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Executive Summary

Mfrs. offer "unfair" Rx drug price discounts to both for-profit and nonprofit hospitals with an intent to compete for the hospital market but with the result that retail pharmacies pay higher prices, Pharmacists Planning Service, Inc. (PPSl) advisory board Member Stanley Hartman maintained in an Aug. 6 letter to House Commerce/Oversight Subcmte. Chairman Dingell (D-Mich.). "Contrary to popular belief, most drug companies do not offer lower institutional prices for the 'public good' or only to charitable organizations," Hartman wrote. "To meet competition most drug mfrs. bid the exact same low price to both for-profit and nonprofit hospitals." The practice is "unfair and perhaps illegal," he contended. Mfrs. often "claim that their price discrimination is based on the exemption for nonprofit status because they only bid nonprofit hospitals, yet they continue to sell at the same low price to the profit-making pharmacy located in a nonprofit hospital," Hartman contended. Furthermore, he continued, "it is very rare that a major mfr. will offer a preferential price on a patented product that it alone manufactures. Thus, the real basis for almost all lower institutional prices is to 'meet competition.' " Dingell's Oversight Subcmte. has been investigating Rx drug diversion and counterfeiting and is reportedly preparing a hearing for September that will include testimony on mfrs.' marketing practices, such as price differentials and sampling. According to the subcmte., the practices have facilitated diversion. Retail pharmacists "cannot compete with a prepaid health plan for outpatient business when the mfrs. refuse to sell us drugs at the same price," Hartman said. Maintaining that patients need to know their drugs are affordable as well as safe and effective and that mfrs. at the same time, require "reasonable" profits to fund their R&D and quality control costs, Hartman declared: "This can all be accomplished by the drug companies offering a single, fair price to everyone." "Own Use" Provision Of Non-Profit Institutions Act Must Be Narrowed Legislatively -- NACDS Hartman included a list of Rx products whose prices, according to the Medi-Span price list for August 1985 and the EconoPharm 1985 Pharmacy Program, are markedly different for retail pharmacies and for hospital pharmacies. Three examples cited in the letter are Ciba's Apresoline 25 mg ($13.72 AWP v. $2.50 contract price), Key's Nitro-Dur 10 sq cm ($90.62 AWP v. $1.00 contract price), and Schering's Gyne/Lotrimin ($9.08 AWP v. $1.50 contract price). PPSI contended that the "real abuse" caused by widely differential pricing, more than diversion, "is the high prices paid by the consumer" because retail prices subsidize the hospital discounts. In an Aug. 2 statement on differential pricing/diversion issues, Natl. Assn. of Chain Drug Stores (NACDS) President Robert Bolger contended that "the scope of the Nonprofit Institutions Act must be narrowed by the Congress to indicate clearly that only bona fide charitable hospitals that are caring solely for indigent patients in the institutional setting may be permitted to purchase drugs at the lower price as allowed by the 1938 statute." Congress "must strictly define the term 'for their own use' regarding Rx drugs purchased at the preferential price so that abuses in the marketplace can be eliminated," Bolger said. NACDS is one of several natl. pharmacy-related organizations expected to testify before Dingell's subcmte. in September, at the third subcmte. hearing on drug diversion-related issues.

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