FTC Staff Comment to the Hon. Nicholas A. Spano Concerning New York S.B. 3094-A to Prohibit, With Certain Exceptions, the Dispensing of More Than a 72-Hour Supply of Prescription Drugs by Physicians and Dentists

V880001
~
Federal Trade Commission 	V---- 	f---
Office of the Regional Director
26 Federal Plaza, 22nd FI.
New York, New York 10278
(212) 264-1200 	June 	2, 	1989
Senator Nicholas 	A. 	Spano
New York State 	Senate
Room 	817, 	Legislative 	Office 	Building
Albany, 	New 	York 	12247
Dear Senator 	Spano:
The 	staffs 	of 	the 	New York Regional 	Office 	and 	the 	Bureau 	of
competition 	of 	the 	Federal 	Trade 	Commission 	are 	pleased 	to
respond 	to 	your 	request 	for 	our 	views 	on 	Senate 	Bill 	No. 	3094-A,
which 	would 	prohibit, 	with 	certain 	exceptions, 	the 	dispensing 	of
more 	than 	a 	72-hour 	supply 	of 	prescription 	drugs 	by 	physicians
and 	dentists. 1 	We 	believe 	that 	this 	restriction 	may 	be 	harmful
to 	consumers.
We 	do 	not 	endorse 	physician 2 	dispensing 	as 	preferable 	to
pharmacist 	dispensing. 	Rather, 	we 	support 	consumer 	choice 	among
qualified 	providers 	of 	medications. 	Physician 	dispensing
maximizes 	consumers' 	options 	in 	the 	purchasing 	of medications 	and
we 	believe 	it 	may 	increase 	competition 	among 	physicians 	and
between 	physicians 	and 	pharmacists, 	and 	lead 	to 	lower 	prices 	and
better 	services.
The 	dispensing 	of 	medication 	by 	physicians 	is 	a 	traditional
part 	of 	medical 	practice 	that 	was 	once 	quite 	common3 	and 	is
currently 	authorized 	in 	all 	but 	a 	few 	states. 	Some 	consumers may
value 	the 	option 	of 	Obtaining 	medicine 	prescribed 	by 	their
1 	These 	comments 	are 	the 	views 	of 	the 	staffs 	of 	the 	New
York Regional 	Office 	and 	the 	Bureau 	of 	Competition 	of 	the 	Federal
Trade 	Commission. 	They 	are 	not 	necessarily 	the 	views 	of 	the
Commission 	or 	of 	any 	individual 	Commissioner.
2 	For 	the 	sake 	of 	simplicity, 	we 	refer 	only 	to 	physicians
in 	the 	remainder 	of 	this 	letter, 	although 	the 	bill 	and 	the 	points
raised 	apply 	equally 	to 	both 	physicians 	and 	dentists.
3 	See, 	e.g., 	26 	& 29 	Modern 	Medicine 	Topics 	(May 	1963 	and
Jan. 	1968).

Senator Nicholas 	A. 	Spano 	2
physician 	without 	having 	to 	make 	a 	separate 	trip 	to 	a 	pharmacy.4
Indeed, 	the 	same 	patient 	may 	have 	different 	preferences 	at
different 	times. 	A 	parent 	with 	a 	two-year-old 	child 	sUffering
the 	pain 	of 	an 	ear 	infection 	may 	desire 	one-stop 	shopping,
whereas 	the 	same 	parent 	may 	prefer 	to 	get 	prescription 	vitamins
for 	the 	child 	at 	a 	pharmacy. 	There 	are 	increasing 	numbers 	of
group 	medical 	practices 	and 	walk-in 	clinics 	that, 	in 	response 	to
consumer 	demand, 	are 	providing 	additional 	options 	and
convenience, 	and 	this 	trend 	is 	generating 	increased 	competition
in 	the 	sale 	of 	prescription 	drugs. 6
Senate 	Bill 	3094-A, 	if 	enacted, 	will 	prohibit 	physicians
from 	dispensing 	more 	than 	a/2-hour 	supply 	of 	any 	prescription
drug, 	unless 	the 	physician 	dispenses 	the 	drugs 	for 	free 	or 	is
located 	beyond 	a 	10-mile 	radius 	from 	a 	registered 	pharmacy. 7
These 	proposed 	limitations 	on 	physician 	dispensing 	may 	diminish
competition 	from 	physicians 	in 	the market 	for 	prescription drugs.
The 	memorandum 	accompanying 	the 	original 	draft 	of 	the 	bill
acknowledges 	that 	physicians 	customarily 	have 	dispensed
medications 	as 	a 	courtesy 	to 	their 	patients, 	but 	states 	that 	a
separation 	of 	responsibilities 	has 	traditionally 	existed 	between
physicians 	and 	pharmacists 	with 	respect 	to 	prescribing 	and
dispensing 	pharmaceutical 	medicines: 	"[P]hysicians 	are 	expert 	at
diagnosing 	and 	prescribing 	the 	need 	for 	such 	medicine, 	while
pharmacists 	are 	trained 	to 	dispense 	the 	medicine 	and 	describe 	to
the 	pUblic 	the 	rational 	use 	thereof." 	The 	memorandum 	asserts
that 	marketing 	efforts 	by drug 	repackaging 	companies may 	increase
the 	practice 	of 	physician 	"dispensing-for-profit" 	to 	the 	point 	of
jeopardizing the 	practice 	of 	pharmacy.
4 	In 	a 	recent 	survey 	of 	consumers, 	fifty-six 	percent 	of
those 	favoring 	physician 	dispensing 	cited 	convenience 	as 	a
reason. 	Glaser, 	The 	People's 	Choice, 	Drug 	Topics, 	March 	7, 	1988,
at 	47.
5 	Pediatricians 	and 	family 	practitioners 	are 	most
frequently 	involved 	in 	physician 	dispensing. 	Id.
6 	The 	drug 	repackaging 	business 	quadrupled 	in 	size 	between
1985 	and 	1988 	principally 	because 	of 	an 	increase 	in 	direct
physician 	dispensing. 	Medicine 	& Health 	(May 	1, 	1989).
7 	Prescribers 	practicing 	in 	hospitals, 	as 	defined 	in 	the
pUblic 	health 	law, 	and veterinarians 	are 	exempted 	from 	the 	bill's
coverage.

Senator Nicholas 	A. 	Spano 	3
The 	tradition 	of 	physician dispensing 	should not 	represent 	a
threat 	to 	the 	practice 	of 	pharmacy 	unless 	physicians 	offer
consumers 	a 	sUfficiently 	attractive 	combination 	of 	price 	and
service 	to 	draw 	their 	business 	away 	from 	pharmacies. 	To 	the
extent 	this 	occurs, 	consumers' 	interests 	would 	appear 	to 	be
well-served. 	We 	do 	not 	believe 	that 	a 	desire 	to 	protect 	a 	class
of 	competitors 	from 	the 	rigors 	of 	competition 	is 	an 	adequate
basis 	to 	enact 	this 	legislation.
The 	memorandum 	accompanying 	the 	original 	draft 	of 	the 	bill
also 	cites 	a 	perceived 	potential 	conflict 	of 	interest 	for
dispensing 	physicians, 	~, 	that 	physicians 	who 	dispense 	for
profit 	may 	be 	led 	by 	thei-r 	own 	financial 	interests 	to 	harm
patients 	by 	overprescribing 	or 	prescribing 	inappropriately.
This, 	of 	course, 	is 	the 	same 	issue 	that 	arises 	whenever 	a
practi tioner 	orders 	any 	medical 	procedure 	he 	provides 	himsel f ,
inclUding 	lab 	work, 	diagnostic 	imaging, 	or 	even 	follow-up
visits. 8 	Indeed, 	pharmacists 	face 	this 	potential 	conflict 	when
they 	recommend vitamins 	or 	non-prescription drugs.
Although 	this 	potential 	conflict 	may 	arise 	whenever 	a
physician 	both 	recommends 	and 	provides 	a 	service, 	consumers 	may
not 	obtain 	net 	benefits 	from 	the 	prohibition 	of 	an 	entire
category 	of 	transactions. 	Such 	a 	prohibition 	could 	increase 	the
costs 	incurred 	by 	consumers, 	especially 	the 	cost 	of 	lost
convenience. 	Before 	enacting 	Senate 	Bill 	3094-A, 	the 	Senate 	may
wish 	to 	consider 	whether 	the 	risk 	of 	potential 	overprescribing
requires 	that 	consumers 	forego 	the 	benefits 	of 	increased
convenience 	and 	possibly 	increased 	competition. 9
We 	support 	efforts 	to 	ensure 	that 	both 	physicians 	and
pharmacists 	adhere 	to 	health 	and 	safety 	regUlations 	that 	have 	a
net 	positive 	effect. 	For 	example, 	some may 	argue 	that 	physicians
8 	It 	is 	useful 	to 	note 	that 	private 	health 	insurance
companies, 	important market 	actors 	with 	strong 	incentives 	to 	keep
costs 	low 	and 	avoid 	inappropriate 	prescribing, 	generally
reimburse 	physicians 	on 	the 	same 	basis 	as 	pharmacies. 	They do 	not
ban 	physician 	dispensing 	or 	discriminate 	against 	it. 	See 	Letter
from 	Elizabeth 	C. 	Rothberg, 	Health 	Insurance 	Association 	of
Amer ica, 	to 	Al ison 	Masson, 	Federal 	Trade 	Commiss ion 	(June 	8,
1988) 	(report 	on 	a 	recent 	survey 	of 	insurers 	by 	the 	Health
Insurance Association 	of America) 	attached 	hereto.
9 	In 	weighing 	the
dispensing, 	it 	should
overprescribing may 	already
could 	discipline 	physicians
benefits 	of 	prohibiting 	physician
be 	noted 	that 	remedies 	against
exist. 	For 	example, 	licensing boards
who 	prescribe 	inappropriately.

Senator Nicholas 	A. 	Spano 	4
who 	dispense 	drugs 	should 	be 	sUbject 	to 	the 	same 	sanitation,
recordkeeping, 	and 	other 	requirements 	that 	apply 	to 	pharmacists.
To 	the 	extent 	that 	such 	regulations 	are 	cost-effective 	and
reasonably 	related 	to 	pUblic 	health 	and 	safety, 	their 	imposition
may 	advance 	pUblic welfare 	without 	limiting 	consumer 	choice 	among
qualified 	providers 	of 	prescription drugs.
In 	sum, 	dispensing 	of 	prescription 	drugs 	by 	physicians
increases 	consumers' 	abilities 	to 	choose 	among 	qualified
providers 	of 	pharmaceutical 	services. 	The 	option 	not 	to 	make 	a
separate 	trip 	to 	a 	pharmacy 	may 	be 	important 	to 	some 	consumers.
The 	resulting 	competition 	among 	practitioners, 	and 	between
practi tioners 	and 	pharmacists, 	may 	result 	in 	lower 	prices 	and
improved 	services.
Sincerely,
Michael 	Joel 	Bloom
Regional 	Director
Attachment

HI1\A.	...
June 	8, 	1988
Ms. 	Alison Ma•• on
Economist
Federal 	Trade 	Commission
Room 	S-5628
Washington, 	OC 	20580
Oear Ms. 	Mas.on:
We discussed 	several 	months 	ago 	insurer's 	reimbursement
practices 	regarding prescription drugs 	dispensed 	and 	sold 	by
physicians.
I 	posed 	this 	question 	to 	Health 	Insurance Association 	of
America 	(HIAA) 	member companies 	represented 	on 	the
Pharmaceutical 	Relations 	Subcommittee. 	The Subcommittee
represents 	a 	small 	sample 	of 	large 	and 	medium-size member
companies. 	Members 	were 	asked 	to 	address 	the 	issue 	as 	it
affects 	various 	prescription druq 	payment modes 	including:
Major Medical/comprehensive, 	card 	Plans 	with 	Participating
Providers, 	Preferred 	Provider Arrangements 	and 	Health
Maintenance 	Organizations.
Responses 	are 	summarized below:
1) 	Major He4ioal/Compr.h.n,iy.: 	The 	majority 	or
respondents 	indicated 	that 	drugs 	sold 	by
physicians 	are 	reimbursed 	on 	the 	same 	basis 	as
those 	sold by pharmacies 	provided 	the 	charges 	are
made 	by 	a 	legally 	qualified 	physician 	for 	drugs
and medicine, 	which by 	law 	require 	a 	physician's
prescription.
2) 	Car~ 	Plan With 	participating 	Provid.rs: 	Most
respondents 	with prescription 	druq 	card proqrams
contract with 	third 	party 	intermediaries, 	such 	as
pes 	and 	PAID, 	for 	administrative 	services 	(i.e.
claims 	processing, 	negotiations 	with
pharmacies). 	Most 	card 	plans 	~o not 	enroll

J.
".
".
...•or. MasSOn	,.. - .6.. 	~
\
~~,6'-i8ns in p~rticipatin9 provider networks 	for
;"va;i.ty of 	reasons, 	the most 	prevalent 	being
tha: 	physicians 	d? 	not 	.erve 	the 	general 	public
as 	=.tail 	pharmaC1.s 	do.
s.v.ral 	respondents 	not 	u.ing 	third party
int.rmediaries 	indicat.d that 	their 	card 	programs
currently do 	not 	restrict physicians 	from
participating 	in provider networks, 	if 	they 	sell
pre.cription druqs.
rr.t,rr.4 	p;oyit.t Arrapqll.nt,; 	Most
pr.ferred provider 	arrangem.nts 	entail 	a
negotiation of 	special 	rat •• 	with 	a 	few
pharmacies. 	In 	ordeF-~ pay a 	lower negotiated
rat. 	tor pre.cription drugs, 	enrollees 	must 	use
the 	selected pharmacies. 	In most 	case~, 	if 	a
physician 	is 	not 	a 	pr.f.rr.d 	provider, 	payment
would be made .qual 	to 	the Major
M.dical/Comprehensive 	plan.
'.alth Maintenanoe Qrganilation.1 	In .taff
mod.l 	HMOs, 	with pharmacies 	on site, 	physician
dispensed drugs 	are 	not 	r.imbursed. 	In 	IPA model
HMo., 	participants 	are 	generally 	.ent to
pharmacies participating 	in 	pr.t.rred 	provid.r
arrangements.
Page 	2
Finally, 	insurers 	w.r. 	asked, 	tor 	paym.nt under Major
Medical/Comprehensive, 	wheth.r 	records 	differentiate 	based 	on
plac. 	ot 	purcha •• 	(i .•. , 	pharmacy 	or physician). 	Th. 	majority
ot 	r ••pondents 	said that 	record. 	do 	not 	differentiate 	for
pharmacies 	or physicians. 	However, 	some 	respond.nts 	indicated
that 	their 	claim system 	either differentiates 	now 	or 	is 	being
enhanced 	to 	distinquish 	plac. 	ot 	.ervice 	for 	all 	treatments.
Th. above 	responses 	reflect 	generally how 	insurers 	are
handling 	reimbursement 	ot 	physician dispensed 	and 	sold
pr.scription 	drugs. 	I 	must 	emphasize 	that 	the 	above 	findings
reflect 	a small 	sample, 	so 	in no 	way 	should 	be 	construed 	to
r.present 	all 	HIAA member 	companies. 	I 	would be 	glad 	to
r •• pond to 	questions 	you may have. 	I 	can be 	reached 	at
223-7838.
sincerely,
.. Rothberg ..
!CR:atp