x Task Force on Prescription Drugs SECOND INTERIM REPORT AND RECOMMENDATIONS AUGUST 30,1968 Office of the Secretary U. S. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE Washington, D.C. ''TASK FORCE ON PRESCRIPTION DRUGS Philip R. Lee, M.D. Assistant Secretary for Health and Scientific Affairs (Chairman) Alice M. Rivlin, Ph.D.* Assistant Secretary for Planning and Evaluation Robert M. Ball Conmissioner, Social Security Administration Joseph H. Meyers Deputy Administrator, Social and Rehabilitation Service Milton Silverman, Ph.D. Dean Coston Executive Assistant to the Secretary James F. Kell Assistant Secretary, Comptroller Herbert L. Ley, Jr., M.D.** Commissioner, Food and Drug Administration William H. Stewart, M.D. Surgeon General, Public Health Service Special Assistant to the Assistant Secretary for Health and Scientific Affairs (Executive Secretary and Staff Director) TASK FORCE STAFF Mark Novitch, M.D. (Assistant Staff Director) Vincent Gardner, Ph.D. Riley J. Jeansonne, R.Ph. T. Donald Rucker, Ph.D. Vincent E. Vandre * Succeeded William Gorham, on July 1, 1968 Allen J. Brands, R.Ph. Juanita P. Horton, R.Ph. Bradley P. Neer, D.V.M. William G. Shoemaker, R.Ph. Patricia A. Vienna **Succeeded James L. Goddard, M.D., on July 1, 1968 '' UNITED STATES GOVERNMENT DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE Memorandum TO s +4 . Phili , Ke. A stant Secretary for ! ¢ Hea¥th and fle, FROM SUBJECT : OFFICE OF THE SECRETARY The Secretary DATE; August 30, 1968 Task Force on Prescription Drugs - Progress Report Prescription Drugs in Medicare ‘ The Task Force has not yet developed definitive recommendations on the possible inclusion of out-of-hospital prescription drugs under Medicare. We are referring to the Social Security Administration for detailed cost analysis such subjects as program financing, reimbursement methods, and administrative approaches. When this analysis is complete, it will be reviewed by the Task Force and appropriate recommendations prepared for your consideration. Background Reports As a result of the work of the Task Force staff and its consultants during the past year, a very large amount of information has been obtained on various aspects of the use, production, and distribution of prescription drug products. Much of this has previously been unavailable, and it is urgently needed by the drug industry, pharmacy, and health professions, consumer groups, Congressional committees, and many Federal and State agencies. We propose to publish these as a series of background volumes which will serve as the objective basis for many of our recommendations, as well as source material. for discussion and further research, It is our plan to publish these volumes on the following subjects: Use of Prescription Drugs by the Elderly The Drug Industry Drug Distribution Drug Prescribing Drug Quality Current Domestic and Foreign Drug Insurance Programs . Drug Classification and Coding Nouswnr Interim Report I am forwarding with this memorandum the second Interim Report of the Task Force with our findings to date and recommendations, '''' CONTENTS Page Letter of transmittal__.._._.-----__-----_-__-___-_.- eee m1 Summary of recommendations______-___-_-___---__--__--------_---- 1 POTMNNOIOSY) cscter rere recs cress eee een ek eu! 3 Introduction aqqssecessnaees nanan aen ene w eee seem nee eee Ses +t The drug users___-_--_-_-_-__--_--_________ eee 4 The drug makers_____-___-____---__----_____-_- eee 10 The drug distributors____________________________-ee eee 20 The drug preseribers. oo-esesecc rea ae eee eee ee ee ee 23 Drug quality___----_-_-_-----_-_----------- ee 27 Ongoing programs_______-_--_----___-____~__--- eee 81 Drug classification and coding______________--_-_--__e-- eee 38 Wtalivation,. ‘PEVICW aan oe errr ree oe ee eee 40 ''''” TASK FORCE ON PRESCRIPTION DRUGS Summary of Recommendations Drug users 1. The Social Security Administration should expedite the com- pletion of its detailed studies on program financing, program adminis- tration, and reimbursement methods ‘for several alternative approaches to the inclusion of prescription drugs under medicare (p. 10). Drug makers 2. The Department of Health, Education, and Welfare should con- duct a continuing survey of drug costs, average prescription prices, and drug use (p. 16). 3. The Secretary of Health, Education, and Welfare should call one or more conferences with representatives of the drug industry, phar- macy, clinical medicine, and consumer groups to consider— (a) Provision of incentives to the drug industry to invest more research effort in products representing significant i improvements to therapy and less in duplicative, noncontributory drug products and combinations (p. 19). (6) Development of a registration and licensing system under which no drug product would be permitted in interstate commerce unless produced under quality control standards set. by the Secre- tary of Health, Education, and Welfare (p. 19). (c) Limitation of free drug samples to those specifically re- quested by prescribers, by industry agreement or legislation (p. 20). (d) Development of more effective methods for ascertaining actual acquisition costs of prescription drugs (p. 20). 4, The Secretary of Health, Education, and Welfare should call for a joint study by the Department of Health, Education, and Welfare, the Department of Commerce, the Department of Justice, the Federal Trade Commission, and other Federal agencies to consider (a) The substantial differences in the prices at which drug products are offered to community pharmacies and to hospitals and government agencies (p. 20). (6) The substantial differences in the prices at which drug products are offered to American and foreign purchasers (p. 20). (c) Revision of current patent and trademark laws on prescrip- tion drugs (p. 20). Drug distributors 5. The Congress should enact. legislation requiring that the con- tainers of all dispensed prescription drugs be labeled with the identity, strength and quantity of the product, except where this is waived upon specific orders of the prescribers (p. 21). 6. Encouragement should be given to the wider use of prepackage dispensing, in which manufacturers prepare and pharmacists dispense (1) ''2 tablets and capsules in precounted form, in sealed, prelabeled con- tainers, and in such numbers as conform to those most frequently pre- scribed by physicians (p. 21). 7. The National Center for Health Services Research and Develop- ment should develop and support research to improve the efficiency and effectiveness of community and hospital pharmacy operations (p. 21). , 8. The Bureau of Health Manpower should support— (a) The development of a pharmacist. aide curriculum in junior colleges and other educational institutions (p. 23). (6) The development of appropriate curriculums in medical and pharmacy schools for training pharmacists to serve as drug information specialists on the health team (p. 23). (c) A broad study of present and future requirements in phar- macy, adequacy of current pharmacy education, and the educa- tional changes which must be made (p. 23). 9. The Health Services and Mental Health Administration should support studies of State laws, regulations, and codes, with priority given to the establishment of model State licensing laws, uniform reciprocity standards, and provisions for the utilization of pharmacy aides (p. 23). Drug prescribers 10. The Department of Health, Education, and Welfare should pro- vide expanded support to medical schools, enabling them to include a course in clinical pharmacology as an integral part of the medical curriculum (p. 25). 11. The Department of Health, Education, and Welfare should es- tablish or support a publication providing objective, up-to-date infor- mation and guidelines on drug therapy, based on the expert advice of the medical community (p. 27). 12. The Department of Health, Education, and Welfare should sup- port the efforts of county medical societies, pharmacy and therapeutics committees, medical foundations, and medical schools in taking the re- sponsibility for providing continuing education to physicians on ra- tional prescribing (p. 27). 13. The Secretary of Health, Education, and Welfare should be authorized to publish and distribute a drug compendium listing all lawfully available prescription drugs, including such information as available dosage forms, clinical effects, indications and contraindica- tions for use, and methods of administration, together with price in- formation on each listed product (p. 27). Drug quality 14. The present clinical trials to determine the biological equivalency of important chemical equivalents should be continued by the De- ra al of Health, Education, and Welfare on a high priority basis p. 30). 15. Adequate financial support should be provided to the Food and Drug Administration for necessary educational and inspection opera- tions so that acceptable quality control methods can be instituted and properly maintained in all drug manufacturing and packaging estab- lishments (p. 31). 16. The Food and Drug Administration should be authorized to pro- vide additional support, including grants-in-aid, to State and local ''at? 3 agencies in order to improve quality control of prescription drugs in intrastate commerce (p. 31). Ongoing programs 17. The Federal Interdepartmental Health Policy Council should concern itself with the coordination of all ongoing Federal prescription drug purchase and reimbursement programs. A special subcommittee of the Council should be appointed for this purpose (p. 38). Classification and coding 18. The Department of Health, Education, and Welfare, the De- partment of Defense, and the Veterans Administration should test. the proposed drug classification system to determine the feasibility of its eventual use in all public and private drug programs (p. 39). 19. (a) An appropriate identifying code number should. be made part of all drug labels, package inserts, catalogs and advertising p. 40). (d) Me appropriate coding system should be developed and tested by Government and industry for this purpose (p. 40). (c) After consideration of the results of this test, appropriate legis- lation should be introduced to require coding of all drug products in interstate commerce (p. 40). 20. The drug code adopted by government and industry should be utilized in the National Drug Code Directory (p. 40). Utilization review 21. The National Center for Health Services Research and Develop- ment, in cooperation with State and local medical groups, community pharmacies, hospitals, and consumer groups, should support pilot re- search projects on prescription drug utilization review methods (p. 41). ; Terminology The term “generic equivalents” is not used in this report. It has been widely used, but has been given so many different interpretations that it has become confusing. Instead, the following terms are utilized : Chemical equivalents.—Those multiple-source drug products which contain essentially identical amounts of the identical active ingredients, in identical dosage forms, and which meet existing physicochemical standards in the official compendia. Biological equivalents—Those chemical equivalents which, when administered in the same amounts, will provide essentially the same biological or physiological availability, as measured by blood levels, and so forth. Clinical equivalents —Those chemical equivalents which, when ad- ministered in the same amounts, will provide essentially the same therapeutic effect as measured by the control of a symptom or a disease. The following terms are also utilized : Generic name.—The established or official name given to a drug or drug product. Brand name.—The registered trademarked name given to a specific drug product by its manufacturer. ''4 Molecular “manipulation.”—A minor modification in the molecular structure of a chemical, yielding a new and patentable product. “Me-too” or “duplicative” drug.—A new drug, often made by means of molecular manipulation, which offers no significant therapeutic advantage over a related drug already on the market. (Chemical equivalents, since they are chemically identical, are not considered to be “me-too” products. ) Rational prescribing—Prescribing the right drug for the right patient, at the right time, in the right amounts, and with due consideration of relative costs. Introduction Since the Task Force on Prescription Drugs was formally estab- lished in June of 1967, members of the task force staff in cooperation with many governmental and nongovernmental consultants have ex- amined various important aspects of drug production, distribution, and use. These studies have included the health needs and prescription drug use of the elderly and other groups, the prescription drug industry, the drug distribution system, the prescribing patterns of physicians, drug quality, ongoing drug insurance programs in the United States and other countries, drug classification and coding, and drug utiliza- tion review. Findings from these studies have been considered by the task force, and are summarized in the following sections, together with recom- mendations for action. These proposals are not concerned with any specific drug program. They are directed toward producing the highest possible quality of health care, at the lowest practical cost, for all people. The Drug Users The elderly in the United States—those aged 65 or more—represent only a relatively small proportion—about 10 percent—of the total population of this country. But their inordinate health needs, their high health care costs in general and high drug costs in particular, and their limited financial resources combine to create a serious and sometimes a devastating medical and economic problem far out of proportion to their numbers. For many elderly people, illness serves as a major cause of their poverty by reducing their incomes, while poverty serves as a major contributory cause of illness by making it impossible for them to ob- tain adequate health care. Yet it is not only the totally impoverished or the totally incapaci- tated who are in a precarious position. There are many elderly men and women who have some income and some savings—who may even have sufficient medicare or other insurance to protect them against the bulk of hospital and medical costs of a brief illness—but who cannot pay for the out-of-hospital drugs and other costs of a long-continuing chronic illness without seeing their financial assets eroded or totally dissipated. Xe ''5 Numbers and health needs of the elderly There are now more than 19 million Americans over the age of 65. Among them, about 57 percent are women and 43 percent are men. This disproportion in sex distribution has been increasing steadily since about 1930—a trend of importance in any prescription drug study, since the use of these drugs by women is significantly higher than that by men. In connection with the elderly, the term “aging” has often been con- sidered synonymous with “illness.” There is, in fact, no necessary rela- tionship between the two, but it is undeniably a fact that illness strikes the elderly far more frequently than it does younger age groups. Approximately 80 percent of the elderly—in comparison with 40 percent of those under 65—suffer from one or more chronic diseases and conditions. Arthritis and rheumatism afflict 33 percent; heart disease, 17 per- cent; high blood pressure, 16 percent; other cardiovascular ailments, 7.5 percent; mental and nervous conditions, 10.5 percent; hearing impairments, 22 percent; and visual problems, 15 percent. Many of these conditions can be controlled or alleviated by modern medical care, especially by the proper use of drugs. This is reflected in the heavy expenses of the elderly for health care, and particularly in their heavy expenses for drugs. Health expenditures Between 1950 and 1966, total national expenditures for health serv- ices and supplies—including hospital costs, physicians’ fees, and drug costs—rose from $11.9 billion to $41.8 billion. (Per capita expenditures increased from $78.20 to $212.47.) In that same period, expenditures for out-of-hospital prescription drugs rose from $1 billion to $3.2 billion. (Per capita expenditures in- creased from $6.85 to $16.05.) The increase in drug expenditures has resulted in part from a greater number of prescriptions per individual—an average of about 2.4 acquisitions per capita in 1950 and 4.6 in 1966—as well as from a significant rise in the average cost of prescriptions. In 1950, a number of independent surveys reported the average cost of all prescriptions at the retail level was between $1.66 and $2.03. In 1966, independent. surveys estimated the average was between $3.26 and $3.59. A special study conducted for the task force showed that . average prescription cost for the elderly in 1966 was even higher, 3.91. Distribution of drug expenditures If drug use were equally distributed among all groups—that is, 4 to 5 prescriptions per year at a cost of $3 to $4—there would be no major problem for the elderly. But this is far from the actual situa- tion. Although the elderly represent slightly less than 10 percent of the total population, they account for about 23 percent of all prescription drug expenditures. A nationwide study by the National Center for Health Statistics in fiscal year 1965 showed the following (see table 1) : ''6 The average number of acquisitions—i.e., the number of pre- scriptions or refills—for the elderly was more than twice that for the total population, and nearly three times that for those under The average number of acquisitions for elderly women was nearly 50 percent more than the number for men. TABLE 1.—AVERAGE NUMBER OF ACQUISITIONS AND ANNUAL COST OF PRESCRIBED DRUGS, PER PERSON BY SELECTED CHARACTERISTICS, FISCAL YEAR 1965 . Number of acquisitions ! Annual cost Characteristics Allages Under65 65and Allages Under65 65 and over over 4.7 4.0 11.4 = $15.40 = $12.77 $41. 40 3.7 Se 9.3 12.00 9. 88 34.70 5.6 4.8 13.15 18.60 15. 49 46.70 4.9 4.2 11.5 16. 40 13. 62 42.60 N aise wdenw ee esnnb amen ceReReCNe 31 27 10.2 7. 80 6. 57 26. 90 Geographic region: ortheast 4.4 3.8 10.6 13. 30 10. 80 37. 00 4.4 3.8 10.9 15. 00 12.37 39.90 5.3 4.5 13.6 17.50 14.64 47.40 4.3 3.7 9.7 15. 30 12. 93 40. 00 iNew prescriptions or refills. The per capita expenditure for prescription drugs for the elderly was almost three times greater than that for the total population, and more than three times greater than that for those under 65. The per capita expenditure for elderly women was more than one-third higher than that for elderly men. The per capita expenditure for the elderly with severe dis- abilities was nearly three times greater than that for those with no disabilities. In general, the survey showed, total prescription drug expenditures in all age groups were higher for women than for men, for whites than for nonwhites, and for those in the South and West. The higher expend- itures for whites appear to be a reflection of their greater affluence— their greater ability to seek medical care and to afford drugs—rather than greater health needs. The high costs in the South appear to be related to exceptionally heavy utilization, while in the West they reflect lower utilization but much higher costs per prescription. Similarly, although the burden of drug costs falls most heavily upon the elderly, it does not fall evenly upon these individuals. A 1968 estimate, for example, indicates that 20 percent of the elderly will have no drug expenses, while the costs will be less than $50 for 41.5 percent, between $50 and $99 for 19 percent, between $100 and $249 for 15.5 percent, and $250 or more for 4 percent. A recent investigation, carried out on a limited group in Pennsyl- vania, indicated that, among the elderly who actually obtained pre- ''7 scription drugs, about 2 percent accounted for about 21 percent of the total cost, and about 10 percent of the individuals accounted for about 47 percent of the cost. Financial resources of the elderly The size of drug bills for the elderly represents only one phase of the problem. Intimately related is their ability to pay those bills. Since July 1, 1966, implementation of the medicare program has substantially increased the ability of many elderly men and women to meet their doctor and hospital bills, not entirely but in large part. Expenditures for out-of-hospital prescription drugs, however, are not covered by the present medicare law, and it has been necessary for elderly patients to utilize other sources. Income.—In 1966, half of the families headed by an elderly indi- vidual had total incomes—including social security payments—of less than $3,645, or $70 a week. For elderly men and women living alone, or with someone not a relative, more than half had incomes of less than $1,500, or about $30 a week. Assets.—Recent studies have shown that the average per capita amount of savings and other assets held by the elderly is about $15,000. But 30 percent of the elderly have assets of less than $1,000 apiece. For them, a serious illness could wipe out their meager savings in a few months. Health Insurance.—Health insurance through Blue Cross, Blue Shield, commercial insurance companies, group practice plans and other organizations is available to many of those over the age of 65, but provision of prescription drugs—except to hospitalized patients— is limited. Where out-of-hospital drug expenses are covered, these are generally included in major medical policies involving deductibles of $100, $250, or $500—useful only in so-called catastrophic illnesses. Recently, drug insurance programs have been developed to provide adequate coverage of out-of-hospital drug costs, but membership in the plans is usually limited to members of employed groups, and few of these are in the older age group. Tax Relief —To the extent that expenses for drugs are included as deductions on income tax returns, reduced income tax payments repre- sent a source of payment for these drugs. For the elderly, such relief obtained through Federal income tax deductions has been estimated to represent about 9 percent of drug expenditures. But these savings benefit only those elderly individuals who receive enough income to require income tax payments, and would be of little importance to those with low incomes. Free Drugs.—From the 1964-65 study of the National Center for Health Statistics, it appears that about 3 percent of the elderly re- ceived their drugs at no cost from their physicians. Public Assistance.—About 6 percent in 1964—65 obtained prescrip- tion drugs from State or local welfare agencies or similar sources. The provision of free drugs through welfare agencies—under medicaid or other Federal, State, or local programs—may solve the problem as it directly affects some of the elderly. The basic economic problem is not solved, however, but merely shifted from the elderly to the taxpayers. ''8 Out-of-Pocket Costs.—In enabling the elderly to meet their out-of- hospital prescription drug expenses, the combined impact of insurance coverage, tax relief, free drugs, and public assistance does not seem to be substantial, covering only about 20 percent of total costs. The remainder—about 80 percent—must be met by out-of-pocket expenditures from income and assets. For those over 65, these financial resources are rarely substantial. Thus, the elderly, with limited income, limited savings, and minimal protection from health insurance and other sources, are obliged to face the burdens of drug costs which are far heavier on a per capita basis than those which weigh on their fellow citizens, who in most cases are younger, healthier, and wealthier. Patterns of drug use by the elderly Essential for an effective attack against the drug problems of the elderly are detailed, objective data on the drugs they actually use and the costs of these prescriptions. In 1966, for example, the elderly obtained about 198 million out-of- hospital prescriptions from community pharmacies at a total retail cost of $852 million, involving many thousands of different drug products.’ But this knowledge is not enough. It is necessary to know— wee drugs, by brand or generic name, were dispensed for the elderly; Which were utilized most frequently; Which diseases accounted for the greatest drug utilization; Which drugs were most frequently involved in long-term maintenance therapy; How much each of these drugs cost at the wholesale level, and at the retail level; and To what extent drug costs could be reduced if low-cost chemical equivalents were used wherever they were available. To obtain the needed information, the task force requested the Public Health Service to undertake a special study, with major re- sponsibility assigned to the Health Economics Branch of the Division of Medical Care Administration, and assistance provided by other agencies within the Bureau of Health Services, and by the Food and Drug Administration. This project—probably the first of its kind ever undertaken—was aimed at developing a master list of the drugs which were most frequently prosaribet and dispensed for the elderly in 1966,? and which would account for about four-fifths of their drug use during that year. The Task Force Master Drug List—As developed for the task force, the Master Drug List (MDL) contained the 409 most frequently prescribed drugs dispensed to the elderly in 1966. These accounted for 174.7 million, or 88 percent, of all prescriptions dispensed by com- munity pharmacies for the elderly in that year, and for $682.3 million, or 88 percent, of their prescription drug costs at the retail level.’ 1An additional 26.9 million prescriptions, at a cost of $104.7 million, were obtained from hospital and mail-order pharmacies and other sources. 21966 was selected as the study year, since it represented the most recent period for ae essentially complete data were available for task force analysis beginning in June 8It should be noted that insulin, which has figured prominently in many drug insurance programs, is not included in these tabulations, since it is generally dispensed without a rescription. In 1966, it was estimated that insulin dispensed to the elderly cost about 33 million at the retail level. ''9 The complete MDL, with a variety of analyses, will be presented in a separate background paper. Included among the 409 products were 379 which were dispensed under their brand names. These accounted for more than 90 percent of the total number of MDL prescriptions, about 90 percent of the total acquisition cost to retailers, and 95 percent of the total retail cost to the patients. Among hens were 87 products which were dispensed under their brand names, but for which chemical equivalents were available— often but not always at lower cost—and could have been prescribed under generic names. They accounted for about 29 percent of the total number of prescriptions, 27 percent of the total acquisition cost to retailers, and 27 percent of the retail cost to patients. Also included were 30 drugs which were dispensed under their generic names. They accounted for about 10 percent of the number of prescriptions, 10 percent of the total acquisition cost, and 5 percent of the total retail cost. Average Prescription Cost.—For all 409 MDL drugs, the average cost pe prescription was $3.91. For the 379 drugs FE avananl under brand name, it was $4.11. For the 30 drugs dispensed under generic name, it was $2.02. Most Widely Used Drugs.—The 10 most frequently used products— headed by an oral antidiabetic agent, and including two tranquilizers, two diuretics, an analgesic, an antiarthritic agent, a cardiac drug, and two sedatives—accounted for 20 percent of the total number of MDL prescriptions, 21.6 percent of the total acquisition cost to retailers, and 20.7 percent of the total retail price to consumers. Only two of these were available from several manufacturers under a generic name. Approximately 50 percent of the total cost to patients was repre- sented by the top 29 drugs, which also represented 53 percent of the total number of prescriptions and 49 percent of the total acquisition cost to retailers. Among these were 18 drugs which could be obtained only under a brand name from a single supplier, eight which were dispensed under a brand name although a chemical equivalent was available, and three which were dispensed under generic name. Therapeutic Category.—Cardiovascular preparations—including vas- odilators, digitalis and its congeners, and hypotensive drugs— accounted for 38.9 million, or 22 percent, of the total prescriptions, and $157.8 million, or 23 percent, of the total retail cost to consumers. Tranquilizers, with 16.9 million prescriptions at a total cost of $78.9 million, rated second, followed by diuretics, with 16.0 million prescriptions at $62.6 million; and sedatives, with 15.1 million pre- scriptions at $32.3 million. These four categories together represented about one-half of all precriptions for products in the MDL, and 49 percent of the total cost to patients. Antibiotics ranked fifth, including 13 million prescriptions at a retail cost of $64.3 million. Diagnostic category.—About 66.2 million, or 38 percent, of the total prescriptions, at a cost of $244.3 million, or 36 percent, of the total retail cost, were used for the treatment of heart disease and hypertension. ''10 An additional 17.3 million prescriptions, at a retail cost of $65.4 million, were applied for the control of arthritis and rheumatism. _About 11.6 million prescriptions, at a cost of $47.4 million, were cigpenaal for the treatment of mental and nervous conditions. ogether these groups accounted for 95.1 million, or 54 percent, of the total MDL prescriptions, and $357 million, or 52 percent, of the total cost to consumers. Maintenance therapy.—A sizeable proportion of out-of-hospital drugs prescribed for the elderly are so-called long-term maintenance drugs, used primarily for the control of chronic diseases. Few of these—at least at the present state of knowledge—can be cured, but in many instances appropriate drug therapy will enable the patient to live a reasonably comfortable and productive life. Among the 409 drugs In the MDL, 71 were prescribed for 30 to 59 days during the year, 42 of them for 60 to 89 days, and 78 of them for 90 days or more. These last 78 accounted for only about 20 percent of all MDL Papen, but they represented 59.6 million, or 34 percent, of all DL prescriptions, and $242 million, or 35 percent, of total costs to the consumer. More than half of them were for the control of cardiovascular disease. We find, therefore, that the requirements for appropriate prescrip- tion drug therapy by the elderly are very great—far greater, in fact, than those of any other group—and that many elderly men and women are now unable to meet these needs with their limited incomes, sav- ings, or present insurance coverage. Their inability to afford the drugs they require may well be reflected in needless sickness and disability, unemployability, and costly hospitalization which could have been prevented by adequate out-of-hospital treatment. With steadily increasing prescription expenditures, this problem is destined to become increasingly serious. The task force therefore recommends that the Social Security Administration should expedite the completion of its detailed studies on program financing, program administration, and reimbursement madhnds for several alternative approaches to the inclusion of prescription drugs under medicare. The task force defers any definitive recommendation of the possible inclusion of out-of-hospital prescription drugs under medicare until the completion of these studies. The Drug Makers The industry Total drug sales—prescription and nonprescription drugs alike— have increased substantially in the last decade, rising from nearly $3 billion in 1957 to about $5 billion in 1967 at the manufacturer’s level. Prescription drugs accounted for about two-thirds of this volume. Foreign drug sales by American companies exceeded a billion dollars in 1967. Approximately 95 percent of the prescription drug sales were made by the 136 member companies that comprise the Pharmaceutical Manufacturers Association (PMA). Members of the PMA produce and sell both brand name and generic name products. Just as they account for the overwhelming proportion of sales, they conduct essentially all of the industry’s research, they control the overwhelm- 2 ''11 ing proportion of drug patents, they conduct the most vigorous pro- motion of their products, they compete vigorously—usually on the basis of innovation and quality and rarely on the basis of price—for the favor of the medical profession, and they achieve the industry’s highest rates of profit. The remaining 5 percent of the Nation’s prescription drugs are manufactured by many hundreds of companies, and are sold under both trademarked and generic names. The total number of such firms is believed to be more than 700. They control few drug patents, do little or no research, compete on the market on the basis of both quality and price, conduct only minimal promotion of their products, and achieve relatively low rates of profit. Research and development Various Federal agencies support drug-related research and develop- ment at the rate of more than $100 million a year. In addition, other studies included in the federally supported biomedical research pro- gram may be expected to have eventual implications for drug research and development. The drug industry’s research and development program is now nearly $500 million a year, almost all conducted by about 70 of the PMA members. The industry’s research effort has been noteworthy in many re- spects— P New drugs developed through research have given physicians remarkable weapons for the improved treatment of infections, metabolic disorders, arthritis, heart disease, high blood pressure, and a host of other crippling or deadly diseases. Based on percentage of sales, the drug industry’s investment in research is about three times greater than that of any other major industry. The number of new products has been impressive. For example, between 1957 and 1968, 311 products introduced on the market were described as important new single entities. They represented about 15 percent of the 2,131 new prescription drug products introduced during that period. Also included were 1,440 products containing two or more older drugs in a new combination, and 380 drugs which were essentially duplicates or minor modifications of products already in use. he annual number of important new entities, those which represent significant advances, reached a peak in 1958—4 years before the Kefauver-Harris Drug Amendments of 1962—and decreased steadily until 1967, when the number started to rise again. Also impressive is the vigor and frequency with which industry spokesmen have said that any Government interference in their operations may force them to reduce their research programs. The task force is convinced that the directions and quality of some industry research programs deserve careful consideration. We have noted the serious and increasing concern expressed by practicing physicians, medical educators, pharmacologists, and economists—and even some industry leaders—at the number of molecular modifications of older drugs introduced each year. Some of these modifications undoubtedly represent significant advances, but ''12 most appear to be so-called “me-too” drugs—substances which are not significantly different from other drugs, nor significantly better, and represent little or no improvement to therapy, but which are sufficiently manipulated in chemical structure to win a patent. We have noted the comparable concern expressed at the number of new fixed combinations of old drugs introduced each year. Although these combinations may offer some convenience to elderly patients in particular, clinicians and pharmacologists have cautioned that they also involve obvious hazards and combine drugs in a “locked-in” proportion which may or may not fill the needs of individual patients. he numbers of duplicative and combination drug products intro- duced in recent years have been decreasing, but they still represent the great majority of all so-called new drugs. It is evident that these duplicative products, along with combination products, are used widely by some physicians, perhaps on the basis of the industry’s exceedingly effective marketing and promotion activi- ties. But it is also evident that the need for this overabundance of drug products has not been convincing to some medical experts. In many of the Nation’s leading hospitals, when expert physicians have served on pharmacy and therapeutics committees to galeat the drugs needed for both inpatient and outpatient therapy, they have generally found many if not most of these duplicative drugs and com- inations to be unnecessary. These products have been found generally unnecessary by physicians providing medical care to the Armed Forces. They have been found generally unnecessary by leading clinical pharmacologists. If these items were offered at prices substantially lower than the products they duplicate, they would provide at least an economic advantage, but in most instances they are introduced at the same or even higher prices. The development of such duplicative drugs or combination products cannot be considered an inexpensive fringe benefit. Each requires laboratory research, clinical trials, and the accumulation of sufficient data to demonstrate to the Food and Drug Administration that the new product—although it may not represent any significant thera- peutic advance—is at least safe and efficacious. Since important new chemical entities represent only a fraction— perhaps 10 to 20 percent—of all new products introduced each year, and the remainder consists merely of minor modifications or com- bination products, then much of the industry’s research and develop- ment activities would appear to provide only minor contributions to medical progress. The task force finds that to the extent the industry directs a share of its research program to duplicative, noncontributory products, there is a waste of skilled research manpower and research facilities, a waste of clinical facilities needed to test the products, a further confusing proliferation of drug products which are promoted to physicians, and a further burden on the patient or taxpayer who, in the long run, must pay the costs. A solution to this problem requires joint efforts on the parts of industry and the Federal Government (see p. 19). Quality control Any company, large or small, brand name or generic name pro- ducer, can institute and maintain an effective quality control pro- ''13 gram, and most companies have apparently done so. The cost of such a program has been estimated to be about 2.4 percent of sales for a large company, but may be somewhat more for a smaller firm. On the other hand, not all companies have maintained adequate quslity control, and their products have had to be recalled—either voluntarily or by Government order—for such defects as mislabeling, subpotency, or contamination. These recalls have involved both large and small firms, and both brand name and generic name products. Several hundred such violations are reported each year. Investiga- tions have often indicated that these are related to the failure of a manufacturer to comply with what are known as good manufacturing practices, including such factors as plant sanitation, personnel sur- veillance, equipment maintenance, raw material standards, record- keeping, and quality checks at every appropriate stage of manufacture and packaging. The task force believes that this situation may be substantially improved by the intensified inspection program now being developed by the Food and Drug Administration. At the same time, it believes that further study is warranted of the alternative proposal that a registration and licensing system be established under which no dru product would be permitted in interstate commerce unless oadinead under quality standards set by the Secretary of Health, Education, and Welfare (see p. 19). Marketing For those major companies which have presented any data, market- ing expenses—including particularly those for advertising and pro- motion—represent from about 15 to 35 percent of sales. Such expenses for generic name products appear to be substantially lower than those for brand name products. Industry spokesmen have claimed that marketing is an accepted part of any business activity; that their marketing costs are reason- able; and that their marketing efforts—including advertising, direct mailings, and personal visits by detail men to physicians—are pri- marily educational in nature. They have claimed that the promo- tional aspects of drug marketing are a mark of the intense competition in the industry. On the other hand, critics have asserted that intensive promotional efforts may be acceptable to sell such products as detergents, beer, and used automobiles, but not for such vital necessities as prescrip- tion drugs; that the expenses for drug marketing are excessive and add needlessly to the cost of prescriptions; that prescription drug advertising and other promotion has reached the proportions of super- saturation; and that some has been—at least until recent regulations were established by the Food and Drug Administration—inaccurate, unscientific, and biased. It appears evident to the task force that drug promotional activities are related to the particular type of competition which unquestionably exists in the prescription drug industry, among others—an intense competition between companies, with the promise of a greater share of a relatively limited market and richer profits for the successful competitor—but that these activities have little to do with normal price competition in the retail marketplace—with the promise of eventual price savings to the consumer. ''14 The strategy of names.—Intimately related to marketing, and the competition between brand and generic products, is the subject of brand and generic names. In the past, whether fortuitously or by design, most generic names— though certainly not all of them—have been relatively long, compli- cated, and difficult to pronounce and remember. During the past year, this situation has improved somewhat as the result of new policies established by the U.S. Adopted Names Council, but more improvement is needed. The task force commends the council for its efforts toward simplify- ing generic names and urges that these efforts be continued and strengthened. Advertising and promotion.—Included among the promotional activi- ties of some major prescription drug companies have been the support of scientific or medical conferences or symposia totally unrelated to any commercial product; the publication of educational materials for the public on such subjects as prevention of narcotic and drug abuse, Immunization campaigns, and school health; the establishment of scholarships and fellowships, especially for the benefit of under- developed countries; and the no-strings-attached support of some scientific and medical societies. These and similar activities are held in high esteem in the scientific and medical community, and are recognized as significant contribu- tions to the improvement of public health. Also included among promotional activities is the drug advertising in medical journals, direct mailings, throwaway publications, and others which has long since reached astounding proportions. It is estimated that the major drug companies together now spend some $3,000 per physician annually to reach each of the nearly 200,000 physicians who represent the target audience—those who will decide for which drug product their patients should pay. Significantly, this advertising rarely if ever mentions price. Unquestionably, much of this material is accurate and educational. The frequency of biased, inaccurate drug advertising has apparently been reduced since the enforcement of new advertising regulations b the Food and Drug Administration began in 1967. But the overall value of such advertising volume continues to be seriously questioned. Similarly, the potential impact of these large advertising expendi- tures on the editorial policies of the journals which are supported in large part by drug advertisements appears to deserve careful study. Detail men.—Major brand-name manufacturers—and a few generic- name companies—employ about 20,000 representatives to call on physicians, hospitals, and pharmacists, and provide information on their products. Whether such activities may be described as primarily promotional or primarily educational is difficult to determine. It is doubtful, however, that physicians can expect such detail men to give invari- ably unprejudiced and objective advice. ,enncanly; the presentations of detail men rarely include mention of price. Free samples.—F ree drug samples have customarily been distributed to physicians without request to induce them to try a product and test its advantages on their own patients. But few physicians are able to undertake any serious trials of this nature. Furthermore, if a ''15 physician does try a drug, in most instances he can do so with only a very few patients; the possibility that such a limited study can serve as a basis for a scientific judgment seems to be small. Free drug samples have made it possible for physicians and hospitals to supply drugs at no cost to some indigent patients. This need, however, has been modified by the advent of medicaid and other programs under which Federal and State welfare funds may be used to provide drugs to eligible patients. It has been reported that free samples have been involved in accidental poisonings, drug abuse, and black-market activities. Some major drug manufacturers have reacted to this problem by distributing free samples only to those prescribers who have spe- cifically requested them. It appears that further steps in this direction call for joint efforts by the industry and the Federal Government (see p. 19). Industry prices Few aspects of the drug industry are more confused—or more confusing—than its pricing structure. Ostensibly, wholesale prices are listed in company catalogs and price lists, bat these generally represent maximum prices. These serve merely as an umbrella beneath which actual prices are set by quantity discounts, hospital discounts, government discounts, two-for-the-price-of-one deals, rebates, and other special arrangements. With many Federal, State, and private drug programs now using reimbursement formulas based on wholesale costs to the vendor, there is need for developing an efficient system to ascertain actual acquisition costs. This calls for cooperation among manufacturers, te olesalers, vendors, insurance companies, and governmental agencies see p. 19). Price Indexes.—Particular confusion has resulted from the com- parison of various indexes intended to indicate the trend of drug costs. From the Consumer Price Index of the Bureau of Labor Statistics, it is obvious that retail drug prices have been decreasing steadily since about 1958. From three independent surveys, it is equally obvious that these prices have been increasing during the same period. The disparity is based on the fact that the indexes are measuring different things. The BLS index is aimed at measuring the change in a relatively fixed ‘market basket’? of about a dozen selected drug products. During the past decade, the prices of these items have, on the average, decreased. The items selected for the “basket,’’ however, do not accurately represent the most widely used drugs, and they do not reflect the changes in consumer expenditures which constantly occur when new and more costly products are introduced on the market and replace less costly products. On the other hand, the independent surveys are not concerned with the price changes of any individual drug products, but instead are aimed at determining the average price of the prescriptions which people do purchase. All three of these surveys show a definite upward trend in the average cost of these prescriptions, but they do not agree on the extent of increase because of different sampling methods. ''16 We find there is need for information on actual drug costs, expenses and utilization by the elderly and other groups. Accordingly, we recommend that the Department of Health, Education, and Welfare should conduct a continuing survey of drug costs, average prescription prices, and drug use. Hospital and Government discounts —Many drug manufacturers customarily offer their products to hospitals at prices substantially lower than those available to community pharmacists. The savings are not necessarily reflected in lower drug prices to hospital patients. To a considerable extent, these hospital discounts represent a subsidy to hospital patients—or, more often, to the hospitals them- selves—at the expense of nonhospitalized patients. Spokesmen for some pharmacy associations have urged that whole- sale prices to hospital pharmacies and community pharmacies be kept at the same level—a move which would lower prices moderately to community pharmacies, but raise them substantially to hospital pharmacies. Hospital spokesmen have declared any such action would raise hospital per diem rates still higher. Similar differences are apparent between the prices of drugs sold to community pharmacies and those sold to Federal and State agencies. The task force finds that the substantial differences in the prices at which drug products are offered to community pharmacies and : hospitals and governmental agencies deserve further examination see p. 20). Foreign prices—Many American companies offer their products for sale in foreign countries at prices substantially below those available in the United States, primarily to meet price competition which does not generally exist in this country. During the past few years, there has been mounting insistence that these companies should price their products essentially the same in all countries. The drug companies have countered that any increase in their foreign prices would drive them out of the foreign markets, not only reducing their earnings but upsetting still further this country’s un- favorable balance of trade. On the other hand, any attempt to reduce American prices to the level of prices on foreign markets could be catastrophic to their total financial structure. The task force finds that further study is required on the different prices at which drug products are offered to American and foreign purchasers (see p. 20). Patents, trademarks, and competition In the case of most commodities, rival companies compete vigor- ously on the open market on the basis of both quality and price, with the consumer having the right to make the final judgment. In most instances, the seals have been steadily increasing quality and decreasing price. In the case of drugs, there are distinct differences. The competition is based almost entirely on real or presumed therapeutic advantages. The patient, who must pay for the drug, rarely has any voice in its selection. The decision on which product the patient must buy is made by the physician. Although moderate or even enormous price differences may exist between products of comparable quality, this is seldom brought to the physician’s attention. ''17 Some have attempted to justify this situation by describing the physician as the patient’s expert purchasing agent. In the view of the task force, this concept is not valid; in most situations, a purchasing agent who purchased without consideration of both quality and price would be unworthy of trust. In what has been described as this ‘‘new competition” in the drug business, patents and trademarks have played key roles. On the one hand, industry supporters have insisted that the present patent and copyright system makes possible the incentives and re- wards that are essential for the industry’s large research and develop- ment effort, the flow of new products to which it leads, the subsequent benefit to health, and the ready identification of brand name products. On the other, it has been asserted that drug patents, combined with multi-million-dollar drug advertising campaigns, can keep new or small companies out of the high-profit circle, and effectively stifle price competition in the marketplace. Various proposals to modify the patent system have been considered by the task force. Abolition of Drug Patents —Removal of all patent protection from new drugs, it appears, would be a destructive move. Virtually all the important new dngs of recent years have come from countries pro- viding patent protection. Few,.if any, have come from Eastern European nations which offer little or no patent protection. Several important drugs have originated in Italy, which does not provide patent protection, but these have been quickly patented in foreign countries. Restricted Patent Life-—It has been estimated that a company will usually recoup all its research and development costs of a product within about 3 years after it reaches the market. Accordingly, it has been proposed that the patent on a drug should be reduced from the present period of 17 years to a much briefer period—such as 10 years, 7 years, or even 5 years. It has been shown, however, that requirements to establish the safety and efficacy of a new drug may take many years of effort— perhaps as many as 7 years. Where such testing continues after a patent is issued, the period of actual patent protection may be less than the statutory 17-year period. Coterminal Patents and Trademarks.—It has also been recommended that the patent life on a drug be maintained at the present 17 years, but that exclusive rights to the trademark should last no longer than the patent. Thus, at the end of the 17-year period, any qualified manufacturer would be free to market the drug under its original trademark or brand name. Generic Name Only.—A related proposal is that new drugs should be marketed only under a generic name—exclusively by the inventor until the patent expired, and then by any manufacturer who desired to produce it. Used with the generic name would be the name of the manufacturer, to identify the source of the product. This would clearly tend to minimize the confusing multiplicity and complexity of names put before physicians and would better identity the nature of the drug. Compulsory Licensing.—Unlike the United States, many countries have provisions under which the government may require the patent holder to license other manufacturers through a suitable royalty ''18 system. These provisions have rarely been enforced, perhaps because realistic price competition exists in the marketplace and lower prices may be invoked through negotiations. . Proponents of such legislation in this country have argued that if licensing were required after the first 3 years of a product’s market life—i.e., after major recovery of research and development costs— other firms could enter that product market by paying royalties, and price competition might then occur among these rivals. Beneficial results to consumers would be possible only for those products with a commercial life longer than 3 years. For such products, the patent holder would continue to earn an innovator’s profits, though perhaps at lower rates than before, and consumers possibly could purchase prescriptions at lower price levels. Make-or-Sell Licensing.—As yet another approach, it has been proposed that the patent holder should not be permitted to monopolize both the manufacture and the sale of a new drug, but should be required to license either other producers or other sellers. We note that these and other proposals to amend patent and trademark laws on drugs have been considered in the United States and other countries, and believe further study is necessary (see p. 20). Profits and risks In a free enterprise system, it is obvious that a company must make a profit. Unless it achieves this primary objective, it cannot stay in business. Ample evidence is available to demonstrate that the drug industry has been able to stay in business. It has maintained an annual profit rate based on net worth which is substantially above that of the average of major American industries. One study of 41 industries has shown that, between 1956 and 1966, the drug industry never ranked lower than third on the basis of after-tax income as a percentage of net worth. In 6 of those years it ranked in first place. Another study showed that, among 31 major industries, drug makers have averaged an 18.1 percent return on capital, as compared with 9.7 percent for the whole group. A similar high rate of profit for the drug industry is indicated on the basis of profits calculated as a percentage of sales. Spokesmen for the drug industry have agreed that its profitability is above average. They say, however, that this high rate is necessitated by the high degree of risk in the industry, and the need to attract the capital to finance further growth. The task force has been unable to find sufficient evidence to sup- port the concept of the drug industry as a particularly risky enterprise. There is abundant evidence that the development of an individual drug may be associated with a high degree of risk, and that any such development is an economic as well as a scientific gamble. There is, however, no evidence that this kind of risk characterizes a typical major drug company with a substantial line of drug products. When such a company rilengue a painful loss in this kind of a gamble, the record would seem to show, it generally covers it by substantial profits on other drugs. The record would also tend to show that—at least during the past 20 years—losses of this nature have driven few if any major pharma- ceutical manufacturers into serious financial straits. ''19 In recent years, some major American drug manufacturers have diversified their operations by moving into other operations. In some instances, this has been described as an attempt to minimize risks. At the same time, however, it is apparent that other companies are diversifying their operations by moving into the drug field. The Chief Economist of the Federal Trade Commission has testified that, on the basis of advice given by investment analysts, there is no reason to conclude that the drug industry is a uniquely risky industry. In fact, it appears that large drug companies should have little difficulty obtaining adequate capital for growth should they choose to go into the market for it. Actually, however, their earnings are large enough to preclude the frequent need for equity capital. If new Federal regulations concerning drug safety, drug efficacy, and drug advertising have had any significant effect in reducing drug profits, this is not evident in recent drug company profit statements. The ‘“Reasonableness”’ of Drug Prices: Whether prescription drug prices set by the major manufacturers are “too high,” “reasonable,”’ or “too low” is obviously a problem which cannot be resolved to the mutual satisfaction of all manufac- turers and all consumers. It appears, however, that current drug prices at the manufacturer’s level are marked by these characteristics: 1. They reflect research and development costs which are relatively high in comparison with other industries, and which include a sub- stantial degree of effort yielding only duplicative or ‘“me-too” drugs and combination products that contribute little to the improvement of health care. 2. They reflect promotion efforts which are high and are directed primarily to physicians. 3. They reflect a high degree of competition based essentially on quality and innovation, rather than the normal competition based on quality, innovation, and price. We find, therefore, that the exceptionally high rate of profit which generally marks the drug industry is not accompanied by any peculiar egree of risk, or by any unique difficulties in obtaining growth capital, and that industry profits have not been significantly reduced by new governmental regulations concerning drug safety, drug efficacy, or drug advertising. It is also evident from this study that there are certain problem areas which call for cooperative study and action by the drug industry, private groups, and the Federal Government. Accordingly, the task force recommends that the Secretary of Health, Education, and Welfare should call one or more conferences with representatives of the drug industry, pharmacy, clinical medicine; and consumer groups to consider— (a) Provision of incentives to the drug industry to invest more research effort in products representing significant im- provements to therapy and less in duplicative, noncontributory drug products and combinations. (6) Development of a registration and licensing system under which no drug product would be permitted in interstate com- ''20 merce unless produced under quality control standards set by the Secretary of Health, Education, and Welfare. (c) Limitation of free drug samples, by industry agreement or legislation, to those specifically perrvental by prescribers. (d) Development of more effective metnods for ascertaining actual acquisition costs of prescription drugs. Similarly, it is evident that certain other areas of concern require detailed analysis by appropriate agencies of the Federal Government. The task force therefore recommends that the Secretary of Health, Education, and Welfare should call for a joint study by the Depart- ment of Health, Education, and Welfare, the Department of Com- merce, the Department of Justice, the Federal Trade Commission, and other Federal agencies to consider— (a) The substantial differences in the prices at which drug products are offered to community pharmacies and to hospitals and Government agencies. (b) The substantial differences in the prices at which drug products are offered to American and foreign purchasers. ; (c) Revision of patent and trademark laws on prescription rugs. The Drug Distributors Between the manufacturers who make drugs and the patients who purchase them is a large, complex distribution network. Included in this network are the major drug vendors—independent pharmacies, chain drugstores, prescription pharmacies, mail order pharmacies, hospital pharmacies, dispensing physicians, and others. Considered with them in this section are the rug wholesalers. Of the average prescription drug dollar paid by the consumer, about 50 cents is now taken by the manufacturer, 10 cents by the wholesaler and 40 cents by the retailer. During the past three decades, the operations of this system have undergone significant changes. For example, before World War II, most of all the drug products handled were in bulk form, and were compounded into tablets, capsules, powders, solutions or other dosage forms by the pharmacist. Now about 95 percent are furnished by the manufacturer in final dosage form, ready for consumption. Formerly, wholesalers handled the overwhelming proportion of drug products. Now, with manufacturers tending to sell directly to hos- pitals and the larger independent pharmacies and chains, the whole- salers handle only about 48 percent of the dollar volume of the market. In the years to come, other changes in the number and nature of both wholesale and retail outlets will undoubtedly occur as the result of continuing economic pressures, health manpower shortages, the expansion of new types of careers in pharmacy, and the introduction of innovations enabling drug distributors to respond more effectively and efficiently to the health needs of patients. Prescription price information There is an obvious need for patients to be able to determine readily the prices charged by the various pharmacies in their community. This appears to be particularly important in the case of long-term maintenance drugs. The task force recognizes the difficulties in making such informa- tion easily available. Many patients are not told which drug has been ''21 prescribed for them—or are unable to decipher the physician’s pre- scription. In many States, laws or regulations forbid pharmacies to advertise; even without such rules, however, advertising current prices on many thousands of different drugs and dosage forms would pose formidable practical problems. Physicians, especially those in large cities, are likely to be unaware of the different prices which may be set at different pharmacies. The task force also recognizes that the retail price of the prescrip- tion includes not only the cost of the ingredients, but also in some instances the availability of home delivery and 24-hour-a-day opera- tions, as well as the professional services of the pharmacist—and that different pharmacists may wish to place different values on such services. It recognizes that many or most patients may wish to select a pts more on the basis of convenient location than on the basis of price. Nevertheless, if the patient is to maintain the right to select a pharmacy, he also has a right to know the prices it charges and to compare these with other prices. The task force finds there is a need for medical associations, phar- macy associations, and consumer groups, working together at the local level, to develop mechanisms whereby patients may obtain informa- a on local prescription prices, especially for long-term maintenance rugs. Prescription label information It is frequently necessary for a physician to determine the nature and amount of a prescription drug which a patient has been taking. In some instances—as in the case of a suspected adverse drug reaction, or accidental or deliberate overdose—the rapid identification of a drug may be a matter of life and death. As a step in improving the quality of health care, the task force recommends that the Congress should enact legislation requiring that the containers of all dispensed prescription drugs be labeled with the identity, strength, and quantity of the product, except where this is waived upon specific orders of the prescribers. To promote efficiency and minimize errors, the task force recom- mends that encouragement should be given to the wider use of pre- package dispensing, in which manufacturers prepare and pharmacists dispense tablets and capsules in precounted form, in sealed, prelabeled containers, and in such numbers as conform to those most frequently prescribed by physicians. The new role of pharmacy The pharmacy profession currently faces a dilemma which is partly though not entirely of its own making. Many other aspects of health care—the practice of medicine and surgery, hospital operations, and particularly drug manufacture— have developed and adopted new devices and techniques which have remarkably improved the provision of health services. In contrast, the number of important new methods introduced to enhance the efficiency of retail pharmacy operations, at least during the past 2 or 3 decades, has not been noteworthy. The task force recommends that the National Center for Health Services Research and Development should develop and support ''22 research to improve the efficiency and effectiveness of community and hospital pharmacy operations. The role of the pharmacist is viewed by many people as simply transferring pills from a large bottle to a small one—counting tablets, typing labels, and calculating the price. Much of his time is seen as devoted to routine merchandising of cosmetics, shaving supplies, stationery, and other commodities which have little or no relationship to health care. This has raised doubt concerning the relevance of modern pharmacy education. As with other members of health professions, on the one hand, it would seem that much of the traditional education is not utilized, since a nonprofessional pharmacist—working under the supervision of a licensed pharmacist—can effectively perform many of the routine tasks of counting, labeling, and pricing. At the same time, many pharmacists are seating a new role as a drug information specialist, and thus it would appear that their formal education has not taken this into account. These problems regarding what the role of the pharmacist properly is—or should be—deserve careful consideration. Pharmacist aides Experience in numerous pharmacies—military and nonmilitary Federal installations, nongovernmental hospitals, and others—has demonstrated that individuals without formal pharmacy education can effectively undertake many of the routine activities of pharmacists, under the supervision of a licensed pharmacist. Such activities offer the possibility of developing the career of pharmacist aide, comparable to the nursing aide, the orthopedic aide, the pediatric aide, the obstetrical aide, and similar paramedical positions. Drug information specialists At the other end of the spectrum, it is also becoming evident that appropriately trained pharmacists may become new and vital members of the totel health team by serving as drug information specialists. Some community pharmacists are already providing such services. They do not prescribe, but they discuss practical details of drug administration, possible side effects, and other facets of drug use with each patient to whom a prescription drug is dispensed. They maintain patient or family records which contain data on drugs which have been dispensed to each patient, allergic responses, and adverse reactions. They call to the attention of the physician any prescriptions which may have been written for the same patient by other physicians, and they refer tc him any prescriptions which may involve drug- interaction, synergism, or similar effects. Some hospitals—especially teaching institutions and those in major medical center complexes—are already using pharmacists as consult- ants on drug therapy. They serve not only as drug distributors, but also as sources of drug data for physicians, interns, residents, and nurses. They may participate in ward rounds with the staff, providing valuable drug information on both old and new drug products. Although they do not prescribe for patients, they enable the physicians who do prescribe to keep up more effectively with drug information. While some pharmacists are already serving as drug information specialists, and others are probably competent to do so, not all ''23 pharmacists have adequate competency. in this field. Some licensed pharmacists have received 5 or even 6 years of formal college train- ing, but about 15 percent of those now in practice have received 2 years or less of formal pharmacy education, and nearly half of these have had courses lasting only about 6 months. Pharmacy education The manner in which pharmacists, pharmacy associations, pharmacy schools, and the pertinent State pharmacy agencies respond to in- creasing demands for pharmaceutical services will unquestionably determine in large measure how the pharmacy profession will evolve during the years to come. The task force commends the efforts of those pharmacy schools and State pharmacy associations which are already stressing continu- ing postgraduate education. ‘As a guide to the responses which should be made, there is a clear need for a broad study of pharmacy education similar to the famed Flexner study of medical education made half a century ago. The task force therefore recommends that the Bureau of Health Manpower should support— (a) The development of a pharmacist aide curriculum in junior colleges and other educational institutions. (b) The development of appropriate curriculums in medical and pharmacy schools for traming pharmacists to serve as drug information specialists on the health team. (c) A broad study of present and future requirements in pharmacy, adequacy of current pharmacy education, and the educational changes which must be made. Pharmacy laws The present patchwork of State pharmacy laws, regulations, and codes of ethics obviously reflects attempts to cope with a variety of pharmacy problems on a piecemeal basis. Whether they are aimed at the protection of the public health or the prevention of competition— fair or unfair—is not clear in all cases. Many of these rules seem to have derived from periods of manpower excesses. They block efforts to cope with the present shortages of skilled manpower, the need for mobility to meet rapidly changing health needs, and the probable development of new careers in pharmacy. The task force recommends that the Health Services and Mental Health Administration should support studies of State laws, regula- tions, and codes, with priority given to the establishment of model State licensing laws, uniform reciprocity standards, and provisions for the utilization of pharmacy aides. The Drug Prescribers In the modern use of drugs, important roles are played by the drug researcher, the manufacturer, the distributor, the pharmacist, and the official who carries the legal responsibility for drug safety, efficacy, and quality. But the most strategic role is that of the physician who pre- scribes the drug. ''24 It is the physician who has major responsibility for the welfare of fie patient. \) It is the physician who is constantly faced with an awesome assort- ment of competitive and often duplicative products. | It is the physician who is the target of a barrage of advice, informa- tion, guidance, and promotion from detail men, advertisements, medical articles, pamphlets, bulletins, and throwaway journals. And it is the physician who—with or without adequate training and competent advice—must make the decision on which drug or drugs to prescribe. On his decision may well depend the health or even the life of his patient. On it will depend, at least in part, the quality, cost, and effec- tiveness of any drug insurance program, governmental or nongovern- mental. And on it will dapertd the economic well-being of a drug company. Rational prescribing The appropriate selection of a drug—the right drug for the right patient, in the right amounts at the right times—is generally defined as rational prescribing, and any significant deviation is considered to be irrational prescribing. Rational prescribing is obviously the result of judgments on many points—the safety and efficacy of the drug for the clinical problem at hand, the advantages or disadvantages of alternative forms of therapy, the most appropriate dosage form, the length and intensity of treatment, the possible side effects or adverse reactions, and the possibility of drug interaction. To these may be added judgments concerning relative costs. Rational prescribing is clearly a major goal for the welfare of patients. It is likewise a major goal for any drug insurance program. Here, emphasis has been placed not directly on achieving rational prescribing but rather on preventing some of the more serious or costly forms of irrational prescribing. Among the latter are these: The use of drugs without demonstrated efficacy. The use of drugs with an inherent hazard not justified by the seriousness of the illness. The use of drugs in excessive amounts, or for excessive periods of time, or inadequate amounts for inadequate periods. The use of a costly duplicative or ‘‘me-too” product when an equally effective but less expensive drug is available. The use of a costly combination product when equally effective but less expensive drugs are available individually. The simultaneous use of two or more drugs without appropriate consideration of their possible interaction. Multiple prescribing, by one or several physicians for the same patient, of drugs which may be unnecessary, cumulative, inter- acting, or needlessly expensive. We find that some patients may be receiving as many as a dozen different drugs simultaneously, prescribed either by one or several different physicians, and that often physicians may not be aware that their patients are receiving drugs prescribed by others. We find no reason to believe that any or all of these types of irra- tional prescribing can be effectively prevented—or that rational prescribing can be effectively induced—merely by rules and regula- '' 25 tions. Instead, we believe the objective of rational prescribing can be reached most effectively through improving medical education— particularly in the area of clinical pharmacology—at both the under- graduate and postgraduate levels, supplying practicing physicians with objective data on which they can base their individual prescribing decisions, and supporting those in hospitals, clinics, medical societies, and health insurance programs who are seeking to achieve rational prescribing by their fellow practitioners. The teaching of pharmacology In most American medical schools, the principal course in pharma- cology is given during the second year. Generally, this is the only formal exposure of the student to the subject. The nature of the pharmacology instruction has been a matter of much debate but little change. Although it is in reality a clinical as well as a basic science, it is taught primarily as a basic subject, with emphasis on the principles of drug action, a review of specific drug groups, examples of drug applications, and the broad fundamentals of prescription writing. After the usual course in basic pharmacology, most medical students are given no formal training in the applied aspects of this field—in clinical pharmacology—but left to acquire what practical trainin, they can absorb from a variety of courses in the several fields of clinica medicine. Perhaps the most serious criticism of this informal exposure is that it fails to equip the soon-to-be physician with the essential scientific and critical attitudes toward the use of drugs and the evaluation of drug promotion—probably the most intensive promotion to which he will be subjected for the rest of his professional career. The task force has noted that some medical schools have responded to such a deficiency by establishing courses in clinical pharmacology or pharmacotherapeutics. In these courses dealing with the practical aspects of drug prescribing, emphasis is generally placed on such subjects as the design of comparative clinical drug trials, and the techniques of statistical analysis. Also included in some courses is the evaluation of drug advertising and promotional material, and the im- portance of drug costs. Many who participate in these and related programs have received a major part of their training in the section of clinical p cology in the National Heart Institute of the National Institutes of Health. The task force recommends that the Department of Health, Educa- tion, and Welfare should provide expanded support to medical schools, enabling them to include a course in clinical pharmacology as an integral part of the medical curriculum. Postgraduate education Upon entering private practice, the average physician, knowingly or unknowingly, becomes the key figure in drug marketing strategy. He must choose from a very large number of competitive and often duplicative products. He must deal with a very large amount of advice, biased or unbiased, from detail men, advertisements, and other forms promotion. ''26 Substantial efforts are made on his behalf by the drug industry and others to prevent any interference with his right to prescribe as he sees fit. _ Finally, it is assumed that he has the training, experience, and time to weigh the claims and available evidence, and thus to make the proper selections. Everything, of course, hinges on the validity of this final assumption. We find that few practicing physicians seem inclined to voice any question of their competency in this field. We have noted, however, that the ability of an individual physician to make sound judgments under these quite confusing conditions is now a matter of serious concern to leading clinicians, scientists, and medical educators. A distinguished pharmacologist, for example, has stated that lack of knowledge and sophistication in the proper use of drugs is perhaps the pianist deficiency of the average physician today. Other medical eaders have pointed to the wide discrepancy in the prescribing habits of the average physician as compared to the prescribing methods nedGniinanded by panels of medical experts. Still others have com- mented on the continued use by the average physician of products which have been found unnecessary or unacceptable by specially qualified therapeutics committees in hospitals and clinics. We note that the most widely used source of prescribing information is essentially a compilation of the most widely advertised drugs. The responsibility for these and other deficiencies has been placed on various factors: Inadequate training in the clinical application of drug knowledge during the undergraduate medical curriculum. Inadequate sources of objective information on both drug properties and drug costs. Widespread reliance by prescribers for their continuing educa- tion upon the promotional materials distributed by drug manu- facturers. The exceedingly rapid rate of introduction and obsolescence of prescription drug specialties. The limited time available to practicing physicians to examine, evaluate, and maintain currency with the claims for both old drugs and newly marketed products. The constant insistence on the idea that the average physician, without guidance from expert colleagues, does in fact possess the necessary ability to make scientifically sound judgments in this complicated field. Information sources Several significant approaches have been attempted to cope with this problem. In the United States, a small number of independent publications—which do not publish advertising—seek to present objective evaluations of the efficacy, safety, rationality, and oc- casionally the costs of specific drugs. These have relatively limited circulation, but are highly esteemed by medical leaders. '' 27 Many American hospitals and clinics utilize pharmacy and thera- peutics committees to develop formularies which serve as guidelines to the staff members of the institutions. These, too, appear to con- tribute significantly to rational prescribing. Other approaches to the problem of communicating objective and updated drug information have been proposed. These include, amon others, closed-circuit television programs originating in medica centers; the development of community pharmacy and therapeutics committees; the utilization of existing regional medical programs to sponsor continuing drug information programs; and the use of hospital pharmacies as drug information centers. ‘Several foreign drug programs—notably those in Great Britain, Australia, and New Zealand—provide all physicians with prescribing guidelines prepared by panels of independent medical experts. Such publications—frequently updated to meet changing conditions—have been widely accepted by the medical profession in those countries. In consideration of these factors, in view of the unfilled information- al needs evident in this country, and as a major contribution to im- proving the quality of health care, the task fone recommends that the Department of Health, Education, and Welfare should establish or support a publication providing objective, up-to-date information and guidelines on drug therapy, based on the expert advice of the medical community. We recommend that the Department of Health, Education, and Welfare should support the efforts of county medical societies, phar- macy and therapeutics committees, medical foundations, and medical schools in taking the responsibility for providing continuing educa- tion to physicians on rational prescribing. The Bureau of Health Manpower, the Division of Regional Medical Programs, and the National Library of Medicine in particular should assign high priority to the support of such efforts. Finally, we affirm our interim recommendation that the Secretary of Health, Education, and Welfare should be authorized to publish and distribute a drug compendium listing all lawfully available pre- scription drugs, including such information as available dosage forms, clinical effects, indications, and contraindications for use, and methods of administration, together with price intormation on each listed product. Drug Quality During the past several years, the clinical equivalency of generic name products has been the center of particularly heated controversy. This issue may be presented as follows: Given two drug products containing essentially the same amount of the same active ingredient—that is, two chemical equivalents—will they give essentially the same clinical effects? This question, of increasing interest to both physicians and patients, is now under careful consideration by the scientific community. Ob- jective research has shown that in certain instances the clinical effects may not be the same. The task force has found, however, that lack of clinical equivalency among chemical equivalents meeting all official standards has been grossly exaggerated as a major hazard to the public health. Where ''28 low-cost chemical equivalents have been employed—in foreign drug programs, in leading American hospitals, in State welfare programs, in Veterans Administration and Public Health Service hospitals, and in American military operations—instances of clinical nonequivalency have seldom been reported, and few of these have had significant therapeutic consequences. Even though such cases are few, and others may well be reported in the future, these cannot be ignored, and the problem deserves careful consideration because of the medical and economic policies which are involved. The interrelation of medical and economic factors is especially obvious in the case of two chemically equivalent products, both containing the same amount of the active ingredient and both meeting legal standards, but priced at different levels. If the physician can be given reasonable assurance that two such competitive products will, in fact, give predictably equivalent clinical effects, then his choice between the two may well be based on relative costs. Under such conditions, there mould. Be little justification for prescribing a relatively expensive brand of a drug when an equally effective counterpart is available at substantially lower cost. Similarly, there would be little justification for a Federal drug program to provide for reimbursement of such an expensive brand. But if the physician cannot be given this assurance, his clinical judgment would dictate that he use only the product which can be expected to yield the desired clinical effects—regardless of cost or any other nonmedical factor. The physician should be given assurance—not in the form of advertising, promotion, or the established image of the manufacturer involved, but in the form of objective, scientific data. In view of the thousands of drug products on the market, the accumulation of such data might seem to be monumental. But, with the exception of a few drugs for which adequate analytical methods are currently unknown, the task force has found that the problem is by no means insoluble. Clinical equivalency and biological equivalency For the direct determination of clinical equivalency, it would be necessary to compare drug products containing the same active ingredient, in the same tablet or capsule or other dosage form, in the same amounts, and measurement of their relative effects in human patients in the alleviation of symptoms or the control of a specific disease. Except perhaps in rare instances, such a comparison appears to be impractical at this time. It would be time consuming and costly. It would be complicated not only by individual human differences but by differences in the symptoms or diseases under consideration. Clinical equivalency studies could be conducted in experimental animals, but the nature of specific diseases and the nature of drug absorption and action in animals and human beings may not be directly comparable in all cases. Instead, attention has been directed to the use of biological equiva- lency—or relative biological or physiological availability—measured in normal subjects as a proxy for the direct measurement and com- parison of therapeutic effects. '' 29 This is based on the general agreement among pharmacologists that with most drugs—certainly those taken orally for their effect on internal tissues and organs—their therapeutic effectiveness will be closely related to the absorption of the active ingredient into the bloodstream. Thus, it is assumed that if the active ingredient in two or more chemically equivalent products reaches the blood (or other fluid or tissue) and becomes biologically or physiologically available—at the same time and in the same amounts, their therapeutic effects will be essentially the same. Among the formulation factors which may be involved here, and involved in any possible nonequivalency of orally ingested products, are particle size; crystal form; the pressures and other conditions used in tablet-making; and adjuvants, such as substances incorporated as fillers, lubricants, binders, coatings, flavorings, colorings, and tablet-disintegrating agents. Attention has also been directed toward physicochemical tests which might be used to indicate biological equivalency—and, in turn, clinical equivalency. Perhaps the most important of these is the dissolution rate. Once a drug is dissolved in the gastrointestinal fluid, absorption is usually rapid. It is not surprising, therefore, that re- ported instances of clinical nonequivalency are rare among drugs which are highly soluble or administered in solution but most frequent among drugs of inherently low solubility which are administered in solid dosage forms such as tablets and capsules. Biological equivalency trials In consideration of the foregoing, the task force initiated a program in the fall of 1967 to determine scientifically the biological equivalency of a number of chemical equivalents. A major phase of the investigation was an attempt to determine whether any observed differences in biological equivalency could be related to differences in the physical or chemical characteristics of the products. It was recognized at the outset that such trials were urgently needed for relatively few drugs. For example, among the 409 products most widely used by the elderly—and which accounted for about 88 percent of all preseription drugs dispensed to this group, there were only 89 which were Jisperised under brand name but could have been dis- pensed under generic name from one or more additional suppliers. An additional 30 were actually dispensed under generic name. Among these, the priority for clinical trials was determined on the basis of the following criteria: 1. The product is generally considered as a ‘critical’ drug—that is, required for the control of a disease, rather than for the alleviation of temporary symptoms. 2. It is generally dispensed in solid form—as a tablet or capsule. 3. The active ingredient is relatively insoluble. ° 4. Particular attention should be given to those drugs which had previously been the subject of reported or suspected non- equivalency or therapeutic failure. A number of drugs meeting these criteria were selected by the task force in consultation with representatives of clinical medicine, pharm- ''30 acology, pharmacy, brand name and generic name manufacturers, the Food and Drug Administration, and other governmental agencies. Biological equivalency studies on these products in human volunteers began late in 1967 in the FDA laboratories; at Georgetown University, under an FDA contract; and at the Public Health Service Hospital in San Francisco. (Detailed results of these investigations are not presented in this report. Since they obviously may be of practical concern to physicians and scientists, the data are being announced as quickly as they become available in the usual medical and technical publications.) As an important part of these trials, attempts were made to deter- mine whether any observed differences in biological availability could be correlated with differences in any physicochemical characteristics of the product. Such physicochemical differences could presumably be utilized in developing new and approved specifications for drug quality testing. Although complete data are not available, it appears noteworthy that all instances of biological nonequivalency found in the first phases of the trials were, in fact, marked by differences in dissolution rate. The task force recommends that the present clinical trials to deter- mine the biological equivalency of important chemical equivalents should be continued by the Department of Health, Education, and Welfare on a high priority basis. Drug standards In the United States, the two most important official compendia of drug standards and specifications are the U.S. Pharmacopeia (U.S.P.) and the National Formulary (N.F.). Both have long and distinguished histories, and are highly regarded by physicians and scientists. Although both publications have clearly stated that they cannot guarantee it, their standards and specifications have been widely presumed to assure the clinical equivalency of chemical equivalents. The recent finding that some chemical equivalents are not biologi- cally equivalent, even though they conform to existing U.S.P. and N.F’. standards, has shown that certain of these standards may require revision. During the past year, representatives of both U.S.P. and N.F. have been cooperating closely with the task force to meet this chal- lenge. It is expected that existing specifications will be tightened where indicated and possible, and that these modifications will be incorporated in the revised U.S.P. and N.F. editions now in preparation. The task force commends the U.S. Pharmacopeia and the National Formulary for their prompt and responsible approach to the problem of clinical equivalency. Quality control The establishment and enforcement of product standards and spec- ifications represents one important approach to the problem of drug quality and clinical equivalency. Another is the establishment and rigid enforcement of appropriate quality control standards in all aspects of drug production and pack- aging. The task force has already recommended that a registration and Ticensing system be considered under which drug producers and '' 31 packagers would be required to conform to a code of good manufac- turing practices and other criteria (see page 20). We likewise recommend that adequate financial support should be provided to the Food and Drug Administration for necessary educa- tional and inspection operations so that acceptable quality control methods can be instituted and properly maintained in all drug manufacturing and packaging establishments. We recommend that the Food and Drug Administration should be authorized to provide additional support, including grants-in-aid, to State and local agencies in order to improve quality control of pre- scription drugs in intrastate commerce. The enforcement of an acceptable quality control program may be expected to have these effects: Many reputable manufacturers, both large and small, already maintain acceptable quality control programs, and will merely be obliged to continue them. Some manufacturers may elect not to institute such programs, and their products would therefore be found unacceptable for shipment in interstate commerce. Other manufacturers will elect to institute and maintain ac- ceptable quality control methods. This may result in slightly higher production costs, which the manufacturers would most probably cover by setting slightly higher prices on their products. The task force is strongly convinced that the added investment of Federal funds to require acceptable quality control methods, and the slightly higher drug prices that may result in some instances, would be more than justified by the improvement in drug quality that would be achieved. We have given careful consideration to proposals for the placement of full-time Food and Drug Administration inspectors in every drug manufacturing plant—large and small—but believe this would involve unjustifiably heavy expenses and inappropriate use of skilled man- power. We have also considered proposals for the extension of batch certi- fication—now applied mainly for insulin, antibiotics and biologicals— to all drugs, requiring FDA testing and approval at the manufac- turer’s expense before any batch may be released for distribution. We feel this would place an unnecessarily heavy and costly burden on manufacturers which would be reflected in unnecessarily higher prices to consumers. Instead, we find that further study is needed on the use of self- certification, with each manufacturer instituting and maintaining a quality certifying program approved by FDA. Ongoing Programs The provision of out-of-hospital prescription drugs through govern- mental or private insurance programs has been undertaken in one form or another for nearly a century. Many of these include techniques and approaches which deserve consideration in any out-of-hospital program that might be designed under medicare. Accordingly, the task force has examined a wide variety of ongoin programs—all of the major drug programs conducted by the Federa Government, a number of selected State programs, six of the leading ''32 private programs in this country, and the major programs in 11 foreign countries. These programs are not directly comparable. In some foreign coun- tries, for example, national economic and social structures lend themselves to controls and methods of operation which are probably not suitable in the United States. Certain aspects of military drug programs may not be adaptable for civilian programs. Other ap- proaches utilized in private programs may be impractical for a government operation. Nevertheless, a study of these diverse systems has proved to be illuminating. It has clearly indicated that out-of-hospital prescription drugs can be provided under programs that are medically acceptable and economically sound. Federal programs Through direct purchasé or reimbursement, the Federal Govern- ment is now concerned with the provision of prescription drugs through several major programs. As shown in table 2, expenditures for drugs in these programs totaled more than $491 million in fiscal year 1967. TABLE 2.—Estimated Federal Expenditures for Prescription Drugs (Fiscal year 1967) [In millions] Direct purchase: Department of Defense_____________-___---------------------- 1$111.0 Public Health Service__._______________---------------------- 24,1 Veterans Administrations cin e2 cence cworn sc moncecwaeeenccmeoces 339.5 Federal Supply Schedule contracts__......--------------------- 46.2 Total direct________-_-_-_-------- ee ne a 160. 8 Reimbursement programs: CHAMPUS.________---------------------------------------- 2 VA hometown pharmacies_-___._____-_------------------------ 2.9 Public Health: Service .ccccncccoccunnscmecmecmensccemaccmeemce 3h Medicare in-hospital... <0 cc occa ce atin cae acsasecceesaeaeaces 5 230. 0 Medicaid_____--_-_----------------------------------------- 696. 5 Total reimbursement______-_------------------------------- 330. 3 Lotal all Hederal Grug Oxpenditures quo ee i eeceme smewee eee 491.1 1 Includes $92,400,000 purchased through Defense Supply Center, Philadelphia, Pa , and approximately $15,700,000 purchased through Federal Supply Schedule contracts; remainder purchased locally. 2 Includes $1,300,000 purchased through PHS Supply Service Center, Perry Point, Md., and $2,800,000 from other sources including the Veterans’ Administration. 3 Includes $14,600,000 purchased through Federal Supply Schedule contracts administered by VA for General Services Administration. 4 Includes purchases for miscellaneous Federal agencies. 5Includes $115,000,000 for overhead drug expenses of hospitals and extended care facilities. 6 Includes other federally supported State public assistance programs; excludes $85,500,000 which was the State portion of the total drug program expenses. DOD military procurement.—The largest direct drug procurement program is that of the Department of Defense, with its responsibility for supplying about 3,000 military establishments in this country and overseas. A major characteristic of the DOD operation is its testing and inspection program to assure drug quality and the ability of the prod- ucts to withstand prolonged exposure to climatic extremes. DOD sets its own drug specifications, maintains its own manufacturing plant '' 33 inspectors, and operates its own testing program. Manufacturers must undergo stringent pre-award surveys of their facilities as well as testing of their products in DOD laboratories. After drug contracts are awarded, both the plant facilities and the stored products are continuously spot checked, and DOD actively solicits reports from military hospitals and physicians on drug quality, therapeutic effi- cacy, and adverse reactions. About 240 of the 1,200 drugs currently stocked are purchased under generic name. The DOD policy is to purchase drugs under contract from the lowest “responsible bidder.” It may buy foreign-made drugs where the acquisition cost is at least 50 percent less than “responsible” domestic bids. The same pre-award standards and continuing sur- veillance imposed on domestic firms are applied to foreign manufac- turers with DOD contracts. As a Federal purchasing agency, DOD may purchase patented products from unlicensed manufacturers. DOD military medicare.—Through its Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), the Department of Defense provides out-of-hospital prescription drugs through hometown pharmacies to some 6.5 million eligible retired military personnel and military dependents. Various carriers are used for program administration. Any pharmacy willing to meet CHAMPUS requirements may participate. The pharmacist is reimbursed for the acquisition cost of the drug plus a dispensing fee which has been set for each State. Each eligible beneficiary must first meet a deductible requirement of $50 per year—or $100 per year per family—and pay a coinsurance charge of 20 or 25 percent, depending on beneficiary status. No formulary requirements are involved. The average prescription price in 1967 was reported to be about $4.15. Veterans Administration.—In 1967, the VA purchased drugs and biologicals costing $39.5 million for use in its own hospitals and pharmacies, and also procured drugs for other Federal agencies, such as the Public Health Service and the Office of Economic Opportunity. Of the drugs used in VA pharmacies, about 86 percent are purchased from some 250 manufacturers who have been approved by onsite inspections. Each VA hospital has its own drug formulary of about 700 to 2,000 items developed by its own pharmacy and therapeutics committee, and tailored to fit the reeds of the institution. The formu- laries are used as guidelines rather than prescribing limitations, sirce nonformulary drugs may also be prescribed. Chemical equivalent drugs are widely used where available. In addition, the VA hometown pharmacy program provides out-of- hospital prescription drugs to eligible beneficiaries, generally those with service-connected disabilities. The hometown program, which involved an expenditure of $2.7 million in 1967, provides for reimbursement to pharmacies on the basis of acquisition cost plus a dispensing fee. No sorrenaty is used in this program, and no deductible or copayment is required. Office of Economic Opportunity.—Through its Neighborhood Health Centers, OKO provides pharmaceutical services for about 800,000 persons in 44 programs. ''34 Eligibility requirements vary but generally are based on a “poverty line” schedule, on medicaid standards, or on other guidelines estab- lished by the community. Each center makes its own determination about the use of a conten, No deductible or copayment is required. Several of the centers provide direct drug services in their own pharmacies, while the others provide for reimbursement to community pharmacies on the basis of acquisition cost plus a dispensing fee. Public Health Service.—In 1967, PHS expended more than $4 million for drugs for its own operations, and also purchased drugs for civil defense stockpiling. Of the drugs procured for PHS activities, some were anes the National Institutes of Health and the National Institute of Mental Health, but most were dispensed through the Division of Direct Health Services—with 11 hospital and 14 clinic pharmacies—and the Division of Indian Health. The latter operates 51 hospitals with pharmacies, and contracts with about 200 community pharmacies that furnish prescription drugs to Indian beneficiaries. Each PHS hospital has its own formulary, but exceptions are made for the provision of nonformulary drugs. Physicians who contract with PHS are not obliged to use the formularies. Pharmacies participating under contract with the Division of Indian Health are required to dispense the least expensive drug products they have in stock which will meet the physician’s require- ments when a generic prescription is written. The price may not exceed the price to the general public. No deductibles or coinsurance requirements are involved in any of the PHS out-of-hospital programs. Medicare-—Data from the medicare program relating to the cost of drugs provided to beneficiaries in hospitals and extended care facilities are not yet available. However, on the basis of recent studies of drug use in hospitals in general, it is estimated that in fiscal 1967 roughly $230 million was spent under medicare for drugs, with about half of this amount representing product cost and the remainder the cost of dispensing and administration. (See table 2.) Under medicare, in-hospital drugs must be listed in one of several] official compendia or in a formulary established by the hospital’s pharmacy and therapeutics committee. Medicare requires that drug charges to the government must be “reasonable.” Public assistance—Under medicaid and other public assistance programs with joint Federal-State support, an estimated $182 million was spent for prescription drugs in fiscal year 1967, of which an esti- mated $96.5 million was paid by the Federal Government (table 2). Federal-State vendor payments of $182 million represented 7.8 percent of all medical care services provided in that year, and were made to hospitals, pharmacists, and other licensed vendors. The Federal share of payments to vendors for drugs and drug services ranged from 50 to &3 percent, depending on the nature and extent of the program in each State, with an average of about 53 percent. In such programs, no deductibles or copayments are generally in- volved, although one nonmedicaid State program included a copay- ment requirement but provided funds to the recipients to cover such payments. '' 35 _ Further details on these public assistance programs are presented in the following section. State programs Vendor drug programs for recipients of medicaid and other public assistance funds are now operating in 38 States and territories. The range in their utilization, costs, and benefits is very large. Thus, among all eligible beneficiaries, the utilization rates in 1967 ranged from 26 percent in Missouri and Tennessee to 91 percent in New Hampshire and 99 percent in Rhode Island. The average annual number of prescriptions per user ranged from about 10 in New Mexico to 46 in Indiana. The average annual.expenditure per user ranged from $39.35 in New Jersey to $148.95 in Florida, $155.67 in Nebraska, and $158.58 in Indiana. The average cost per prescription ranged from $2.91 in Kentucky and $2.94 in Illinois to $4.74 in New Mexico. Because of the diversity and complexity of the various State drug programs, the task force selected five for intensive stud y—California, ecause of its size; Louisiana and West Virginia, because of their approach in approving drugs used only for the treatment of specific diseases; Kentucky, because of its limited formulary; and Pennsyl- vania, because of its extensive formulary, which is used primarily as a guide to prescribing. Other studies were conducted on the programs in Indiana, Nebraska, North Carolina, Oklahoma, and South Dakota. In nearly all of these States, per capita drug costs and average pessoas prices for program beneficiaries were higher than those or the total public. Whether this was the result of program abuse or of the greater health needs of those receiving public assistance cannot be sanity determined. There was no consistent pattern of vendor payment, with some States reimbursing on the basis of customary and usual charges, some on acquisition cost plus a percentage eae au. some on acquisition cost plus a dispensing fee, and some using a combination of percentage markup plus dispensing fee. Several set dollar limits. There was no clearcut relationship between any of these methods and program costs. Where acquisition cost was a factor in the reimbursing formula, this was generally presumed to be the listed wholesale price, although it is understood that this list price has little if any relationship to the actual acquisition cost. Few States made any efforts through spot audits to determine actual acquisition cost. Administrative expenses have been estimated to average about 50 cents per prescription, with the lowest cost—about 20 cents—reported in Louisiana. Differences in estimating administrative costs, however, make it impossible to make exact comparisons. Among the States studied, none was applying data processing techniques to the extent necessary for effective utilization review. Only one State—North Carolina—had tested the effect of a deterrent charge to the patient. In February 1967, North Carolina required the recipient to pay the first dollar of the cost of each prescription, and at the same time provided beneficiaries with monthly cash payments from which to pay medical expenses. Within about 2 months, although ''36 the number of prescriptions actually increased, the total cost of the prescription drug program was reduced. While there seemed to be wide agreement among officials of many States that such a copayment requirement would probably be a highly effective method of cost control, there was no such agreement on the effect of this technique in limiting the access of welfare beneficiaries to the health care they required. The influence of limited formularies alone also appears to be ques- tionable. Although the use of a highly restrictive formulary is asso- ciated in several States with effective cost control, such control also has been noted in Pennsylvania, with a virtually unlimited formulary but with restrictions on quantity and number of refills. Many States urged or required the dispensing of low-cost chemical equivalent products where available. Under such conditions, no significant instances of lack of clinical equivalency were reported. We find, therefore, that in Medicaid and other State public assist- ance programs, no single method will by itself guarantee program effi- ciency, but without at least two features—reasonable formulary restrictions and effective data processing procedures—program controls will be ineffective. Although a copayment requirement may not be widely acceptable in public assistance drug programs, its value in controlling costs in other programs seenis evident. Prwwate programs Several nongovernmental programs to provide prescription drugs to members of unions and other groups have been in operation in this country for many decades, and others have been developed in more recent years. For special examination, the task force selected six of these—Prepaid Prescription Plans, Inc.; Paid Prescriptions, Inc.; United Mine Workers; the Kaiser Foundation Health Plan; Group Health Cooperative of Puget Sound; and the new Blue Cross plan. As in the case of State programs, these private programs offered a variety of approaches. Some utilized their own pharmacies, and some used community pharmacies. Several used restrictive formularies, while others reimbursed for any prescribed product. All were financed through monthly dues or premiums. Major economies in these private plans were found associated with the use of formularies, frequent field audits to determine actual acquisition costs by vendors, and the use of a copayment or similar requirement. The greatest economies were noted in those programs in which the institution served as the purchaser of the drug products, rather than as a reimburser, and thus could obtain competitive or negotiated bids. Several of the programs included in this study either urged or re- quired the use of available low-cost chemical equivalents. No significant problems with lack of clinical equivalency were reported. Foreign programs The greatest experience with prescription drug programs has been achieved in a number of foreign countries. Fifteen of them in 11 nations were selected by the task force for special study—Australia, Belgium, Denmark, France, Great Britain, The Netherlands, New Zealand, Norway, Sweden, West Germany, and the provincial pro- '' 37 grams of Alberta, British Columbia, Manitoba, Ontario, and Sas- katchewan in Canada. Less intensive studies were conducted on the programs in Italy and Switzerland. 1 of these nations show wide variations in demographic charac- teristics, government operations, industrial development, social phi- losophy, local tradition, and even medical tradition, and certain por- tions of their health insurance programs may not be suitable for use in the United States. Nevertheless, most of the procedures considered for prescription drug insurance programs in this country have already been tried in one form or another in these foreign programs. In all of the countries included in the task force study—which represent nearly all of the major prescription drug programs in the world—the program is financed by employee or employer contribu- tions, or by voluntary or compulsory participation in various “‘sick- ness funds” and insurance plans. Some, including several of the Canadian programs, are designed exclusively for public assistance beneficiaries. Others cover the entire population, regardless of economic status, while still others have programs providing one set of benefits to welfare beneficiaries or pensioners, and another set to those who are not public assistance recipients. Most of the prescription drug programs, especially in Europe, are integral parts of national health insurance systems. In most countries for which statistical data are available, it is evident that there has been a steady increase in the average number of prescriptions per year, in the average prescription cost, and in the cost of the entire program. Except in Canada, the prices of specific drug products and of average prescriptions are generally lower than those in the United States; these differences appear to reflect lower labor costs, lower purchasing power, and similar factors, and also more intense price competition among drug manufacturers. In nearly all countries surveyed in this study, a formulary of one type or another is used to improve rational prescribing, insure drug quality, and control costs. In most, but not all cases, there are provi- sions for prescribing an unlisted drug when this is clinically indicated. The drug lists of Norway, Sweden, and Denmark are structured to provide only essential drugs for serious diseases. In France, Great Britain, and West Germany, formularies are essentially unlimited, and in the last two countries are noncompulsory; all three of these coun- tries, however, are currently considering the use of more restrictive formularies. In Australia and New Zealand, and in several European countries, formularies have proved to be highly effective in controlling costs. The Australian Government, for example, has no authority to set prices for drugs but uses inclusion in the formulary as an indirect means of price control—that is, if the price is considered too high in relation to its therapeutic advantages by a committee of medical advisers, a drug may not be included in the list. New Zealand nego- tiates prices, but will pay only at the level established for an acceptable chemical equivalent where one is available. Most of the countries have either established maximum retail prices or negotiated price agree- ments with manufacturers. Compulsory licensing of patents is provided by law in most of the countries, but the law is seldom invoked. It may be used if the manu- ''38 facturer of an “essential” or “necessary” drug refuses to reduce its price to what the health program considers to be a reasonable level. With the exception of France, all countries in this group reimburse the drug vendor rather than the patient. The price paid to the vendor is usually determined on the basis of acquisition cost plus an estab- lished percentage markup, a dispensing fee, a container fee, or a combination of any of these. In the Netherlands, a capitation system is used in which the patient is required to have his prescription filled at a single pharmacy, and the pharmacist is paid a per capita fee for each patient registered with him. In several countries, drug utilization review is provided through central or local boards or committees of physicians. In New Zealand, for example, medical representatives visit physicians to discuss drugs, local prescribing patterns, and any individual prescribing habits which might seem to represent irrational prescribing. In Australia and Great Britain, these visits occur when the individual physician’s prescribing pattern appears to represent unusually high costs. Nearly all of these countries recommend or require the use of low-cost chemical equivalents where available. No significant problems with lack of clinical equivalency have been reported. Controversy over generic name prescribing in Australia, New Zealand, and most of the European countries studied by the task force has not reached the heights noted in the United States. Quality control in many of the countries is achieved by registration of all drugs sold in the country, as well as by various types of drug testing. Often a drug evaluation committee or commission composed of physicians, pharmacists, and drug industr representatives has the responsibility for determining which drugs will be registered and which tests will be imposed. Testing varies from batch analysis to complete laboratory research of the formulation and its possible side effects. Some programs call for patient participation through a fixed co- payment or percentage coinsurance. The effect of such a requirement was demonstrated in Great Britain, when the copayment requirement was abolished and program costs promptly rose substantially. From its consideration of ongoing prescription drug programs, the task force finds that a permanent mechanism is needed at the Federal level to collect, analyze and exchange information, and to provide effective coordination of drug-related activities among the agencies involved. We therefore recommend that the Federal Interdepartmental Health Policy Council should concern itself with the coordination of all ongoing Federal prescription drug purchase and reimbursement programs, e recommend that a special subcommittee of the Council should be appointed for this purpose. Drug Classification and Coding Within a few years, it may be expected that prescription drug benefits under existing public and private programs will involve several hundred million prescriptions annually. '' 39 Without a universal coding, classification, and identification sys- tem—a common language for communicating essential information— the administrative and accounting costs for processing such a volume will inflate program costs beyond acceptable limits. To find methods of coping with this problem, the task force ap- pointed ad hoc committees of experts on classification and coding which began a series of meetings in July 1967. In these conferences, criteria were established for a system under which all known pharma- ceutical Pisbasstions could be identified and desired data stored and retrieved by use of existing and planned electronic data processing techniques and equipment. Classification By July 1968, the proposed classification system was in final draft It is the result of the joint efforts of representatives of the American Medical Association, the U.S. Pharmacopeia, the National Formulary, the American Society of Hospital Pharmacists, the Drug Information Association, the National Pharmaceutical Council, the Pharmaceuti- cal Manufacturers Association, the Food and Drug Administration, the National Library of Medicine, and various universities and State agencies. Based on the vital necessity to relate cost analysis and utilization studies to how and why drugs are being used, the dlassification scheme is designed to accommodate products by categories reflecting their intended therapeutic action. This version makes it possible to place drugs in multiple settings. Final data collection will survey these settings and provide cost breakdowns and other cost analyses ac- cording to actual drug usage. Application of the classification will have obvious importance for economic administrative procedures. More significantly, it will play an important part in developing information needed for improving the quality of health care. The task force recommends that the Department of Health, Edu- cation, and Welfare, the Department of Defense, and the Veterans Administration should test the proposed drug classification system to determine the feasibility of its eventual use in all public and private drug programs. We commend those whose efforts made possible the development of the system. Drug coding In the different aspects of drug manufacturing, distribution, sales, use, utilization review, accounting, cost analysis, and other market- ing or administrative procedures, many different kinds of information may be needed. Basic to all of them, however, is information which will identity (a) the manufacturer, (b) the product, dosage form, and strength, and (c) the package size, and which also is in a form which can be transmitted, stored, and retrieved through electronic data processing systems. Logically, the identification number would be assigned for all drugs on the market, and for any new drug at the time the new drug application is approved. ''40 The number should be part of the required labeling, and ideally could be used to identify each individual tablet or capsule by print- ing techniques which are already being used by some drug manu- facturers. In addition, the number should be utilized in the coding for a proposed international adverse drug reaction reporting system which 1s now under consideration. As a result of task force studies, it appears that an appropriate code can be developed by the use of a nine-character identification system utilizing both letters and numbers. The first three numbers would identify the labeler of the product (in most cases the labeler would also be the manufacturer), the next four would identify the drug, dosage form, and strength, and the last two would identify the package size. It is believed that such an identifying system would be able to accommodate a virtually unlimited number of different drug products. The task force recommends that— (a) An appropriate identifying code number should be made part of all drug labels, package inserts, catalogs, and advertising; (6) An appropriate coding system should be developed and tested by government and industry for this purpose; (c) After consideration of the results of this test, appropriate legislation should be introduced to require coding of all drug products in interstate commerce. We commend those whose efforts are making the development of a new coding system possible. As part of its activities in this field, the task force also supported development of an experimental National Drug Code Directory, pre- pared in preliminary form by the Food and Drug Administration, to serve as a directory of essentially all prescription and over-the-counter drugs. We recommend that the drug code adopted by government and industry be utilized in the National Drug Code Directory. Utilization Review In any drug program, utilization review is a dynamic process aimed first at rational prescribing and the consequent improvement of the quality of health care, and second at minimizing needless expenditures. In many hospitals, staff committees of experts have long taken the responsibility of reviewing the records of their fellow physicians and offering such advice or taking such disciplinary action as they deemed necessary. During the past 2 years, utilization review programs have been instituted to improve the quality of medical care under the hospital program of medicare. Similar reviews are used in several American and foreign drug programs to improve the quality of drug prescribing. It ahonta be the responsibility of a program administration to institute a drug utilization review, and provide the necessary data and whatever statistical analysis may be required. '' 41 But the implementation—the establishment and improvement of guidelines, the provision for acceptable deviations, the limitation of irrational prescribing, the prevention of fraudulent practices, and other professional judgments—should be mainly the responsibility of clinicians, pharmacologists, and pharmacists who are widely respected as objective, well-informed, and appreciative of the needs of both physicians and patients, and who would work with their colleagues at the State or local level. There is an evident need for further research to develop and test various approaches to effective utilization review—-approaches which would be most acceptable to physicians, pharmacists, consumers and others, and which would obtain their effective support. The task force therefore recommends that the National Center for Health Services Research and Development, in cooperation with State and local medical groups, community pharmacies, hospitals, and consumer groups, should support pilot research projects on pre- scription drug utilization review methods. O ''DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE WASHINGTON, D.C. 20201 OFFICIAL. BUSINESS POSTAGE AND FEES PAID U.S. DEPARTMENT OF H.E.W. ''€0246954810 ''''