co. 9/12/69 Biomydrin Antibiotic Nasal Spray, Solution, Drops Warner-Chilcott Laboratories 8/21/70 Biomydrin-F Nasal Spray Warner-Chilcott Laboratories 8/21/70 Biosulf a l25M Tablets The Upjohn Company 4/2/69 Biosulf a 250M Tablets The Upjohn Company 4/2/69 Bistrimate Tabs. Smith, Miller, & Patch, Inc. 8/25/70 Blutene (Tolonium Chloride) Abbott Laboratories 7/11/68 Bradosol Lozenges Ciba Pharmaceutical Co. 3/28/70 Brisk Activated Toothpaste Colgate-Palmolive Co. 7/21/70 Pabirin AC Buffered Tablets Dorsey Laboratories 3/28/70 PAGENO="0183" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8139 Chymotrypsin Injection Chymotrypsin Injection Coco-Sulfonamides Triplex Suspension Colgate Chlorophyll Toothpaste w/Gardol Colgate Dental Cream w/Gardol Compocillin VK w/Sulf as Filmtab Tablets Compocillin VK w/Sulf as Granules for Oral Suspension Comycin Capsules Comycin Half-Strength Capsules Curad Medicated Adhesive Bandage C.V.P. w/Vitamin K. COMPANY Wm. S. Merrell Co. Wm. S. Merrell Company The Upjohn Company The Upjohn Company NAME OF DRUG Cepacol Mouthwash/Gargle Cepacol Throat Lozenges Cer-O-Strep-One Cer-O-Strep-One-Half Chlortetracylline Hydrochloride Dental Cones Chlortetracycline Hydrochloride Dental Paste Chymar Aqueous Injection Chymar Injection in Oil Chymar-L Powder DATE 8/4/70 9/12/69 4/2/69 4/2/69 Lederle Laboratories 9/16/69 Lederle Laboratories Armour Pharmaceutical Co. Armour Pharmaceutical Co. Armour Pharmaceutical Co. Chicago Pharmacal Div. Wilson Laboratories 9/16/69 6/25/70 6/25/70 6/25/70 6/25/70 6/25/70 Eli Lilly & Company 9/11/69 Colgate-Palmolive Co. 7/21/70 Colgate-Palmolive Co. 7/21/70 Abbott Laboratories 4/2/69 Abbott Laboratories The Upjohn Company The Upjohn Company The Kendall Company USV Pharmaceutical Corp. 4/2/69 4/2/69 4/2/6 11/6/68 7/10/68 PAGENO="0184" 8140 COMPETITIVE PROBLEMS IN TUE DRUG INDUSTRY NAME OF DRUG Cyclex Tablets Cytran Tablets Dactil-OB Decadron Phosphate w/Xylocaine Inj ection Decadron Phosphate w/Xylocaine Injection, Dilute Declostatin Capsules Declostatin for Oral Suspension Declostatin 300 Tablets Delfeta-sed Plus T. Stedytabs (S.R. Tablets) Dexa-Pyramine Inj ection Di-Ademil-K Tablets Diapec Oral Suspension COMPANY Merck Sharp & Dohme Upjohn Company Lakeside Laboratories DATE 2/6/70 10/15/70 7/10/68 7/11/68 Merck, Sharp & Dohme 9/23/70 Merck, Sharp & Dohme Lederle Laboratories Lederle Laboratories Lederle Laboratories Eastern Research Laboratories, Inc. Vitamix Pharmaceutical Inc. E. R. Squibb & Sons Charles Pfizer & Co. (International) 9/23/70 4/2/69 4/2/69 4/2/69 9/17/68 10/15/70 9/5/69 4/2/60 Dihydrostreptomycin-chlortetra- cycline-chloramphenicol-bac itracin Dental Cement Dihydrostreptomycin with streptomycin Sulfate Powder Dihydrostreptomycin Sulfate Powder (1 gm/vial) Dihydrostreptomycin Sulfate Powder (1 gm. & 5 gm/vial) Dihydrostreptomycin Sulfate Powder (5 gm/vial) Dihydrostreptomycin Sulfate Powder (1 gm/vial) Oskar Schaefer, Inc. 6/25/70 Merck & Co., Inc. 2/6/70 Chas. Pfizer & Co., Inc. 2/6/70 Pure Laboratories, Inc. 2/6/70 E. R. Squibb & Sons, Inc. 2/6/70 E. R. Squibb & Sons, Inc. 2/6/70 PAGENO="0185" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8141 OF PRODUC Dihydrostreptonycin with Streptomycin Sulfate Powder Dihydrostreptosycin Sulfate Powder & Solution Dihydrostreptoisycin Sulfate Powder & Solution (500 ag./cc.) Dihydrostreptomycin Sulfate Solution (0.5 gm/cc) Donñagel w/Neoinycin Liquid Drilitol Solution & Drilitol Spraypak Duo C.V.P. v/Vitamin K Duograf in Injection Durycin A. S. (Aqueous Suspension) Durycin F.A. for Aqueous Injection Emivan Tablets Equalysen Tablets Erythrocin Sterate Sulfas Film Tabs Erythrocin Ethyl Succinate Suif as Chewable Tablets Erythrocin Ethyl Succinate Sulfas Granules Erythromycin Sulfate-polymyxin B Sulfate-pramoxine-Hydrochloride Otic Solution Erythrosulfa Tablets Eskay' a Theranates CONPANY B. R. Squibb & Sons, Inc. 2/6/70 )4erck 6 Co., Inc. 2/6/70 Philadelphia Labs., Inc. 2/6/70 Pure Laboratories, Inc. A. H. Robins Co. Smith, Kline 6 French Labs. U.S. Vitamin Corp. E. R. Squibb & Sons, Inc. Eli Lilly & Co. Eli Lilly & Co. U.S. Vitamin Pharmaceuticals Wyeth Laboratories 2/6/70 7/2/70 8/21/70 7/10/68 2/6/70 4/2/69 4/2/69 4/10/70 10/15/70 Abbott Laboratories 9/27/69 Abbott Laboratories 9/27/69 Abbott Laboratories 9/27/69 Abbotories The Upjohn Company Smith, Kline & French 9/26/69 4/2/69 9/25/70 PAGENO="0186" 8142 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG Esidrix-K Tablets Estrosed Tablets Flanithin Capsules (glutainic acid hydrochloride) Flavocillin-CS Powder Flavoserp Tablets Frenquel I.V. Injection Frenquel Tablets 20 mg. Frenquel Tablets 100 mg. Gantricillin Tablets, 100, 200, 300 Gantrisin Nasal Solution Germicidal Detergent, Liquid Geroniazol Injection. Gluco-Fedrin WI Sulfathiazole Suspension (Nasal) Guanidine Hydrochloride Tablets Hormatone "T" Tablets Hydrodiuril-Ka Tablets Hydropres-Ka Tablets COMPANY DATE Ciba Pharmaceutical Co. 9/5/69 Conal Pharmaceuticals, Inc. 2/6/70 Table Rock Labs., Inc. 9/12/69 Philadelphia Laboratories 4/2/69 The Blue Line Chemical Co. 7/10/68 The Wm. S. Merrell Co. 4/2/69 The Wm. S. Merrell Co. 4/2/69 The Wm. S. Merrell Co. 4/2/69 Hoffman-La Roche, Inc. 4/2/69 Roche Laboratories 9/9/69 Parke, Davis & Company 9/12/69 Philips Roxane Laboratories 8/26/69 Parke, Davis & Company 9/9/69 Rose-Hoyt Pharmaceutical 3/27/70 G.W. Carnrick Co. 8/29/70 Merck Sharp & Dohme 9/5/69 Merck Sharp & Dohme 9/5/69 IlosOne Sulfa for Oral Suspenèion Eli Lilly & Company 4/2/69 Ilosone Sulfa Tablets Eli Lilly & Company 4/2/69 Ilotycin Gluceotate Dental Cones Eli Lilly & Company 2/21/69 Ilotycin Ethyl Carbonate-Sulfa .. Pediatric for Oral Suspension Eli Lilly & Company :4/2/69 Ilotycin Gluceptate Otic w/Polymyxim B & Benzocaine Eli Lilly & Company 12/18/68 PAGENO="0187" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8143 NAME OF DRUG Ilotycin Sulfa (79) Tablets Intromycin Powder Isodine Gargle & Mouthwash Kaomycin Suspension Kasdenol Mouthwash & Gargle K-Cillin Sulfa Powder for Syrup Kectil Suspension Koagamin Parenteral Hemostat Kolynos Fluoride Toothpaste Ledercillin Troches Lutrexin Tablets (lututrin 3,000 units) Mannitrau Tablets Maxitate w/Rauwolfia Compound Tablets Medrol w/Orthoxine Tabs. Menacyl Tablets Mephosal w/Hydrocortisone Tablets Mesuif in Tablets Metreton Tabs. Micrin Oral Antiseptic Milprem-200 and Milprem~-~4O0 Mulsopaque Injection Mycifradin N. Tab. COMPANY Eli Lilly & Company Pitman~-Moore Isodine Pharmacal The Upjohn Company Kasdenol Corp. Biocraft Laboratories, Inc. Bristol Laboratories Chatham Pharmaceuticals, Inc. Whitehall Laboratories, Inc. Lederle Laboratories Hynson, Westcott & Dunning, Incorporated Richlyn Laboratories, Inc. DATE 4/2/69 5/16/70 8/4/70 7/2/70 8/4/70 4/2/69 7/2/70 3/29/69 7/21/70 9/19/70 5/24/68 7/3/70 7/10/68 8/29/70 2/11/70 3/28/70 9/27/69 8/29/70 8/4/70 8/26/70 2/11/70 7/2/70 Strasenburgh Laboratories The Upjohn Company Lakeside Laboratories, Inc. Crookes-Barnes Laboratories, Incorporated Ayerst Laboratories, Inc. Schering Corporation Johnson & Johnson Wallace Laboratories Lafayette Pharmacal, Tnc. The Upjohn Company PAGENO="0188" 8144 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG Mycillin Suspension Myospaz Tablets Mysteclin F Capsules Mysteclin F 125 Capsules Mysteclin F Pediatric Drops Mysteclin F Syrup Mysteclin V Capsules Nasal Spray Neo-Hydeltrasol Nasal Suspension Hydrospray Naturetin c/K Tablets Neo-Cortef 1.5% Nasal Spray Neo-Cortef 0.5% Nasal Spray Neo-Cortef Sterile Inj. Susp. Neocyclone Tablets Neo-Delta Cortef 0.1% Nasal Spray Neomycin Sulfate-Kaolin-Pectin Oral Suspension Neomycin Sulfate, Kaolin Pectin Suspension Neoparbel Tablets Neopenzine Suspension Neopenzine (150) Tablets Neopenzine (300) Tablets Neo-Semhyten Capsules Neo-Synephrine-Sulfathiazolate Nose Drops COMPANY DATE Maurry Biological Co., Inc. 4/2/69 North American Pharmacal, Inc. 9/27/69 E. R. Squibb & Sons, Inc. 12/24/68 E. R. Squibb & Sons, Inc. 12/24/68 E. R. Squibb & Sons, Inc. 12/24/68 E. R. Squibb & Sons, Inc. 12/24/68 E. R. Squibb & Sons, Inc. 4/2/69 Merck Sharp & Dohne 8/21/70 Merck Sharp & Dohme 8/21/70 E. R. Squibb & Sons, Inc. 9/5/69 The Upjohn Company 8/21/70 The Upjohn Company 8/21/70 The Upjohn Company 8/28/70 The Central Pharnacal Co. 3/28/70 The Upjohn Company 8/21/70 E. W. Heun Company 7/2/70 Vitamin Pharmaceuticals Inc.7/2/7O Central Pharmacal Co. 10/24/70 Eli Lilly & Company 4/2/69 Eli Lilly & Company 4/2/69 Eli Lilly & Company 4/2/69 The S.E. Massengill Co. 7/10/68 Winthrop Laboratories 7/9/68 PAGENO="0189" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8145 NAME OF DRUG Neuro-Centrine Tab NIcozol w/Reserpine Tablets Nisulfazone Suspension Novahistine w/Penicillin Capsules Onixol Solution (topical) Orabiotic Chewing Gum Troches Pabalate-HC Tablets Pabicortal Tablets Pabirin AC Tablets Pacatal Injection 25 ng/cc Pacatal 25, 50, 100 ng. Tabs. Panalba Capsules Panalba Half-Strength Capsules Panalba KM Drops Panalba KM Granules Paredrine-Sulfathiazole Susp. Parenzyme Aqueous for Injection Parenzyme Ointment Piptal w/Phenobarbital Pediatric Drops Pell-Biotic 250 Tablets Penicillin-dihydrostreptomycin- bacitracin Dental Paste Penicillin-dihydrostreptomycin Dental Cones COMPANY Bristol Laboratories Nysco Laboratories Breon Laboratories, Inc. Pitman~-Moore Scholl Manufacturing Co. White Laboratories, Inc. A. H. Robins Co., Inc. Nysco Laboratories Dorsey Laboratories Warner-Chilcott Labs. Warner-Chilcott Labs. The Upjohn Company The Upjohn Company The Upjohn Company The Upjohn Company Smith, Kline & French Labs. National Drug Company National Drug Company Lakeside Laboratories Richlyn Laboratories Biotic Drug Co., Inc. DATE 9/27/69 8/26/69 8/28/70 9/12/69 Inc .6/7/69 9/19/70 3/28/70 3/28/70 3/28/70 5/28/70 11/29/69 12/24/68 12/24/68 12/24/68 12/24/68 9/9/69 6/25/70 6/25/70 9/27/69 4/2/69 6/25/70 Strong Cobb Arner, Inc. 6/25/70 PAGENO="0190" 8146 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG COMPANY DATE Penicillin G Potassium w/Three Sulf as Buffered Powder for Syrup Nysco Laboratories 4/2/69 Penicillin G w/Triple Sulfonamides Flavored Vitamix Pharmaceuticals Inc 4/2/69 Penicillin Streptonycin Readimixed Sterile Aqueous Suspension Upjohn Co 4/2/69 Penicillin-Streptonycin Bacitracin Dental Paste Procol-Sol Chemical Co 6/25/70 Penicillin w/Sulfonamides Powder for Solution Biocraft Laboratories, Inc. 4/2/69 Penicillin Three Sulfonamide Tablets `100" Nysco Laboratories, Inc. 4/2/69 Penicillin Three Sulfonamide Tablets 300 Nysco Laboratorienc 4/2/69 Penicillin w/Triple Sulfas Tabs Biocraft Laboratories Inc 4/2/69 Penicillin w/Triple Sulf as No. 1, No. 2 and No. 3 Tablets Richlyn Laboratories, Inc. 4/2/69 Penicillin w/Triple Sulfas Tabs Supreme Pharmaceutical Co 4/2/69 Penicillin G w/Triple Sulf as Tabs Vitamix Pharmaceuticals Inc 4/2/69 Penicillin w/Triple Sulfonamides (100,000 units) Tablets Zenith Laboratories, Inc. 4/2/69 Penicillin w/Triple Sulfonamides (200 000 units) Tablets Zenith Laboratories Inc 4/2/69 Penicillin w/Triple Sulfonamides (250,000 units) Tablets Zenith Laboratories, Inc. 4/2/69 Penicillin w/Triple Sulfonamides (300,000 units) Tablets Zenith Laboratories, Inc. 4/2/69 Pen Strep Powder for Injection (4:1; 4:1/2) Merck & Company, Inc. 4/2/69 Pentid Sulfas for Syrup E. R. Squibb & Sons 4/2/69 PAGENO="0191" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8147 NAME OF DRUG Pentid Sulfas "400" for Syrup Pentids-Sulfas Tablets Pentocin Pen-Vee Cidin Capsules Pen-Vee Sulfas Suspension Pen-Vee Sulfas Tablets Pepsodent Antiseptic Mouthwash Perithiazide SA Tablets Pharycidin Concentrate Phemerol Solution (benzethonium chlordie) 1:750 Phemerol Tincture (benzethonium chloride) 1:500 Phemerol Topical Plimasin Tablets PMB-200 & PMB-400 Tabs Polanil Tabs Polycycline Suspension w/Triple Sulfonamides Polymagma Oral Suspension Polymagna Tablets Potassium Penicillin G. w/Triple Sulfonamides Tablets Powdalator ES Prednaman Tabs Presniscord Tablets Parke, Davis & Company 9/12/69 Parke, Davis & Company Parke, Davis & Company Ciab Pharmaceutical Ayerst Laboratories Schering Corporation Bristol Laboratories, Inc. Wyeth Laboratories, Inc. Wyeth Laboratories, Inc. Philadelphia Laboratories, Incorporated Abbott Laboratories Dome Laboratories Nysco Laboratories, Inc. COMPANY E. R. Squibb & Sons E. R. Squibb & Sons Pure Laboratories, Inc. Wyeth Laboratories, Inc. Wyeth Laboratories, Inc. Wyeth Laboratories, Inc. Lever Brothers Warner-Chilcott Laboratories Purdue Frederick DATE 4/2/69 4/2/69 4/2/69 9/12/69 4/2/69 4/2/69 8/4/70 8/29/70 10/7/70 9/12/69 9/12/69 10/15/70 8/26/70 8/29/70 4/2/69 7/2/70 7/2/70 4/2/69 12/9/69 8/29/70 3/28/70 PAGENO="0192" 8148 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG Pree MT Tablets Procaine Penicillin in Streptomycin Sulfate Solution Protanide Inj ection Quercetin Tablets Quintess-N Suspension Raumannite-50 Tablets Rautrax Improved Tablets Rautrax N Modified Tablets Rautrax N Tablets Rautrax Tablets Rauwiloid and Hexamethonium Tablets Rauwolfia Serpentina-Manni tol HexanitrateRutin Tablets Rauwolfia Serpentina-Mannitol Hexanitrate-Rutin-Veratrun Viride Tablets Remanden-250 Reserthonium Tablets Retrografin Solution Retropaque Solution Rhinazine (nasal solution) Ritonic Capsules Robaxisal Robaxisal-PH Tablets Roniacol w/Aminophylline Tablets COMPANY Wallace Pharmaceuticals Roehr Products Co., Inc. Sherman Laboratories Abbott Laboratories Eli Lilly & Co Nysco Laboratories, Inc. E. R. Squibb & Sons, Inc. E. R. Squibb & Sons, Inc. E. R. Squibb & Sons, Inc. E. R. Squibb & Sons, Inc. DATE 2/6/70 4/2/69 7/17/70 7/10/ 68 7/2/70 7/10/68 9/5/69 9/5/69 9/5/69 9/5/69 Riker Laboratories 10/15/70 Best Pharmaceuticals 7/10/68 Robin Pharinacal Co. Merck Sharp & Dohme Nysco Laboratories E. R. Squibb & Sons, Inc. Winthrop Laboratories Lederle Laboratories Ciba Pharmaceutical Co. A. H. Robins Co., Inc. A. H. Robins Co., Inc. 7/10/68 7/1/70 10/15/70 1/14/70 1/14/70 9/9/69 9/12/69 2/11/70 2/11/70 Roche Laboratories 9/17/70 PAGENO="0193" COMPETITIVE PROBLEMS IN TUE DRUG INDUSTRY 8149 NAME OF DRUG COMPANY J~ Ruhexatal w/Reserpine Lemmon Pharmacal Co. 7/10/68 Rusyntal Central Pharmacal Co. 10/7/70 Rutin Tablets Abbott Laboratories 7/10/68 Rutin Tablets The Maltine Company 7/10/68 Rutin Tablets Parke, Davis & Co. 1/23/68 Rutorbin Tablets E. R. Squibb & Sons, Inc. 1/23/68 Salcort-Delta Tablets The S. E. Massengill Co. 3/28/70 Sergynol Tablets B. F. Ascher & Co., Inc. 2/6/70 Seromycin w/Isoniazid Eli Lilly & Co. 9/18/69 Signemycin Capsules "250" J. B. Roerig & Co. 4/2/69 Signamycin Capsules "250" Chas. Pfizer & Co. 4/2/69 Signeinycin Capsules "375" J. B. Roerig & Co. 4/2/69 Signainycin Capsules "375" Chas. Pfizer & Co. 4/2/69 Signemycin Pediatric Drops J. B. Roerig & Co. 4/2/69 Signemycin Pediatric Drops Chas. Pfizer & Co. 4/2/69 Signemycin Syrup J. B. Roerig & Co. 4/2/69 Signemycin Syrup Chas. Pfizer & Co. 4/2/69 Siltrobarb Tablet Cole Pharmacal Co., Inc. 3/27/70 Sinaxar Tablets Armour Pharmaceutical Co. 9/27/69 Skelaxin Tablets A. H. Robins Co., Inc. 2/6/70 Somacort Wallace Pharm. 5/7/70 Sorboquel w/Neomycin Tabs. White Laboratories, Inc. 7/2/70 Spectrocin Nasal Sprsy E. R. Squibb & Sons, Inc. 8/21/70 59-~81 O-71-pt. 20-13 PAGENO="0194" 8150 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME P DR~ COIWANY __ Spectroein-T Troches N. N. Squibb & Sons, Inc. 9/19/70 Stenediol Sublinqual Tabs. Organon, Inc. 2/11/70 Sterisol Warner~Laabert Pharm. Co. 8/4/70 Strep-Combiotic Aqueous Suspension (aultidose) Chas. Pfizer & Co. Inc. 4/2/69 Strep-Combiotic for Aqueous Suspension (single dose) Chas. Pfizer 6 Co. Inc. 4/2/69 Strep-Combiotic Isoject Aqueous Suspension Chas. Pfizer & Co., Inc. 4/2/69 Strep-Dicrysticin N. N. Squibb 6 Sons, Inc. 4/2/69 Strep-Dicrysticin-800 E R Squibb 6 Sons, Inc 4/2/69 Strep-Dicrysticin Fortis E. R. Squibb 6 Sons, Inc. 4/2/69 Strep-Dicrysticin Portis-800 E. R. Squibb 6 Sons, Inc. 4/2/69 Strep-Distrycillin-A.S. Sterile Suspension N. R. Squibb & Sons, Inc. 4/2/69 Streptomagias Liquid Wyeth Laboratories, Inc. 7/2/70 Streptomagma Tab. Wyeth Laboratories, Inc. 7/2/70 Streptomycin-Bipenicillin Injection Pure Laboratories, Inc. 4/2/69 Strexate Tablets Armour Pharmaceutical Co. 9/27/69 Strycin Syrup N. R. Squibb 6 Sons, Inc. 7/2/70 Sulfaguanidine Tablets (0.5 gras) Lederle Laboratories 6/7/69 SulfaSugracillin 125M Granules The Upjohn Company 4/2/69 Sulfa-Sugracillin 250K Fortified Granules The Upjohn Company 4/2/69 Sulfathiasole Gas Tablet White Laboratories, Inc. 11/6/68 Sulfatbissole Tablet (0.5 gras) Boasan, Mell & Co. 9/11/69 PAGENO="0195" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8151 NAME OF DRUG Sulfathiazole Tablet (0.5 gram) Sulfathiazole Tablet (0.5 gram) Sulfathiazole w/Tuamine Sulfate Suspension Sulfedex Nasal Solution Sulfel Tablet Sulfonamets w/Topicaine Lozenges Super Antm-I-Dent Super Anapac Cough Syrup Syndecon for Oral Solution Syndecon Tablets Tace with Ergonovine Capsules Tam Oral Suspension Tam Tablets Tao-AC Capsules Taomid Oral Suspension Taomid Tablets Tenserine Tablets Tergemist (Inhalant) Terramycmn Dental Cones Terramycin Dental Paste Terramycin S.F. Capsules Terrastatin Capsules Terrastatin for Oral Suspension COMPANY .p4~ Vale Chemical Co. Inc. 9/11/ 69 Eli Lilly & Co. 9/11/69 Eli Lilly & Co. 9/9/69 Abbott Laboratories 9/9/69 The Vale Chemical Co., Inc. 11/6/68 National Drug Co. 9/6/68 Block Drug Co., Inc. 7/21/70 Rexall Drug & Chemical Co. 7/10/68 Bristol Laboratories 9/12/69 Bristol Laboratories 9/12/69 William S. Merrell Co. 10/24/70 Dorsey Laboratories 9/12/69 Dorsey Laboratories 9/12/69 .J. B. Roerig 6 Co. 9/12/69 3. B. Roerig & Co. 9/5/69 3. B. Roerig & Co. 9/5/69 Abbott Laboratories 7/10/68 Abbott Laboratories 7/17/68 Chas. Pfizer & Co., Inc. 2/21/69 Chas. Pfizer & Co., Inc. 2/21/69 Chas. Pfizer & Co., Inc. 4/2/69 Chas. Pfizer & Co., Inc. 4/2/69 Chas. Pfizer & Co., Inc. 4/2/69 PAGENO="0196" 8152 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY NAME OF DRUG Tetracydin Capsules Tetrastatin Capsules Tetrastatin for Oral Suspension Tetrex-AP Syrup Tetrex APC w/Bristamin Capsules Tetrex Syrup v/Triple Sulfonamides Theoglycinate v/Rutin & Phenobarbital Tablets Thizodrin Solution (nasal) Toldex Tabs. Trexinest Tablets Triaminic HC Tabs Triple Hormone Suspension Trisem-Pen Powder Trisem-Pen Tablets Trisocort Spraypak Trypsin Injection Tyrolaris Mouthwash Urethane Tablets Urobiotic Capsules, 100, 250 V-Cillin K Sulfa Pediatric for Oral Suspension V~-Cillin K Sulfa Tablets V-Cillin Sulfa Pediatric for Oral Suspension COMPANY J. B. Roerig & Co. Chas. Pfizer & Co., Inc. Chas. Pfizer & Co., Inc. Bristol Laboratories, Inc. Bristol Laboratories, Inc. Bristol Laboratories, Inc. Brayton Pharmaceutical Co. Eli Lilly & Co. Pitman-Moore Hynsen, Westcott & Dunning Dorsey Laboratories Taylor Pharmaceutical Co. The S. E. Massengill Co. The S. E. Massengill Co. Smith, Kline & French Labs. Wilson Laboratories Merck & Co. Eli Lilly & Co. Pfizer & Co. Eli Lilly & Company Eli Lilly & Company DATE 9/12/ 69 4/2/69 4/2/69 9/12/69 9/12/69 4/2169 7/10/68 9/9/69 8/29/70 5/24/68 8/29/70 8/29/70 4/2/69 4/2/69 8/21/70 6/25/70 8/4/70 8/21/70 6/30/70 4/2/69 4/2/69 Eli Lilly & Company 4/2/69 PAGENO="0197" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8153 NAME OF DRUG COMPANY DATE V-Cillin Sulfa Tablets Eli Lilly & Company 4/2/69 V-Kor Eli Lilly & Company 9/12/69 Visciodol E. Fougera 2/11/ 70 Wybiotic Wyeth Laboratories, Inc. 9/19/70 Wycillin SM Injection 400 Wyeth Laboratories, Inc. 4/2/69 Wycillin SM Injection 600 Wyeth Laboratories, Inc. 4/2/69 PAGENO="0198" 8154 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON Well, are you referring to the list of drugs that the NAS-NRC evaluated for the FDA Dr WELLS Yes Senator NELSON And what exactly does your regulation do ~ Are you saying that you are ordering that no drugs found to be ineffective by NAS-NRC be included in any formulary ~ Dr. WELLS. Yes, sir. May I read from the circular specifying. that each therapeutic committee will review the formulary drugs in use at that activity If any drugs classified by FDA as ineffective are present they will be removed from the hospital formulary and therefore will be unavailable for prescribing by VA staff physicians and dispensing by VA pharmacists Senator NELSON What about the "possibly effective" drugs ~ Mr STATLER Senator, we are aware of the list of 159 possibly effective drugs that was put out by HEW, that Dr Steinfeld mentioned yesterday We have screened this listing, which is unof ficial, since it was not put out by the FDA We have been in con tact with FDA asking for such a list. In fact, on November 2d, 1970, our Chief Medical Director wrote to Dr Edwards asking for a hsting of not only the ineffective but the possibly, the probably, and the effective drugs and said we would make such information available to our hospitals To date there has not been an official release of other than the ineffective We understand they have been published in the Federal Register and we are aware of the listing by HEW-we have obtained that and furnished it to our Market ing Center on Drugs to be sure that no drugs on the list are pro cured on Central Procurement. As of now the list has not gone out to our therapeutic commit- tees and hospitals because we are advised that FDA is preparing an official listing which is expected to come out within a 2 week period Senator NELSON What do you expect ~ Mr STATLER That the list will be sent to our committees for prescribing guidance and appropriate action Senator NELSON What does that mean Mr STATLER Whatever action they deem necessary If, for ex ample, a drug is on the possibly effective list and there is a drug on the effective list that can be used, certainly they would change over If there is a drug on the possibly effective list of which there is no substitute for good therapeutic management of the patient, they will be faced with the decision whether to continue to use it because it is not officially off the market yet and is needed Senator NELSON I don't know whether that list would show the drugs I am familiar with as I read the list For all of them that I can recall there was an alternative, effective drug, at least for all the fixed combination anti infectives Is that correct ~ Mr. STATLER. Generally that is right. Senator NELSON. Now, of course, they have all been labeled in- effective anyway, so you don't allow any of them to be used Mr STATLER Ineffective we are not using, right PAGENO="0199" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8155 Senator NELSON. But what do you say to the therapeutic commit- tee? Do you say this is listed as "possibly effective" and there is an effective drug that is available for the same purpose, there- fore, we will not pay for any possibly effective drugs? Mr. STATLER. No. Of course, they will have that information or arrive at a decision which one they will use. However, it should be clearly understood, and I am sure you understand that, FDA in this listing is going to have some difficulty because not all drugs are in black and white or in a gray area. Some of them have a classification of effective for this but not for that, possibly effec- tive for this condition and not for that, and in some instances ineffective for certain conditions, so that total information is going to have to be provided to all physicians and, of course, to our therapeutic committees so they will take necessary action. An example would be a drug might ~e on the possibly effective list for a certain condition but ineffective for something else, so they will hope the physicians would prescribe it only for the effec- tive use. Senator NELSON. Well, I would, too. Mr. STATLER. I would, too. Senator NELSON. If a drug is listed and published by the NAS- NRC and the FDA as "possibly effective" for a specific purpose, and there is an alternative drug that the NAS-NRC says is effective, will you direct that VA physicians use the effective one and that you won't pay for the possibly effective one? That is my question. Mr. STATLER. I would think that this peer review will certainly settle that question. They will be looking at all angles, at all infor- mation available, and will be making decisions based on this. Senator NELSON. Peer review within the hospital? Mr. STATLER. By these knowledgeable individuals composing the therapeutic committees. Senator NELSON. When you were here in August you said that you had great difficulty influencing the therapeutic committee at the local level because these doctors just came in for ~ or 3 years and didn't like to be dictated to. So what you are really saying is-even though this is an effective drug, as demonstrated by well- controlled clinical trials, and there is one that is listed "possibly effective" for which there haven't been well-controlled clinical trials, that you will permit them to put the possibly effective on the formu- lary even though there is an effective one for exactly the same purpose, and that you will pay for it? Or rather that you will let the local group decide that question? Mr. STATLER. No. There will be a monitoring, there is a continual monitoring of what is going on in our committees from our central office staff. Any drug that is going to be approved for formulary inclusion is monitored. Obviously anything on the possibly effec- tive list or certainly on the ineffective list, if by chance or error they decided they were going to approve it, we would contact them about something else being available. Senator NELSON. A few moments ago I understood you to say that this question of using a possibly effective and effective drug would be decided by the local formulary group at the hospital. PAGENO="0200" 8156 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY My question is: Will you refuse to permit them to use a possibly effective drug when there is, in fact, an effective one that is avail- able? Did I understand you to say that would be decided at the local level? Or did you say that it would be decided at the national level? Dr. WELLS. We are certainly going to have something to say about this at the national level. Although I think that we may as well say at this point that our problem is an educational one as much as anything else and one of gradual evolution in this course. I would like to go on with the rest of this paragraph which I believe really answers a large part of your question, Senator. Senator NELSON. All right. I am not satisfied with what I have heard, but go ahead. Dr. WELLS. All right; now, as additional assurance that pro- curement of these drugs as referred to would be discontinued, we also issued Department of Medicine and Surgery Circular 10-70-286 which I would also like to submit for the record. (The information above-referred to, follows:) PAGENO="0201" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8157 CIRCUlAR 10..70486 D7~C~41~ER 30, 1970 TELEGRAPHII MESSAGE ~A~NCY - , AOION ~) vACO w~sii ix~ ACCOUNTING CLASSIFICATION DATE PREPARES TYPE OP MESSAGE ~ FOR INFORMATION CAU SINGLE IIIQNENUMBRK DROOK R .E. DEARDORFF :1784 MULIIPLE.ADSRE$S Tills SPACR FOR 11SF OP COMMLINIC4 lION U~ri MESSAGE TO RE TRANSMITTED (Use double spacing and all eapis.,l Idlers) TO: DIRECTORS, VA HOSPITALS, VA DOMICILIARY, VA OUTPATIENT CLINICS AND REGIONAL OFFICES WITH OUTPATIENT CLINICS AND MANAGER, VA MARKETING CENTER DM&S CIRCULAR $0-b -.A~6 - SUBJ: DM&S CIRCULAR 10-70-237 DATED DECEMBER 4, 1970. IMPLEMENTATION OF NAS/NRC DRUG EFFICACY STUDIES INFORMATION. 00/134 1. THIS CIRCULAR CONTAINED A LIST OF DRUGS PUBLISHED BY TH~ FOOD AND DRUG ADMINISTRATION. PRESCRIPTION DRUGS ON THIS LIST WILL NO LOPGER BE L'URCHASEl) AS POSTED ITEMS AND STOCKED IN TIlE WARE- hOUSE. 2, ~SUES OF STOCKS OF SUCH ITEMS WILL BE MADE `TO THE PHARMACY ON SPECIFIC REQUEST, AFTER STOCKS ARE E)D1AUSTED ITE~!S WILL BE PUR- CI~A$ED BY SUPPLY ONLY AS UNPOSTED ITEMS TO SATISFY SPECIFIC REQUESTS FROM THE PHARMACY SERVICE, 3. STOCKS OP L~STED DRUGS IN BOTH PHARMACY AND WAREHOUSE WHICH HAVE BEEN WITHDRAWN FROM USE BY THE STATION THERAPEUTIC COMMITTEE WILL BE HELD PENDING RECALL BY THE MANUFACTURER Oil INSTRUCTIONS Ct,~cu- rno< F~ xr~Ir.; 1' ~ C, (%.Yf1. .3 i "ii PROM THE MARKETING CENTE8~U4/1OA CONCURRENCE: __________ DISTRIBUTION: (Ij~) SECURITY CLASSIFICATION COB (10) only $8 (1OC5A) ~ / PAGE NO. NO. OP P05 ATTACHMENT C REDEARDORFF:SL~1T~' ` ~L34L.~~ 1 1 ETANDARD FORM 14 RCVIS(S AUGUST 967 GSA PPMR (41 CPRI 101-35306 PAGENO="0202" 8158 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Dr. WELLS. This latter circular directed that if any stocks did exist of any of these items, they would not be replenished This was further strengthened by Department of Medicine and Surgery Circular- Senator NELSON Excuse me When you say these items, what does that refer to? Dr. WELLS. This refers to the list we have already distributed from FDA; the ineffective drug list that we have distributed from the FDA. Now, circular 10-71-16 of January 20, 1971, herewith submitted for the record, directed that procurement action would not be mi tiated under any circumstances without the prior approval of our central office. (The information above-referred to, follows:) PAGENO="0203" NAME q~ AGENCY PRECEDENCE ACTIONS R VACO, WASH DC INpO SECURITY CLAS~I$ICAYION , , ACCOUNTING CLASSIFICATION bATE PREPARED 1/8/71 TYPE OP MESSAGE U SINGLE BOOK MULTIPLE-ADDRESS FOR INFORMATION CALL FlAME PHONE NUMBER - C .C. COOK 2247 THiS SPACE FOR USE OF COMMUNICATION UNIT MESSAGE TOB~ TRANSMITTED (U d Si p g dali p Sd! IF I TO: DIRECTORS OF HOSPITALS, DOMICILIARY, OUTPATIENT CLINICS, REGIONAL OFFICES WITH OUTPATIENT CLINICS; MANAGERS OF VA SUPPLY DEPOTS AND VA MARKETING CENTER DM&S CIRCULAR 10-7/- .(6 SUBS,:, PhOCUREMENT OF DRUGS CLASSIFIED BY FDA AS LACKING SUBSTANTIAL EVIDENCE OF EFFECTIVENESS OR WITH AN UNFAVORABLE BENEFIT TO RISK RATIO. RE DM&S CIRCULARS 10-70-237 AND 10-70-286, DRUGS CONTAINED IN LIST PROVIDED BY FDA DATED 11/1/70 WILL NOT BE PROCURED BY VA WITHOUT PRIOR APPROVAL OF CENTRAL OFFICE ON EACH INDIVIDUAL PROCUREMENT ACTION. THIS MODIFIES PREVIOUS INSTRUCTIONS WHICH RELATED TO PRO- CUREMENT-OF POSTED ITEMS FOR STOCK ONLY. V~ WILL NO LONGER PURCHASE THESE ITEMS ON EITHER A POSTED OR U1S~POSTED BASIS. STATION PERSONNEL ARE CAUTIONED TO BE ALERT FOR ADDITION OF Ik~DIVIDUAL ITEMS IN TillS CATEGORY WHICH WILL BE PUBLIShED IN TilE ~EDEML REGISTER AS AN ITEM IS DETERMINED TO LACK EVIDENCE OF EFFECTIVENESS OR FAVORABLE RISK TO BENEFIT RATIO. INFORMATION ON THESE ITEMS WILL BE DISSEMINATED FROM CENTRAL OFFICE,. THIS CIRCULAR EXPIRES JAN. 1, 1972. 134/1OA DISTRIBUTION: COB (10) only ri~CURITY CLASSIFICATION CONCURRENC~S: ~ _____ (]95~ (ll)~ [SAGE NO NO OF PGS. ATTACHMENT E CCCOOK:SLM 134 [ 1 1 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8159 - CIRCULAR 10-71-16 Sanuary 20, 1971 - ThLEGRAPHIC MESSA~E PAGENO="0204" 8160 COMPETITIVE PRQBLEMS IN THE DRUG INDUSTRY Dr. WELLS. Here we are stepping in actively to prevent the use of these drugs or the procurement of them. Senator NELSON. "Procurement action would not be initiated under any circumstances without prior approval of the central office." Will you clarify that for me? Are you referring to procurement that they do at the local level on their own or what? Dr. WELLS. This would be procurement not only locally but also through the central contacts. As a matter of fact, the next sentence I think helps to clarify it. I do not envision at this time circum- stances under which we would approve purchase of any of these drugs, even as exceptions, unless the manufacturer submits further evidence to Food and Drug Administration as required and per- mitted by regulation, which would result in reconsideration of pre- vious findings. Senator NELSON. But when you say "these drugs," you are re- ferring to those that NAS has said are ineffective? Dr. WELLS. Ineffective. Senator NELSON. Do you get down to the question of "possibly effective?" Dr. WELLS. If not, we will do so anyway off the document. This subcommittee is aware that a number of these products have not been removed from the market, and it is conceivable that further evidence might be presented which would establish efficacy or changes made in the product to render it acceptable. In any event, we have taken the actions described pending further devel- opments which will either result in these drugs being removed from the market or perhaps in revised form being determined to be effective. As far as the effective or the possibly effective drugs, we are at a disadvantage at the moment not knowing exactly how this is going to appear from FDA's decision. We are going to take action to discourage the use of the possibly effectives where effective drug treatment is known. Mr. WHITWORTH. Senator, we have stopped procurement of all possibly effective drugs at the national level, totally. Senator NELSON. All "possibly effective" drugs? Mr. WHITWORTH. Yes, sir. Senator NELSON. And they would not, then, be put back on your list of drugs unless at some stage adequate evidence was submitted to the FDA so that their classification was changed to effective; is that right? Mr. WHITWORTH. Precisely, sir. Senator NELSON. What does that do about their procurement at the local level, whatever procurement they do? Mr. WHITWORTH. They will satisfy whatever requirements are placed upon them, that is, the procurement people. Senator NELSON. Pardon? Mr. WHITWORTH. The procurement people will satisfy whatever requirements are placed upon them. Senator NELSON. About half of your drugs are purchased locally, aren't they? Mr. WHITWORTH. A little over half, yes, Senator. PAGENO="0205" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8161 Senator NELSON. If at the national level you have made the deci- sion that you wouldn't purchase or stock possibly effective drugs until and unless their classification was changed, what are you doing about purchases of possibly effective drugs at the local level? Mr. WHITWoRTH. This decision was made anticipating further developments. We don't want to be caught with a lot of hoards of stock in our depots. Therefore, this is a first step. There indeed will be additional steps, I am certain, in this area. *Mr. STATLER. Obviously this passes on down to the hospital. They will cut out their supply of possibly effectives. If they find it is not being centrally procured, they will be faced with a decision whether they need it to fill prescriptions for physicians or not, and physicians will be contacted about all other alternative drugs available for use, the more effectives, and so forth having a higher classification. Senator NELSON. But we really didn't get down to settling this question of the use of possibly effective drugs procured at the local level yet. Dr. WELLS. I would say at this point in time, Senator Nelson, I don't believe this is settled in our own mind. We are going to have to go at this drug by drug as we face this problem of the possibly effectives and the possible alternates that will be offered. Mr. STATLER. You see, an official listing of the possibly effectives has not been put out by FDA. As soon as that is available, it will be presented to the executive committee on therapeutic agents for a policy decision as to what restrictions, if any, will be imposed upon use of these drugs. Senator NELSON. Reports on these drugs appeared in the Fed- eral Register. Isn't that sufficient? Mr. STATLER. It has been published continually in the Federal Register, different classifications but there is no single compilation of drugs only on the possibly effective list. Most of the ones we have been reviewing in the Federal Register have several classifications. Senator NELSON. But you don't think that you can simply take them from the Federal Register and act on that? Mr. STATLER. There is such a backlog of Federal Register publi- cations and, of course, there are 700 more to be published by June 30th, that we feel it would duplicate a lot of efforts that are being made by different Government agencies on this, the one official agency recognized-FDA is the one to provide all Federal agencies with this single compilation. As Dr. Edwards testified the other day, he feels that they are the. one source of most knowledgeable information on the relative efficacy of the drugs. We have asked him to provide this information to us and they are in the process of doing this. Senator NELSON. Do you know of any instance of a classification by the National Academy of Science-National Research Council that has been rejected by the FDA? Mr. STATLER. Not rejected. They have made a decision that they have published-it is either in one of the four categories of classi- fication. However, there are some changes. By this we mean, for example, ineffective listing. We had attempted to get the ineffectr~re PAGENO="0206" 8162 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY listing for several months prior to the official listing of November 1st which you all have We had lists signed by knowledgeable officials from the FDA dated September 23d and prior to pubhca tion and release to our field stations, we were advised that there were several errors on that list So drugs had to be deleted and some others had to be added So rather than subject our physicians in the hospitals to erroneous listings and then causing a traumatic episode of having to change the information that went out, we are waiting for an official publication that we can stand behind Dr WELLS This is a very key point of decision, because there were a number of additions and deletions on that ineffective list I think it was this experience, more than anything else, that made us feel that at this point in time we had best not go along with anything other than an officially declared listing of the possibly effectives Mr GoRDoN Dr Wells, may I interrupt for just a moment Mr Statler just quoted Dr Edwards, and I am going to quote Dr Ed wards again "that we are the only reliable source which the prac ticing physicians should be able to look to to obtain some of this relative efficacy type of information" Mr Statler, do you agree with the Food and Drug Administration on this? Mr STATLER I agree, Mr Gordon, and any information that the FDA puts out relative to efficacy and comparative efficacy of drugs is furnished to all of our hospitals In part of this testimony, appen clix A, we list information that is provided to our therapeutic committees We mention, for example, all FDA releases on drugs such as clinical experience abstracts, adverse reaction reports, FDA's current drug information circulars, their dear doctor letters, their new drug approvals, their weekly recall reports are all provided to everyone of our hospitals for continued guidance Mr GORDON Do you consult with them before you put a drug on your formulary? Mr STATLER We certainly would know whether it was on one of the possibly effectives or ineffectives Mr GORDON This is in the negative sense Do you ever ask FDA, for example, as to whether one drug is more effective or safer than another drug when both may be effective and safe ~ Mr STATLER They haven't made such a determination available They don't have the comparative information Mr GORDON Did you ever ask them ~ Mr STATLER Yes We have been in discussion with many of their people on that. Mr. GORDON. The wording that Dr. Edwards used was this: ~ * * be able to look to obtain some of this relative efficacy type informa- tion" Have you consulted with him at all on whether, before you put a drug on the formulary, that particular drug or another one should be put on Mr STATLER We are in close contact constantly with their drug efficacy study implementation group, called DESI This is what Dr Edwards was referring to, that they are the only reliable source of relative efficacy of drugs and they are talking about the classifi cation as a result of the NAS-NRC reviews. PAGENO="0207" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8163 Yes, we do have all the information as they publish it. For ex- ~imple, in preparing this testimony on Peritrate, we knew there had been a panel review on it but we had not seen anything pub- lishecj. I wanted to get the current information as to the relative efficacy. They have not made their final determination and published it in the Federal Register. As soon as it is, then it will becom& informa- tion that is available to our agency. Mr. GORDON. Can you tell us those drugs about which you have recently consulted with the FDA relative to putting a drug on one of your formularies? Dr. WELLS. Normally I don't believe we do, Mr. Gordon. Mr. GORDON. I don't mean taking off. I mean putting something on a formulary. Dr. WELLS. We don't specifically consult with them. We use their publications. We use their generalized information, but our thera- peutics committee in the central office actually executes this action to our stations. We don't consult with them relative to individual drugs. Is that correct? Dr. CHASE. That is correct. We use the basis of their information where it is appropriate for us. If it is a question of therapeutic effectiveness we will go to the experts in the field who are actually involved with the co~itrolled testing of these drugs. Either the literature Or the individuals as persons. Mr. GO1uON. You do not consult with the FDA, then, on specific drugs, i~ that correct? Dr. CHASE. Well, I personally do not, sir. As chairman of the committee. Mr. GOiuON. Does anybody in VA? Mr. STATLER. We have continual contact on all these drugs you are talking about. Every one of these that was questioned during the testimony of the physicians during the fall months we have discussed with officials from FDA to find out drug efficacy study recommendations, and so forth. Yes, we try to get all available information that they have in their files that is made available to us, but I have to make it clear that they will not release anything that has not yet been published in the Federal Register. So infor- mation we get is also public knowledge. Senator NELSON. Please continue. Dr. WELLS. One of our most significant efforts to date has been the issuance of Department of Medicine and Surgery Circular 10- 71-3, January 13, 1971, on rational drug use. This directive restates our long-standing policy of not rigidly restricting professional practice by administrative direction, but emphasizes that we want to assure that every effort is made to treat all Veterans' Admin- istration patients with the most effective therapeutic agents, at the most favorable cost. It calls attention to previous major policy state- ments and reiterates the position that each hospital Therapeutic Agents and Pharmacy Reviews Committee should take necessary action in the context of agency policy to assure the rationality of drug use and to provide the most effective and economical treatment for the patient. PAGENO="0208" 8164 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY We also emphasize the role of each Therapeutic Agents and Phar- macy Reviews Committee in a continuing review of prescribing prac- tices and drug usage in their hospital. The policy that the purchase of high cost drugs could not be justified when equally effective but less expensive preparations were available is emphasized. We have also taken, or are taking, a series of further steps which I feel will contribute to our common objective of the most rational prescribing attainable. We are placing greater emphasis upon the importance of the role of our hospitals Therapeutics Agents and Phar- macy Reviews Committees. I am certain their efforts in establishing and maintaining good station formularies have been strengthened by the attention and emphasis focused upon this problem. The minutes of each Therapeutic Agents and Pharmacy Reviews Commit- tee meeting that is held, at least once a month, are forwarded to our central office for review. This monitoring by central office assures that drugs considered ineffective have been deleted from the station formulary or are not approved for purchasing and inclusion in the formulary. The recent reports submitted to our central office have reflected major interest and attention from our hospitals throughout the country. Our local Therapeutic Agents and Pharmacy Reviews Committees at each of our hospitals and our Executive Committee on Thera- peutic Agents in central office have the primary responsibility for assuring rational drug selection and for monitoring the quality,' safety and efficacy of drugs used in the Veterans' Administration. These committees bring together the principal medical and phar- macy staff members and are supported as required by the profes- sional and administrative staffs of the hospitals and clinics. They include experts on various medical specialties to assure that infor- mation available from several sources is considered in the com- mittee's actions. It is important that any examination of our Agency's drug selection and procurement program consider the mission, membership and scope of responsibilities of these com- mittees. I am attaching to this statement as appendix A an outline of their composition and functions. (The document referred to is as follows:) Appendix A STATEMENT OF COMPOSITION AND FUNCTIONS OF VETERANS' ADMINISTRATION THERAPEUTICS AGENTS AND PHARMACY REVIEWS COMMITTEES AND EXECUTIVE COMMITTEE ON THERAPEUTIC AGENTS The composition and functions of our Therapeutic Agents and Pharmacy Reviews Committees in each hospital ~ind clinic and our Executive Committee on Therapeutic Agents in the Central Office are: Every Veterans Administration medical hospital and clinic has a Thera- peutic Agents and Pharmacy Reviews Committee to assure that regular qual- ity control reviews are established and carried out for therapeutic agents and Pharmacy programming. The Committees are generally composed of members of the Medical Execu- tive Committee of the hospital and clinic. This Committee includes the Chiefs of the major patient care services. The Chief Pharmacist serves as the re- corder. In most hospitals and clinics, the Director or Chief of Staff serves as Chairman. The principal functions of the Therapeutic Agents and Phar- macy Reviews Committees are: 1. To serve in an advisory capacity to management on policies pertaining to the use of drugs. PAGENO="0209" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8165 2. To evaluate clinical data on drugs proposed for use in the hospital, out- patient clinic, or domiciliary, and make recommendations for stocking of those considered most useful and effective. 3. To prevent unnecessary duplication of drug products. 4. To establish and provide for continuous revision of the station formulary. 5. To review, advise on, and recommend procedures pertaining to the pre- scribing, dispensing, and administering of drugs to assure patient safety. 6. To receive from the Chief of Staff all reports of adverse drug reactions and assist the Chief of Staff in the collection of pertinent data, evaluation of each reaction and preparation~~f reports to Central Office. In addition to the local aspects of committee functions, the actions and recommendations of the committees serve as guides in the selection of drugs for most advantageous central procurement. An additional function of the committee, therefore, will be to make its recommendations known to the Executive Committee on Therapeutic Agents (Central Office) through the committee meeting minutes, and to include the medical reasons for unusual committee actions (such as the approval for use of a specific brand drug if the same drug is in the Veterans Administration system by nonproprietary name). The Executive Committee on Therapeutic Agents in Central Office is chaired by the Assistant Chief Medical Director for Professional Services and the Director of Pharmacy Service serves as Recorder. The other members are directors of patient care services and our Research and Education Service. The Committee's principal functions are: 1. To develop, recommend and promulgate policy and information on rational use of drugs in the Agency. 2. To review and act on reports from Veterans Administration hospitals and clinics for use of drugs not available in interstate commerce and for which an FDA New Drug Application has not been effected (investigational drugs) for clinical treatment in specific cases. 3. To evaluate reports of Adverse Drug Reactions prior to forwarding to FDA. (Veterans Administration reports are combined with reports from all hospitals, Government and non-Government, sending such information to FDA and the resulting compilation prepared by FDA is furnished to all Veterans Administration hospitals and clinics.) 4. To review minutes and recommendations of each Therapeutic Agents and Pharmacy Reviews Committee submitted by Veterans Administration activi- ties to identify drugs which will be considered for centralized procurement. 5. To review and act on Quality Improvement Reports submitted by Veter- ans Administration hospitals and clinics indicating a dissatisfaction with a drug product. Appropriate information Is then coordinated with FDA and USP officials. To assist each Therapeutic Committee in selection of the best drugs for patient therapy, a multitude of leading publications are available in each hos- pital and clinic Including Journal American Medical Association, New Eng- land Journals of Medicine, Annals of Internal Medicine, etc., and publications such as Medical Letter, Olin-Alert. In addition, all of FDA releases on drugs such as Clinical Experience Abstracts, Adverse Reaction Reports, FDA Cur- rent Drug Information circulars, Dear Dr. letters, New Drug Approvals, Weekly Recall Reports, are provided for guidance. VA professional publications such as, "Drug Treatment in Psychiatry," "Cooperative Studies in Psychiatry," "Pulmonary Diseases Abstracts," etc., also provide supplemental information. Mr. GORDON. May I ask another question. What are YOU going to do about the drugs classified as "probably effective"? Would ~OU buy a probably effective drug if there is a known effective drug that could be used as an alternative? Dr. WELLs. We are looking forward to this list, this official pub- lication, of the possibly effective drugs. At that point in time we will review these individually. We will publish the list to our field stations. We will get the advice from our field people and other experts as to exactly what we should do, drug by drug, what kind of alternatives are likely to be offered, and we will make the 59-581 O-71---pt. 20-14 PAGENO="0210" 8166 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY best possible judgment we can in line with our basic goals which I think have been rather clearly stated. Mr. GORDON. You say you are waiting for the FDA to bring together such a list? Is that it? 1)r. Wi~u~s. Well, for the official publication of it, yes. Mr. GORDON. Couldn't you put it together yourself since many have been published already in the Federal Register? I notice that you were waitmg for the "possibly effective" list to be brought together by FDA. The Public Health Service drew up its own list. Could you have used the PHS list. Why do you have to wait? Dr. WELLS. We are rather conservative about this. Mr. STATLER. Mr. Gordon, we have been in close contact with FDA on this. The very first day we learned of the compilation of the listing by HEW of 159 drugs, we called FDA to find out if we could use this as the official listing, and they told us no, that there are errors on that. list.. We are not interested in having an erroneous list. We also know Defense Department has a similar listing with more drugs on it than HEW has. We asked in our letter to Dr. Edwards for the list of ineffec- tive drugs, and in addition, advised him that we plan to also pro- vide our hospitals with a list of drugs classified probably effective, possibly effective, and effective as a result of these panel reviews. We said we would appreciate receiving these lists of drugs consid- ered officially by FDA in each of these four categories and an up- dating and subsequent listing of all drugs as they become available. They are in the process of preparing such a listing. Just this morning in the green sheet I notice that FDA is, within the next 2 weeks, to publicize a new ineffective drug list which will have something like 400 on it rather than the original 359. So as you see, there is a continual review process. One of the problems is they have new information-today in the Federal Register something may be listed as probably effective or possibly effective but. additional information has been subirntted by the manufacturers to FDA and they are making a different deci- sion and putting it in a different classification. So something we take out of a Federal Register last year may not be current today in the eyes of FDA. That is why we are waiting for an official transmittal of the list to us. Mr. GORDON. When you get the probably effective list what are you going to do? Mr. STATLER. We will transmit it to all of our VA field stations so every therapeutic committee will have such a listing and as Dr. 1~~Tells indicated, we will make a drug-by-drug review to see if there should be any special action taken on any of the drugs on there. Obviously if there is a drug on the possibly effective list and there are more effective drugs available and particularly at less cost, that information will be furnished to our hospitals for their use. Mr. GORDON. What about the probably effectives? Mr. STATLER. It looks like the probably effectives will eventually be put into the effective classification simply because of a change in certain claims of the manufacturer and they will then come out, be taken out, of the probably effective list. PAGENO="0211" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8167 Senator NELSON. Go ahead, Doctor. Dr. WELLS. As an example of the problem that arises in selecting drugs for central purchasing and in obtaining complete agreement as to their acceptability for use, we have noted that a substantial num- ber of our local therapeutic committees have changed to the macro- crystalline form of nitrofurantoin from the microcrystalline form. rrhe decisions were apparently based upon concern that the micro- crystalline form produced more unfavorable side effects than did the macrocrystalline form. This view has been challenged and some hold that there is insufficient clinical evidence to support it. Our Executive Committee on Therapeutic Agents has been examining this question to determine whether the microcrystalline form available from a foreign supplier would be satisfactory. The minutes of the Executive Committee on Therapeutic Agents discussion was disseminated to all hospitals. One of our chiefs of urology expressed his concern about Veterans' Administration's possible action, stating that in his practice of clinical medicine there is evidence of a fivefold greater incidence of nausea and vomiting when using the microcrystalline form than when using the macrocrystalline form. While recognizing the value of controlled clinical studies, we cannot ignore substantial evidence developed in routine clinical practice. In any event, we have reached no conclusion on this problem, nor have we purchased furtj~er stocks of nitrofurantoin in either form since our previous appearance before this subcommittee. Our current policy with respect to those drugs whose effectiveness has not been questioned, but whose costs are significantly higher than other products which some authorities feel are equally effective, is to restrict the quantities purchased while our local Therapeutics Agents and Pharmacy Review Committees consider what controls they might wish to establish to assure they are used where indicated and not on a widespread basis just because of their popularity. It is possible that we will continue to purchase propoxyphene where its use is indicated. We will determine to what extent it is being used when there is no specific indication for it and when an effective and safe substitute is available. I believe that most of the distinguished witnesses which have appeared before your subcommittee generally agreed that there was no rationale for the use of propoxyphene instead of aspirin ex- cept in specific cases. As I interpret what they said and what our own experts tell me, there is a use for such products as propoxyphene; the problem lies in the general use of such products when a substantially lower cost, effective alternate is available. Our local committees are already reviewing the widely publicized examples. As a part of our agencywide review our Executive Committee on Therapeutic Agents will review, with our Supply Service, agency records which high- light substantial use of the more costly drugs and will provide this information to our local committees so that they can review their own decision, to assure themselves that they have adequately con- trolled the use of these drugs. As we promised this subcommittee, we have examined our previous policy on soliciting foreign sources for our drug requirements. Our efforts to obtain world market prices or cost information were `un- successful. We solicited the assistance of the Department of State, Department of Commerce, and both domestic and foreign drug firms. PAGENO="0212" 8168 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY In substance, we found that there are no fixed prices for purchase of drugs from foreign countries for importation into the United States. Mr. GORDON. But you can get them to bid, can't you? Dr. WELLS. On a large quantity, bulk quantities, but not for phar- maceuticals as such. We have been unsuccessful on them. Mr. GoiwoN. What do you mean by that? You were able to get bids on meprobamate, for example. Dr. WELLS. Yes, and we have indeed purchased meprobamate and tetracycline from foreign sources where we have been able to accom- plish studies to assure ourselves through plant inspection, and so on, that we were getting quality, and to get a bid which was substantially lower than the domestic market. So we have indeed done this where we could. Further, we have established that we cannot legally import into this country products for which an effective New Drug Application, approved by Food and Drug Administration does not exist at the time of import. At this moment, there are only three such instances of which we are aware, where the domestic suppliers are not competi- tive with foreign suppliers and for which there is an approved NDA in effect. One is for the product meprobamate, which we do purchase from foreign sources. Another is for nitrofurantoin, which we are studying before we reach a decision to replenish stocks. That is the matter to which we spoke a little earlier. The third is for tolbutamide, a drug whose use is under study. We have talked with one foreign manufacturer with a potentially large capacity about what products he might offer. He tells us he is con- sidering filing New Drug Applications on several products, but has not reached a decision to do so. We are carefully screening all an- nouncements of New Drug Application approvals by FDA to deter- mine if they might not offer us opportunities for expanded competi- tion for our drug requirements. We have selected 85 drugs which we now purchase on a sole-source basis and are studying the potential for expanding competition by seeking additional suppliers and determining if these suppliers are interested in competing for our requirements, and participating in our inspection program. Among those 85 items, we have selected 13 items for early and immediate action. We have already contacted potential suppliers to determine their interest and to determine that competition will result in lower prices. Senator NELSON. Doctor, may I interrupt a moment. You are aware of the General Accounting Office survey of nine drugs purchased by the VA on a sole-source basis and by the Department of Defense on a competitive basis? The General Accounting Office found that VA paid 60 percent more than the Department of Defense for the same drugs. What is your response to that? Mr. WHITWORTH. These nine items, Senator~ are among the 85 that have been chosen for generic-competitive procurement, and if I may say one more word about that, we have in our national distribution system some 544 different drug line items: 123 are now bought com- petitively; 336 are sole-source or as the military would say, single- source items. We can only get them from one manufacturer. This PAGENO="0213" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8169 leaves 85 items that there is a potential for competitive procurement on. This is the 85, sir, that have been selected and we are going to attempt to buy them competitively, put them in our national distribu~ tion system, and educate, if I may use the word, our prescribing physicians, if we can, to use these competitively procured items. We have 13 of them under the first steps of the purchase action right now. The first invitations will go out February 15 on these 13 and the last invitations will go out around March 15. What I am saying is that if we can do what we have started to do with 13 items, through 85 items, then we will have in the depot system all of those items that can be bought competitively, in fact, competitively bought. Senator NELSON. How many did you say were single or sole-source? Mr. WHITWORTH. 336. Senator NELSON. 336 out of- Mr. WHITWOETH. 544, sir. Senator NELSON. These are 336 different drugs or does that include dosage forms of the same drug? Mr. WHITWORTH. It includes dosage forms. Senator NELSON. How many different compounds are involved, then? Mr. WHITWORTH. I can submit it for the record, sir, but I don't know. Senator NELSON. When you say sole-source for these 300-odd drugs, do you mean that there is no other similar compound in the mar- ketplace or rather, that there is no other therapeutic agent, that does the same thing? Or are you saying that among these sole-sources are certain brand names for which there are other generics available of the same compound? Mr. WHITWORTH. Well, sir, they are all brand names, the 336. Whether there are other drugs available that will do the same job, I will have to defer to Mr. Statler. Mr. STATLER. These are only available from a single manufacturer in the United States, Senator. In other words, an example would be chlordiazepoxide. No other manufacturer other than Roche manufac- tures that. Senator NELSON. Maybe I am not making my question clear. There are a whole list of tetracyclines. Obviously, if you order chlortetracycline, it will have only one source. You would call that a sole-source item? Dr. WELLS. Yes. It would be a sole-source if you ordered that. Senator NELSON. That is what I am getting at. Chlortetracycline, doxycycline, methacycline HCL-these are all members of the tetra- cycline family. Would you call each one of these a sole-source item? Is that what we are describing here? Mr. CooK. In answering your question, Senator, yes. However, in the tetracycline family the only item we have in stock is the tetra- cycline hydrochloride. Senator NELSON. But if you had these other ones you would con- sider that sole-source. Mr. CooK. Yes, sir. Senator NELSON. So what we are talking about here as sole-source is a number of items which have been selected by brand name that PAGENO="0214" 8170 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY therefore made them sole source because there is oniy one company making that brand Is that what we are saying ~ Mr CooK Yes Senator NELSON. So if you were, for example, talking about predni- sone, and you order Paracort or Meticorten or Deltra, you would consider each one of those sole-source items? Mr COOK No Not if they were identical chemical formulations If they were similar we might consider them, everyone, sole source but if they are identical, no Senator NELSON. If they are identical formulations with different brand names you don't consider that sole source Mr COOK No, sir Senator NELSON. But if there is some slight difference, no matter how slight, and they have the same known therapeutic effect, you would consider that sole-source? Mr. COOK. Yes, sir. Senator NELSON. How many of them are there like that? Mr. CooK. We will have to supply that. Senator NELSON Will you supply that for the record ~ Mr. COOK. Yes, sir. (Subsequently the Veterans' Administration supplied the following information ) There are 137 brand name drugs v~ hich have different therapeutic effects and therefore considered sole source VETERANS' ADMINISTRATION, OFFICE OF GENERAL COUNSEL, Waehington, D.C., March ii, 1971. Mr. BEN GORDON, MajorIty Counsel select Committee on~ ~maU Business, Washington D C DEAR Mn GORDON On March `S YOU called Mr Knapp of this office referring to page 9286 of our testimony to the Subcommittee You ask that the 137 brand name drugs we refer to as being bought by brand name be listed both by their trade and generic names and that the list be separated by therapeutic category Attached to this letter is the information requested. You will note that the total of items is 140, rather than 137. This is a fluid figure as items are being dropped out and picked up constantly. At the time of our testimony I am told it was 187 As of today it is 140 Sincerely yours, TOHN J. CORCORAN, General Counsel. Attachment Analge.sics Acetaminophen tablets, NP, 325 mg (5 gr), l000s Scored, White (Tylenol). McNeil Labs. Inc - BT Butalbital, aspirin, caffeine, and phenacetin tablets, l000s. Uncoated, White. (Piorinal). Sandoz Pharm., Div BT Fentanyl citrate and droperidol injection. Each ml. contains 0.05 mg. Fentanyl (as the Citrate) and 2.5 mg. Droperidol. (Innovar). McNeil Labs., Inc: 2m1 AM Sm! AM Meperidine hydrochloride injection, USP, 50 mg per ml, 30 ml Multiple Dose Vial (Demerol) Winthrop Labs, Div - VI PAGENO="0215" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8171 Oxyphenbutazone tablets, 100 mg., l000s. Sugar Coated, Tan. (Tandearil). Geigy Pharm., Div BT Pentazocine hydrochloride tablets, 50 mg., lOOs. Peach, Scored. (Taiwin). Winthrop Labs., Div BT Pentazocine lactate injection, NF, 30 mg. per ml. Sterile. (Taiwin). (Tal- win). Winthrop Labs., Div.: imi AM 10 ml VI Phenacetin, aspirin, hyoscyamine, and phenobarbital capsules, l000s. (Phenaphen). A. H. Robins Co BT Phenylbutazone tablets, USP, 100 mg., l000s. Sugar Coated, Red. (Buta- zolidin). Geigy Pharm., Div BT Potassium aminobenzoate, ascorbic acid, and potassium salicylate tablets, 500s. (Pabalate-Sodium Free). A. H. Robins Co., Inc BT Propoxyphene hydrochloride, aspirin, caffeine, and phenacetin capsules, 500s. Eli Lilly & Co.: 32 mg. (Darvon Compound) BT 65 mg. (Darvon Compound-65) BT Propoxyphene hydrochloride capsules, USP, 500s. (Darvon Pulvules). Eli Lilly & Co.: 32mg BT 65mg BT Sodium aminobenzoate, sodium salicylate and ascorbic acid tablets, 500s. Enteric Coated. (Pabalate). A. H. Robins Co., Inc ET Anorexics None. Antibacterial and anti-infectives Aminosalicylic acid, USP, 1 Lb. Powder. (Rezipas). E. R. Squibb & Sons, Inc BT Antiseborrheic liquid, 4 Oz. For treatment of seborrhea capitis and sebor- rheic dermatitis. (Sebulex). Westwood Pharm., Div BT Benzalkonium chloride solution, USP, Concentrated, 17%, Gal. (Zeph- iran Chloride). Winthrop Labs., Div BT Cycloserine capsules, USP, 250 mg., 500s. No. 1 Light-Gray Opaque Body, Red Opaque Cap. (Seromycin). Eli Lilly & Co BT Detergent, surgical, Plastic Bottle. Liquid. Contains 3% Hexachloro- phene. (Phisohex). Winthrop Labs., Div: 50z BT iPt BT 1 Gal BT Ethionamide tablets, 250 mg. Red, Sugar Coated. (Trecator-SC). Ives Labs., mc: lOOs BT 500s BT Nitrofusazone ointment, NF, 1 ;500, 1 Lb, (453.6 Gm). Water Soluble. (Furacin Soluble Dressing). Eaton Labs., Div JR Nitrofurazone solution, NF, 0.2%, 473 ml. (1 Pt.) in Water Miscible Liquid of Polyethylene Glycols, Octyiphenoxy Polyethoxyethanol, NF, and Water. Antiseptic, Topical. (Furacin Solution). Eaton Labs., Div BT Povidone-iodine solution, NF, 1 Gal. The Purdue Frederick Co: (Betadine Antiseptic). For Preoperative and Postoperative Prepping of Operative Site BT (Betadine Surgical Scrub). Microbicidal Cleaner for Preoperative and Postoperative Scrubbing BT Salicyazosulfapyridine tablets, 0.5 Gm., 500s. Brownish Yellow, Scored, Uncoated. (Azulfidine). Pharmaica Labs., Inc BT Selenium sulfide detergent suspension, NF, 2.5%, 4 Oz. (Selsun). Abbott Labs BT Sulf~tmethizole tablets, NF, 0.5 Gm., lOOs. Scored, White. (Thiosulfil Forte). Ayerst Labs., Div BT Sulfamethoxazole tablets, NF, 0.5 Gm., 500s. Green, Scored. (Gantanol). Roche Labs., Div BT Sulfisozazole tablets, USP, 0.5 Gm., i000s. (Gantrisin). Roche Labs., Div BT PAGENO="0216" 8172 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Antibiotics Cephaloridine for injection, 1 Gm., 10 ml. Dry Powder, Sterile. (Loridine). Eli Lilly & Co AM Colistin sulfate, hydrocortisone acetate, neomycin sulfate, thimerosal and thonzonium bromide suspension, otic, 5 ml. dropper-bottle. (Coly- mycin S Otic). Warner-Chilcott Labs., Div BT Demeclocycline hydrochloride capsules, NF, 150 mg., lOOs. Two-Toned Coral. (Declomycin). Lederle Labs., Div. BT Erythromycin estolate capsules, NF, 250 mg., lOOs. (Ilosone Pulvules). Eli Lilly & Co BT Erythromycin tablets, USP, 250 mg., lOOs. (Erythrocin Stearate). Abbott Labs BT Gentamicin sulfate cream, USP, 0.1%, (1 mg. per Gm.), 15 Gm. (Garamy- cm). Schering Corp TU Gentamicin sulfate injection, 40 mg. per ml., 2 ml. (Garamycin). Schering Corp VI Lincomycin hydrochloride capsules, USP, 500 mg., lOOs. Two-toned Blue. (Lincocin). The Upjohn Co BT Lincomycin hydrochloride injection, USP, 300 mg. per ml., 10 ml. For intramuscular or intravenous use. (Lincoin). The Upjohn Co VI Neomycin sulfate, hydrocortisone, and polymyxin B sulfate suspension. Dropper-bottle. Sterile, Otic Administred. (Cortisporin). Burroughs Wellcome & Co., Inc.: Sml BT lOml BT Nystatin, gramicidin, neomycin sulfate, and triamcinolone acetonide cream, 15 Gm. (Mycolog). E. R. Squibb & Sons, Inc TU Polymyxin B-bacitracin ointment, 1 oz. antibiotic. (Polysporin). Burroughs Wellcome & Co., Inc TU Polymyxin B sulfate, sterile, USP, 500,000 units (50 mg. Polymyxin Standard), 20 ml. capacity multi-dose vial. Powder. For parenteral use. (Aerosporin). Burroughs Wellcome & Co., Inc VI Potassium phenoxymethyl penicillin tablets, USP, 250 mg. (400,000 units), lOOs. Scored, White. (V-Cillin K). Eli Lilly & Co BT Sodium cephalothin, sterile, USP. Rubber stoppered vial. Dry powder. For parenteral use. (Keflin). Eli Lilly & Co.: 1 Gm., 10 ml VI 4 Gm., 50 ml VI Sodium colistimethate and dibucaine hydrochloride for injection, 150 mg. (Coly-Mycin M). Warner-Chilcott Labs., Div VI Troleandomycin capsules, NF, 250 mg., 60s. (Tao). J. B. Roerig & Co., Div BT Zinc bacitracin, neomycin sulfate, and polymyxin B sulfate ointment. (Neosporin). Burroughs Weilcome & Co., Inc.: ~oz TU los TU Antidiabetics Acetohexamide tablets, NF, 500 mg., 500s. Capsule-Shaped, Scored, Yellow. (Dymelor). Eli Lilly& Co BT Chlorpropamide tablets, USP, 250 mg., 250s. Scored, Unocated. (Dia- binese). Pfizer Labs., Div BT Phenformin hydrochloride capsules, 50 mg., 1000's. Time Disintegrating. (DBI/TD). USV Pharm. Corp BT Tolazamide tablets, USP, 250 mg. Scored, White. (Tolinase). The Upjohn Co.: 50's BT 1,000's BT Tolbutamide tablets, USP, 0.5 Gm. (Orinase). The Upjohn Co.: 50's BT 500's BT Antiemetics None. PAGENO="0217" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8173 Antifungals Tolnaftate solution, LTSP, 1%, 10 mg. per ml., 10 ml. plastic squeeze bottle. For dermatological use only. (Tinactin). Schering Corp BT Antihistamines Bropheniramine maleate, phenylephrine hydrochloride, and phenylprop- anolamine hydrochloride tablets, 500s. Extended Action, Sky Blue, Sugar Coated. (Dimetapp Extentabs). A. H. Robins Co., Inc BT Brompheniramine maleate tablets, NF, 12 mg., 500s. Coated, Unscored. (Dimetane Extentabs). A. H. Robins Co., Inc BT Chlorpheniramine maleate tablets, modified, l000s. Repeat-Action. (Chlor-Trimeton Maleate Repetabs). Schering Corp.: 8 mg., Yellow BT 12 mg., Orange BT Dexbrompheniramine maleate and pseudoephedrine sulfate tablets, 60s. Sugar Coated, Sustained Action. (Drixoral). Schering Corp ET Dexchlorpheniramine maleate tablets, NF, 6 mg., l000s. (Polaramine Repetabs). Schering Corp BT Diphenhydramine hydrochloride capsules, USP, 50 mg. (¾ gr.), l000s. (Benadryl). Parke, Davis & Co BT Tripelennamine hydrochloride tablets, liSP, 50 mg., l000s. (Pyribenzam- me). Ciba Pharm. Co., Div BT Antihypertensives Guanethidine sulfate tablets, liSP. Scored, Uncoated. (Ismelin). Ciba Pharm. Co., Div.: 10 mg., Yellow: 100's BT 1000's BT 25 mg., White: 100's BT 1000's BT Hydralazine hydrochloride tablets, NF, 1000's. Dry-Coated. (Apresoline). Ciba Pharm. Co., Div.: 25 mg. (% gr.), Blue BT 50mg. (¾ gr.), Lilac BT Reserpine, hydralazine hydrochloride, and hydrochlorothiazide tablets, 1000's. Each tablet contains Hydralazine Hydrochloride 25 mg., Hydro- chlorothiazide 15 mg., and Reserpine 0.1 mg. Salmon Pink. (Ser-Ap-Es). Ciba Pharm. Co., Div BT Tolazoline hydrochloride tablets, 25 mg., 1000's. (Priscoline). Ciba Pharm. Co., Div BT Cardio tonics/heart prep. Digoxin tablets, USP, 0.25 mg. (¾50 gr.), 1000's. Scored, White. (Lanoxin). Burroughs Wellcom~ & Co., Inc BT Prooainamide hydrochloride Capsules, USP, 0.25 Gm., 1000's. Yellow. (Pronestyl). E. R. Squibb 4~ Sons, Inc Quinidine sulfate tablets, liSP. White. 300 mg., 250's. Coated, Sustained Action. (Quinidex Extentabs). A. H. Robins Co., Inc BT Coronary and systemic vasodialators Cyclandelate capsules, 200 mg., lOOs. Capsule Size No. 1, Blue, Opaque. (Cyclospasmol). Ives Labs., Inc BT Cyciandelate tablets, 100 mg., lOOs. Orange-Buff, Sugar Coated. (Cyclo- spasmol). Ives Labs., Inc BT Dipyridamole tablets, 25 mg., l000s. Orange, Sugar Coated. (Persantin). Geigy Pharm.~ Div BT Isosorbide dinitrate tablets. Ives Labs., Inc.: 5 mg., lOOs. Pink. (Isordil Sublingual) BT 10 mg., 500s. Scored, White. (Isordil) - - - BT 40 mg., lOOs. Light Green, Scored, Sustained Action. (Isordil Tembids) BT PAGENO="0218" 8174 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Isoxsuprine hydrochloride tablets, NF, 10 mg, l000s. (Vasodilan). Mead Johnson Labs., Div BT Nicotinyl alcohol tablets, 150 mg., 500s. Red, Sugar-Coated, Sustained Release, Tartrate. (Roniacol Timespan). Roche Labs., Div BT Nitroglycerin capsules, 2.5 mg., 100s. Micro-Dialysis Cells, Sustained Release. (Nitrospan). USV Pharm. Corp BT Nylidrin hydrochloride tablets, NF, 6 mg., 1000s. (Arlidin). USV Pharm. Corp BT Papaverine hydrochloride capsules, 150 mg., l000s. Long Acting, Brown and White. (Pavabid Plateau). Marion Labs., Inc BT Pentaerythritol tetranitrate tablets, 80 mg, l000s. Sustained Action. (Peritrate-SA). Warner-Chilcott Labs., Div BT Pentaerythritol tetranitrate tablets, NF, l000s. (Peritrate). Warner- Chilcott Labs., Div.: 10mg BT 20mg BT Diuretics Acetazolamide capsules, 500 mg., lOOs. Orange, Soft Shell, Sustained Release. (Diamox Sequels). Lederle Labs., Div BT Acetazolamide tablets, lISP, 250 mg., l000s. Scored, White. (Diamox). Lederle Labs., Div BT Chiorothiazide tablets, NF, 0.5 Gm., l000s. Scored, White. (Diuril). Merck Sharp & Dohme, Div BT Chlorthalidone tablets, USP, 100 mg. Scored, White. (Hygroton). Geigy Pharm., Div.: 100's BT 1000's BT Furosemide injection, 10 mg. per ml., 2 ml. (Lasix). Hoechst Pharm. Co., Inc AM Furosemide tablets, USP, 40 mg., 500s. Scored, White. (Lasix). Hoechst Pharm. Co., Inc BT Meralluride injection, USP, 2 ml. Ampul, lOOs. For intramuscular, intra- venous or subcutaneous use. (Mercuhydrin Sodium). Lakeside Labs., Inc BX Hormone! steriod Betamethasone valerate cream, 0.1 %. (Valisone). Schering Corp: 15Gm TU 45Gm TU Chlorotrianisene capsules, NF, 12 mg. (~ gr.), 500s. Soft Gelatin, Green. (Tace). The Wm. S. Merrell Co., Div BT Estrogenic substances, conjugated, for injection, (Equine) Powder, 20 mg. Secule, with 5 ml. Vial of Sterile Diluent. For Intravenous use. (Pre- mann). Ayerst Labs., Div PG Estrogenic substances, conjugated, tablets, (Equine), 1.25 mg, 100's. Yellow. (Premarin). Ayerst. Labs., Div BT Fluocinolone acetonide cream. For topical use. (Synalar). Syntex Labs., Inc.: 0.01 percent, 45 Gm TU 0.025 percent: 15Gm TU 425Gm JR Flurandrenolide cream, NF. For topical use. (Cordran). Eli Lilly & Co.: 0.025 percent, 60 Gm. (Half Strength) TU 0.05 percent: 15Gm TU 60Gm-.. TU 225 Gm JR Hydrocortisone sodium succinate for injection, USP, 100 mg, Sterile, 2 ml. Powder and Sterile Water in separate compartments of vial. For intravenous and intramuscular use. (Solu-Cortef, Mix-O-Vial). The Upjohn Co VI PAGENO="0219" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8175 Methandrostenolone tablets, 5 mg., Greenish-Blue, Round, Scored. (Dianabol). Ciba Pharm. Co., Div: 100's BT 1,000's BT Methyiprednisolone acetate suspension, sterile, NF, 40 mg. per ml., 5 ml. For intramuscular, intrasynovial, soft tissue injection, and intrareotal use only. (Depo-Mecirol). The Upjohn Co VI Methylprednisolone sodium succinate for injection, NF, Powder. For intravenous or intramuscular use. (Solu-Medrol, Mix-O-Vial). The Upjohn Co: 40 mg., 1 ml. Sterile Water in Separate Compartment of Vial VI 125 mg., 2 ml. Sterile Water in Separate Compartment of Vial VI Methylprednisolone tablets, NF, 4 mg. (~4~ gr.), 500s. Scored, White. (Medrol). The Upjohn Co BT Triamcinolone acetonide cream, USP, 0.1 percent. For dermatologic use only. (Kenalog). E. R. Squibb & Sons, Inc.: 15Gm TU 5Lb JR Psychotherapeutic agents Acetophenazine maleate tablets, NF, 20 mg., 1000's. (Tindal). Schering Corp BT Chlordiazepoxide hydrochloride capsules, NF, 500's. (Librium). Roche Labs., Div.: 5 mg., Green and Yellow BT 10 mg., Green and Black BT 25 mg., Green and White BT Chlordiazepoxide hydrochloride for injection, NF, 100 mg., 10's. Duplex package consisting of 5 ml. ampul dry powder and 2 ml. ampul of dilu- ent. For intramuscular or intravenous use. (Librium Ampul). ROche Labs., Div BX Chiorprothixene tablets, NF, 500's. Round-Convex. (Taractan). Roche Labs., Div.: 25mg., Light Beige BT 50 mg., Medium Beige BT 100 mg., Dark Beige BT Desipramine hydrochloride capsules, NF, 25 mg., 1000's. Pink. (Pertofrane). Geigy Pharm., Div. BT Desipramine hydrochloride tablets, NF, 1000's. Biconvex, Round. (Nor- pramin). Lakeside Labs, Inc.: 25 mg., Lemon-Yellow BT 50 mg., Light Green BT Diazepam injection, NF, 5 mg. per ml., 2 ml. Ampul, 10's. (Valium). Roche Labs., Div BX Diazepam tablets, NF, 500's. (Valium). Roche Labs., Div: 2 mg. (1/30 gr.), White BT 5 mg. (1/12 gr.), Yellow BT 10 mg. (1/6 gr.), Blue BT Fluphenazine enanthate injection, NP, 25 mg. per ml., 5 ml. (Prolixin Enanthate). E. R. Squibb & Sons, Inc BT Fluphenazine hydrochloride tablets, NF, 500's. Sugar Coated. (Prolixin). E. R. Squibb & Sons, mc: 2.5 mg., Yellow BT 5 mg., Light Green BT Haloperidol solution, NF, 2 mg. per ml., 120 ml. Colorless, Unflavored. For oral use. (Haldol). McNeil Labs., Inc BT Haloperidol tablets. Scored. (Haldol). McNeil Labs., mc: 1 mg., Yellow: 1,000's BT 5,000's BT 2 mg., Pink: 1,000's BT 5,000's BT 5 mg., Green: 1000's BT 5,000's BT PAGENO="0220" 8176 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Hydroxyzine hydrochloride injection, NF, 50 mg. per ml., 10 ml. (Atarax). J. B. Roerig & Co., Div VI Hydroxyzine hydrochloride tablets, NF, 25 mg, 500s. Coated, Green. (Atarax). J. B. Roerig & Co., Div BT Hydroxyzine pamoate capsules, NF, 500s. (Vistaril). Pfizer Labs., Div.: 50mg BT 100mg BT Imipramine hydrochloride tablets, USP. Coated, Coral, Round. (To- franil). Geigy Pharm., Div.: 25 mg: 100's BT 1,000's BT 5,000's BT 50 mg., 1,000's BT Meprobamate capsules, 400 mg., lOOs. Sustained-Release. (Meprospan). Wallace Pharm., Div BT Methylphenidate hydrochloride tablets, NF, l000s. Uncoated. (Ritalin). Ciba Pharm. Co., Div.: 10 mg., Pale Green BT 2Omg.,Peach BT Nortriptyline hydrochloride capsules, NF, 500s. Yellow and White. (Aventyl HCL Pulvules). Eli Lilly & Co.: 10mg BT 25mg BT Perphenazine solution, 16 mg. per 5 ml., 120 ml. with dropper. Oral. (Trilafon Concentrate). Schering Corp BT Perphenazine tablets. (Trilafon). Schering Corp.: 2 mg, 500's BT 4mg 500's BT 5,000's CX 8 mg.: 500's BT 5,000's CX 16 mg.: 500's BT 5,000's CX Phenelzine sulfate tablets, 15 mg., lOOs. (Nardil). Warner-Chilcott Labs., Div BT Thiothixene capsules, l000s. (Navane). J. B. Roerig and Co., Div.: 2mg BT 5mg BT 10mg BT Sedative/hypnotics Chloral hydrate capsules, USP, 500 mg., (7~/~ gr.), lOOs. Unimatic (100 to Strip Pack), each individually sealed. (Noctec). E. R. Squibb & Sons, Inc CT Ethchlorvynol capsules, NF, 500 mg., lOOs. Soft Gelatin, Red. (Placidyl). Abbott Labs BT Glutethimide tablets, NF, 0.5 Gm., l000s. (Doriden). Ciba Pharm. Co., Div BT Methyprylon capsules, 300 mg., 500s. Amethyst and White. (Noludar). Roche Labs., Div BT Primidone tablets, USP, 0.25 Gm., l000s. (Mysoline). Ayerst Labs., Div - - BT Sodium diphenylhydantoin capsules, USP, 0.1 Gm. (13~~ gr.), l000s. White Capsule with Orange Band. (Dilantin). Parke, Davis & Co BT Skeletal muscle relaxants Carisoprodol tablets, 350 mg., lOOs: Sugar Coated, Pink. (Rela). Schering Corp BT Uncoated, White. (Soma-350). Wallace Pharm., Div BT Carisoprodol, caffeine and phenacetin tablets, lOOs. Orange, Uncoated. (Soma Compound). Wallace Pharm., Div BT Chlorphenesin carbamate tablets, 400 mg., 500s. (Maolate). The Upjohn Co BT PAGENO="0221" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8177 Chlorzoxazone and acetaminophen tablets, 500s. Each tablet contains Acetaminophen 250 mg., Chlorzoxazone 300 mg. Light Green, Scored. (Paraf on Forte). McNeil Labs., Inc BT Methocarbamol tablets, NF, 500s. A. H. Robins Co., Inc.: 500 mg. (Robaxin) BT 750 mg. (Robaxin-750) BT Orphenadrine citrate, aspirin, caffeine and phenaoetin tablets, 500s. Each compressed three-layer tablet colored green, white, and yellow contains Aspirin 225 mg., Phenacetin 160 mg., Caffeine 30 mg., and Orphenadrine Citrate 25 mg. (Norgesic). Riker Labs BT Orphenadrine citrate tablets, 100 mg., SOs. Timed, White. (Norfiex). Hiker Labs BT Succim~rlcholine chloride, sterile, [ISP, 1000 mg. Powder. (Anectine, "Flo- Pack `). Burroughs Wellcome & Co., Inc BT Sugars None. Urinary tract Methenamine hippurate tablets, 1 gm., 500s. yellow. (Hiprex). Ricker Labs BT Methenamine mandelate oral suspension, USP. Warner-Chilcott Labs., Div: 50 mg. per ml., 1 Pt. (Mandelamine) BT 100 mg. per ml., 8 Oz. (Mandelamine Suspension Forte) BT Methanamine mandelate tablets, USP, Enteric coated. (Mandelamine). Warner-Chilcott Labs., Div: 0. 5 Gm. (500 mg.), Chocolate, 1000's BT 1 Gm. (1000 mg.), Purple: 100's BT 1000's BT Nalidixic acid tablets, 500 mg., l000s. (Neggram Caplets). Winthrop Labs., Div BT Nitrofurantoin capsules, l000s. (Macrodantin). Eaton Labs., Div: 50mg BT 100mg BT Nitrofurantoin tablets, USP, l000s (Furadantin). Eaton Labs., Div: 50mg BT 100mg ET Phenazopyridine hydrochloride tablets, 0. 1 gm., l000s. (Pyridium). Warner-Chilcott Labs., Div BT Vasoconstrictors Levarterenol bitartrate injection, USP, 1:1000 (0. 2%), 4 ml. Ampul, lOs. (Levophed). Winthrop Labs., Div BX Anticoagulants None. Senator NELSON. When you select by a brand name, do you look at the literature to find out whether there are other therapeutic agents which do the same thing and, if so, which one is the most economical to purchase ~ Dr. WELLS. This is a problem back in the hands of our profes- sional people and referred back to the hospital committee, or comes into central office for review. But I wouldn't want to stick our pharmacists and supply people with this answer, because this really comes back to our professional services. Mr. STATLER. Senator, if an item is put into the supply, central procurement depot system, and as you say brand name, it is only because we are able to achieve a much more favorable price by negotiation for depot stocking of this item. It is already being procured because therapeutic committees have standardized it and PAGENO="0222" 8178 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY it is being prescribed by physicians The reason it is in our depot system is because we are getting a more favorable price through that channel, rather buying it on the open market under the Federal supply contr'tct or from the manufactuiei itself, so considerable savings is achieved Senator NELSON For the exact foi mulation of that ~ Mr STATLER For that particular formulation, right Let's say Darvon If they want Darvon and continue to prescribe it, if the best price we can get is to negotiate with the manufacturer and depot stock this, then the very fact we have to continue furnishing Darvon, the best thing to do is get the best possible price through our depot system, so we are able to achieve significant savings in that manner Senator NELSON How do you know you achieve a saving if you selected a brand name for which there is no competitor ~ Mr SIATLER Because we know what the market price is, what it is to the outside pharmacists, what it is to other hospitals. Senator NELSON. But all you are able to say about that is that you get a price more favorable than the wholesaler? Mr WHITWOETH Sometimes, yes, sir Very often Senator NELSON But you don't know whether that is a fair price All you know is that it is a somewhat better price than somebody else is paying. Mr WHITWORTH Relatis, ely, sir, we know that it is a very good price. Senator NELSON We have had many examples, you know-and I am sure you are familiar with this-where the retail price of a brand name has been 10, 20, 30 times higher than the bid price a company will make to DOD or some other agency because then they have to corn pete; whereas in the retail market place, if they have a well-known brand name, they aren't really competing. The doctors are writing that brand name So they can charge some astonishing prices but when they move to compete on a bid we find them dropping the price to one-tenth or one-twentieth. Mr WHITWORTH Sometimes a great deal more than that Senator NFLSON Sometimes more than that So you really don't know, do you, that it is a particularly good price if you just find out that it is better th'itn the wholesaler is getting ~ Mr. WHITWORTIT. Of course, we are making quantity buys that most wholesalers do not make and the companies will give us a better price because of these quantity buys Very often the larger the quantity the better the price Senator NELSO~ GAO's comment about that is Without effective competition it is a question of the Government assur ing itself that prices being obtained are fair and reasonable under negotiated procurements We had some astonishing cases of AID p'tying 2,000 10,000, and 12,000 percent over the world market price on a particular drug because it was a sole source procurement. So what I am getting at is-if you have several drugs or molecular modifications of the same drug and if the therapeutic value of each is found to be the same, do you then evaluate the costs between the two therapeutic agents or are you ordering it simply because the formulary committee at the local level says we want this particular drug with this brand name9 PAGENO="0223" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8179 Mr. WHITWORTH. We depend on the therapeutics committee to select the drugs that are to be stocked, sir, and we make no professional judgments. Dr. WELLS. They make no professional judgments, we do-I mean the purchasing staff doesn't. Now, Dr. Haber, you wanted to add something. Dr. HABER. I would like to point out a function of these thera- peutics committees at the local level. They exercise a parsimony, if you will, of additional drugs to their formulary because they have to live within a budget. The local station people recognize when they meet that if they prescribe more effective drugs, this has the effect of reducing the amount of therapy that they can administer to our veteran patients. They can't regard this as an open-ended procedure under which they can introduce new drugs ad infinitum without regard to the expense. So there is a very disciplined effort there, and the whole structure of these therapeutic committees is to match the greatest therapeutic effectiveness with the greatest economy, and this is under surveillance of the central office committee which has the same discipline in effect. Senator NELSON. Well, I still don't know how that would be done at the local level. If you have a selection of drugs that all have the same alleged therapeutic effect and all have passed the same standards, but there is a great variety in their price, and then the doctors at the local level simply believe that a particular brand name is much better though it costs much more, how do you handle that~ Dr. HABER. Sir, this is not in accordance with our procedures. You see, the people who are on the therapeutics committee include the pharmacist, and the chief of staff in the station who are intensely aware of the cost of drugs and part of the substantiation for new drug requests that Dr. Wells mentioned relates to the cost. If a physician at a hospital, the chief of the gastroenterology service, let's say, is suddenly made aware of a new antibiotic, for amebiasis, say, or something of that condition, he sends his submission to the Thera- peutics Agents Review Committee, supports the use of this drug on a comparative basis with other known effective agents and usually such substantiation must include the cost of the drug. The thera- peutics committee at the local level then is faced with a choice of adopting this drug if it appears to be so much more effective and if it is more effective, they must recognize this will inhibit their ability to purchase other drugs. So they have a builtin mechanism for practicing economy in addition to their major effect which would be to see that therapeutic effectiveness is beyond question. Senator NELSON. I realize that formularies and therapeutics com- mittees are relatively new as a practice, and there can be lots of argument about it, but one of the problems that bothers me is, for example, the fixed combination anti-infectives. All the experts that I know of in the United States said that they were ineffective ~ts fixed combinations even before 1957; 13 years ago. All the experts in the country said this and knew this and it was true of your own experts in the VA, Department of Defense, in private practice, in teaching hospitals and all the pharmacologists and clinicians all~. agree~ It was so universal that a major editorial was run in the American Medical PAGENO="0224" 8180 COMI~ETITIVE PROBLEMS IN THE DRUG INDUSTRY Association signed by 10 or 11 distinguished clinicians, including *Dr. Harry Dowling, and Dr. Maxwell Finland. Despite that, all these formularies which are supposed to be based on scientific knowledge, included these fixed combination antibiotics. If you are planning a rational scientific method to your selection, how do you explain that, and if that can't be explained, how do we have some assurances that, in fact, these therapeutics committees are using the best available scientific knowledge since a year ago they were violating all of the best scientific methods we know of to date in this country? Dr. WELLS. I would like to approach the answer to that, Mr. Chairman, strictly on an historical basis. I think your history is correct. I think that we have done many things that were question- able and some of them quite incorrect in medicine. As time goes on we corrected these. I would be surprised if we are not doing many things now that are incorrect that we know not of. We will learn about them, and try to correct them as best we can later. Beginning in 1946, in VA, we did establish this type of committee just to try to prevent as far as we humanly could this type of recurring error or at least to identify it as early as possible and make the corrections. But in the last analysis the whole practice of medicine is not really a totally scientific matter, but is in part an art of practice and there are many things that we do that do require correction. I wish we had some way of anticipating those and also of acting on them more expeditiously and perhaps more totally at any point in time. But I think really what you are recounting there is a rather unusual type of thing over the entire history of the practice of medicine in the world. I think it can be safely said that it was the middle of the first half of this century before a patient going to a physician had an even break as to whether he would come out better or worse. Now, we are gradually improving this situation and hopefully it will be much better in the next generation. But I think we have to face the fact that historically we have done things like going on with Panalba and other things for years and not be able to correct our fault until it was really quite late in the day. Senator NELSON. But the problem of fixed combination anti- infeotives wasn't an issue in dispute among the experts. They were in agre~ment, *hether they were right or wrong, or are even now right or wrong. They were all in agreement for at least 5 years-and your own experts would say that. So far as I know, there is no dispute over the issue~ When they finally got the Kefauver bill in 196~ and finally put together the NAS-NRC panels, that is what they came up with. They just reaffirmed what the best people in medicine had known for years and years. So all I am saying is how come, then, that if that were the agreed- upon fact without dispute in the whole profession, these fixed combinations continued to be in the formulary. Mysteclin F and Panalba were still in there a year ago. Dr. WELLS. I think what you say is very true, but it is also quite characteristic of the practice of medicine that it simply does not PAGENO="0225" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8181 respond at any point in time to the consensus of its experts. We deal with a very large number of individuals, with individual notions about the practice of medicine. At this point in time we are not really prepared to tell them we are absolutely certain we are right and they are wrong. So we encounter these problems that require a very carefully made judgmental decision on the part of the physician who indeed has the responsibilities at the local level. Senator NELSON. His responsibility is first to his patient. Dr. WELLS. Right. Senator NELSON. And therefore he ought to be applying the best knowledge available. Dr. WELLS. But known to whom? Known to many? Senator NELSON. No. Known to the profession, since at least within a hospital that is run by the Government we don't need to subsidize bad medical practice. Dr. WELLS. I agree but again I think you enunciate our basic problem of education and evolution. We have to educate these peop1~e over a long period of time, and we have to be forebearant in the evolution of the practice. Senator NELSON. Well, I guess we went through that before. It would seem to me in any event, and I will conclude arguing with you about it, if you have a position that is universally held by all the experts in the field then somebody who is not an expert shouldn't be permitted, at least in a Government hospital, to over- ride the experts. You say to him, "Sir, all the medical experts in this country say this. You have a contrary position. You bring to us the controlled clinical studies or the evidence that overrides the position of the experts and we will accept the drug that you are using." All you have to do is to apply the rule of reason and science to the doctor. If you can't do it, you shouldn't permit the drug in your hospital and the taxpayers shouldn't fund it and the patients shouldn't have to suffer through it either. Dr. WELLS. I would have to say that at this point in time, I would simply not be prepared to make that kind of recommendation to the Administrator of Veterans' Affairs which would mean that we would indeed be administering the practice of medicine from Washington. I doubt the expediency, the value, the ultimate worth of that judgment at this point in time. Senator NELSON. All right. Go ahead. Dr. WELLS. In reference to the 13 items under special study and beginning at the top of page 6, we anticipate issuing invitations for bid on these items in a few weeks. Our experience with these 13 items will determine how we proceed with the remainder. We have also directed that a continuous review be made for all items procured on a non-competitive basis to determine if there are potential com- petitors who can meet our requirements. I must emphasize, however, that this does not mean that we, in any way, are cutting our quality standards. We recognize that the area of quality standards employed in the manufacture and control of drugs is in some instances a matter of subjective judgment. We intend to do the best we can. We plan additional training for our plant inspectors. We likewise will use the facilities of other Federal agencies insofar as 59-581 0-71-pt. 20-15 PAGENO="0226" 8182 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY feasible. to augment our own efforts and to reduce duplication of effort. In recent testimony before this subcommittee it was recommended that the Food and Drug Administration assume the responsibilities now discharged by the procuring agencies for plant inspection and quality control surveillance rhe Veterans' Administration would favor such action, provided that such inspections were conducted in a timely and comprehensive manner relating to our procurement requirements, and provided that sufficient data to support our deter- minations on responsibility of bidders is made available to us. At present, detailed inspection reports of the Food and Drug Adminis- tration on specific manufacturers' facilities where products are manu factured for us under contract are not made available to us Federal Procurement Regulations, subpart 1-14, place the responsibility for inspection and acceptance of supplies, including drugs, upon the contracting agency. We have extensively used the facilities of Federal inspection services such as those provided by the Department of Agriculture, Department of Defense, National Bureau of Standards, 1)epartment of Interior, when those agencies performing these services for us provide us with sufficient information to assure that we are discharging our responsibilities. There are no statutory ex- emptions from the requirement that Government procurement agencies must assure themselves by such means as inspection that the product being procured meets essential Government require ments, even though the industry may be operated under controls of a Federal regulatory agency It was also brought out in recent testimony that there was a need for greater cooperation and exchange of information among the Federal agencies engaged in drug procurement, quality control and product safety. The Veterans' Administration had exchanged infor- mation with Defense Supply Agency on vendors, plant inspections, pricing and quality control data on a widespread basis Recently this exchange had been limited to pricing and market data and to adverse findings as the result of plant inspections We also report to the Food and Drug Administration adverse drug reaction information All the Federal agencies hwing an interest in drug procurement, regulation and control are members of the Intra Governmental Professional Advisory Council for Drugs and Devices We have asked that council to immediately request its member agencies to expand their exchange of information and to study and develop means for broadening and improving this exchange I have been informed that both actions have been initiated We pieviously reported that a substantial number of the drugs used in our medical car~program are available only from one source because of patents These drugs account for about 80 percent of our dollars It was suggested that the Federal Government can use a patent without the permission of the patent holder and without sub)ecting itself to damages for such use While it is true that the Government cannot be held liable for a patent infringement as such, ]t is not held free from any financial liability to the patent holder Title 28 USC 1498 provides that such a patent holder may bring suit in the U.S. Court of Claims for remuneration for the use of his PAGENO="0227" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8183 patent by the Government. At least one such suit is currently pending in the Court of Claims involving the Veterans' Administration pur- chase of the drug meprobamate. In addition to the questions of suits for the use of patents, there are several other major policy ques- tions to be considered if a drug is to be procured from foreign sources. In any procurement action we are governed by statutes and regulations and national policy regarding balance of payments, the Buy American Act, special assistance to economically depressed areas. It is difficult to arrive at a rational judgment as to when to purchase drugs from someone other than the patent holder and especially from foreign sources when weighing these considerations against purchase cost alone. As we mentioned previously, even though a product is marketed from foreign sources at a significant price differential, we are still not free to procure it unless the Food and Drug Administration has approved an effective New Drug Applica- tion for its importation into and use in this country. Title 21, Code of Federal Regulations 130 extends this requirement to Federal agencies as well as to individuals and organizations. I believe the actions we have described today will bring about a continuing, long-range improvement in the selection process of those drugs we include in our hospital formularies and which we purchase. It could result in some economies in drug procurement; it should result in assuring that our policy of rational drug' selection and use is carefully and thoughtfully followed. As the Administrator of Veterans' Affairs testified to this subcommittee on August 11, 1970, this subject is both complex and complicated, and one in which there is continual controversy. We do not feel that the physicians practic- ing in and for the Veterans' Administration have a callous and cavalier attitude toward the cost of drugs prescribed and purchased from public funds. We do not `believe cost is the primary factor in selecting the drug of choice, nor do we believe it should or can be. The physician, in selecting the drug for treatment of his patient, chooses the one which he considers the most effective. In making his choice, he is confronted with a large number of drugs, for which there are sometimes conflicting claims, a division of opinion amon the experts, contradictions between his own clinical experience an judgment and the reported controlled test results. You may be inter- ested to know that Veterans' Administration facilities have estab- lished policies restricting detailing activities of pharmaceutical rep- resentatives. Generally, these policies prohibit indiscriminate detail- ing and sampling of physicians. Provisions are made for appoint- ments between physicians and representatives where specific informa- tion is desired. We are very much interested in the forthcoming publication .by the American Medical Association of a drug compendium. We feel much greater efforts along this line are needed to assist the physician in his selection of drugs. We believe that while some data are now available from some publications, there is not always a sufficiently broad consensus to persuade the physician that his choice is clear. One of the National Academy of Science/National Research Council panelists testified before this subcommittee that the black and white of expert testimony with respect to drug effectiveness is simply not PAGENO="0228" 8184 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY that clear. Another panelist agreed and brought out that many of the decisions of NAS-NRC panels represented majority views rather than unanimous decisions. This, in our opinion, may account for the continued use of drugs which have been classified by FDA, at some point, as other than effective for all indications claimed. In examin- ing our position in the Veterans' Administration, a specific example illustrates the reason for such choices. The question has previously been raised about the value of chiordiazepoxide compared with bar- biturates. We talked about this at our last hearings. Although quite disparate in cost, some experts share the view that they are equally effective and free from adverse side effects. Other experts, including those in the Veterans' Administration who had done very extensive clinical evaluations, disagree that they are equally desirable alterna- tive drugs of choice for all manifestations. I also believe that the three panelists from the NAS-NRC panel on psychiatric drugs testified before your subcommittee that there were conditions in which either drug was a suitable drug of choice, but there were other conditions, notably moderate to severe psychosis or long-term therapy require- ments in which they do not agree that barbiturates were comparable to chlordiazepoxide in therapeutic effect or safety. In this Agency, both barbiturates and chlordiazepoxide are used in our psychiatric program. In conclusion we feel the problem is one that can best be solved by education and by a meaningful and timely flow of information to the prescribing physician. We cannot reasonably expect our physici- ans to base their medical decisions on the opinions of one expert or one publication or to reasonably choose between the divergent opinions of several experts without a sufficient battery of information to support their decisions. Compendia, digests of drug information and probably some educational programs not now in existence offer, in our opinion, greater hope for improvement than formularies com- piled in Washington, often remote from the actual practice of medi- cine, if such formularies propose to restrict the availability of drugs contrary to the expert and enlightened opinion of the physician who has the actual responsibility for the health of the patient. It is our job to see that his opinion is an enlightened one, not to direct his selection of drugs for his patient, but rather to see that he makes an informed and knowledgeable choice and that he has readily avail- able to him data on which to base this choice. We feel that such an approach will enhance rational prescribing more effectively than one which proposed to regulate judgment. We reaffirm our policy that the administrative process does iiot dictate the selection of drugs which will be prescribed and dispensed in our Veterans' Administra- tion hospitals and clinics. We recognize that our own system for assisting our physicians in rational choices can be improved. We believe the deficiencies which exist in our system in this respect, are the same deficiencies found in the entire Nation's health care system. We have a problem in which the dissemination of informa- tion is not keeping pace with the need for that information. Perhaps the efforts of this subcommittee, in focusing attention on this prob- lem, will stimulate more intensive efforts and speed up needed improvement. PAGENO="0229" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8185 Mr. Chairman, this concludes my statement. We will be happy to continue with members of the panel here. Senator NELSON. After you have negotiated a contract, have you ever asked the General Accounting Office to examine the company's production costs so that you can find out whether or not the price you paid was a fair price? Dr. WELLS. No. The answer is no. Mr. WHITWORTH. No, we have not. Senator NELSON. Why not? Mr. WHITWORTIT. Well, as Mr. Staats testified, they don't have to be asked. They can come in and do it at their own instance. Senator NELSON. If I understand Mr. Staats correctly, since the law authorized the GAO to examine cost in a contract that you have negotiated, even if they haven't initiated on their own, why hadn't you requested them to do that so you could find out whether or not you were paying a fair price? I)r. WELLS. That sounds like a good idea to me, Senator Nelson. I really don't know. If our procurement people don't, I am sure I don't, why we haven't literally sought this type of review. GAO does review a lot of procurement practices and certainly contract practices, but I don't know about this. Senator NELSON. You are buying repeatedly, year after year, on a negotiated basis, as are other agencies, and the law authorizes GAO to go in and examine the company's production costs. It seems to me that it would be an obligation for you to request this. Mr. WHITWORTH. The fact remains, Senator, that I have behind me the manager of our marketing center in Chicago and he tells me we have never done so. Senator NELSON. Well, do you intend to consider doing so? Dr. WELLS. I think we should explore this as one possible avenue to shore up our purchasing techniques and contract compliance, yes. Senator NELSON. As one further method of checking reasonableness of your negotiated contracts, do you check the prices in the foreign countries for the same product sold by either our own or by foreign countries? Mr. WJIITWORTH. You mean the prices of American manufacturers' products sold in foreign countries? Senator NELSON. Either one. Mr. WHITWORTII. We do our best to get the information from domestic companies. I think we asked 48 companies in the last-since the hearings in August to give us the foreign prices. Three only gave us those prices. Senator NELSON. Three? You asked them in August? Mr. WHITWORTH. After the hearings in August. It was between September and the middle of October. Now, as far as the foreign drug prices are concerned, we do have a number of catalogs from foreign drug manufacturers that we can make spotty comparisons, sir. But we have not made any or been able to make any organized comparison except in the Canadian market, and since the last hearings we have made rather an extensive comparison of Canadian prices versus our own and we are in a better position most of the time. We have a better price. But that is the Canadian market. PAGENO="0230" 8186 COMPETITIVE PROBLEMS LN THE DRUG INDUSTRY Now, we asked 48 firms; 23 did not reply. Twelve don't sell their products on the foreign market. Eight didn't give us a definitive price. One firm dealt in bulk sales. only. We received price lists from three firms. Senator NELSON. Twenty-three didn't reply at all? Mr. WHITWORTH. No reply at all. Senator NELSON. Well, I hope that you would consider having the GAO examine the costs of negotiated contracts. If I understand the law correctly, it has to be done after the contract is negotiated, but in any event, that would inform you for future negotiations. Mr. WHITWORTH. Well, Senator, we will consider that, yes, sir. Senator NELSON. Thank you very much. We will meet in this same room tomorrow at 10 o'clock and the witness will be the Department of Defense. Thank you very much, gentlemen. (Whereupon, at 1~2 :20 p.m., the Subcommittee on Monopoly of the Select Committee on Small Business adjourned, to reconvene the following morning at 10 a.m., Wednesday, February 3, 1911) PAGENO="0231" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) WEDNESDAY, PEBRUARY 3, 1971 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Wa8hington, D.C. The subcommittee met, pursuant to recess, at 10: 12 a.m., in room 1318, New Senate Office Building, Senator Gaylord Nelson (chair- man of the subcommittee) presiding. Present: Senator Nelson. Also present: Benjamin Gordon, staff economist; Elaine C. Dye, clerical assistant; and Keith A. Jones, minority counsel. Senator NELSON. Our witness today is Brig. Gen. George J. Hayes, Medical Corps, u.s: Army, Principal Deputy Assistant Secretary of Defense (Health and Environment). General, the committee is pleased to have you here this morning. Your statement will be printed in full in the record. You may present it however you wish and if your associates wish to comment, they may feel free to do so, but should identify themselves for the reporter so the record will be clear. Please proceed, General. (8187) PAGENO="0232" 8188 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY STATEMENT OF BRIG. GEN. GEORGE I. HAYES, MEDICAL CORPS, U.S. ARMY, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF DEFENSE (HEALTH AND ENVIRONMENT); ACCOMPANIED BY COL. M. E. MCCABE, MC, USA, OFFICE OF THE SURGEON GENERAL, DEPART- MENT OF THE ARMY; CAPT. L. M. FOX, MC, USN, CHIEF, MEDICAL SERVICE, NAVAL HOSPITAL, BETHESDA, MD., AND CHAIRMAN, PHARMACY AND THERAPEUTIC DRUG COMMITTEE; COL. E. J. CLARK, MC, USAF, OFFICE OP THE SURGEON GENERAL, DEPART- MENT OF THE AIR FORCE; CAPT. R. F. C. MacPHERSON, MC, USN, DIRECTOR OP MEDICAL MATERIEL, DEFENSE PERSONNEL SUP- PORT CENTER; COL. A. J. SNYDER, MSC, USA, CHIEF, DIVISION OP MEDICAL MATERIEL, DIRECTORATE OF PROCUREMENT AND PRO- DUCTION, DEFENSE PERSONNEL SUPPORT CENTER; AND MAX FEINBERG, ASSISTANT CHIEF, DIVISION OF TECHNICAL OPERA- TIONS, DIRECTORATE OF MEDICAL MATERIEL, DEFENSE PERSON- NEL SUPPORT CENTER General HAYES. Mr. Chairman, it is my pleasure to appear before you today to bring you a further report on the procurement of drug products by the Department of Defense. I should like to introduce my colleagues. Col. Marshall E. McCabe, MC, lISA, Office of the Surgeon General, to my right; Capt. L. M. Fox, MC, TJSN, Chief, Medical Service, Naval Hospital, Bethesda, Md., and Chairman, Pharmacy and Thera- peutic Drug Committee, far right; Col. E. J. Clark, USAF, MC, Office of the Surgeon General; Capt. R. F. C. MacPherson, MC, USN, Director of Medical Materiel, Defense Personnel Support Cen- ter (DPSC) ; Col. A. J. Snyder, MSC, USA, Chief, Division of Medi- cal Materiel, Directorate of Procurement and Production, DPSC; and Mr. Max Feinberg, Assistant Chief, Division of Technical Operations, Directorate of Medical Materiel, DPSC. Probably no other event in recent years has had an impact on the practice of medicine in the United States equal to that of implementation by the Food and Drug Administration (FDA) of the National Academy of Science-National Research Council (NAS- NRC) study on drug effectiveness. Results first became apparent in federal agencies because their hierarchal organizational structures foster rapid communication with subordinate activities through a variety of media. Consequently, we in Government have been able to take the first definitive steps to reap the medical and economic benefits of the study. We have implemented our actions at three levels: DOD, Defense Medical Materiel Board (DMMB), and in the services themselves. The Assistant Secretary of Defense (Health and Environment) has issued a memorandum to the Surgeons General of the Services outlining DOD policy as it applies to drug products categorized as other than "effective." Our policy prohibits fuither procurement or issue of ineffective products, and directs appropriate disposal of existing stocks. We have similarly terminated procurement of "pos- sibly effectives," with one minor exception, but will withhold disposal PAGENO="0233" COMPETITIVE PROBLEMS I~ THE DRUG INDUSTRY 8189 until final FDA regulatory action is directed. We contemplate few problems with the "probably effective" category, but here, too, we have established controls. Senator NELSON. May I interrupt a moment, General? General HAYES. Certainly. Senator NELSON. What is the exception to the "possibly effective" drugs? General HAYES. That is where no other drug for this purpose exists at this time, similar to the HEW Public Health Service position. Senator NELSON. When there is no other drug that treats the condi- tion which the "possibly effective" drug purports to treat. Is that what you are saying? General HAYES. That is correct. Senator NELSON. You say you have established controls for the' "probably effective" drugs. What kin~d of controls? What do you mean by that? General HAYES. Well, much the same as with the possibly effectives. Senator NELSON. Pardon? General HAYES. Much the same as with the possibly effective. Limited procurement here rather than total nonprocurement, direct- ing a very careful evaluation of the utilization of the items both by the individual prescriber himself, by the Pharmacy and the Thera- peutic Agents Board. Senator NELSON. So you are saying again that if there is a drug that is effective for treating a particular condition, that you will not authorize the use of a "possibly" or "probably" effective drug for the same condition? General HAYES. That is correct. I could read, after I finish the whole statement, or here at your pleasure, the memo that Dr. Rousse- lot Sent to the three Services which really outlines this pretty well. Senator NELSON. How long a memo is it? General HAYES. Page and a quarter. Senator NELSON. Why don't you read that at the end of your statement. General HAYES. Pending a decision on ultimate classifications, we are reducing our stock levels of these products to the minimum, and continually monitoring developments in FDA. Also as a result of the study, Dr. Rousselot has appointed a study group to review our entire stock list of drugs, and make recommenda- tions for their retention or deletion. The group is chaired by the staff director, DMMB, and has the advice and assistance of the professional consultants to the Surgeons General. The review is now in progress. In addition to the actions generated by the study, DOD has directed the Surgeons General to emphasize the use of the most cost-effective medications whenever professionally appropriate. DMMB has established an effective liaison with FDA which, for the first time, will ensure that our file of FDA actions is complete and accurate. This liaison has enabled DMMB to provide to the Services identical and validated data on the Study of Drug Effective- ness. The DMMB procedures eliminate duplication of effort by the Services, and insure that all Services will have all the information. PAGENO="0234" 8190 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY In a related action, DMMB has deleted all amphetamines and amphetamine-like drugs from military sets, kits, and outfits. Our concern was generated not by the study, but by a desire to minimize pilfering and misuse of these stimulants The Services are accelerating their programs of education and policy direction in the field of drug therapy Service Pharm'~cy and Therapeutic Drug/Formulary Committees have been directed by their respective headquarters to review their formularies and their procedures. Since this activity has been stimulated by the Study on Drug Effectiveness, much of the material relates to the drugs so categorized. In addition to statements of policy in these matters, the Services disseminate to their professional staffs the listings of drugs released by FDA. These listings are used collaterally as another basis for emphasizing the necessity for cost-effective prescribing habits. Mr. Chairman, we have analyzed some of the statistics resulting from the NAS-NRC study. As of January 21, 19~71, our liaison with FDA., and our screening of the Federal Register, has resulted in lists of 35D drug products classified as "ineffective," and (as of January 12, 1911), 189 classified as "possibly effective." As of the date of publica- tion in the Federal Register, DOD had in standard stock only five of the "ineffectives," and 16 of the "possibly effectives," from a total of 1,100 drug products. Mr. GORDON. General, may I interrupt you a moment. Is there any indication as to how many of the "probably effective" drugs you have? General HAYES. We have no information as yet on that. Mr. GORDON. Could that be supplied for the record? General HAYES. We can supply it for the record. (The information above-referred to, follows:) PAGENO="0235" COMPETITIVE PROBLEMS IN THE DRUG INDUSTR~Y 8191 ?ROBABLY EFFECTIVE DRUGS The Department of Defease has identified five centrally stoeked pharmacoutleals as being classified "probably effective. They. are: Federal Stock Number 6505-290-6032 Bacitracin, USP, Powder for Topical (Fed Reg 24 Jun 70) and Intramuscular Use, 50, 000 units 6505-122-6984 Ben~athine Penicillin G and Procaine (Fed Reg 18 Aug 70) Peithilin G Suspension, 300, 000 units each, ice, 20s 6505-682-6538 Benzathine Penicillin G and Procaine (Fed Reg 18 Aug 70) Penicillin G Suspension, 600, 000 units each, 2cc, 20s 6505-890-1599 Beuzathine Penicillin G, Procaine Penicillin G, (Fed Reg 18 Aug 70) and Potassium Penicillin G for Injection, 300,000 units each, Powder 6505-687-8459 Procaine Penicillin G and Potassium (Fed Reg 18 Aug 70) Penicillin G in Oil, 400, 000 units, icc, 20s PAGENO="0236" 8192 cO~n'ETITIVE PROBLEMS TN THE DRUG INDUSTRY Senator NELSON. As a related question, on page 2 you refer to a study group to be headed by Dr. Rousselot to review your entire stock list of drugs, and make recommendations for their retention or deletion, which I think is an appropriate step to take. But in dealing with the question of rational prescribing, you state: In addition to the actions generated by the Study, DOD has directed the Surgeons General to emphasize the use of the most cost-effective medications whenever professionally appropriate. I notice that the Defense Department spent about $3 million in 1968-69-I don't have the 1970 figures-on a number of tetracyclines, demethylchlortetracycline, oxytetracycline, and chlortetracycline. If the Department had heeded the advice of the medical experts and used the drug of choice of that family of antibiotics, that is, plain tetracycline, our calculation is that $2,300,000 would have been saved. I am sure you realize it is the position of the Medical Letter that tetracycline HCL is an equivalent of the other members of the tetra- cycline group. Dr. Simmons of the Food and Drug Administration says the same thing. Well, while counsel finds the comments of Dr. Simmons, Dr. Heinz Eichenwald, professor and chairman of the Department of Pediat- rics, University of Texas, who was chairman of one of thç NAS- NRC antibiotic panels, states, "Similarly, a large group o~f tetra- cyclines have been prepared. Basically none of them are superior to the parent molecule, tetracycline itself." Dr. Simmons, Director of the Bureau of Drugs, FDA, states: At the present time-take tetracyclines which you had a lot of testimony on-there are about five different chemical formulations of tetracycline. Now, all of them have minor differences which present and old labeling have shown and on which advertising claims have been made. The important thing, how- ever, is that these are minor differences, though they are clinically insignifi- cant. And, therefore, there is no reason why a physician should choose one as opposed to the other. Do you agree with the position of Dr. Eichenwald, Dr. Simmons, and the Medical Letter on the tetracyclines? General HAYES. Essentially we do. Senator NELSON. Well, what is the explanation? General HAYES. I would like to answer that a little further and have Colonel Snyder respond to part of that question, what our actual proportion of procurement was at that time. Colonel SNYDER. Mr. Chairman, there are approximately five major forms of tetracycline and during the period July 1, 1968, through last Friday we procured something over 300 million dose forms of the standard generic tetracycline. As opposed to that we procured about 45 million doses-of all other forms of tetracyclines. I have figures with me that we can provide for the record. (The information referred to follows:) PAGENO="0237" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8193 TETRACYCLrNE (and TETRACYCLI~-like) PROCUREME~ (expressed in doses) Federal Stock Number Description No. of Doses procured 1 Jul 68 to 29 Jan 71 22,808,400 Chiortetracycline Rd Capsules, 0.25 GRAM Demethychiortetracycline HCI Tablets: 0.15 GRAM 0.30 GRAM Doxycycline Hyclate Capsules, 5OMGM Oxytetracycline Tablets 0.25 GRAM TOTAL Doses ofTTetracycline_typd'jtems: Tetracycline HCI Tablets, 0.25 GRAM Tetracycline HCI Tablets, 0.25 GRAM TOTAL Doses of Tetracycline items: 6505-159-6575 6505-890-2081 6505-782-6485 6505-142-9140 6505-299-8276 6505-286-7302 6505-782-6481 3, 168, 000 552, 960 691,200 ,669, 600 44, 890, 160 299, 061, 600 300, 137,280 Enclosure 3 PAGENO="0238" 8194 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Colonel SNYDER The principal difference-there is a difference in cost and when you think in terms of dollars as opposed to terms of dose forms, it seems substantial, but we are buying in very large quantities and what seems to be an inordinate amount is a very small percentage of the total Senator NELSON. But if our figures are correct, you paid $3 million for these and other formulations of tetracycline HCL. You could have saved $2,300,000 or, in other words, bought tetracycline HCL for $700,000 instead of $3 million, which seems to me is substantial I wonder what the justification is unless there is a medical justifi cation Colonel SNYDER I won't speak to the prescribing habits but actually 85 percent of the total prescribed is generic General HAYES Mr Chairman, I think we have to put in this somewhat proper time reference and the purchasing time, 1968 to last year-this kind of information was not available and this carefully reasoned study of the NAS-NRC type was not available to the people who were prescribing or purchasing. Now I think if we put it in the proper time, I would like to get a little later on into what we are doing with the very useful tool that we have at the present time to accomplish what you are talking about. Senator NELSON. The Medical Letter was dated 1968. Counsel says he is not sure. It might have been 1969. The counsel reminds me that the NAS-NIRC didn't cover these tetracyclines. They weren't part of this study on efficacy. I guess nobody is arguing about the efficacy of any of these variations of the tetracyclines. The only question is the price. What the drug companies have done is taken tetracycline, made some modifications, put a brand name on them, and charged a higher price, while the Medical Letter and medical scientists are saying they all do the same thing Why pay the higher price ~ General HAYES We will now turn from a discussion of what we have to why we have it, and how to get it It is DOD policy that our stock list shall consist of quality drug products procured com- petitively on generic specifications, and at the most economical prices we can obtain. We cannot procure competitively without a generic specification. Our standards are basically those of the USP and NF, supplemented with such additional standards as are necessary to insure suitability nOt only at the time of procurement, but also following possible long- term storage throughout the world in Artic, Temperate, or Torrid zones Many of our specifications include standards which have been obtained from industry during the st'Lndardization procedure If we are to obtain suitable materiel competitively, we must include these details in order to provide other than product originators with the necessary product information. The specifications are developed, and procurement is effected by the Defense Personnel Support Center (DPSC). Each DPSC solicitation (Other than an emergency purchase) is directed to all firms on the bidders list, and each solicitation for $10,000 or more is published in the Commerce Business Daily. In fiscal year 1970, 16.9 percent of PAGENO="0239" COMPETITIVE PROBLEMS IN. THE DRUG INDUSTRY 8195 our purchase actions, representing 2~T.2 percent of our purchase dollars, resulted from competition between two or more bidders. Additionally, as was reported to you by Comptroller General Staats, in January of 1969 DPSC surveyed about 1,000 firms in an attempt to increase competition in the procurement of some 400 items, 290 of which were single source. As Mr. Staats noted, only 104 companies replied, and 88 of those replies were negative in nature. This low rate of positive response is another indication of the problems faced by DPSC in its continuing objective of expanding competition, and increasing the participation of small business. It is appropriate to mention here that the solicitations mentioned previously are also provided to representatives of foreign drug industries. When we know of a specific foreign manufacturer or foreign licensee, DPSC makes overtures directly to that company. While we do successfully buy a few products in Europe, and we will continue to do so when permitted by law and administrative regula- tion, more frequently the attempt is frustrated. In a recent example, we learned that the price of chlorpromazine in Canada was materi- ally lower than our then current contract price. The Canadian licen- see refused to bid on our requirements, as their licensing agreement restricted their sales to Canadian customers. Senator NELSON. May I ask a question there, General? General HAYES. Certainly. Senator NELSON. Hasn't the patent run out on chlorpromazine? General HAYES. Yes. Senator NELSON. What was the date of the Canadian company's refusal to bid? Colonel SNYDER. This was a verbal inquiry by me, Senator Nelson, and at the time this was the answer given, the reason they did not submit an offer. I have talked to them as recently as last week. They say now that they will bid, that their license does not preclude par- ticipation. However, they do not have an NDA, which is one of the problems that we are faced with continually. There is no patent now prohibiting-their license does not prohibit. The NDA is now the bar. We talked to the president personally, as a matter of fact, twice last week. Senator NELSON. In any event, then, previously you had to buy chlorpromazine from the American licensee? General HAYES. Yes. Senator NELSON. Let me read you this. This is from a hearing held in 1968. Rhone-Poulenc, a French firm, discovered chlorpromazine. They licensed a company in the Uflited States to produce it and they licensed a company In Canada to produce it, each of them with the exclusive market in their respec- tive countries. So neither the company in the United States nor the company in Canada spent any money on research. It was just a question of each one of them having an exclusive market, both in the same Continent, with adjoining borders. The price charged by the U.S. licensee for 25-milligram tablets to the Defense Supply Agency was $32.62 a thousand. The price of the Canadian licensee to Canada's Department of Veterans Affairs was $2.60 a thousand. Now, that was a figure we were using in 1968. I don't know what you had to pay in 1969 and in 1970. But are you aware of the statute referred to by Mr. Staats, the Comptroller General, in his testimony PAGENO="0240" 8196 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY to the effect that under the statute, after a negotiated contract has been completed, the GAO has the authority to go in and examine the production costs of the seller to find out whether the price charged is reasonable? I think I state the statute correctly. Are you aware of that? General HA~r1~s. Yes, we are. Senator NELSON. Why shouldn't you ask the GAO to do that? This is such a dramatic difference when we have two licensees on the same continent with common borders, one selling for over $32- $32.62 for a 1,000 to our Defense Supply Agency and another company selling the same product as a licensee to Canada's Depart- ment of Veterans Affairs for $2.60. It would seem to me that would be just exactly the kind of situation in which the statute ought to be used because certainly the cost of production can't be that great. If they can make a profit on the $2.60 in Canada, the profit made in this country must be very great. Why shouldn't the statute be used in that case? Colonel SNYDER. Really this is a policy decision. I assure you it will be explored. We discussed this with the GAO people and they were going to look into it. We have not traditionally audited fixed price contracts on a post-contractual basis. We always audit cost-type contracts. We do not normally audit fixed price. It is certainly something that warrants investigation and it will be done. Senator NELSON. Well, it just seemed to me we have examples with such dramatic differences-this is a price differential of about 14. times-that with the statute there and the Department having to negotiate to buy, with no knowledge of whether it is reasonable or not, that this is the kind of occasion when we ought to have this kind of an audit, particularly when you know what the Canadian licensee is selling it for. Colon.el SNYDER. In almost every instance where you have a sub- stantial price difference between a domestic and overseas or a Canadian supplier, there is also an added factor of an NDA or some FDA control that also limits it. These are things that have to be explored and I am sure they will be. Senator NELSON. Well, it works both ways. I have looked at prices in Canada and found a number of retail prices, that is, prices charged to the pharmacist for brand name drugs in Canada higher than the prices charged here in the United States. And substantially lower for the same product-perhaps one-fifth as much-in Switzerland and Italy by the same company. We end up with them charging $4 or $5 a hundred more for a product in Canada than they charge in the United States where it is made, or one-fourth or one-fifth as much in Europe after the company that made it in the United States shipped it over there. So I don't see how anybody could claim that the price differential based upon cost of production and reasonable profit, could range from $2.60 a thousand in Canada to $32.62 in the United States. Colonel SNYDER. I make no such claim. Senator NELSON. Please proceed. PAGENO="0241" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8197 General }Ltn~s. We inspect our successful bidders and monitor batch analyses of their output to insure that the Government gets what it pays for. Within the Defense Contract Administration Serv- ice (DCAS) are approximately 75 inspectors who have been trained in the drug field. The time spent by these inspectors working in the drug-related field, plus 11 DPSC employees who are at times requested to assist DCAS, equates to approximately 20 man-years per annum. DOD performs these inspections on a product basis. While FDA periodically inspects drug plants to insure compliance with their good manufacturing practices (GMP), they neither register the prod- ucts supplied by each manufacturer, nor, except for antibiotics, do they routinely test the products. As indicated previously, we must inspect and analyze these products to insure that they are useful and are what we pay for. Mr. Chairman, that completes my formal statement. My colleagues and I will attempt to answer any further questions you may have. Senator NELSON. You have that page and a half? General HAYES. Right. I will read it. Senator NELSON. Please read that into the record. General HAYES. That is a memorandum to the Director of the Defense Supply Agency, to the Surgeons General of the Depart- ments of the Army, Navy, and Air Force, and' Chairman of the Defense Medical Materiel Board, subject: DOD implementation of the drug efficacy study, dated January 21, 1971. The Food and Drug Administration, after review of the drug efficacy findings of the National Academy of Sciences/National Research Council on drug products approved by FDA between 1938 and 1962, has published notices in the Federal Register with the classification of "Ineffective" and some "possibly effective." The NAS/NRC panel also classified some drug products as being "probably effective." After careful review and consideration of these findings, it has been deter- mined that Department of Defense policy regarding the procurement and prescribing of these three categories of drug Items will be as follows: 1. "IneffectIve" (a) No further procurement or Issue is authorized for those Items that have been withdrawn from the market. Remaining stocks of standard items will be destroyed or other appropriate action taken. (b) Those Items awaiting final determination by FDA will no longer be authorized for central or local procurement until final action Is taken by the FDA. All present stocks are to be suspended until status Is resolved. 2. "Possibly Effective" (a) Standard and local procurement of these items are no longer author- ized. (b) Pharmacies and Therapeutic Agents Committees are to question all prescriptions prescribing these drug Items. 3. "Probably Effective" (a) Minimize all central and local procurement of these items. (b) Continually monitor centrally these Items and Immediately notify all medical facilities as to change In classification by FDA. There are many high cost drugs being prescribed when equally effective but much less expensive drugs are available. Request you advise using medical facilities as to cost/effective ratio and direct use of most economical Item when appropriate. Request that the policy guidance outlined in the foregoing paragraphs be disseminated to all medical facility commanders worldwide. (Signed) Louis M. ROUSSELOT, M.D., F.A.C.S. 59-581 O-71-pt. 20-16 PAGENO="0242" 8198 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Now, we do have the exception that we discussed, a possible use of a possibly effective where thei e is nothing else that can be found to satify the need at that time We have already discussed that Senator NELSON And the same is true of the" probably effective" drugs, is that correct ~ General HAYES Beg pardon ~ Senator NELSON And the same rule applies to the "probably effec tive" drugs ~ General HAYES We didn't delineate it that clearly for that because the pIobably effective group is sort of in limbo a little bit Senator NELSON This is a continuation of the question I raised about the various tetracycline modifications that we were talking about a little while ago Will it be or is it your policy at this time to review the purchase of so called or what you might call `me too" drugs, that is, drugs that perform the same function as another drug that is well established and is demonstr'ited to be just as effec tive ~ Will it be your policy to review these "me too' drugs that cost more and perform the same function and eliminate them from your purchasing policy? General HAYES Well, as a result of the continuing actions resulting from these hearings, from the NAS-NRC studies, we talked this over with the Defense Medical Materiel Board and on January 25 further implementation of the memorandum I just read The Chairman of the Board sent out a subject "Committee Review of Special Interest Items" It changed the review approach that I mentioned earlier of all line items, line by line in the standard pattern, to looking at certain `u eas of special interest Thirty aieas have been identified at the present time I will read just a little bit of this memoi andum to give an idea of how we are going at it This is paragr'iph 3 of the memorandum An abbreviated item review report is given below as an example of Commit tee action Number one is Declomycin two is Aureomycin three is Terramycin In the discussion medical authorities state that tetracychnes do not differ in any essential characteristics and are essentially identical in terms of anti bacterial activity The difference in pharmacologic activity due to molecular modifications are relatively minor In importance Differences in costs are significant Recommendation That items one two and three above be reclassified as limited standard with eventual deletion from the Federal Supply Catalog, re- tain generic tetracycline hydrochloride as a standard item Now, we have another enclosuie to this which lists by what you might call class actions a similar approach to 30 different areas I will list a few of them or all of them at your desire Anti infective drugs, antihistamiries, coronary vasodilators, vasodilators, sedatives, hypnotics gastrointestinal antispasmodics, antacids, skeletal muscle relaxants, antiemetics and analgesics In each of those major he'idings are ~ aiying numbers of specific items by line item Senator NELSON Would you supply the committee with a copy ~ General HAYES. We will be glad to. (The information above referred to, follows ) PAGENO="0243" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8199 DEFENSE MEDICAL MATERIEL BOARD POTOMAC ANNEX, 2300 E STREET NW. WASHINGTON, D.C. 20390 ADDRESS REPLY TO: STAFF DIRECTOR, DEFENSE MEDICAL MATERIEL BOARD AND REFER TO: 43 5420 Serial: 86 25 January 1971 MEMORANDUM From: Chairman, FSC Class 6505 Review Committee To: Assistant Secretary of Defense (Health and Environment) Subj: Committee Review of Special Interest Items; Report of Ref: (a) ASD (H&E) Memo dated 27 Oct 1970 End: (1) List of 30 Items Proposed for Reclassification to "LIMITED STANDARD" with Eventual Deletion from the Federal Supply Catalog (2) CommitteáRecommendations Covering "Special Interest" Items 1. In accordance with reference (a), a line item review of all FSC Class 6505 is being conducted. The nodus operandi of the Committee will be review by therapeutic group as listed in the Federal Supply Catalog. 2. Because of the current interest in certain drugs, the Committee deviated from its planned order of review. Enclosure (I) is a list of 30 items considered to be of "special Interest", which was forrn. warded to the professional consultants on January 11 and 14 1971, with the proposal for reclassification to Limited Standard and ultimate deletion from the Federal Supply Catalog. Service position or appropriate comments were requested. 3. An abbreviated item review report is given below as an example of committee action: 1. 65O5~~89O.2O8l DEMETHYLCHLORTETRACYCLINE HYDROCHLORIDE TABLETS, 0.15 GRAM (DECLOMYCIN) 2. 65O5~'l59.~6575 CHLORTETRACYCLINE HYDROCHLORIDE CAPSULES, 0.25 GRAM (AUREOMYCIN) 3. 6505-299-8276 OXYTETRACY~LINE TABLETS, 0.25 GRAM (TERRANYCIN) DISCUSSION: 1. Medical authorities state that the TETRACYCLINES do not differ in any essential characteristics and are essentially identical in terms of antibacterial activity. The differences in pharmacologic activity, due to molecular modifications, are relatively minor in importance. 2. Differences in costs are significant. PAGENO="0244" 8200 COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY 43 5420 Serial: 86 25 January 1971 RECOMMENDATION: That Items 1, 2, and 3 above be reclassified as "LIMITED STANDARD" with eventual deletion from the FederalSupply Catalog. Retain generic TETRACYCLINE RYDROCULORIDE 0.25 GM (FSN 6505..286-7302) as a standard item. 4. Enclosure (2) represents the complete detailed committee actions on the "special interest" items. ,~WSON PAGENO="0245" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8201 List of 30 Items Proposed for Reclassification to "LIMITED STANDARD" with Eventual Deletion from the Pederal. Supply Catalog TI-INFECTIVE DRUGS 6505-853.8608 SODIUM CLOXACILLIN CAPSULES *(TEGOPEN) 6505890-2081 DEMETHILCHLORTETRACYCLINE HYDROCHLORIDE TABLETS (DECLOMYCIN) 6505*782~6485 DEMETHYLCHLORTETRACYCLINE HYDROCHLORIDE TABLETS (DECLOMYCIN) 6505-159-6575 CHLORTETRACYCLINE HYDROCHLORIDE CAPSULES (AUREOMYCIN) 65O5-299~8276 OXYTETRACYCLINE TABLETS (TERRAMYCIN) 6505-765-0582 SULFAMETHOXAZOLE TABLETS (GANTANOL) 6505-770-8345 NALIDIXEC ACID TABLETS (NEG GRAM CAPLETS) ~ 6505"014-1028 CHLOR.PHENIRAMINE MALEATE, ISOPROPANIDE IODIDE, AND PHENYLPROPANOLA)IINE HYDROCHLORIDE CAPSULES (ORNADE) 6505-935-9818 cHLORPHENIRAMtNE MALEATE, CARANIPHEN EDISYLATE, ISOPROPANIDE IODIDE, AND PHENYLPROPANOLAMINE HYDROCHLORIDE CAPSULES (TUSS-ORNADE) 6505-926-9019 DEXBROMPHENIRANINE MALEATE AND PSEUDOEPREDRINE SULFATE TABLETS (DISOPHROL CHRONOTABS) çORONARYVASODILATORS 6505-764-9014 DIPYRIDAMOLE TABLETS, (PERSANTIN) 6505-597-7341 PENTAERYTBRITOL TETRANITRATE TABLETS (PERITRATE) 6505-584-4297 PENTAERYTRRITOL TETRANITRATE TABLETS (PERITRATE) 6505-680-2326 PENTAERYTHRITOL TETRANITRATE TABLETS (PERITRATE) VASODILATORS 6505-943-4384 CYCLANDELATE CAPSULES (CYCLOSPASMOL) 6505-890-1321 ISOXSUPRINE HYDROCHLORIDE TABLETS (VASODILAN) 6505-299-8052 TOLAZOLINE HYDROCHLORIDE TABLETS (PRISCOLINE) ~DATIVEHYPNOTZCS 6505-616-9068 CLUTETHII4IDE TABLETS (DORIDEN) ~4$~I~9I~NTESTIQNAL ANTISPASMODIC~ 6505-783-0242 GLYCOPYRROLATE TABLETS (ROBINUL) 6505-777-8911 GLYCOPYRROLATE AND PHENOBARBITAL TABLETS (ROBINUL-PH) ANTACIDS 6505-890-1658 CALCIUM CARBONATE AND M4INOACETIC ACID TABLETS (TITRALAC) SKELETAL MUSCL~ RELAXANTS 6505-062-4833 ~ARISOPRODOL TABLETS (RELA) 6505-904-3256 CARISOPRODOL TABLETS (SOMA) 6505-890-1562 ORPEENADRINE CITRATE TABLETS (NORFLEX) 59'-581 0-71-pt. 20--17 PAGENO="0246" 8202 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY List of 30 Items Proposed for Reclassification to "LINITED STANDARD" with Eventual Deletion from the Federal Supply Catalog (Cont'd.) ANTIENETICS 65O5~754-0O86 DICYCLONINE HYDROCHLORIDE, DOXYLANINE SUCCINATE, AND PYRIDOXINE HYDROCHLORIDE TABLETS (BENDECTIN) ANALGESICS 65O5-890-'2024 PROPOXYPHENE HYDROCHLORIDE (DARVO~TRAN) 6505-9l3~79O7 PROPOXYPHENE HYDROCHLORIDE (DARVON COMPOUND 65) 6505~784~4976 PROPOXYPHENE HYDROCHLORIDE (DARVON COMPOUND 65) 6505'958~'2364 PROPOXYPHENE HYDROCHLORIDE CAPSULES (DARVON) 6505~687~790l ASPIRIN AND ETHOHEPTAZINE TABLETS (ZACTIRIN) PAGENO="0247" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8203 :.t~r; S71 cc t~nt'c ~%c LL~cLt ~::~c ~ ~*., T':::/:Y:Th tcc.~ :~/.:~c.cc -. ~c) I - ~ `1 O3~c23~12c~2 c:ccu~ cncxLnc C?Lcu.:J;, iL:~, ~.2S CAN ~ 4C 2/316 .L~_~_~__~ ~~~C733 - t ,~O5, :v - - 13,211 .11:? .~- ~ ...4~ ~ 2. There appears to be a reduplication of similar items. sc:. .:.. otc:cc!::z.c:i .1.. :. ~z~,cnc~.i t ~ ~ t:i~ c:t~l ~ C~çç;1~j ~ PAGENO="0248" 8204 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ~ ~a:y 1271 Z:LLf.~~ZZ~ ::sc:L;L;: ~ u._~ ~ 1;: ICCo ~ C.T .. :::~z~ 5,02)3 ~ 2~114; :.L. 2. _____ 6503'732~0425 :_~:::tt01iLC..t~L':.'3LLL~ :c~1~ ~ o.:o c:tti s:: L~L. 4~~/ ~ .~ - ~`.~J35) ~ - 0535-15d-0575 C :f;:2.22~v2tCLfld i:vnoc:.sc..::z: LL2~LLS, - 1 ~ ~ -~ - -324 4. 3235-2))-0%?6 Cl ~3c:t:.3 T!::LCC, C. 35 C. I I LI:: IL ,0G; aw~: - ~ .. :.. 53753 ~j:~j~~: 6505*~~7)2 ?.,:~.I:z:::Z2 :it):0C.1C:1... I..:. ~s, / 5; / - - - ~ . 1~7 L 4.J7~ "L:SSit5C'L31 and cchat~, La -. ... .. c:ctitic~ ara cacc.::tLdly ic~:. ;.. .`. .2 . . :L~ :~aria1 activity. cL~rc.az~an in ~ ~.t. :cC.ativaly ztincr in ;~- - ~L.~anncs in ccata :.: ~ --- .-- ~ 5,25 C IA, 5535-U; -.I; -.._~L~2L3L223 .. - LSA)-2270 o;zv2:z: :...i... -.- :5:3, 2-c t c-cU:aifl -.a ..~--J t:LCh .vaateat clclcticn t:cc tha tI_Cay_i. Cup~.-1y C:.~_-~~ PAGENO="0249" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8205 1'> U J~tiuz:y 1971 :~ivL:~~ c:~ STL:LtD 3C~UC~) I~iN~Ci~UUt IYLtUOS 1. flLLC2Z~L: CS5~765~05S2 C FJ~TF~3x~2Ct2 TtLLLTS, 0.5 C.?ZLt - ~ .00a ~/4/ uC tj C2fl l,ioi, ~tvz 2,3 3, ret,, 1,997 2. 0505.465-'M25 StLUIO3Z&ZOLU TEIL%TS, US?, 0.5 c:J~: ~ ~ ~ TL/e9 00 «=2....CLtL~fl CD 009 - `. 1,~u, ¼ 0,~ .~, _~ ~ ~. - 7,893 ~,m5icoL z:utt1o:Lt~oo d~ t~zt C~atato1", aIt~oti~~ it~ ttr;:3 o~ L ~ bttic~11y U33CU1 for t.o OS l#c t~~L~j~1" Ctzi 10 t.SZt tbatt throa tL~Z3S 03 rz~ 6505-76S-CXS Cu: TZ3S.Z~L~ TAflETS (C~Jt~3L) L:; t~-oL~sitic0 to "LLXTLD ST$LZfli~ tzith eventual dolotioo ~:&t 3'. 1~::.A Cu~1y Catalos. PAGENO="0250" 1~ - 8206 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY n.~2y:971 a:' CT;L::LCL.i .:~LLh:.L: :::~:c::;:~z~. G~35~77O~O2.'~5 ::s~: :;na CCL~S~ O.3 CL.'i LL__ ~ 5 - ~ C - - `ic: C:~i C\?L2.~T~2t 2.. O5~~2C~OCC) (7 ~flfl TL~LLTS, C~2, WO ioc~ :~;1/~2.1o I 2a2~I22L: ~~.O21 1 ~ ~ ~ ~ LC)::~ ~i'.~1: ~ - - ----. - 4- `--»= I ~ 1. ~ Ct:t"~:OritiCL3 Zt~tt~ tN&t J~.tt LQ riG cI1n:.c;~ ~:.~(L:-:~~.c ~i1i~ ~ ~a o~c dru~o. Lu -~ -. .:~ £t-~uic~ uflu~t::y t~tt ~-:~iTcctio:-5c Crt t:~ ot~-.: i:L..L - ~ ±3 uaiv$:3311y uc~cp%c.c i:z ~a :J-:iy us~ftil. £z:~Cut ~cC :7; CCt-5.~77C-ZZ45 &CID TP.LL7~Tt (%;; C::~n~ C5; .c) -. -. ~:. .i~:. :±Q±c~ t~, 9L::77:- ~ nict~ civciutual dc~Ccu Lrct :`;~-~i bu;~2Iy i3t31~/~. PAGENO="0251" COMPETITIVE PROELEMS IN THE DRUG INDUSTRY 8207 SUBJECT: REVIEW OF STANDARD STOCK-LISTED ANTIHIST~tINES BACKGROUND: SHORTACTINC 1. ITEM IDE~T: 6505-582-4868 DIPHENHYDRANINE HYDROCHLORIDE CAPSULES, USP, 50 mg UNIT OF iSSUE/PRI~CE.: l000s BT/$3.31 COST PER CAPSUL~: $O.0033 ANNUAL~ DEMAND DATA: ARMY - 5,631; NAVY - 2,480; AIR FORCE - 3,350 TRADE MARK NA~: "BENADRYL' 2. ITEM IDENT: 6505-116-8350 DIPHENHYDRAMINE HYDROCHLORIDE CAPSULES, USP, SO mg UNT0F ISSUE/PRI~: 100s BT/$O.57 COST PER CAPSUL~: $O.OO57 ANNUAL DEMAND DATA: ARMY - 10,439; NAVY 7,329; AIR FORCE - 2,221 TRADE MARK ~NAM~: "BENADRYL" 3. ITEM IDENT: 6505-299-8610 CHLORPI-IENIRANINE MALEATE TABLETS, USP,4mg UNIT OF ISSUEJPRI~; 1000s BT/$O.55 ~Q~PER TABLE~: $O.0006 ANNUAL DEMAND D~A: ARMY - 22,176; NAVY - 3,016; AIR FORCE - 4,585 TDADH MARK NA~: "CHLOR-TRI~TON" 4. ITEM IDENT: 6505-584-3277 PROMETH~INE HYDROCHLORIDE TABLETS, USP, 25 mg UNIT OF ISSUE/PRIC~ 1000s BT/$2O.30 ~S~_PER TABLET: ~$O.O2O3 ANNUAL DEMAND DATA: ARMY - 2,417; NAVY - 275; AIR FORCE - 386 TRADE MARK: "PHENERGAN" 5. ITEM. IDENT~ 6505-148-9000 TRIPELENNAMINE HYDROCHLORIDE TABLETS, USP, 50 tag UNIT OP ISSUE7PR~CE~. l000s BT/$ 2.33 COST PER TAB~E~: $O.OO23 ~TUAL DEMAND `DATA: ARMY - 447; NAVY - 734; AIR PORCE - 1,849 TRADE MARK N~: "PYRIBENZAMINE" 6. ITEM IDENT: 6505-753-9615TRIPROLIDINE HYDROCHLORIDE AND PSEUDOEPHEDRINE HYDROCHLORIDE TABLETS UNIT O~' IS$UE/PRI~: lOOs BT/$1.37 COST PER TABLET: $O.O13 ANNUAL DEMAND DATA: ARMY - 55 919; NAVY - 72,641; AIR FORCE - 67,901 ~ 7. ITEM IDENT: 6505-142-9206 TRIPROLIDINE HYDROCHLORIDE AND PSEUDOEPHEDRINE HYDROCHLORIDE TABLETS UNIT OF lssUE/~çE: I000s BT/$13.OO C~T PER T~LET: $.O,013 ANNUAL DEMAND DATA: ARMY - 6,723; NAVY - 5,853; AIR FORCE - 6,372 TRADE MARK_NAN~: `~ACTIFED" PAGENO="0252" 8208 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SUBJECT: REVIEW OF STANDARD STOCK-LISTED ANTIHISTAMINES (CONT `D). BACKGROUND (CONT `D -) SUSTAINED/TIMED ACTI 1. ITEM IDENT: 6505-014-4028 CHLORPHENIRAMINE MALEATE, ISOPROPAMIDE IODIDE, AND PHENYLPROPANOLAMINE HYDRO - CHLORIDE CAPSULES UNIT OF ISSUE/PRICE: 500s BT/$29.90 COST PER CAPSULE: $O.0598 ANNUAL DEMAND DATA: ARMY - 36,539; NAVY - 15,878; AIR FORCE - 18,386 TRADE MARK NAME: "ORNADE" 2. ITEM IDENT: 6505-935-9818 CHLORPHENIRAMINE MALEAT~, CARANIPHEN EDISYLATE, ISOPROPAMIDE IODIDE, AND PHENYLPROPANOLANINE HYDROCHLORIDE CAPSULES UNIT OF ISSUE/PRICE: 500s BT/$36.0O COST PER CAPSULE: $0.72 ANNUAL DEMAND DATA: Army - 741; NAVY - 707; AIR FORCE - 600 TI~E MARK NAME: "TUSS-ORNADE" 3. ITEM IDENT: 6505-982-9594 CHLORPHENIRANINE MALEATE AND PHENYLEPHRINE 1:YDROCHLORIDE TABLETS, TIMED UNIT OF ISSUE/PRICE: 25Os BT/$8.29 COST PER TABLET: $0.O331 ANNUAL DEMAND DATA: ARMY - 4,708; NAVY-3,462; AIR FORCE - 5,689 TRADE MARK NAME: "NOVAHISTINE" 4. ITEN IDENT: 6505-655-8460 CHLORPHENIRAMINE MALEATE TABLETS, MODIFIED, 8mg UNIT OF ISSUE/PRICE: I000s BT/$4.55 COST PER TABLET: $0 .0045 ANNUAL DEMAND DATA: ARMY - 2,431; NAVY - 2,960; AIR FORCE - 3,261 TRADE MARK NAME: "CHLOR-TRINETON REPETABS" - 5. ITEM IDENT: 6505-890-1891 BROMEHENIRAMINE MALEATE, PHENYLEPHRINE HYDROCHLORIDE, AND PHENYLPROP.NOLANINE HYDROCHLORIDE TABLETS UNIT OF ISSUE/PRICE: 500s BT/$19.OO COST~ PER TABLET: $O.O38 ANNUAL DEMAND DATA: ARMY - 21,409; NAVY - 13,542; AIR FORCE - 18,316 TRADE MARK NAME: "DIMETAPP EXTENTABS" 6 ITEM IDENT: 6505-926-9019 DEXBROMPHENIRAMINE MALEATE AND PSEUDOEPHEDRINE SULFATE TABLETS UNIT OF ISSUE/PRICE: IOOs BT/$4.90 COST PER TABLET: $O.049 ANNUAL DEMAND DATA: ARMY - 15,758; NAVY - 12,655; AIR FORCE - 21,412~ TRADE MARK NAME: "DISOPUROL CHRONOTABS" 7. ITEM IDENT: 6505 -C9O-1112 BROMPHENIRAMINE MALEATE TABLETS, 12 tng UNIT OF ISSUE/PRICE: SODs 3T/$17,6O COST PER TABLET: $O.0176 ANNUAL DEMAND DATA: ARMY - 224; NAVY - 270; AIR FORCE - 810 TRADE MARK NAME: "DIMETANE EXTENTABS" 8. ITEM IDENT: 6505-890-1902 CYCLOPENTAMINE HYDROCHLORIDE, NNTHAPI~ILENE HYDROCHLORIDE, AND PYRROBUTANINE PHOSPHATE CAPSULES UNIT OF ISSUE/PRICE: 1000s BT/$13.9O COST PER ~IAPSUT.R~ $O.O139 ANNUAL DEMAND DATA: ARMY - 1,397~NAVY - 2,524; AIR FORCE - 1,608 TRADE MARK NAME: "CO-PYRONIL" PAGENO="0253" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8209 SJBJECT: REVIEW 01' STANDARD STOCK-LISTED ANTIHISTANINES (CONT !D.) 1)~SCUSSION 1. Medical authorities state the indications for antihistamines are (1) to control the manifestations of allergy which nay be attributed to histamine, and (2) to control nausea and motion sickness. Carefully controlled studies show that antihistauiines neither shorten the duration nor reduce the severity of the common cold. It is stated that most physicians, expert in allergic diseaseS, confine their prescribing to a few drugs well established as to their effectiveness in allergy and motion sickness. A few combinations ~iith decongestants would b~ con- venient ~Ln allergic syndromes. The great bulk of antihistamines on the market, some of them highly priced, offer no detectable adva.tttage over the antihistamines listed in the 13SF. 2. The Federal Supply Catalog lists a wide range of basic 13SF antihistamines plus a large number of antihistamine combinations, some of which appear to be inordinately expensive. ECOI~!END~CION: 1. That FSNs 6505-014-1028 CELORPHENIRANINE MALEATE, ISOPROPA24IDE IODIDE, AND PHENYLPROPANOLAMINE IITDROCHLORIDE CAPSULES (ORNADE), 6505-935-9818 CHLORPHENIRAMINE MALEATE, CARAMIPHEN EDISYLATE, ISOPROPAMIDE LODIDE, AND PHENYLPRO?ANOLAMINE H~1DROCHLORIDE CAPSULES (TUSS-ORNADE), ~md 6505-926-9019 DE>~BRONPHENIRAMINE MALEATE AND PSEUDOEPHEDRINE SULFATE TABLETS (DISOPHROL CHRONOTABS) be type classified to `tLINITED STANDAR]~" with eventual deletion from the Federal Supply. Catalog. PAGENO="0254" 8210 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SUBJEC~: REVIEW OF STANDARD STOCK-LISTED CORONARY VASODILATORS BACKGROUND: 1. ITEM IDENT: 6505-764-9014 DIP~RIDAMOLE TABLETS, 25 mg UNIT OF ISSUE/PRICE: l000s BT/$45.50 COST PER TABLET: $O.O455 ANNUAL DEMAND DATA: ARMY - 76; NAVY 219; AIR FORCE - 153 TRADE MARK NAME: "PERSANTIN" 2. ITEM IDEN~: 6505-597-7341 PENTAERYTHRITOL TETRANITRATE TABLETS, lOng ~IT OF ISSUE/PRI~: 500$ BT/$5.OO COST PER TABLET: $0.01 ANNUAL DEMAND DAT4: ARMY 1,100; NAVY- 1,024; AIR FORCE 925 TRADE MARK NAME: "PERITRATE" 3. ITEM IDENT: 6505-584-4297 PENTAERYTHRITOL TETRANITRATE TABLETS, 20 mg UNIT OF ISSUE/PRICE: 500s BT/$9.69 COST PER TABLET: $O.194 ANNUAL DEMAND DATA: ARMY - 239; NAVY -110; AIR FORCE - 127 TRADE MARK NAME: "PERITRATE" 4. ITEM IDENT: 6505-680-2326 PENTAERYTHRITOL TETRANITRATE TABLETS, 80mg UNIT OF ISSUE/PRICE: 500s BT/$16.50 COST PE~ TABL~: $0.O33 ANNUAL DEMAND DATA: ARMY - 1,637.; NAVY 1,814; AIR FORCE - 1,621 TRADE MARK NAME: "PERITRATE" DISCUSSION: 1. Medica. authorities state thatamong the coronary vasodilator drugs, Nitroglycerine appears to be the most effective despite its short duration; however, evidence of effectiveness of longer acting agents is lacking. Results of controlled studies that are available fail to provide evidence of effectiveness of such long acting prepara- tions as DIPYRIDAMOLE and PENTAERY~RRITOL TETRANITRATE in the pre- vention of angina pectoris. RECONMENDATION: 1. That FSNs 6505-764-9014 DIPYRDAMOLE TABLETS, 25 mg, 6505-597- 7341 PENTAERY1'I~RITOL TETRANITRATE TABLETS, 10 xng, 6505-584-4297 PENTA- ERYTERITOL TETRANITRATE TABLETS, 20 mg, and 6505-680-2326 PENTANRY THRITOL TETRANITRATE TABLETS, 80 mg, be type classified to "LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0255" COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY 8211 SUBJECT: REVIEW OF STANDARD STOCK-LISTED VASODILATORS BACKGROUND: 1. ITEM I~ENT: 6505-943-4384 CTCLANDELATE CAPSULES, 0.2 GRAM UNIT OF ISSUE/PRICE: 500s BT/$29.50 COST PER CAPSULE: $0.59 ANNUAL DE1Y~.~) DATA: ARMY 367; NAVY - 397; AIR FORCE 254 TRADE MARK NAME: "CYCLOSPASMOL" 2. ~EM IDENT: 6505-890-1321 ISOXSUPRINE HYDROCHLORIDE TABLETS, 10 mg UNIT OF ISSUE/PRICE: l000s BT/$32.1O ~ST PER~TABL~7: $0.032 ANNUAL DEMAND ~AT4: ARMY 918; NAVY 729; AIR FORCE - 1,000 TD~~T)E MARK NAME: "VASODILAN" 3. ITEM IDENT: 6505-299-8052 TOLAZOLINE HYDROCHLORIDE TABLETS, 25 ing T OF ISSUE/PRICE: lOOs BT/$0.44 COST PER TABLET: $O.0044 ANNUAL DEMAND DATA: ARMY - 459; NAVY - 1,016; AIR FORCE - 658 TRADE MARK NAME: "PRISCOLINE" DISCUSSION: 1. Medical authorities state that there is no acceptable evidence that the Peripheral Vasodilator drugs are effective in relieving symptoms associated with arteriosclerosis of the extremities or in the prevention or treatment of gangrene whichmay occur as the condition progresses. The only effective measures at present appear to be walking in the development of collateral circulation and the discontinuation of smoking. Further, it is stated that there is no evidence in form of controlled studies to indicate these drugs are useful in preventing symptoms associated with cerebral vascular disease. RECO~:E:~DATI: I. That FSNs 6505-943-4384 CYCLANDELATE CAPSULES, 0.2 GRAM (CYCLOSPASMOL), 6505-890-1321 ISOXSUPRINE HYDROCHLORIDE TABLETS, 10 mg (VASODILAN) and 6505-299-8052 TOLAZOLINE HYDROCHLORIDE TABLETS, 25 ntg (PRISCOLINE) be type classified to. "LIMITED STANDARD" with eventual deletion from the Fe4eral Supply Catalog. PAGENO="0256" 8212 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SUBJECT: REVIEW OF STANDARD STOCK-LISTED SEDATIVE -HYPNOTICS BACKGROUND: 1. ITEM I~~T: 6505-616-9068 GLUTETHIMIDE TABLETS, NF, 0.5 GRAM UNIT OF ISSUE/P~i~: 50C~ BT/$9.2O COST PER TABLET: $0.0184 AbNUAL DEMAND~TA: ARMY - 461; NAVY -467; AIR FORCE - 491 TRADE MARK NAME: "DORIDEN" DISCUSSI~Q~j: 1. GLUTETHIMIDE is a barbiturate substitute which many pharmacologists consider to be highly dangerous, both in terms of its propensity for abuse and the extremely difficult problems in managing overdosage. RECONMENDATI0~ 1. That FSN 6505-616-9068 GLUTETHIMIDE TABLETS, NP, be type classified to `LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0257" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8213 SUDJEC~: REVIE~1 OF STANDARD STOCK-LISTED GASTROINTESTIONAL ANTISPASMODICS BACKGROUND: 1. ~TEMIDE~: 6505-783-0242 CLYCOPYRROLATE TABLETS, 1 mg 3~T0F ISSUEJPRI~: lOOs BT/$2.51 COST PER TABLED: $0.025 ANNUAL DEMANp~0A~A: ARMY - 3,810; NAVY - 1,346; AIR FORCE - 3,~33 TRADE MARK NA1~: `ROBL~UL" 2. I~1 IDEN~: 6505-777-8911 GLYCOPYRROLATE AND PHENOBARBITAL TABLETS UNIT OF ISSUE/~~~ SOOs BT/$13.OO ~T PER TAB~: $O.026 ANNUAL DEMAND D~: ARM'Z 130; NAVY 168; AIR FORCE - 382 TRADE MARK ~jA~: "ROBINtJL-PH" DISCUSSION: 1. According to medical authorities, efficacy of GLYCOPYRROLATE hns not been established. Further, there is no reason to use it in a fixed combination with Phenobarbital. ~Eçc:~:4TN~TION: 1. Thet FSNs `6505~783-O242 GLYCOPYRR0~ATE TABLETS, 1 tug (ROBINUL) and 6505-777-8911 G~CO?YRR0LAT~ AND PHENOBARBITAL TABLETS (ROBINUL-PE) be typa classified to `LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0258" 8214 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY £UBJC~ REVIEW OF STANDARD STOCK-LISTED ANTACIDS BACKGROUND: 1. ITEM IDENT: 6505-890-1658 CALCIUM CARBONATE AND ANINOACETIC ACID TABLETS UNIT OF ISSUE/PRICE 500s BT/$2 88 COST PER TABLET $0 0058 A\~UAL DEMAND DATA ARMY - 17,799 NAVY - 9,878 AIR FORCE - 11,149 TRADE MARK NAME "TITRALAC" and others DISCUSSION 1 Medical authorities state that a mixture of CALCIUM CARBONATE AND AMINOACETIC ACID (GLYCINE) is not more effective than aluminum Hydroxide (the basic ingredient in most antacids) Furthermore it is more experc.va and is more likely to lead to alkalosis - CC2~ENDAT:ON 1 That FSN 6505-890-1658 CALCIUM CARDONATE AND ANINOACETIC ACID TAB~ETS be type classified to `LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog PAGENO="0259" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8215 SUBJECT: REVIEW OF STANDARD STOCK~LISTED SKELETAL MUSCLE RELAXANTS BACKGROUND: 1. ITEM IDENT: 65O5.~O62'.4833 CARISOPRODOL TABLETS, Sugar Coated, 0.35 Gram UNIT OF ISSU~j~R~QE: lOOs BT/$3.90 CQST~ PER TABLET: $O.039 ANNUAL DEMAND DAT~: ARMY - 1,431; NAVY - 1,597; AIR FORCE 1,402 TRADE MARK NAN~: "RELA" 2. ITEM IDENT: 6505-904-3256 CARISOPRODOL TABLETS, Uncoated, 0.35 Gram UNIT OF ISSUE/PRICE: lOOs BT/$4.18 COST PER TABj~ET: $O.04l8 ANNUAL DEMAND DATA: ARMY - 512; NAVY -1,839; AIR FORCE 1,090 TRADE MARK NANE~ "SOMA" DISCUSSION: 1. CARSOPRODOL, chemic~].ly related to both Mephenesin and Meproba- nate Ana1g~sic group of dr~igs. Authorities state that it has been found superior to Placebo in the treatment of various musculo-skeletal cam- p.aints, but it is uncertain whether its performance is superior to substantial doses of tranquilizers or sedatives. RECOMMENDATION: 1. That FSNs 6505-062-4833 CARISOPRODOL TABLETS, Sugar Coated, 0.35 Gram (RELA) and 6505-904-3256 CARISOPRODOL TABLETS, Uncoated, 0.35 Gram (SOMA) be type classified to "LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0260" 8216 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SUSJECT: REVIEW OF STANDARD STOCK~LISTED SKELETAL MUSCLE RELAXANTS BACKGROUND: 1. ITEM IDENT: 6505-890.4562 ORP:iENADRINE CITRATE TABLETS, 100mg UNIT OF ISSUE/PRICE: 5Os BT/$5.lO COST PER TABLET: $O.1O2 ANNUAL DEMAND DATA: ARMY 3,505; NAVY. 4,216; AIR FORCE 6,095 TRADE MARK NAME: "NORFLEX" DISCUSSION: 1. The skeletal muscle relaxants are basically sedatives, several being related to Neprobatnate. Medical authorities doubt whether or not any of these agents offer any advantage over Meprobarnate. ORPHENA.- DRINE is a drug sinilar to agents used for treating rigidity and tremors of Parkinson's Dis~3e. Medical authorities question the suitability of ORPHENADRINE for tts customary usage, i.e., muscle pain and spasm such as back pain or stiff neck. 2. There is questionable effectiveness in addition to high cost in relation to other agents in this therapeutic group. RECC~ENDATION: 1. That FSN 65O5_39O:l562 ORPHENADRINE CITRATE TABLETS, lC0mg (NORFLEX) be type classified to "LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0261" COMPETITIVE PROBLEMS IN THE DRUG INDtJ~ThY 8217 SUBJ~T: REVIEW OF STANDARD STOCK~LISTED ANTIEMETICS BACKCROUN: 1. iTEM IDEN~: 65O5-754~OOS6 DICYCLOMINE HYDROCHLORIDE, DOXYLANINE SUCCINATH, AND PYRIDOXINE HYDROCHLORIDE TABLETS INIT OF ISSUE/PRICE: lOOs BT/$4.36 COST PER TABLET~ $O.0436 ANNU4L ~E~'~D DAT~: AEMY 52,550; NAVY ~4O,36I; AIR FORCE 46,303 TRADE MARK NA~: "BENDECTIN" DISCUSSION: 1. The above agent, according to medical authorities, is an expensive mixture of ingredients,none with adequate evidence of efficacy. 2. tem is relatively expensive. RECONNENDATION: 1. That FSN 6505-754-0O86 DICYCLOMINE HYDROCHLORIDE, DOXYLAMINE SUCCINATE~ AND PYRIDOXINE HY~.3CHLORIDE TABLETS (BENDECTIN) be type~ claa~~iedto `LIMITE~ STANDA~D" with e~entuc.l deletion from the Federal Supply Catalog. 59-581 0-71-pt. 20-18 PAGENO="0262" 8218 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY BUBJECT: REVIEW OF STANDARD STOCK-LISTED ANALGESICS BACKGROUND: 1 ITEM IDENT 6505-890-2024 PRO°OXYPHENE HYDROCHLORDE, 32 tag ASPIRIN, AND PHENACLYCODOL CAPSULES INIT OF ISSW/~ICF 500s BT/$13 80 COST PER CAPSULE $0 0276 ANNUAL DEMAND DATA ARMY - 481 NAVY - 1,258, AIR FORCE - 1,126 TRA~E MARK NAME `DARVO-TRAN 2 ITEM IDENT 6505-913-7907 PROPOXYPHENE HYDROCHLORIDE, 65 tag, WITH ARC CAPSULES UNIT OF ISSUEJPRICE lOOs BX/$2 14 COST PER CAPSULE $0 0214 ANNUAL DEMAND DATA ARMY - 2,534 NAVY - 215 AIR FORCE - 266 TRADE MARK_NAME `DARVON COMPOUND 65' 3 11kM ID~T 6505-784-4976 PROPOXYPHENE HYDROCHLORIDE, 65 tag, WITH ARC CAPSULES LNIT OF ISSUE/PRI~ 500s BT/$13 70 C0ST~PER CAPSULE $0 0274 A~ ~LJY'MAIND DATA ARi~Y - 24,198, NAVY - 26,388 AIR FORCE - 32,376 TRADE 4ARK NAME `DARVON COMPOUND 65" 4 flTh T1)ENT 6505-958-2364 ~ROP0XYPHENE HYDROCHLORIDE CAPSULES ~ or ISSUE/PRICE 500s ~T/$l3 30 COST PER CAPSULE $0 0266 b \NJ~L DEMAND ~ ARMY - 12 728 NAVY - 5,459, AI'~ FORCE - 7 094 TPAJE NARY N'ME DARVON' DISCUSSION - Medical authorities state that PRO~'0XYPHENE is a weaker ~na1gesic than Codiene and no more effective than aspirin in equivalent doses 2 There is a questionable advantage of PROPOXYPHENE over r~uch less exp~ sive and proven analgesics ~ NDATION I Th~t FSN~ 6505-890-2024 PROPOXVPHENE HYDROCHLORIDE 32 tag ASPIRIN, AND PHENAGLYCODOL CAPSUL~, 6505-913-7907 PROPOXYPHENE HYDRO- CHLORIDE, 65 tag,. WITH APC CAPSULES, 6505-784-4976 PROPOXYPHENE HYDRO- CHLORIDE, 65 tag, WITH ARC CAPSULES, and 6505-958-2364.PROPOXYPHENE tiYD'?.OC~L0RIDE CAPSULES be type-cl~~ssified to `LIMITED STANDARD" wich ~ventu~.l deletion from the Federal Supply Catalog PAGENO="0263" COMPETITIVE PROBLEMS IN THE DRUG INDUSThY 8219 SUEJECT: REVIEW OF STANDARD STOCK-LISTED ANALGESICS BACKCROUND: 1. ITEM IDENT: 6505 ~687-79O1 ASPIRIN AND ETHOHEPTAZINE TABLETS UNITOFISSUE/PRIC~: l000s BT/$15.80 COST PER TABLET: $O.Ol58 ANNUAL DE~N~D~: ARMY - 13,481; NAVY - .2,661; AIR FORCE - 3,188 TRADE MARK NAME: "ZACTIRIN" DISCUSSION: 1. Medical authorities state that studies indicate that ETHOHEPTAZINE in clinically used doses has little or no analgesic activity. RCOMMENDATION: 1. That FSN 6505-637-7901 ASPIRIN AND ETHOHEPTAZINE TABLETS be type-classified to "LIMITED STANDARD" with eventual deletion from the Federal Supply Catalog. PAGENO="0264" 8220 COMPETITiVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. In your review of drug purchasing policy do you also intend to look into the fixed combination drugs of all kinds? I have a list of fixed combinations purchased by your Agency, and it is a long one. As you are aware, I am sure, the position taken by the National Academy of Sciences-National Research Council was against fixed combinations as a general proposition and those that they approved were simply exceptions to their general position. When Dr. Edwards was before the committee I asked the question: "Is it not, however, correct that the NAS-NRO position thus far on fixed combination dosage form is that the fixed com- binations that they have endorsed have been an exception to the rule?" Dr. Edwards said, "That is correct." Dr. Simmons, Director of the Bureau of Drugs, FDA, commenting, stated: "No drug should be present in a fixed dose combination unless its presence clearly enhances safety or efficacy, and unfortu- nately most combination drugs to this point have not developed that type of efficacy." Are you reviewing that question of fixed combinations, also? General HAYES. We have reviewed this. We did not have for some time now any of the anti-infectives such as Panalba, and so on. We have some combination drugs such as Ornade, Tuss-Ornade. These are included in this review group that I just have been speaking about. These are going out for review as to "do we include them"? Do we diminish their use? Do we control their use? This will be a professional recommendation from our using pro- fessional people. Mr. GORDON. General, Mr. Staats, the Comptroller General, said that there is no routine exchange of inspection information between the DSA and the Food and Drug Administration. Do you have any changes in mind or are you planning to get together with the FDA to exchange inspection information? General HAYES. Mr. Feinberg will answer that question. Mr. FEINBERG. Mr. Gordon, we do have extensive exchange of information through the IPADD organization-the Intra-Profes- sional Advisory Council for Drugs and Devices. We exchange with- I will list some of the points that we cover-all specifications are sent to the FDA, the VA, GSA, Public Health Service, the NIH for biologicals, and we also exchange this information with the tSP, NF, and HEW. Insofar as the plant information is concerned, at one time we did prepare a list. We found that this list was antiquated by the time we finished typing it because of the surveys that we perform, the fact that we guided toward a product in a different determination, that the list in fact was never up to date and we felt that may be prejudicial to some of these companies who had been rejected and we may not have returned for a survey because they did not-they were not in contention for another award to have this as an indica- tion to the other activities that they are a rejected company. Now, we do, however, communicate on about a weekly basis with the VA as it pertains to qualification of companies. Before they go on the survey, they ask us by telephone what our last findings have PAGENO="0265" COMPETITIVE PROBLEMS IN THE DRUG I~usrr~ 8221 been, the types of deficiencies if there were any, and the types of items we were inspecting them for. Conversely, before we go on the survey, we touch base with them, too. So although there has not been this formal list sent out as in the past, we have covered this in every way~ Senator NELSON. How many inspectors do you have in DOD? Mr. FEINBERO. In 1970 we had 48 DCAS inspectors. Senator NELSON. Forty-eight what? Mr. FEINBERG. Forty-eight drug inspectors who were inspecting drug plants and products for us, but these 48 operate on a part-time basis. They inspect other commodities for DSA, and as the statement indicated, about twenty man-years are spent in inspection for drugs. Senator NELSON. Annually?. Mr. FEINBERO. Yes, annually. Senator NELSON. Is there any particular advantage in having the FDA have its inspectors inspecting plants and the Veterans' Admin- istration having its inspectors and the Department of Defense having its inspectors? Or to put it another way: Is there any reason why they shouldn't all be in the FDA? Mr. FEINBERO. Well, Mr. Nelson- Captain MAOPHERSON. If I might, Mr. Nelson, there appears to be a difference in the philosophy involved concerning the approach to inspection and quality control by the two agencies. FDA's in- spections are plant-oriented and ours are product-oriented. Should FDA determine a plant to be in violation of good manu- facturing practices, recourse would be through legal channels. When we inspect a plant, we look not only at the physical layout but the equipment and the personnel and the quality control in relation to a specific product which we are going to buy. The plant may be manu- facturing a number of items in an acceptable manner except for the one product in which we have interest and this could be the cause for our rejection. We as a contractual agency attempt to prevent the introduction into our system of defective medical material. FDA as a regulatory agency removes from commerce any material that it determines to be ineffective or defective at some time after it has reached the market place. Senator NELSON. You inspect only for purposes of purchasing under a particular proposed contract? Mr. FEINBERO. Yes, sir. Senator NELSON. And do you inspect every time you are making a purchase? Mr. FEINBERG. Weil~ our policy on that, sir, is that if a company had previously successfully supplied the item or the company is one which we know has the capability to produce the .item, we do not perform an inspection for qualification of the company. Of course, we have product inspection when the material is manufactured and before it is accepted. Relocation, yes. But where a company is in- spected and found to have minor deficiencies, we indicate what the corrections must be and if they show a desire to make these correc- tions, we will attempt to delay the procurement until they make these corrections and we can verify it. PAGENO="0266" 8222 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Now, in those instances where the deficiencies are of a major nature and they could not possibly make these corrections within a timely fashion, or they may not have the desire to make the correction, then, of course, the company is disqualified for that particular procure- ment. Senator NELSON. You say you make a product inspection. How is that done? Do you take a sample of something coming off the line and have it assayed to see whether it meets USP-NF standards? Mr. FEINBERG. No, sir; we don't do that precisely. 1~e inspect the plant for its total operation and this would include the personnel qualification, the plant arrangement, the line of equipment, the meth- ods, systems and procedures used in manufacturing that item or pro- posed to manufacture that item, and, of course, the housekeeping and the stability that the company has developed for that product and, of course, stability is a very important point for us. Senator NELSON. With respect to these items of inspection that you make, and that you have just recited, doesn't the FDA cover the same thing? Mr. FEINBERG. Well, the. FDA does, assumingly does, I don't know myself, but the FDA is in a different situation. They act from a point of view of regulation and the FDA by necessity, I assume, permits companies to manufacture in spite of the fact that they are not in com- pliance with the good manufacturing practices, and as I understand, in the testimony that Dr. Edwards gave before you, sir, he stated that there were-there was the intensified drug inspection for some 230-some-odd companies and that 147 I believe have gotten to the point now where they are willing to comply with the good manufac- turing practices. Well, during that period they were manufacturing but they were still not complying because FDA apparently cannot stop production within whatever regulations they operate. Dr. Edwards also stated that there were 44 companies, and I be- lieve he gave a list of the companies, that were presently under this intensified drug inspection and gave some statistics as to how many- what the categories were. Well, we had an opportunity to review that list and of those 44, we had only contracted with one company and that one company contracted for us in a different location, different area, and which we had found at that time to be acceptable. Senator NELSON. When you say only one out of 44, this 44 was in what category? Mr. FEINBERG. Well, it is the one where Commissioner Edwards said: Since July 1968 FDA has Initiated Intensified Inspection of 237 drug manufac. turers and associated commercial testing laboratories. In 147 of the terminated cases, voluntary compliance with the GMP regulations was achieved through a dialogue between FDA district personnel and plant management. In the forty-four remaining cases are twenty-three which are now the subject of legal action and twenty-one firms which are going out of the drug business because of their inability to come into compliance. Senator NELSON. Well, now this 21 and 23 are different firms. That makes your 44. Mr. FEINBERO. That is right, sir. If I gave a different number, I was wrong. PAGENO="0267" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8223 Senator NELSON. No. Mr. FEINBERG. Well, what I was pointing out, sir, was you made reference to FDA inspection. FDA does inspect. They apparently tell the companies what it is that is wrong and then await the action of the company during which time the company does produce on the market place. In our case, if the company is not in compliance with the required pharmaceutical practices, they are not qualified to get-to be awarded a contract for that item. Senator NELSON. Are your required manufacturing practices dif- ferent from the FDA? Mr. FEINBERG. Well, the FDA has just come out with its new good manufacturing practices which become effective this month and we have reviewed that and I would say that there are some areas of dif- ferences but there are none of much magnitude. If you would like, I can review for you some of the differences. Senator NELSON. What are the differences that you consider might be significant? Mr. FEINBERG. The FDA good manufacturing practices do not re- quire written procedures covering the receipt of new material, quality control, packaging, and inspection of raw material. Senator NELSON. They do not require written what? Mr. FEINBERG. Written procedures for this, whereas we do. Senator NELSON. What is a written procedure for this? What do you mean? Mr. FEINBERG. Well, this is where the quality control officials in this case would identify in writing what it is that their employees have to do, sort of like a check list. When material comes in, you sample by some specific sample procedure. You send it to the labora- tory for testing. You await the report from the laboratory. These are systems methods and procedures that become necessary in order to continually produce in a uniformly satisfactory manner. Senator NELSON. Now, what else is on that list that the FDA does not require? Mr. FEINBERG. They do not require written procedure in this re- spect. Senator NELSON. Does that mean that the company doesn't have a list of written procedures or that, the company doesn't follow these procedures?~ Mr. FEINBERO. It means that the company has' not established- there is no doubt that many companies do have written procedures. It is just that as a minimum that the FDA is asking for, they are not saying that you have to have it. And for inspection purposes and to produce on a uniform consistent basis, particularly where you have people who are out sick, who go on vacation, you should have pro- cedures so that the people in these various areas of manufacture know precisely what has to be done. Senator NELSON. And you would not purchase from any company that didn't have these enumerated written procedures? Is that what you are saying? . Mr. FEINBERO. If they did not have these procedures, they would not be qualified. However, they would be asked if in fact they want to do this, and give them the opportunity to do so. PAGENO="0268" 8224 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. How do you find out whether or not they follow their own written procedures? Mr. FEINEERO. We have-this is what our inspector does, one of the things he does, when he visits a plant to determine the qualifications of a low bidder. Senator NELSON. What other significant differences are there? Mr. FEINBERG. Well, we require, for example, calibration and stand- ardization of equipment and instruments so that you would-so that it is established that the balances that are used and the instruments that. are used are accurate, that the weights are. This is again a nor- mal operating thing and it is required that they check it periodically. Senator NELSON. Have you ever done any tests to find out whether or not the drugs that you are purchasing are superior in any way to those of other manufacturers-in other words, do you know whether yours meet certain standards, USP or NF standards, and others don't? Mr. FEINBERG. We have not made comparisons with material on~ the market, no, sir. We have, of course, tested the material that we have purchased. Senator NELSON. Well, let's assume that the FDA adopted these written procedures that you are talking about. Is there any reason why they shouldn't do the inspection for DOD and VA, then? Mr. FEINBERG. Well, Mr. Nelson, we have not delved into the~ subject really at this point to discuss it at length. General HAYES. I think I should answer part of that, Mr. Chair- man. The FDA inspects for some things, and we set standards in sOme areas that are higher than the FDA's of necessity. As I mentioned in the statement, we have drugs that go all over the world, under adverse circumstances, and we have had to set certain stand- ards of packaging, for instance, certain standards of stability under adverse circumstances. Therefore, our standards are even, if you shifted all of this around, our standards would have to be somewhat different along the line. Senator NELSON. What are some of the standards of stability? You say you are buying a drug in tablet form. It is going to go to some other country. What is it you require that is different? General HAYES. Well, Mr. Feinberg is going to amplify but I am going to start it off a little bit. If you decide that you want a tablet at the end-using site, if the case that the tablet started out in has been brought from the manu- facturer to the depot, thrown from the depot into a truck, from the truck to a ship, from the ship to the dock, from the dock to a truck, the tablet off-loaded into something else, then juggled around in a jeep and finally set out in a field unit for awhile, you want to be sure at the ent of all of that mechanical stress, and that is all we are talking about fundamentally in this discussion, you want to be sire that you still have an intact tablet, that it hasn't fallen apart and you have only an amorphous mass of powder in the bottle. Senator NELSO~. You aren't talking about a different quality tablet. it is the same tablet the company is selling to the general public in this country. PAGENO="0269" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8225 General HAYES. Not necessarily. Senator NELSON. What do they do to the tablet to keep it from falling apart? What tests have been made to show. that the tablet still retains its biologic availability? General HAYES. That is another part of this also. I took the mechanical aspect for simplicity because it is dose-related. If you have a bottle of powder that is 100 tablets as it started, you don't know what you have for a dosage. On the other hand, we do have problems of extremes of temperature and you can imagine what the temperature, for instance, is in the storage depot at Cam Ranh Bay in Vietnam as opposed to the more ideal circumstances in a stateside drugstore. So we have to assure that the potency is not affected by the extremes of temperature, even if the tablet stays in one piece through all of this mechanical manhandling. So we have these two problems. Senator NELSON. So you are saying that in a substantial number of the drugs that you buy and send overseas, their compositions differ somehow? Is that what you are saying? Not just packaging. It is a question of compounding, putting the compound together in a dif- ferent form or making a tablet that somehow or another has a dif- ferent physical characteristic and still retains its therapeutic value? General HAYES. Mr. Feinberg will pick up now. Mr. FEINBERO. Mr. Nelson, we require as a result of the condi- tions of temperature and long storage, as described by General Hayes, we introduced standards which are guided toward assuring that if material does or is subjected to these conditions, that they would still be suitable for use at the time that they ultimately have to be used. And some examples-water content in tablets. Tablets are made generally with granulations where syrup is added or water is added and depending upon the amount of water or moisture that remains in that tablet, and you do have some, will determine with some items, many items, whether hydrolysis will take place, whether the molecule will split up and whether you are going to have a suit- able product after it is subjected to these various conditions. So we would require in fact a tablet with a lower moisture content. Now, when you get to that point, you have to consider tablet hardness. It may be so hard that, it won't disintegrate. So we have to introduce sometimes varying limits for disintegration or for dissolution. We have had in the past experiences dealing with excessive break- age because the tablets or the products are handled the way they have to be handled. We have in some instances' bioavailabihty tests where you test in advance to determine whether the tablets will hold up under these conditions. And then wherever we can, we have what. we call accelerated aging tests where we sub)ect these same products to some higher temperature, like 120 degrees for 2 weeks, sometimes varying from that, and attempt to establish whether the material will hold up under those circumstances in the laboratory because if it doesn't do it in the laboratory, it certainly will not hold up in the' field. Now, when we do establish these kinds of information, we then include them as a requirement of the specification. PAGENO="0270" 8226 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON Do these special specifications apply only to the drugs you purchase for sending overseas or do you require that of everything you buy, for domestic consumption and overseas consump tion? Mr. FEINBERG. We have one system. We do not know which bottle will ultimately go from a depot to overseas versus a bottle going domestically Senator NELSON How much does that add to the cost ~ In other words, if you are having the manufacturer meet all kinds of special problems in the process of putting the tablet or in )ectable together that he doesn't have to do for the domestic market, what does that do to the cost of the drug you are buying ~ Mr. FEINBERO. I don't know that, sir. But generally speaking, the standards that we have are utilized by the companies in their com- mercial market, too. Senator NELSON Oh, so what you are talking about is automat ically done by them in their sales in the domestic market anyway Mr FEINBERO So far as we know Senator NELSON Well, then, all this talk about these being spe cially designed tablets and drugs for Indonesia or elsewhere is all nonsense ~ General HAYES. No. That is a non sequitur, Mr. Chairman~ Senator NELSON. Pardon? General HAYES. That is a non sequitur. Senator NELSON. What is? General HAYES. What Mr. Feinberg really is saying here is that the specifications have been upped by the tSP and the NF to come to these more stringent specifications that we have talked about in many areas because they have resulted in a better and more stable product Senator NELSON Well, then, if that is the tSP and NF stand ard- General HAYES But it is not universal Senator NELSON. Pardon? General HAYES. It is not universal. Senator NELSON What is not universal ~ General HAYES The fact that these standards have come up Cap tam MacPherson would like to say a few words Senator NELSON If it is adopted by the tSP and NF it is uni- versal so far as the United States is concerned General HAYES Not all products Senator NELSON So what you are saying is tSP and NF adopted these standards for some products but not for all products General HAYES That is right Senator NELSON. I must say that is a bit puzzling. I had a long detailed explanation of how drug firms had to compound their drugs differently for possible overseas use, that that is the only kind you bought, and the company had to meet those standards or you couldn't buy them Then I am told that these companies that you approve of are producing their products for the domestic market the same way And now you are saying that they do it the same way for some of their products but not for all of them, is that it? Colonel SNYDER If I may, sir- PAGENO="0271" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8227 Senator NELSON. I am just trying to get something straight myself. Colonel SNYDER. Again, I think we may not be communicating too well. The firms that we buy from do meet these standards but there are many products marketed and many products that we examine that do not meet these standards. This accounts for the rejection of some of the unsuccessful contenders for our procurements. Senator NELSON. Are you saying that the firms you are dealing with meet these standards both for your requirements overseas and for the domestic market, too? Is that what you are saying? Colonel SNYDER. Generally speaking. Again I don't think you can make a blanket statement but a firm that is involved in market- ing a product under its brand name, where their total reputation is dependent upon that, has a greater interest in the quality than a firm which markets on an ad hoc basis for a particular segment of the market. No, sir- Senator NELSON. A firm that-would you repeat that? Colonel SNYDER. A brand name product, if you will, from any firm, and this can go through the entire industry-a firm whose name and reputation and continued success in business is dependent upon quality pays more attention to it than a firm that may be entering the market for a particular opportunity to produce for a specific contract. Now, these conditions that Mr. Feinberg mentioned are met by these firms that are regularly engaged in marketing a product by anyone who does business with us, but there are many firms who apply whose products do not meet these standards. This is not a universal condition. It is something that some people do and some don't. We try to do business with those that do. Senator NELSON. Concerning your statement that those that mar- ket under brand name meet a higher standard because their reputa- tion is at stake- Colonel SNYDER. Generally speaking. Senator NELSON. I am interested in that because ~we have been trying to get any piece of evidence for 4 years to show that that was true and the brand-name companies can't produce it. Dr. Ed- wards testifying a few weeks ago said it wasn't true. Do you have. any evidence of that? Colonel SNYDER. I think more in the negative rather than the positive. We do have substantial evidence of rejection of products that do not meet these standards. We also test on brand~name prod- ucts and they usually do meet our standards. Now, again, you are asking me for a blanket statement and this is not possible. Generally speaking-this is true of any brand-name product you buy, whether you buy an automobile or a suit. Someone whose reputation- Senator NELSON. Well, I would like to have the evidence because, as I said, I have been asking for it for 4 years and you assert that it is there and so does the Pharmaceutical Manufacturers Associa- tion, but nobody produces it. Dr. Edwards just recently testified: In today's drug scene the brand name and generic name drugs that are ap proved by the FDA are, for all practical purposes, eqi~al drugs In terms of their potency, uniformity, et cetera. PAGENO="0272" 8228 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY This has been the testimony of a number of experts over the past years. As a matter of fact, the only massive test I am aware of was for potency, and included 4,600 drugs. About 2,600 drugs were sold by generic name and 2,000 were sold under brand names. I think these are the figures-4.8 percent of the generic name drugs were not of acceptable potency and about 8.8 percent of the brand names flunked the test of potency. That is, they were above or below. Now, I know of no other large test on potency. So I am interested in what evidence there is because we have been told that there isn't any difference between the quality of drugs sold by brand or generic name in the marketplace. Now, this might be the basis of your statement-let me read it to you. I think it is a rather interesting, if not shocking, statement by Col. W. V. Breyfogle, USA, former Chief, Division of Medical Materiel, Defense Personnel Support Center, Defense Supply Agency, 1968. This is in a speech he gave at the 21st Annual Meeting of the Defense Supply Association and it was reprinted in "The Review," November-December 1968. Listen to what he says. Now, if this is the basis of your statement, then it is a good explanation because you have the brand name people supplying you the specifications and, of course, they are the only ones that can meet them: The first problem that has been bothering us for some time is our inability to procure competitively. The policy of the Department of Defense as it has been for many years is that we will obtain competition on our procurements to the maximum extent possible. The major problem in our failure to procure competitively Is the nature of the specifications that we are using. It has been said in the past that our specifications are too restrictive in nature and thereby restrict competition. There is some validity in this statement. However, before you can understand why we have a problem in procuring competitively, you must understand how items are selected for standardization and stockage in our Defense Supply Depot system. Items that are standard- ized by the Defense Medical Materiel Board and stocked in the DSA Depot system were for the most part developed by industry or independent research for use by the civilian medical profession and for sale in the market place. These items were presented to the Board for study and the determination was that they would be stocked for use in our system. Therefore, the specifications that are developed of necessity describe a cer- tain manufacturer's item. Most of the information used in writing the specifica- tions was furnished by the developer. Therefore, even if we have a, pardon the expression, generic specification, in many cases It merely describes the generic equivalent of a brand name. This is by Colonel Breyfogle, former Chief, Division of Medical Materiel, Defense Personnel Support Center, Defense Supply Center. I think that is a very fine explanation why brand names meet your standards more frequently and why the generics fail it. Do you want to comment on that ~ Colonel SNYDER. No. I am very familiar with that. Senator NELSON. I am sure you must be. We have, used it a cou- ple of times before, and I have been waiting for an explanation which I have never received. Captain MACPHERSON. If I may, Senator, in our opinion our spec- ifications are not restrictive and any knowledgeable drug manufac- turer can in fact supply us with the items that we want. The mili- tary services are under no obligation to buy the drugs that we PAGENO="0273" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 8229 stock. If we do not have the specific item. they want at an acceptable price, they will purchase it from another source. Senator NELSON. Who will? Captain MACPHERSON. The military services. Detailed compre- hensive specifications are required in order for us to procure a product on a generic basis which is as professionally acceptable as the brand name item which the physician has been accustomed to use and in which he has confidence. As an example of the success of our system in meeting the de- sired objectives, when FDA announced the recall of 711 items as Commissioner Edwards mentioned in 1968, we had only four of these items in the system. In 1969 when they had 707, we had three. And in the current fiscal year when they had 951, we had only one. Senator NELSON. Who are "they?" Captain MACPHERSON. FDA. Commissioner Edwards gave these figures in his testimony. Senator NELSON. I see. You mean they listed that number. Captain MACPHER5ON. Of drug recalls, yes, sir. Senator NELSON. These were drug recall figures? Captain MACPHERSON. Yes, sir. Senator NELSON. Well, I didn't hear any satisfactory response to my statement but I guess the record will speak for itself. Let me ask you this question: Is it correct that about half of your purchases are centrally purchased and the others are purchased locally? General HAYES. More correctly 70-30. Senator NELSON. 70-30. General HAYES, Central versus local. Senator NELSON. 70-30. General HAYES. 70-30. As opposed to 50-50. Senator NELSON. I see. Seventy percent central? General HAYES. Central. Sena'tor NELSON. And the other 30 percent is purchased locally? General HAYES. Yes. Senator NELSON. So about $30 million of $150 million, is that about the total? $100 million centrally and $50 million locally? Is that it? General HAYES. $94 million total and that would be abo~it 25 per- cent local out of the $94 million. Senator NELSON. So- General HAYES. $25 million. Senator NELSON. In any event, this one-third, one-fourth whatever is purchased locally~ is not purchased under the standards that you establish for central purchasing? General HAYES. That is correct. Senator NELSON. Do you find any difference in all of those drugs that are purchased locally? Are they used locally? General HAYES. They are used locally. Senator NELSON. Do you find any problem with those which are different-for example, more doctors complain about them? General HAYES. In view of the fact that they are used locally and rather rapidly, of course, we don't have the shipping and storage problems in a breakdown of that kind. If there are problems, these PAGENO="0274" 8230 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY are brought to the therapeutic agents board and ultimately reported up through the adverse reaction system. Senator NELSON. Let me just conclude by saying, General, that it strikes me that the Defense Department is approaching the whole problem very sensibly and that, all in all, it looks to me as if you have had a good record and it seems to me the procedures you have established for examining the whole question of rational prescribing, purchasing, and utilization of drugs is a sound approach. Maybe a year from now when we have a record based upon your new approach to the problem, you may wish to make a report to the committee at that time. General HAYES. We would be glad to, Mr. Chairman. Senator NELSON. Thank you very much, gentlemen. General HAYES. Thank you. (Upon the direction of the chairman, information pertinent to the hearings follows:) DEPARTMENT OF THE Am FORCE, HEADQUARTERS, U.S. Ala FORCE, Washington, D.C., November 27, 1970. Reply to Attn of: SGPAC Subject: Rational Prescribing of Drugs To: AAC, ADC, AFSC, AFLC, AFCS, ATC, AU, AFRES, CINCPACAF, CINCUSAFE, HQ COMD USAF, MAC, CINCSAC, TAC, USAFA, USAFSO, USAFSS. (Surgeon) 1. All Air Force Medical Service officers should, by now, be aware of the National Academy of Sciences/National esearch Council drug efficacy study which was begun in 1966 at Hthe request of the Food and Drug Administration. The goal of this study was to review all marketed drugs for therapeutic efficacy. Some of the findings of this study have already been released, and others will be forthcoming after the study is completed. To insure that these findings are available to every Air Force medical facility, listings of all findings will be reported initially in an ALMAJCOM letter and thereafter in Air Force Medical Materiel letters (AFMML) as they are released. Additionally, pro- fessional guidance, policies, and therapeutic notes will appear regularly in the USAF Medical Service Digest. It is the responsibility of each therapeutic com- mittee to insure that the professional staff is advised of all such information and guidance. 2. Drugs that are found to be ineffective will be removed from the stock~ list and local purchase of such items will not be authorized. 3. In addition to those drugs determined to be ineffective, there is the matter of high cost drugs being prescribed when equally effective but much less ex- pensive drugs are available. Many experts are convinced that Librium and Valium are vastly over-prescribed today. Similarly, Darvon probably has no greater analgesic effectiveness than aspirin and there are totally effective low cost alternates for Ornade. Therapeutic committees must regularly review their own drug consumption data to insure that formularies not only satisfy the needs of the staff but also accurately reflect the judgments of current med- ical literature and the harsh reality of austere finances. We cannot justify the purchase of high cost drugs when equally effective but less expensive prepara- tions are available. 4. You are directed to take necessary action to insure that all medical service officers are aware of this guidance. Rational prescribing must become a matter of special interest to all of us In the future. THOMAS H. CROUCH, Major General, USAF MC, For the Chief of Staff. (Whereupon, at 11:35 a.m., the Subcommittee on Monopoly of the Select Committee on Small Business adjourned, to reconvene at the call of the Cha~ir.) C