PHYSICIAN DRUG DISPENSING 
AN OVERVIEW OF STATE REGULATION 
SiRYIC,-S. 
f! 
lrt,U(J 
OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
MAY 1989  OFFICE OF INSPECTOR GENERAL 
The mission of the Offce of Inspector General (OIG) is to promote the effciency, effective
ness, and integrty of programs in the United States Deparent of Health and Human Ser
vices (HS). It does this by developing methods to detect and prevent fraud, waste, and 
abuse. Created by statute in 1976, the Inspector General keeps both the Secreta and the Con
gress fully and curently informed about programs or management problems and recommends 
corrective action. The OIG performs its mission by conducting audits, investigations, and in
spections with approximately 1,200 staf strategicaly located around the countr. 
OFFICE OF ANALYSIS AND INSPECTIONS 
This report is produced by the Office of Analysis and Inspections (OAI), one of the thee 
major offices within the OIG. The other two ar the Office of Audit and the Office of Inves
tigations. OAI conducts inspections which are typically short-term studies designed to deter-
mine progr effectiveness, effciency, and vulnerability to frud or abuse. 
This report, entitled "Physician Drug Dispensing: An Overview of State Regulation " offers 
an exploration of State approaches to regulating physician 
drg dispensing. 
The study was cared out under the direction of Mark R. Yessian, Ph.D., Regional Inspector 
General, Offce of Analysis and Inspections, Boston Region. Paricipating in the project were 
the following people: 
Boston Region
 Headquarters 
Martha B. Kvaal (Project Leader)
 Alan S. Levine 
Joyce M. Greenleaf

Christine N. Olson

Lauren A. Smith 
Eleanor M. Ellis

Lisa A. Padova

Daniel R. SimmonsnOffce of Audit
 PHYSICIAN DRUG DISPENSING 
AN OVERVIEW OF STATE REGULATION 
RICHARD P. KUSSEROW 
INSPECTOR GENERAL 
OAI-01-88-00590 
MAY 1989  g..  \\'
AK- AZ  R'.  SII  In'  IVA 
SITUATIONAL RESTRICTIO;\S 
PhYSIcian disping is 
p::muu. only when. 
a. SiD.aon is an em	 c.c 
LO mce th immcte
ne of 
th paaJL 
b. Ptacy soiccs an 
nO( 
ar'aei.a bslep (ief.te dita. 
ph:cy dos)

II.	 REQUIREMENT FOR DISPE:"SING
PRI\LEGE 
mll 
Dispsing physicia 
have 3pproval or 

polullcens ira or muiit 
n=gisu: wiLh a Swe agency 
d. Dispsing J)oynsi cia mUS

mc. ed  rewr'Tc="ItS 
m. COST .& PRICING REQL1RDIE 
e. Prscpcon chagersr m usr t
!i.l::d 5e()telv  oifc: 
';Sit ::h:ges 00 IXtI m bill 
r. PrscDDon ches or mniLS 
retrcit 
3r prhibitO 
. PATIENTCHOICE 
g. Writt 
prvided to paO1tS 
advi of 
h. P;uients mus be 
cchilc.e. 1.0.  fi
po 
Drg prce mus be 
quot up reue
PROCEDURL REQUIDfE 
ption drgs d1  ns by 
phYSK:J. ;m subject to: 
Labelling rcwrnLS 
L Record k:eeing ro  ..nC1ts 
ror 3.1 legend drgs 
Storge  n:uic:ts 
m. Seurty dn:uUiClts for 
drg IMemory 
n. Persna 
supesi by dinsg
j))'Sicia 
o. DispnsaLion is limj	 d 1. a 
'SlCia' S own  paans 
n OrnER REQUIREME

(s. Appenf II) 
NOli: ReOccLS Sw. regution in c:fc:t as of 8/1188. and e:acludes

Fera reuirentS ior comrollc. subs:es and child-resitat I 
Do not reOe reent stJD.tO ch.gc: in MD an V A which az 
prulga oi 
aWdJang  n:gulLions prOf to implemetaon. 
. A5 of 8/1/88 thes Swc do not regul. physicia dispng. 
So: Swc regulafa boagenie as repo 
Pn  10 OIG
by: DHHIOIGIOAI Region I  /II8S  EXECUTIVE SUMMARY 
PURPOSE 
The purose of this inspetion was to promote a better understandig of State regulation of
physician drg dispensing. It focused primarly on determning the extent and 
tye of State-
regulation, and on exploring the effectiveness of State approaches to the practice and the out-
look for the futue. 
BACKGROUND 
This inspection grew out of the Inspector General' s interest in fuer understadig the issues 
surounding the growing practice of physician dispensing. It is based on thee 
lies of in
quir: (1) telephone discussions with representatives of State regulatory agencies, primary
the boards of medicine and pharacy, (2) a review of the literatue, and (3) discussions with 
representatives from national organizations and varous Federal agencies. 
FINDINGS 
The Incidence Of Physician Dispensing Across The Countr Is Relatively Low But Seems 
To Be Growing. 
Three-fours of 
those regulatory offcials offering an estimate believe that 5 percent or 
less of the physicians in their States are dispensing for profit. 
Half of all respondents thought the practice has been increasing in their States, and most 
expected this growth to continue. 
The States Have Imposed Various Types Of Requirements To Regulate Dispensing By 
Physicians. 
Nearly all States have some type of regulation governing the dispensing of 
drgs by
physicians. 
Among the States, there are five major types of regulatory requirements governing 
dispensing by physicians. These include requirements that: (1) 
permt dispensing only 
in limted situations, (2) enable State agencies to identify dispensing physicians
, (3)
limit profits on drgs dispensed by physicians 
, (4) protect freeom of choice for 
consumers, and (5) impose procedural controls such as labeling and record keeping.  Overall, State Requirements Regulating Dispensing By Physicians Are Much Less 
Extensive Than Those Regulating Phannacists And Have Minimal Impact On The Practice. 
States have extensive regulation governing the dispensing of prescription 
drgs by
pharacists. 
In a majority of States, the regulation governing the dispensing of prescrption drgsois,:
much less restrctive for physicians than for pharcists. 
The thst of recent State regulatory activity has been to strengthen controls over 
dispensing by physicians rather than to prohibit the practice. 
A large majority ofrespondents considered the enforcement of their States 
requirements for physician dispensing as being no more than moderately effective. 
A varety of constraints, especially limted resources and frgmented regulatory 
responsibilties, have hampered States ' efforts to enforce their regulatory requirments 
for physician dispensing. 
Considerable Support Exists Among State Regulatory Offcials For Further Regulation Of 
Dispensing By Physicians. 
Two-thirds of all respondents thought it very important for physician dispensing to be 
regulated in their States. 
Nearly two-thirds of regulatory board/agency officials contacted reported complaints on 
physician dispensing during the last 2-3 years. Complaints were reported by at least one 
board/agency offcial from three-fourths of all States, including those with and without 
regulation. 
Many respondents from States with regulation thought stronger 
requirments were 
needed. 
Nearly half of all respondents thought Federal action addressing the practice of 
physician dispensing was not necessar; a third favored it, and nearly 10 percent 
thought it might be needed.  RECOMMENDATIONS 
The State Governments 
STATE GOVERNMENTS SHOULD TAK INmATIES TO PROMOTE 
STRONGER, MORE EFFCTIVE REGULATION OF PHYSICIAN DISPENSING. -
Effective regulation of drg dispensing is important to protect the public and to ensur ac- . . . 
countabilty in the drg distrbution system. States have extensively regulated dispensing by 
pharacists, but most have minima reuirments gove  ing physician dispensing. States, at 
the very least, should adopt a basic thshold of regulation for dispensing physicians which in
cl udes: 
procedural requirments such as labeling, record keeping, and supervision which are 
similar to those applicable to pharacists; 
registration requirements so States can identiy physicians who are actually dispens
ing; and 
requirements which protect freedom of choice for patients to buy their prescrptions 
from either their physician or their pharacist. 
STATE GOVERNMENTS SHOULD TAKE STEPS TO STRNGTHN THIR 
ENFORCEMENT OF REGULATION GOVERNING PHYSICIAN DISPENSING. 
Effective regulation of physician dispensing is hindered by constraints on States 
' efforts to c;n 
force curent requirements. These efforts could be strengthened by such actions as providing 
more resources to State regulatory agencies and by defining more clearly the authority and 
responsibilities of these agencies, including their ability to inspect routinely the offces of dis
pensing physicians. 
The National Associations 
TH FEDERATION OF STATE MEDICAL BOARDS AND TH NATIONAL 
ASSOCIATION OF BOARDS OF PHARMCY SHOULD WORK TOGETHR IN 
HELPING STATES TO PROMOTE STRONGER, MORE EFFCTIV 
REGULATION GOVERNING PHYSICIAN DISPENSING. 
These associations can provide furher leadership to State boards by addressing jointly the 
respective authorities and responsibilities for regulation of physician 
drg dispensing which af
fect both the professions of medcine and pharacy.  ,._

COMMENTS 
The Assistat Secreta for Planning and Evaluation, the Health Care Financing Admistra
tion, and the Public Health Servce (PHS) were al in genera agrment with our recommenda
tion that the States should contiue to assume primar responsibilty for regulatig physician
drg  disagr 
dispensing. The PHS , however,  with our reommendation for stronger, more 
effective regulatin. Other comments from these agencies, as well as coments from othez. 
agencies outside the Deparent and from national organizations, reflect a range of opinion 
pro and con, about our findigs and reommendations. A summar of these comments and 
our response to genera issues rased appear at the end of the report. 
Detaed comments and 
our responses to them appear in appendix 1.  . . . . . . . ..  ..  ..  ..  ...   ...   ....    ....    .....     .....     .....     .....     .....     .....     .....
. ..  ..  ..  ..  ..  ..  ..  ..  ..  ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ....    ....    ....    ....    ....    ....    ....    ....    ....    ....    ....    ....    ....    ...   ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..
TABLE OF CONTENTS 
EXECUTIVE SUMMARY 
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
FINDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
The incidence of physician dispensing across the country is relatively 
low but seems to be growing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
The States have imposed various types of requirements to regulate 
dispensing by physicians. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Overall , State requirements regulating dispensing by physicians are 
much less extensive than those regulating pharmacists and have 
minimal impact on the practice. 

Considerable support exists among State regulatory officials for further 
regulation of dispensing by physicians. . . . . . . 
RECOMMENDATIONS............................................. .

COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 19 
APPENDIX I 
Detailed Comments on the Draft Report and OIG Response to the 
Comments. . . . . . . 
APPENDIX 
Methodologica Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . .44 
APPENDIX II 
Other Regulatory Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . .48 
APPENDIX IV 
Endnotes. . . . . . .  . . . . . . . . . . . . 49  INTRODUCTION 
This inspection grew out of the Inspector General' s interest in gaing a better understadig 
of the issues involved in the curent contrversy surounding the practice of physicians dis 
pensing drgs.

Physicians have always dispensed drgs to some degree as par of the practice-of medcine: 
However, ths practice has attrcted more attention of late because increasing numbers of 
physicians ar dispensing, often at a profit, the drgs they prescrbe for their patients. The 
practice has grown as the nation s health system has become incrasingly competitive and 
cost-conscious, and has been encourged by the drg repackagig industr which has emerged
durg the early to mid-1980s. Drg repackagers buy and then repackage commonly 
prescrbed drgs into 
convenient, unit-of-use sizes ready for physicians to sell diectly to 
patients. They have sought to capitalize on the increasingly competitive health 
car environ
ment by encouraging physicians to dispense the drgs they prescribe. Repackagers have cited 
advantages of convenience to patients and improved quality of patient car from offce-based 
dispensing, but some of them have promoted dispensing to physicians as a highly lucrative 
source of additional income. 
No one knows for certain the magnitude of the revenues being realized by physicians as a 
result of drg dispensing, but industr spokespersons and some financial analysts predict 
dramatic growth in the industr. Revenues realzed by repackagers may incrase frm an es 
timated $25 millon last year to as much as $400 millon to $500 million by 1990 and possibly 
as much as $2 bilion within 5 to 7 years 
The prospect of increasing numbers of physicians routiely dispensing drgs for profit has 
captured the attention of pharacy, consumer, and medical groups as well as the State and 
Federa Govemments. Heated debate about the practice is being waged at both the State and 
national levels over a complex varety of ethical, economic, public health, and regulatory is-
3 Is it a conflct of interest for physicians to sell 
sues related to the practice. the prescription 
drgs they prescribe? Is the quality of patient car enhanced or hared by physician dispens
ing? Does the practice promote or restrain competition? Wil consumers pay more or less for 
prescriptions dispensed by physicians? What kind of regulation of the practice is waranted 
and should regulation occur at the State or Federal level? 
The Federa Government has become more involved with this issue in recent years. Staf 
from the Federal Trade Commission  (FTC)  have sought to discourage the States frm prohibit 
ing or unreasonably restrcting physician dispensing of prescription 
drgs. They have sug
gested that dispensing by physicians enhances competition in the prescription 
drg market and 
may lead to lower prices and better services. On the other hand, the U.S. Congress has been 
moving in a different direction with respect to physician drg dispensing. In the last session 
it considered legislation to prohibit licensed practitioners from dispensing drgs for profit ex
cept in special situations. This bil, which would have amended the Federal 
Foo, Drug, and 
Cosmetic Act admnistered by the FDA, attracted widespread attention from Federal agencies 
and medical, pharacy, and consumer groups.  . .
ar lited priary 
Prsent Federal requirments affectig dispensing by physicians  to con-
trolled substances, the labelig and packaging of drgs, and the distrbution of 
drg samples. 
Under the terms of legislation admstere by the Drg Enforcement Admstration of the 
Deparent of Justice, those who dispense controlled substaces 
ar subject to registration 
cert 
record-keeping, securty!mventory, and  labelig and packagig reuiments.. In addi
tion, prescription drgs dispensed by physicians as well as by pharacists ar subject toth 
child-resistant packagig reuiments contaned in the Poison Prvention Packagig Act of 
1970 admnistere by the U.S. Consumer Pruct Safety Commssion. The Federa Foo, 
Drg, and Cosmetic Act contans labelig and packaging requiments for prescrption drgs, 
and reent amendments to the Act prohibit the sale of drg samples and impose other requir
ments involving physicians on the distrbution of samples. 
Other than the requirments of the Federa Foo, Drug, and Cosmetic Act, the dispensing of 
drgs by physicians has attrcted little attention from the Deparent of Health and Human 
Services (HS). According to offcials from the Health Care Financing Admnistration 
(HCFA), the agency has taken no position on the practice of physician dispensing in its most 
recent guidelies to the States for the Medcaid progr, although some States reimbure 
physicians for the drgs they dispense to Medicaid recipients. Since we began our study last 
winter, the Congress enacted the Medcare Catastrophic Coverage Act of 1988. According to 
congressional and HCFA staf with whom we spoke, physicians as well as 
pharacists can par 
ticipate in the new outpatient prescription drg progr provided they meet and/or agree to 
the criteria specified in the Act. 
Over the years, however, the State govemments, rather than the Federal Government, have 
played the major role in regulating the dispensing of prescription drgs by both physicians and
priar 
pharacists. Pharacists are the  dispensers of prescrption drgs in this countr. As 
such , the profession is guided by national stadards of practice, and the practice of pharacy 
has been highly regulated by the States in order to protect the public and to assure account-
ability for the distrbution of drgs. 
Comprehensive information about the States ' regulatory approaches to the dispensing of 
prescription drgs by physicians has not been readily available. Yet better understanding of 
these approaches is important to Deparent policymakers as they consider the signifcance of 
physician drg dispensing for its programs. Accordngly, we conducted this inspection to ex
amne State approaches to regulating the dispensing of prescription drgs by physicians. (In 
this inquir, we were primarly interested in State regulation applicable to dispensing in 
amounts larger than samples or starer dosages.) We were parcularly interested in the extent 
of regulation among the States, the natue of the regulatory requirments imposed, and percep
tions from State regulatory officials about the effectiveness of States ' requirments and enfor
cement effort. 
We gathered information through: (1) telephone discussions with the stafs of boards and 
agencies involved in regulating physician dispensing (primarly the medical boards and the
pharcy 
boards), in all 50 States and the Distrct of Columbia; (2) a review of the literature 
includig congressional hearngs, studies and analyses , arcles from the popular media and  professional jourals, and publications and papers from varous private and public organiza
tions; and (3) discussions with the sta of national organizations includig the American 
Medcal Association, American Pharaceutical Association, Competitive Health Car Coali
tion (representig drg repackaging companies), Federation of State Medcal Boards, National 
Association of Boards of Pharacy, National Association of Chain Drg Stores, NARD 
(formerly National Association of Retal Drggists) and frm other. Federa agencies includng 
Deparnt 
FDA and HCFA within the  as well as with the Fedral Trade Comssion, Drg;,
Enforcement Admnistration of the Deparent of Justice, and the U.S. Congress. (For more . 
information on our methodology, see appendix IT. 
This report presents our findings relate to State regulation governing the dispensing by 
physicians of prescription 
drgs in amounts greater than samples. It begins with an overview
of estimates of the incidence of physician dispensing, the extent of regulation among the 
States and the types of regulatory requirments they impose. It then turns to a consideration 
of the effectiveness of these regulatory efforts and of the outlook for 
furer government 
regulation of this practice. It concludes with our recommendations for action addressed to 
State governments and to the national organizations representing the State boards of medcine 
and pharacy.  FINDINGS 
The Incidence Of Physician Dispensing Across The Countr Is Relatvely Low But Seems 
To Be Growing. 
Thr-
fours of 
those regulatory offcials offerig an estiate thought that 5 percent or 
less of the physicians in their States are dispensing for profit. 
There is considerable uncertty about the incidence of physicians who ar dispensing for. .
profit across the countr. Estimates most fruently appearg in the meda are that

5 percent of physicians ar dispensing for profit. 6 In an effort to determe the incidence
more preisely, we asked regulatory offcials about the proporton of physicians dispensing for

profit in their States.

Of those regulatory board/agency officials offering an opinion, the-
fourhs thought that no 
more than 5 percent of the physicians in their States are dispensing for profit. In fact, a third 
gave the figure of less than 1 percent. Only 15 percem of these officials thought the 
prevalence of dispensing for profit is greater than 10 percent in their States. 
On the other hand, nearly half the offcials with whom we spoke would not estimate the 
proportion of physicians dispensing for profit in their States. Even respondents from the 13 
States with requirements for registrtion were sometimes 
uncertai about the prevalence of the 
practice because their registration reuirments do not distinguish between those physicians 
who register thinng they might dispense and those who actualy do dispense, nor do they dis 
tinguish among those who dispense for profit, at cost, or without charge. Moreover, none of 
the officials was aware of any analyses or surveys related to the incidence of the practice in -. 
their States. 
Half of the respondents thought the practice has been increasing in their States
, and 
most of them expected this growth to continue. 
Neverteless, despite the uncertnty about the exact number of dispensing physicians, half of 
all the offcials with whom we spoke thought the number of physicians dispensing for profit in 
their States has been increasing durng the last 2 or 3 years. This opinion was offered by at 
least one respondent from nearly the-fours of the States. Nearly the-
fourts of these off
cials expected this growth to cominue in the futur. They offered as reasons economic pres 
sures facing physicians practicing in an increasingly competitive environment and the 
aggressive marketing efforts of the 
drg repackaging companies. 
The States Have Imposed Various Types Of Requirements To Regulate Dispensing By 
Physicians. 
Nearly all States have some type of regulation governing the dispensing of 
drgs by 
physicians.  "".
Forty-five States, including the Disnict of Columbia, report 
having some tye of reguation 
governing the practice of physicians dispensing drgs from their offces. Only six States 
reported no regulation governing the dispensing of both controlled and non-contrlled drgs. 
Although most States began regulating physician dispensing a number of years ago, their 
regulatory activity has increased considerably within the past 2 or 3 year. Durg th$ tie,,,
over half the States have considere regulatory changes. Twelve States have institutedregula 
tion for the fist time, and eight States have modfied existing reuirments. In nie States, . 
proposed changes are currntly awaitig action by legislaturs, regulatory boards, or the 
cour. 
The States have regulated physician dispensing primarly to safeguard the health of the public. 
Respondents to our inquires mentioned public health concerns 
alost twce as often as any 
other reason for their States having  figu I). 
institute regulation originaly (see 
FIGURE I 
MAJOR REASONS FOR STATE REGULATION OF 
PHYSICIAN DISPENSING , AS PERCEIVED BY 
STATE REGULATORY OFFICIALS 
"'...nlag  ol...po,,".nll 
l.nR  .uONR 
.Prollotthlpubllo 
Corf8ot'bu'el 
1m Pf8lnt abu... 
E3 Mldlclne n phumaoy 
mT Interlit groupe 
DConllotollnl1r..t 
".fo,....on. 
i.1..:p io:r1 8ds rIlIt 8ti l' 1QlIUUlil,tgry 0110:111..
N."".,IOIOI"II. 
Other factors included problems and abuses associated with physician dispensing such as drg
diversion and improper labeling. Some States regulated the practice on the premise that dis
pensing by physicians constitutes a conflct of interest; others wante to 
preserve the trdition
al responsibilties of medicine and pharacy: physicians prescribe for patieius, and 
pharacists dispense the prescriptions. 
Recent regulatory activity in the States seems to have been 
niggere by many of these same 
concerns as well as, in some States, by uneasiness over the promotional efforts of 
drg repack-
aging companies. Although sta from the FTC have sought to discourage some States from 
prohibiting or unreasonably resnictig physician dispensing, respondents frm al but a few 
States thought that their efforts had had little, if any, effect on their States ' attitudes toward  pharcy 
regulation. State  associations and boards, more often than medcal associations and 
boards, were mentioned by respondents as having been the drving forces behind State regula
tion of the practice. 
Among the States, there are five major  governg 
tyes of regulatory requirements 
dispensing by physicians. 
The States have imposed a wide varety of regulatory requiements on physicians who 
ar dis 
pensing drgs. We have grou  ed these regulatory requirments into five major 
tyes ofregula 
tion (see figur ll) as follows: 
Type I:  SITUATIONAL RESTRICTIONS 
lited 
Regulation of this type permts dispensing by physicians only in  situations, 
such as medical emergencies or occasions when pharacy services ar unavail 
able or the physician is fillg the patient's imedate nees. Five States have re
quirments of this type. 
REQUIREMENTS FOR DISPENSING PRIVILEGE 
Type  II: 
Regulation of this type mandates that dispensing physicians identify themselves to 
lO Although 13 States have this 
State regulatory boars/agencies. 
tye ofregula 
tion , the specific Tequirments var considerably among them. Thre States re
quir the physician to receive prior approval from the medcal board or, in one 
case, to apply for a permt from the pharacy board if the dispensing wil be for 
profit or wil be more than an occasional practice. The remaining 10 States simply 
require dispensing physicians either to register with the medical boards when 
renewing their medical licenses or to register with or obtain permts from the phar
macy boards or other State agencies. Two of these States reportedy have fees as
sociated with the registration/permt reuirement. One State reuires dispensing 
physicians, in addition to registering, to complete 6 hours of continuing education 
each year to leam about their legal responsibilties and the State s regulatory re
quirments. 
COST AND PRICING REQUIREMENTS 
Type II: 
Regulation of this type limits the amount physicians may charge for the 
drgs they 
dispense. Of the seven States with this type of regulation, five prohibit physicians 
from dispensing for profit. One State permts rura physicians only to charge for 
the cost of the drgs, and one State prohibits physicians from chargig "excessive 
fees. 
The requirement that prescription charges be listed separtely from other medical 
charges on patients' bils was not reported to be par of any State s curent regula
tion of physician dispensing.  .,,,

PATIENT CHOICE 
Type IV: 
Regulation of this  protect from of 
tye includes reuirements designed to 
choice for consumers in deciding whether to purchase their prescrptions from their 
physicians or from pharacies. Four States requir physicians to provide or offer 
to provide patients with wrtten prescriptions and/orlo advise them that they CaI 
fil their prescriptions elsewhere if they wish. Two States 
reuire physicians to.
post or quote prescription prices. 
Type V:  PROCEDURAL REQUIREMENTS 
Regulation of this tye lits dispensing to the physicians ' own patients and also 
extends to dispensing physicians some of the same regulatory contrls mandate 
by the States for pharacists. Although virually all States have at least one re
quirment within this type, only about one-fourth of them mandate al or even 
most of these requirements for physicians who are dispensing. 
Most States have requirements for labeling drgs dispensed by physicians and re
quirments which specify who may legaly dispense drgs with the physician 
office. Slightly more than hal the States have record keeping reuirements and 
lit dispensing to the physician s own patients. Fewer than hal the States have re 
quirments addrssing the storage of drgs and the securty of the inventory within 
the office.
Accordig to the regulatory board/agency officials with whom we spoke, the most crucial of 
their regulatory requirements ar the procedural requirements (Type V regulation). Among 
these, respondents most frequently mentioned as especially important the labeling and record 
keeping requirments and those that authorize dispensing only by the physicians themselves 
not by other offce personnel. Manyrespondents also identified regulation requirng some 
kind of registration (Type II regulation) as critical so that boards/agencies can identify who is 
dispensing in order to monitor compliance with State regulation. 
We found, fmally, that the regulatory requirements goveming the practice are, in almost all 
States, based in statutes and/or rules (regulations) that specifically address dispensing by 
physicians or practitioners. In a majority of States, the regulation that applies to dispensing by 
physicians also applies to other practitioners, such as dentists, who are licensed to prescribe 
drgs.  Overall, Stae Requirements Regulatng Dispensing By Physicians Are Much Less 
Extensive Than Those Regulatng Pharmacists And Have Minima Impact On The Practice. 
States have extensive regulation governing the dispensing of prescription 
drgs by
pharacists. 
Through laws admnistered by the boards of pharacy, the States have imposed requiments' 
regulating the licensure and disciplie of pharacists and the practice of pharacy itself. All 
States require, as conditions of licensure, that pharacists be graduates of accredted colleges.
of pharcy, that they have practical or internship experience, and that they pass examnations 
pharcy 
given by the  boards. Most States also impose contiuing education requirments 
for relicensur of pharacists. In addition, pharacies must be registere with State phar
macy boards, and they ar subject to inspections by State authorities. Moreover, State phar 
macy laws detai a varety of reuirments goveming the practice of pharacy, includig 
availability of approved reference materials and equipment, the supervision of the dispensing 
process, as well as the labeling, record-keeping, and storage of prescription drgs. 
In a majority of States, the regulation governing the dispensing of prescription drgs is
much less restrctive for physicians than for pharacists. 
Although, as we have seen, most States have imposed varous  the dispensing
reuirments on 
of prescription drgs by physicians, overal these requirements in most States are much less 
far-reaching than those for pharacists. In virally all States, physicians are permtted to dis
pense drgs without being licensed 
as pharacists, and therefore ar not bound by most of the 
specific requirements goveming the practice of pharacy. 
Indeed, as indicated in figur II, six States reportedy imposed no regulation on dispensing by" 
physicians. Of the remaining 45 States reportng regulation of dispensing by physicians, our 
analysis suggests that over 50 percent, or 25 States, have requirements which exert only mini
mal restrctions on the practice (see figure II). In these States the regulation governing dis
pensing by physicians is limited to the procedura requirements (Type V) only. Although 
these States var in which and how many of the proedural reuirements they impose, none 
has mandated any other  order to control more tightly the 
tye ofregulatory requirment in 
practice of dispensing by physicians. Interestingly, thre of the four States with the largest 
number of practicing physicians ar among those with minimal restrctions. 
Thireen States have regulation that places moderate restrctions on physicians who dispense. 
Regulation in these States includes some or al of the procedural requirements (Type V). In 
IV). 
addition, these States impose other types of regulation which exert more control over the prac
tice, such as requirements that dispensing physicians identiy themselves to regulatory 
boards/agencies (Type II), limit fees and profits (Type II), and/or protect patient choice (Type FIGUR II
RESTRCTNESS OF 
STATE REGULATION OF PHYSICIAS DISPENSING DRUGS 
OVERVI 
A STATE-BY-STATE 
LEGEND 
EXlremely Restrctive Regution (4) II 
Bas on tys of Slate regultion reported to the OIG  Ver Restrctive Reguation (3) 
by State regutory bo/agencies.  Moerately Restrctive Regution (13) 
Mialy 
Restrctive Reguation (25) 
August 1988 No Reguation (6)  Only seven States have regulatory reuirments that signifcantly restrct the practice of 
physician dispensing. Thee of these States permt dispensing but use the registration 
requirement to limit the number of physicians engaging in the practice (Typ II. In these 
States, physicians wishing to dispense must have prior approval of the medcal or pharcy 
boards which reportedy seldom  Finally, four States have regulation that is 
grt permssion. 
lited 
extremely restrctive--they allow dispensing by physicians only in very  situations 
(Type I). The regulation process in these States is looked upon as a way to prohibit the prac 
tice. (See appendix II for a more detailed description of our tyology. 
The thst of recent State regulatory activity has been to strengten controls over 
dispensing by physicians rather than to prohibit the-practice. 
Twenty States implemented new regulatory requirements governing dispensing by physicians 
durig the last 3 years. In all these States, the changes strengthened controls placed on dis 
pensing physicians. No State reported having reuced existig requirements or having 
prohibited dispensing by physicians. The four States which viraly prohibit the practice 
adopted this regulatory approach many year ago. Within the past 3 year, only five States 
reportedly have considered prohibiting physician dispensing. Four of them decided against it, 
and one is stil considering a legislative proposal to prohibit the practice. 
moving to strengthen controls over dispensing by physicians, nearly thee-fours of these 
In 
States have added some of the procedural requirements, and half have imposed 
registrtion re 
quirments. Five of the seven States with patient choice reuirments added them durg this 
period. 
A large majority ofrespondents considered the enforcement of their States 
requirements for physician dispensing as being no more than moderately effective. 
The States ' efforts to enforce their regulation goveming physician dispensing were viewed as 
being no more than moderately effective by thee-fourhs of all respondents frm State 
regulatory boards/agencies. Pharacy board respondents were much more critical of enforce 
ment efforts than were medical board respondents (see figure IV). Nearly 50 percent of the 
pharacy board respondents thought enforcement has been minimally or not effective com 
pared with only 8 percent of medical board respondents. Although one-thid of the medcal 
board respondents rated enforcement as very effective, it is interesting to note that nearly an 
equal number said they did not know how effective their States' efforts have been. 
Perceptions about the effectiveness of a State s enforcement efforts corresponded diectly with 
the restrctiveness of its regulation (see figure V). Respondents from those States with less 
restrctive regulation were more critical of their States ' enforcement efforts than were respon
dents from more highly restrctive States. Only respondents from the minimally or moderate
ly restrctive States thought their enforcement has been minimally or not effective. On the 
other hand, every respondent from the seven most restrctive States thought that enforcement 
has been either moderately or very effective in their States; in fact, nearly 70 percent 
gave very effective " as their response.  !! 
FIGURE IV
EFFECTIVENESS OF STATES' ENFORCEMENT 
OF REGULATION OF PHYSICIAN DISPENSING
AS PERCEIVED BY STATE BOARD OFFICIALS 
0011..0010"8..1""....
TYPE OF RESPONDENT 
Very
Medical Board 
Pharmacy Board 
Moderately
Minimally or not 
Don t know 
.I,  o 10 20 30 40 60 
"'.....'all."'.._,or,...pondln..
etat8boardoIlIcJar... 
..ponadlDl"'OIG,..... 
bl, N."  """0"'1111. 
FIGURE V 
EFFECTIVENESS OF ENFORCEMENT. BY 
RESTRICTIVENESS OF REGULATION, AS 
PERCEIVED BY STATE REGULATORY OFFICIALS 
Percentage of respondents
EFFECTIVFNE
Very.tleatlve
Modererely.lfllotl..
Mlnlmally.lt,otlve 
fP Not etleot... 
o Don t know 
Extremely/Very Moder.hlly Mlnlmilly 
RestrlcllveneS8 01 atate regulatIon 
.I,81.".8I1ulator,olliolal...
"PO'"'' to Iho 010,  1118.,
M'811"'lIon"'nl. tag
Most of the States ' enforcement effort have focused on responding to 
complaits and 
disciplinar actions agaist physicians. Most respondents thought their boars/agencies were 
responsive to complaints, but very few States reportedy inspect the offces of dispensing 
physicians on a routie basis to ensure compliance with State reuirements. With the Iast3 
years, about one-thd of the States have taen discipliar action agaist physicians for. 
abuses associated with dispensing. Most frequently these actions have ben for improper 
labeling or varous kinds of inappropriate dispensing lie overprescrbing. . In' an equal number 
of States, disciplinar cases 
ar either pending or under investigation. 
Respondents from a few regulatory boards specifically mentioned their efforts to famliarze 
physicians with the requirements for dispensing thugh mailings, newsletters, and semiars. 
Despite these efforts, enforcement of regulatory requirments governng physician dispensing 
was considered to be of relatively low priority accordng to respondents from many States. In 
fact, a few respondents said their States made no effort at all to enforce their requirements. 
A varety of constraints, especially limted resources and frgmented regulatory 
responsibilties, have hampered States' efforts to enforce their regulatory requirments 
for physician dispensing. 
The States ' effort to enforce their regulatory requirments governing physician dispensing 
have been constraied by several factors: inadequate resoures for regulatory boars/agen
cies, limited abilty to inspect dispensing physicians ' offices, ambiguous regulatory reuir
ments, and diffuse responsibility for enforcement within some States. 
The major constraint seemed to be insuffcient resoures. By a wide margi, respondents indi
cated that this factor, more than any other, diminished their effectiveness. The effects of finan" 
cial constraits on regulatory boards was described in a 1986 study of State medcal boards by 
the Office of Inspector General (HS): 
In nearly all States, medical board revenues derive entirely from fees imposed on 
physicians. In response to their expanded responsibilties and workloads, nearly all 
boards have raised their fees in recent years. Yet, if one taes inflation into account 
there is hardly any net increase. This, added to the fact that boards arn t necessarly al 
lowed to spend all the money they collect from fees, has left many of them in an ex
trmely vulnerable position, with investigatory and admistrative resources well below 
the level necessar to handle the job before them. II 
Second, limted ability to inspect the offces of dispensing physicians on a routine basis was 
also frequently mentioned by respondents as a constraint to more effective enforcement. Many 
of the regulatory requirments imposed on dispensing physicians, such as requirements to en-
sure patient choice, to restrct profits, and to follow certn procedural stipulations, are dif
ficult to enforce without on-site inspections similar to those conducted in pharacies by State 
authorities. Respondents from only half a dozen States mentioned that their States conduct 
routine, proactive inspections of the offices of dispensing physicians. In some instances, the 
lack of a routine inspection program results from insuffcient resources. Yet, other factors  come into playas well. Respondents frm severa States mentioned they lack adequate 
authority to conduct routine inspections of physicians ' offices. Other States are not able to 
identiy readily those physicians who are dispensing. Only 13 States reporty reuir 
registration of dispensing physicians. In several of these States, the registration proess does 
. not distinguish between physicians actually dispensing and those who register because they . 
might dispense at some futur time. 
Third, imprecise regulatory ianguage has served as a constrnt to effective enforcement in a 
few States. Two States, for example, have reuirments that prohibit physicians ' sellg drgs 
at reta or supplementing their incomes by dispensing drgs. But the language of this regula 
tion is so imprecise that enforcement has not been possible. One of these States reently 
eliminated this tye of restrction because of the dificulty of interpretation. 
Finaly, enforcement efforts in some States may have been hampere because the regulation 
governing dispensing by physicians and all responsibilty for enforcement ar not entiely 
within the puriew of the medical boards. In fact, we encountere only a very few States in 
which the medical boards have, within the body of law they admster, all the reguation 
governing dispensing by physicians, and, at the same tie, have responsibility for all aspects 
of enforcement. 
The States ' regulatory requirements for physician dispensing are often not par of the body of 
tang 
law admnistered by the medical boards although they have the legal responsibility for 
physicians. In fact, very few States have al the 
disciplinar action against the licenses of 
regulatory requirements for dispensing by physicians entily within medcal law. In nearly 
half the States , the reuirements governing physician dispensing are based solely in pharacy 
law, and in the others, they are contained in varous combinations of statutes and other regula 
tion, for example, medical and pharacy practice acts , opinions of States ' attomeys general, . 
or consumer protection laws. 
Moreover, although the medical boards in virualy all States reportedly have responsibilty to 
enforce requirments though disciplinar actions, in only about a dozen States are they also 
responsible for al other aspects of enforcement such as investigating 
complaits, inspecting 
physicians' offces, and educating physicians about State requirments. In most States, these 
enforcement responsibilties are shar among medical boards, pharacy boards, other State 
agencies (e.g., offices of attorney general, the deparents of health or consumer protetion), 
and/or, occasionally, components of a larger umbrella regulatory agency. 
We found that this diffusion of authority and responsibility sometimes resulted in contradic 
tory regulation and confusion over agency roles or even over the requirements themselves. In
one State, for example, the pharacy practice act prohibits physicians from dispensing drgs 
except in emergencies, whereas the medical practice act allows them to dispense without this 
medical board told us that responsibilty for disciplining 
restrction: In another State, the 
physicians rests with the pharacy board because the dispensing requirments are contained 
in pharacy law. The pharacy board, on the other hand, maitained not only that it has no 
authority to discipline physicians but that the provisions of the pharacy practice act do not 
apply to dispensing by physicians. We found too that in nearly half the States, the regulatory  .., 
board/agency offcials with whom we spoke disagree with one another or with the regulation
itself regardig their States ' requirments. In many instaces, respondents had 
to refer to 
other sta members or to other agencies to leam what requirments were in place. 
Considerable Support Exists Among State 
Regulatry Offcias For Further Regulation Of-
Dispensing By Physicians. 
Two-thirds of all respondents thought it is very important for physician dispensing. to be 
regulated in their States. 
Two-thirds of all respondents, frm States with and without regulation, thought regulation of
physician dispensing is very importt for their States; only 10 percent thought it minimaly or 
not important (see figu VI. Pharcy boars attached much greater importce to regula
tion than did medcal boards. Over 80 percent of the respondents from pharacy boards con
sidered regulation as very importt for their State compar with 40 percent of medical board
respondents. Neverteless, nearly thee-fours of the medcal 
boar respondents thought 
was either very or moderately importt for their States to regulate the practice. 
dict 
We found a  correlation between the importance attached to regulation by respondents 
and the restrctiveness of their States' regulation. Whereas nearly all the respondents from the 
seven most restrctive States considere regulation very important, only half 
of those from 
States with no regulation thought so. 
FIGURE VI 
IMPORTANCE OF STATE REGULATION OF 
PHYSICIAN DISPENSING, AS PERCEIVED BY 
STATE REGULATORY OFFICIALS 
Don t know 7% 
Nollmponent 3% 
Minimally important 7% 
Moderately imponam 17$ 
1a, 
811te rlgulatory oWellll,
rIliD:or bHt dI Dto7 rI.h.polroan ,d 1l8l8ll8..  In general, respondents thought that regulation of dispensing by physicians is necessar
priary 
to protect the health of the public. Other major reasons included the 
nee for ensur 
ing accountability and for strngthening 
contrls in the nation s drg distrbution system in 
order to reuce the possibilties for diversion. This position is supported by the number of 
. regulatory board/agency offcials reportg 
increases inthe.number.of complaints on . 
physician dispensing. 
Nearly two-thirds of regulatory board/agency officials contacted reported 
complaits on 
durg 
physician dispensing  the last 2-3 years. Complaints were reported by at least one 
board/agency official from thee-fours of al States, includig those with and without 
regulation.
Nearly two-thirds of all the regulatory board/agency offcials with whom we spoke reported
having received complaits during the last 2 or 3 years. These offcials represente over half
the medcal boards, nearly two-thirds of the pharacy 
boards, and more than th-fours of

the separte enforcement agencies. Overal, complaits were report by at least one
board/agency official from th-fours of all States, including those with and without regula 
tion. Moreover, nearly 30 percent of these offcials thought the number of 
complaits was in-
durg 
creasing  this time. The most fruent complaints concerned improper labeling and 
packaging of drgs as well as what these offcials described as varous kids of inappropriate
dispensing, such as overprescribing, unnecessar prescribing, and dispensing outdated or inap 
propriate drgs. Offcials also reported having received, to a lesser extent, complaits about
physicians overcharging for drgs, improperly supervising the dispensing process, and makng
needed. 
patients feel they could not buy their prescrptions elsewhere. 
Many respondents from States with regulation thought stronger 
requirments were

About half the officials with whom we spoke from States with regulation favored changes to
clarfy and strngthen further their States' regulatory control over physician dispensing. This 
view was shared by nearly equal proportons of respondents from medcal boards and phar 
macy boards. Support for change was strongest among respondents from those States with
moderately or minimally restrctive regulation. Respondents frm these States most favore
regulatory changes to require registrtion of dispensing physicians, to impose more proedural
requirements, and to clary regulatory language. Overal, only a very few respondents con 
sidered any of their States' requirements too restrctive, and no one suggeste elimnatig
regulation completely. 
In contrst, about a third of the respondents from States with regulation thought no regulatory 
changes were needed in their States. Some indicated that dispensing by physicians did not 
pose a problem, and others thought their regulation was adequate. A few respondents thought
their States had not had sufficient experience with recent regulatory changes to consider any
further action soon. Nearly half of all respondents thought Federal action addressing the practice of 
physician dispensing was not necessar; a third favored it, and nearly 10 percent 
thought it might be needed. 
Nearly half the State offcials with whom we spoke did not favor any' 
Federal-action related to 
physician dispensing. Opposition to Federa action was expressed by more medcal boar off 
cials than pharacy board officials (by a magin of more than two to one). A largerpropor
tion of respondents from the seven most restrctive States were opposed to Federal action than 
those from less restrctive States. . A few respondents thought Federal action was unnecessar 
because physician dispensing was not a problem in their States. A few others felt that Federa 
regulation would be diffcult to implement or enforce. Most of the respondents, however, 
were opposed simply because they considere regulation of the practice to be more ap
propriate for the States than the Federa Governent. And, indee, nearly a thir of the 
respondents, including at least one offcial from 
hal the States, expected additional regulation 
to be proposed or implemented in their States within the next year or so. These States include 
those nine States where changes are curently pendig, as well as 18 other States. 
On the other hand, over a third of the regulatory board/agency offcials thought Federal action 
was needed. And another 10 percent favored some role for the Federal Government if efforts 
by the States to address the practice should prove to be insuffcient. Support for Federal ac
tion was strongest among pharacy board offcials and among respondents from those States 
with moderately or minimally restrctive regulation. 
Most proponents of Federal action thought the Federal Government should establish stadards 
governing the practice of dispensing by physicians. They supported federally imposed stad
ards in order to ensure uniform  States and to provide stronger con
reuirments among the 
trols over the drug distrbution system nationwide. About a third of those in favor of Federa 
action, primarly pharacy board offcials, thought the Federal Government should prohibit 
the practice altogether. A few respondents, al from medcal boards, wanted the Federal 
Government to study furer varous issues related to the practice of physician dispensing. 
When asked specificaly about the pending Federal legislation to prohibit practitioners from 
dispensing for profit, nearly two-thirds of all respondents were famliar with the proposed 
legislation, but less than half of these favored Federal prohibition. Slightly less than 25 per-
cent of all regulatory board/agency offcials with whom we spoke were both famliar with the 
bil and in favor of it. 
More pharacy board offcials were famliar with the legislation than were medical board off
cials by a margin of nearly two to one. And of all respondents both famliar with and in favor 
of the legislation, 85 percent were from pharacy boards. We found no corrlation between 
respondents' opinions about this legislation and the restrctiveness of their States ' regulation.  RECOMMENDATIONS
Based on the situation described in the previous pages, we offer the following reommenda 
tions with respect to regulation of physicians who dispense drgs to patients beyond the 
provision of samples. We addrss these reommendations to State governments and to the na. 
tional associations of the boards of medcine and pharcy. 
THE STATE GOVERNMENTS
In our view, the public s health and welfar as well as the integrty of the distrbution system
for prescrption drgs ar crcial considerations in governent regulation of physician drg 
dispensing. The focus of our inquir did not include an in-depth analysis of either the in 
cidence or consequences of physician dispensing. However, in examing State 
regulatory ap
proaches to the practice, we believe we acquir 
suffcient understading of the concerns

about public health and accountabilty associated with physician dispensing to support the fol 
lowing recommendaons: 
State govemments should tae initiatives to promote stronger, more effective regulation 
of physician dispensing. 
We believe that the States should continue to exercise primar responsibility for 
regulating the 
terms and conditions under which physicians may dispense prescription drgs. State govern 
ments are more attuned to local situations than the Federa Government. States have tradition-
ally regulated the practices of both medicine and pharacy, and thus States have both 
considerable experience upon which to base further regulation and 
admiistrative strctures 
for enforcement aleady in place. As we have seen, not only have a large majority of States al 
ready imposed some requirements on the practice, but there has been considerable activity to 
strengthen regulation of physician dispensing in recent years. More seems 
liely to occur in 
the near futur. 
Effective regulation of drg dispensing is important to protect the health and welfar of the 
public and to ensure accountability and adequate controls in the drg distrbution system. 
State governments have recogniz the importance of these concerns as they have extensively
regulated the dispensing of prescription drgs by pharcists. For these reasons, most States
have also mandated at least some requirements for dispensing by physicians.
Neverteless, as we have seen, the regulatory requirements imposed by the States on dispens 
ing physicians var widely across the countr, and the large majority of States either have min 
imal regulation governing the practice or have no regulation at all. Furer, may State 
regulatory boards/agencies reported having received complaits about the practice and having 
taken disciplinar action of varous kinds against physicians for abuses. associated with dis

pensing. These complaints and disciplinar actions have been related primarly to public
health and safety issues. Although the incidence of physician dispensing is relatively low in most States, it appear to be increasing in many States. The practice seems 
liely to increase 
furer in view of both the economic pressurs facing many physicians and the possibility that 
physicians wil parcipate in the new Medcare outpatient prescrption drg program. 
Based on what we have leamed about the States ' curnt regulatory approaches, the reguation 
governing dispensing by physicians in most States is signficantly less extensive than the. 
regulation governg dispensing by pharcists. This discrepancy suggests vulnerabilities for 
both the public s health and for accountabilty in the drg distrbution system. 
Should States choose not to prohibit physicians from routiely dispensing drgs, it seems 
reasonable that they at least adopt requirements sufficient to ensur more adequate protection 
for the public and heightened accountability for drg distrbution. We think the States, at the 
very least, should adopt a basic theshold of regulatory requirments to govern dispensing by 
physicians. We suggest this thrshold of regulation consist, at a miimum, of the foIlowing re 
quirments: 
The procedural reuiments (Type V regulation) such as labeling, record-keeping, 
storage, securty, and supervision of the dispenser should be as applicable to dis 
pensing physicians as they are to pharacists. 
A requirement for registrtion of dispensing physicians with a designate State 
agency (Type n regulation) is needed so the States can identify those physicians 
who are actually dispensing for puroses of inspection and monitoring. 
Requirements to protect freedom of choice (Type IV regulation) for patients. 
The procedural and registration reuirements we propose as components of this theshold 
were frquently identied by the State regulatory boards/agencies with whom we spoke as cru 
cial to effective regulation of the practice. And requirements promoting freeom of choice 
would help to address concerns that the public be able to decide freely whether to obtain 
prescriptions from their physician or from their pharacist. 
State governments should take steps to strengthen their enforcement of regulation 
governing physician dispensing. 
Appropriate regulatory controls governing the practice of physician dispensing is only one 
component of effective regulation. Equally crucial to effective regulation is adequate enforce 
ment of the legal requirments. As we have seen, State regulatory boards/agencies face a num 
ber of constraits as they seek to enforce requirements governing physicians who are 
dispensing. These efforts could be strngthened by State governments though such actions as 
the following: 
providing more resources to State agencies for enforcement, possibly though fees
associated with a registration reuirement for physicians who dispense;
clarfying ambiguous regulatory language, as appropriate; delineating clearly the authority and responsibilties of those State agencies involved
in enforcement ofregulatory requirments;
improving the abilty of State agencies to 
inspet routinely the offces of dispensing

physicians thugh such measures as assurng adeuate legal authority for.
inspections and mandatig registration of dispensing physicians; and 
.J"
ensurng that dispensing physicians are knowledgeable about the regulatory
requirments governing the practice in their States.
THE NATIONAL ASSOCIATIONS
The Federation of State Medical Boards (FSMB) and the National Association of Boards of
Pharacy (N ABP) have an opportnity to provide further leadership to the States in the ara
drg 
of physician  dispensing. We therefore dict the following recommendation to these as 
sociations:
The FSMB and the NABP should work together in helping States to promote stronger
more effective regulation governing physician dispensing.
Physician dispensing is a controversial practice which affects both the professions of medcine
and pharacy. It seems liely that many State boards of medcine and pharacy wil be
under increasing pressur to address safety and accountability concerns associated with the
practice in the years ahead. The FSMB and the NABP could provide furer leadership to
State boards by working together to consider respective authorities and responsibilties for
regulation in this area. The associations could also provide valuable assistance to States by
developing and incorporating into their respective model practice acts guidelines which 
consistent and acceptable to both professions. In so doing, the associations could work out
together the specifics of the regulatory threshold described above for consideration by the
States as they seek to strengthen regulatory controls over the practice. COMMENTS ON THE DRAFT AND OIG RESPONSE 
With the Deparent of Health and Human Services, we reeived comments on the draft 
report from the Offce of the Assistat Secreta for Plannig and Evaluation (ASPE), the 
Health Care Financing Admnistrtion (HCFA), 'and the Public Health Servce (PHS). We also 
received comments from the Drg Enforcement Admnistrtion (DEA) and the Federal Trade 
Commssion (FC). In addition, we received" comments from a number of organzations out-
side the Federal Government: the American Medcal Association (AM), the Competitive 
Health Care Coaltion (CHCC) representig severa drg repackaging companes, the National 
Association of Chai Drg Stores (NACDS), the American Phanaceutical Association 
(APhA), the Federation of State Medcal Boards (FSMB), and the National Association of 
Boards ofPhanacy (NABP). 
The comments of these government agencies and national organizations are contained below 
and are followed, in each instace, by the OIG response. We have chosen to include these 
comments in their entiety (except for attachments and references thereto) because we believe 
they offer importt perspectives on physician drg dispensing and contrbute helpful clarfy 
ing information. After considering all these comments, we offer severa 
overal observations 
in response to issues raised by severa agencies and organzations. 
A few organizations challenged the valdity of some findings and reommendations based on 
criticism of the limited scope of our inquir and the methodology we used. With respect to 
the scope of our study, we acknowledge in the report that physician drg dispensing involves 
complicated, controversial issues of ethics, economics, public health, and regulation. We 
deliberately chose to focus our attention primarly on the issue of regulation of the practice by 
the States. We believe that furter understanding of the extent and nature of regulation amonK 
the States and of the impact and effectiveness of their regulatory approaches would be useful 
to both Federal and State policymakers. Thus, in so doing, we did not examne other dimen 
sions of the practice, such as conflict of interest concerns, cost implications, and issues of com 
petition which nonetheless seem to us to be importt 
considerations and legitiate issues for 
further study.

With respect to our methodology, some agencies and organizations criticize the report for 
being subjective and biased, for relying too heavily on perceptual information from interviews 
and not heavily enough on objective documentation. We believe our methodology was valid 
and the conclusions and reommendations of the report  crble. In 
ar sound and  order to un
derstand State regulation of this practice, we chose to survey every State, not a sample of 
States, and in so doing, include representatives of both medcine and phanacy and, in some 
cases, separte drg enforcement agencies. We chose to surey, in parcular, executive dic 
tors of the State boards of medcine and phanacy which are charged with enforcing States 
laws goveming the practices of medcine and phanacy. These diectors ar close to the State 
regulatory scene and are, in our view, in a very goo position to identify the States ' regulatory 
. requirements and to comment on their States ' enforcement efforts.  We do not deny that bias can afect the judgments of respondents, whether from medcal
boards or pharacy boards. However, our major findig outlning the disparty in regulation
of dispensing by pharcists and by physicians is not a matter of perception but a situation
documented in State law and regulation. Our major reommendation urgig stronger, more ef 
fective State regulation to reuce this disparty hinges on ths basic fact.
Moreover, the recommendation for stronger regulation is furer support by the inormtion
on the extent and nature of complaits and disciplinar actions handled by these boards which
was reported to us by board offcials. We acknowledge that we did not perform a State-by-
State review of board reords in order to document complaits and disciplinar actions, but
we did rely on data reported to us by State offcials we consider to be knowledgeable and reli 
able. Many of these boards did provide us with numbers of complaints and 
disciplinar ac 
tions relate to dispensing by physicians which we summarze in the report. We acknowledge
we did not leam of dramatic horrr stories attbutable to dispensing by physicians. However,
the natue of complaints and disciplinar actions reported by the boards suggest to us abuses
of the practice such as improper labeling and inappropriate dispensing which are not insig 
nificant for the health and safety of the public. That State boards report as many complaits
and disciplinar actions related to physician dispensing as they did seems to us to be sig 
nificant given the minimal degree of regulation in many States, the other priorities competig
for the attention of State boards, and the fact that many aspects of safe dispensing, such as
Tecord-keeping, proper storage, and security, ar not readiy apparnt to patients and are infre 
quently, if eveT, the object of inspections in most States.
Overal, no one disagreed with our conclusion that State regulation governing dispensing of
prescription drgs is, for most States, much less extensive for physicians than for pharacists
and that efforts to enforce requirments have been hampered by a varety of constrnts.
Similarly, although some disagreed with our overall recommendation for stronger regulation
no one took issue with our call for a specific thrshold of regulatory requirments for
physicians who are dispensing prescription drgs. APPENDIX I 
DETAILED COMMENTS ON THE DRAFT REPORT AND OIG RESPONSES 
ASSISTANT SECRETARY FOR PLANNING AND EVALUATION COMMENTS 
Than you for sending me your drt report on physician dispensing for comment. It's a goo 
I agr 
with your basic 
status report on the extent of state regulatory activity in this ara. 
recommendations, namely, that regulation of physician dispensing should remai the respon 
sibilty of states and that stronger regulatory oversight of ,the practice of physician dispensing 
is neeed in many states and should be encourged by HHS. I would add, however, that the 
extent of physician dispensing of prescription drgs bears continued watchig so that we ar 
prepar to assess any problems or political pressurs that develop with the growth of this 
practice. 
OIG RESPONSE TO ASPE COMMENTS 
We agree with ASPE' s comments and parcularly endorse the nee for the Deparent to 
monitor the growth of this practice, to remain alert to State regulatory activities, and to reas 
sess the implications of the practice for its varous health progrs in the not too distat futue. 
HEALTH CARE FINANCING ADMINISTRATION COMMENTS 
We have reviewed the subject report and concur with the OIG' s recommendations regardig 
the regulation of physicians who dispense drgs to patients beyond the provisions of samples. 
We especialy agre that States should continue to exercise primar responsibility (as they do 
with pharcies) for regulating the terms and conditions under which physicians may'dis 
pense prescription drgs. 
It is clear from the report that States have attempted, with only minimal impact, to issue 
regulatory requirements on dispensing physicians. States nee to establish more effective 
regulation of these physicians which conforms more closely with State requirements that 
govern pharacies.
The OIG report indicates that in many States physicians are permtted to dispense drgs 
without being licensed. It should be noted that with respect to the expanded coverage of out-
patient drgs under the Medicar Catastrophic Coverage Act of 1988, a provider must be 
authorize by State law to dispense covered drgs in order to receive payment on an assign 
ment-clais basis. Since physicians wil have to be authorized by the State to dispense drgs 
in order to receive payment for the drgs on an assignment basis, this may give an impetus to 
more State regulation of physicians who dispense drgs. 
Thank you for the opportunity to comment on this report.  OIG RESPONSE TO HCFA COMMENTS
We agr with the thst ofHCFA's comments. However, we wish to comment on HCFA's
point that physician parcipation in the new Medcare outpatient prescrption drg program' 
may encourage more State regulation of dispensing by.physicians. -Whether or not this proves,.
to be tre in the long run, in the immedate futu, providers ar eligible for parcipation as .
cert 
long as they agree with  stipulations of the Act and are authorize by State law .todis. 
pense covere drgs. The implications of this situation are, it seems to us, that physicians
from most States ar eligible to parcipate in this program as they are authorize to dispense
prescription drgs under the terms of their medcal licensure. However, these physicians will
as we have seen, be dispensing prescrption drgs with far less regulation and control than ex 
ists for pharcists.
PUBLIC HEALTH SERVICES COMMENTS
We agr with the report s statement that ". . . States should continue to exercise primar
responsibility for regulatig the terms and conditions under which physicians may dispense
prescription drgs." We agree in par that State medcal boars and pharacy boards nee to
drg
provide greater leadership to States and to their constituencies in the ara of physician 
dispensing.
The report does not contain any objective evidence of the presence or absence of a major
public health problem with physician drg dispensing. We believe ths is due to the report
reliance on perceptual information obtained primary from intervews. We recommend that
objective data be used to support the report s recommendations for strnger State regulation
and enforcement with respect to physician drg dispensing.
We believe it may be useful to provide some clarfication of FDA's policy on physician drg
dispensing. Although 503(b) of the Federal Food, Drug, and Cosmetic Act is applicable to
physicians, we have long considered physicians who dispense drgs to patients puruant to a
bona fide doctor-patient relationship to be exempt from strct compliance with the labeling re 
quirments for prescription drgs under Section 503(b )(2).
We believe that physicians who dispense drgs to patients pursuant to a bona fide doctor-
patient relationship are engaged in the practice of medcine which is under the jurisdiction of
the individual States. Consequently, FDA has not initiated any action to discipline physicians
for failur to comply with the labeling requirements of Section 503 of the Act when involved
in the bona fide prescribing and dispensing of prescription drgs. In this regard, we are not
aware of any specific complaints received by FDA advising that the labeling practices of dis 
pensing physicians have resulted in a public health or safety problem  inter 
reuirng Federal 
vention.
If such complaints were received, FDA would refer these to State drg offcials for ap 
propriate action. Should a situation arse where a dispensing physician s labeling practices
result in a safety or health problem not amenable to State remedial action, FDA would con 
sider appropriate steps to corrct any violation. OIG RESPONSE TO PHS COMMENTS
The PHS crticizes the report for relying on perceptual information from intervews. As we 
noted earlier, the disparty we point out in most States
' reuirements for dispensing by 
physicians and pharcists is not a mattr of perception but is based in State law andregulao, 
tion. We did rely heavily on inormation supplied by the State boards of medcine and phar 
macy who ar, we believe, the State agencies most knowledgeable about ths subject and who 
are, at the same time, among the major State agencies upon which the FDA relies for im 
plementation and enforcement of varous drg related legislation. 
We ar pleased that the PHS included in its comments clarcation of the labeling reuie 
ments for prescription drgs contaned in the Federa Foo, Drg, and Cosmetic Act 
(FCA), Section 502, and the applicabilty to physicians of the exemptions from these re 
quirments described in Section 503(b) of the Act. We were alerted durig our study to ques 
tions raised by pharacy offcials about the applicability of the FFCA labeling reuirments 
to drgs dispensed by physicians, and we sought to clarfy curent FDA policy from several 
agency staf. 
Section 503(b)(2) requires that: 
Any drg dispensed by filing or refIling a wrtten or ora prescrption of a practitioner 
licensed by law to admnister such drg shall be exempt from the requirments of sec 
tion 502, except paragrphs (a), (i)(2) and (3), (k), and (I), and the packagig reuire 
ments of paragraphs (g), (h), and (p), if the drg bears a label contaiing the name and 
addrss of the dispenser, the serial number and date of the prescription or of its filling, 
the name of the prescriber, and, if state in the prescription, the name of the patient, and 
the dictions for use and cautionar statements, if any, contaied in such prescription. 
This exemption shall not apply to any drg dispensed in the course of the conduct of a 
business of dispensing drgs pursuant to diagnosis by mai, as to a drg dispensed 
violation of paragrph (1) of this subsection. 
As stated in the PHS comments above, the agency maintains that this Section of the Act is ap 
plicable to prescription drgs dispensed by pharacists and physicians. Yet, at the same time, 
agency policy exempts physicians, but not pharacists, from "strct" compliance with these 
labeling requirements. In its view, the FDA considers dispensing of prescription drgs by 
physicians par of the practice of medcine and therefore under the regulatory jurisdiction of 
the States rather than the Federal Govemment. 
In our view, this interpretation reinforces at the Federal level the inequitable disparty that ex 
ists at the State level in the regulation of dispensing by physicians and by pharcists.
Furer
, it seems to us inconsistent to suggest that these Federa requirments do not apply to 
drgs when dispensed by physicians but do apply to drgs when dispensed by pharacists. 
Regulation of the practice of pharacy has, no less than the practice of medicine, fallen
priary 
under the jurisdiction of the States. This interpretation suggests a double standard  which raises our concem, parcularly as State board officials identied improper labeling of 
drgs dispensed by physicians as a major reason both for complaints to boars and for the dis 
ciplinar actions they have taken. 
DRUG ENFORCEMENT ADMINISTRATION COMMENTS 
Than you for providing a copy of the drt report "Physician Drg Dispensing: An Overvew 
of State Regulation" and for soliciting the Drg Enforcement Admnistration s (DEA) com 
ments on the report. 
Firt, I should point out that this agency s concem in this mattr is regardig contrlled sub 
staces, whie the report is addrssing physician dispensing of al prescrption drgs. Any 
practitioner dispensing controlled substances must comply with the Federa 
reguations con 
taned in 21 CFR Par BOO-End, whether or not additional state regulations for this activity 
exist. These Federal regulations include record-keeping and inventory reuirments. 
Although over the years there have been instaces of physicians prosecuted for dispensing 
large quantities of controlled substaces for illicit profit (especially amphetaes), DEA has 
no information that this is any more prevalent than doctors who divert by prescrbing, or that 
contr, 
diversion by dispensing is increasing. On the  Schedule II dispensing doctors are 
more readily identified though DEA's ARCOS reportng system than 
ar those wrting 
prescriptions. 
However, based upon our experiences and monitoring of the states' action (or inaction) and ef
fectiveness in monitoring such practices, it appears to DEA that the 
findigs in your report and 
the recommendations are sound. 
I would lie to add that I found this report thorough and informtive. Than you once agai 
for the opportunity to comment on this matter affecting DEA's aras of responsibilty. 
OIG RESPONSE TO DEA COMMENTS 
We ar pleased with DEA's positive response to our findings and recommendations. As noted 
in the report the Federal requirements implemented and enforced by the DEA with respect to
controlled substances are applicable to all dispensing, whether by pharacists or by
physicians.
FEDERAL TRADE COMMISSION COMMENTS
We ar pleased to respond to your reuest for our views on the Offce of Inspector General' 
Draft Report entitled "Physician Drug Dispensing: An Overview of State Regulation 
("Report  ! The Report recommends that states enact more strgent regulation of physician 
dispensing of prescription drgs by (1) imposing procedural requirements for supervision 
labeling, record-keeping, storage and security; (2) requirng dispensing physicians to be 
registered for puroses of inspection and monitoring; and (3) imposing reuirments to protect 
consumers' fredom of choice in determning where to purchase their prescription drgs. The  . ..
. --
Report also reommends varous actions that states should tae, including the provision of ad 
ditional resources, to promote effective enforcement of regulations concerng physician dis 
pensing.
Because the Report s recommendations do not call for the adoption of regulations that would.
interfere with the abilty of consumers to obta prescription drgs frm their physicians, we -
. do not oppose them. 'We note, however thafwe canot comment definitively  nproposals'a&'
broad and genera as those in the Report, and therefore confie our comments to the major. 
issue rased by the Report--to what extent physician dispensing of prescrption drgs should 
be regulated. 
The Bureau of Competition staf does not endorse physician dispensing as preferable to phar 
macist dispensing, or vice versa. Rather, we support consumer choice among qualed 
providers of prescription drgs. At this tie, we are not awar of any justication that sup-
port a total ban on physician dispensing of prescription drgs. Physician dispensing in-
creases consumers' options in the purchasing of prescription drgs, and we believe it may 
increase competition among physicians and between physicians and 
pharacists, and possibly 
lead to lower prices and better services. We believe, therefore, that consumers should not be 
deprived of the potential benefits of physician dispensing unless there is reason to believe that
har 
such dispensing has hared or is liely to  public health and safety and that less resnic 
tive health and safety standars ar insuffcient to protect the public.
It is important to clarfy the representations made in the Report concerning our views on 
physician dispensing. The Report states, at pages 1 and 6, that the Federal Trade Commssion 
staf "have sought to discourage" state regulation of physician dispensing on the grounds that 
physician dispensing enhances competition and that attempts by state governments to regulate 
the practice "might constitute restrait of trade." This is generaly but not entiely accurate. 
We have opposed only unreasonable resnictions on the abilty of physicians to dispense drgs. 
Moreover, a statute enacted by a state legislatur would generay not be subject to the an 
would not itself constitute an unlawful restraint of trade. Nonethe 
titrst laws and therefore 
less, when requested we have submitted comments in opposition to the adoption of what we 
view as unreasonable resnictions on the ability of physicians to dispense drgs by both state 
regulatory agencies and state legislaturs. For example, we have submitted comments to 
2 and Marland3 and to a legislative commttee in Califomia
regulatory boards in Georgia
concerning physician dispensing...In those comments, we opposed the adoption of rules or 
statutes that we believed would unreasonably resnict physician dispensing without providing 
any countervailing public benefits. It is our belief that resnictions of this natue are 
liely to 
harul 
be  to consumers. We have not, however, opposed effort to insure that both 
physicians and pharacists adhere to Tegulations that may promote public welfar. 
Pharcy 
For example, we recently submitted comments to the Georgia State Board of  sup 
portng the adoption of rules that would require dispensin  physicianuo meet-health and 
safety standards simlar to those imposed on pharacists. In these comments, we stated that 
the adoption of the proposed rules would not interfere with the ability of physicians to dis 
pense prescription drgs effciently, and thus would not deprive consumers of the benefits of 
choice among qualified providers of prescription drgs. We therefore suggest that your offce  could more accurately state the position of the FTC sta by deleting the second and thd sen 
tences of the paragraph bridgig pages 1 and 2 of the Report and substituting the following:
Sta from  have sought to discourge the states from 
the Federal Trade Commssion  (FC) 
prohibiting or unreasonably restrctig physician dispensing of drgs. The sta has suggested 
that dispensing by physicians enhances competition in 
th prescription drg market and may" 
lead to lower prices and better services.
" Simlarly, on page 6, the words "prohibitig or un 
reasonably restrctig" should be substituted for "regulatig. 
The Report s recommendations do not cal for regulations that would interfere with the ability 
of physicians to dispense prescription drgs, and ar therefore consistent with our position. At 
the same tie, however, the Report s regulatory proposals, which appear acceptable in a 
generalze form, may have anti-competitive effects when incorporated into a specifc regula
tion or statute or when added to an existig regulatory scheme. For 
example, whie reord 
keeping and securty requirments may be desirable in principle, the specifc language of a 
regulation or statute proposed by a state may be so unduly burensome or restrctive that it un
reasonably restrcts the ability of physicians to dispense drgs and therefore suppresses com 
petition. Similarly, a state may adopt the recommendation that physicians who dispense be 
registered and yet may also impose a myrad of other 
reuirements that effectively deny or sig
nificantly delay the approval of applications for such registrtion. While the recommenda 
tions offered in the Report appear to call for no more restrctive a scheme of regulation than 
that which is currently in place for pharacists, we do not know how each of the states would 
implement these recommendations. For ths reason, we cannot endorse the Report and would 
prefer to comment on specific rules or statutes as they ar proposed by the states. 
In sum, the dispensing of prescription drgs by physicians increases consumers' abilty to 
choose among qualified providers of pharaceutical services. The resulting competition 
among physicians and between physicians and pharacists may produce lower prices and im 
proved services. The recommendations presented in the Report appear to call for regulatory 
action that would not unreasonably interfere with a physician s abilty to provide dispensing 
services. We do not oppose the concepts embodied in these recommendations, but we cannot 
comment definitively until we have seen specific proposed regulations. 
We appreciate this opportunity to review the Report and give you our comments on this impor 
tant issue.
These comments ar the views of the staff of the Bureau of Competition of the Federal Trade Com
mission. They ar not necessay the views of the Commission or of any individua Commis 
sioner. 
See  Letter from Jeffrey I. Zuckennan, Director, Bureau of Competition, to William G. Miler, Jr., 
Joint Secreta, State Examining Boards (November 26, 1986). 
See  Letter from Jeffrey I. Zuckennan, Director, Bureau of Competition, to C. Earl Hil, M.D., Prsi- . 
dent, Maland State Board of Medcal Examinen; (December 31  1986). 
See  Letter from Jeffrey I. Zuckennan, Director, Bureau of Competition, to The Honorale Tim Les 
lie, California Assembly (May I, 1987). 
See  Letter from Jeffrey I. Zuckennan, Director, Buru of Competition , to William G. Miler, Jr., 
Joint Secreta, State Examining Boards (June 26, 1987).  OIG RESPONSE TO FTC COMMENTS 
We appreciate the FTC' s clarcation of its curent views on physician dispensing and have 
revised the narative of the report accordingly.
We, too, share the concern expressed by the FTC that dispensing of prescription drgs, 
whether by pharacists or by physicians, be conducted in accordace with adequate health . 
and safety stadards to protect the public. The thst of our recommendation is not to impose. 
a regulatory framework which is more restrctive for dispensing by physicians than by phar
macists. Rather, we recommend that for States which choose not to prohibit or otherwise 
severely restrct dispensing by physicians a minimum theshold of regulatory requirements 
should be adopted to achieve grater party and to protect the health and safety of the public. 
However, it is important to note that even in adopting our suggested regulatory thshold, we 
think certn vulnerabilties may remain with the practice in that physicians wil be dispensing 
prescription drgs, albeit in accordance with strcter regulation, but without being reuied to 
meet the educational and experiential requirements of licensure which States have chosen to 
require of pharacists who dispense. 
AMERICAN MEDICAL ASSOCIATION COMMENTS 
The American Medcal Association has reviewed the drt report of the Offce of the Inspector 
General entitled, "Physician Dispensing: An Overview of State Regulation. " The stated pur
pose of this report was to determne "the extent and tye of state regulation" and to explore 
the effectiveness of state approaches" regulatig physician dispensing. The AMA support 
physicians ' right to dispense drgs and devices when it is in the best interest of the patient and 
consistent with our ethical guidelines... 
The AMA concurs with the report in its view that the proper place for any regulation of 
physician dispensing is at the state level. We strongly believe that the regulation of the prac 
tice of medicine, including physician dispensing practices, is the role of the states. As noted in 
the draft report, states are more attuned to local situations than the Federal Government and 
have traditionally regulated both the practice of medicine and the practice of pharacy. 
The AMA, however, strongly disagrees with the conclusions drwn in the draft report. We 
cannot support the report s recommendation that there is a need for "stronger, more effective 
regulation of physician dispensing." The report fails to document any abuses related to 
physician dispensing, any examples where individual patients or the public health have been . 
endangered, or any instances where current regulations have been ineffective. 
The fmdings and recommendations presented in this draft report 
ar based heavily on a 
telephone survey of representatives of state regulatory agencies, primarly the boards of 
medcine and pharacy. In the absence of documented evidence to confmn the subjective im
pressions of the respondents, it is virtually impossible to rule out bias in such a study. For ex-
ample, nearly 50% of the pharacy board respondents perceived their states ' enforcement of 
regulation of physician dispensing as only minimally effective. In contrst, the majority of
medical board respondents perceived their states ' enforcement of regulation of physician dis- pensing as very or moderately effective; only 8% perceived enforcement as minialy effec 
tive. It appear that pharcy boar offcials may have a preferential interest in 
protectig the 
pharacy profession and, therefore, there may be a bias against physician dispensing for 
economic reasons. In the absence of confiatory data, the conclusion that pharcy boar 
staffs are biased is just as vald a conclusion as the drt report s conclusion that there is inade 
quate enforcement of dispensing regulations. 
We also question what is meant by "effective regulation." It is notable that the states where 
viraly 
regulations ar viewed as "most effective" are those that  prohibit dispensing. We can-
not support stronger regulation of physician dispensing where the goal of the regulation 
(state or otherwise) is to impede the legitimate practice of physician dispensing. The Federal 
Trade Commssion has reognize that physician dispensing is a traditional par of medcal 
practice and has urged states to miimize regulatory impedents to 
physician dispensing. 
Without any empircal data as to the number and types of complaints occurng in the states, it 
is prematu to recommend " stronger, more effective regulations. 
In conclusion, the AMA supports the draft report in its recognition of the states as the proper 
governental entities for regulation of physician dispensing practices. The AM, however 
cannot support the cal for all states to pass stronger dispensing regulations. The report fails to 
produce any data supportng a broad call for strnger regulation. The report s surey results 
show that the concerns regarding physician dispensing are not uniform from state-to-state and, 
in some instances, are not uniform within the states. The AMA believes that the nee for any 
regulation of physician dispensing must be determined by each state separtely, based upon 
the situation within the state. 
OIG RESPONSE TO AMA COMMENTS 
We ar pleased that the AMA agres with our view that primar responsibility for regulating 
the dispensing of prescription drgs by physicians rests with the States. 
We are concerned, however, with the thrust of the AMA comments on two counts. First, the 
AMA suggests that the goal of our recommendation for stronger, more effective State regula 
tion is an effort on our par to "impede the legitimate practice of physician dispensing." On 
the contrar, the goal of regulation is to assur protection of the public s health and integrty of 
the distrbution system for prescription drgs whether the dispensing is by pharacists or by 
physicians. As this report makes clear, in the large majority of States, the regulatory require 
ments governing dispensing by physicians ar far less strngent than those governing dispens 
ing by pharacists. The arguments justifying the nee for regulation of dispensing when 
practiced by pharacists ar no less valid for dispensing by physicians. 
Moreover, as stated earlier, we believe the in-depth telephone discussions with State 
regulatory officials contrbuted valuable insights and peTspectives which ought not to be dis 
missed as bias. The information State offcials shared on regulatory requirements are detailed  :...
in State law and regulation. Information about the 
disciplinar actions are a matter of public 
record in each State, and we have every reason to believe that these responsible State offcials 
provided us with goo faith estiates of disciplinar actions and complaints. 
As the AM noted, pharacy and medical boars have dierent perspectives with respectto- 
some aspects of physician drg dispensing. However, parcularly signifcant, we believe, is 
the perspective , shared by equal proportons of respondents from medcal and pharacy ce. 
boards, that furer strngthening of their State s regulation of drg dispensing by physicians 
is waranted. 
COMPETITIVE HEALTH CARE COALITION COMMENTS
In response to your letter of November 1, the following comments are submitted on behal 
companies in the drg repackaging industr on the draft report entitled, "Physician Drg Dis
pensing: An Overview of State Regulation." While we have severa concerns regarding the
draf, overall we share your view that any regulation of prescription drg dispensing is ap 
propriately within the puriew of the states.
As the draf report states, physician dispensing of prescription drgs rases issues as to 
whether the practice promotes or restrns competition and whether consumers pay more or 
less for drgs dispensed by physicians. Neverteless, the draf lacks any discussion of 
the ef 
fect of physician dispensing upon the market price of prescription drgs. We believe that 
physician dispensing has brought new competition into the prescrption drg market, forcing
others in the market to offer a better prouct, more convenient service and lower prices. Omis
sion of discussion and analysis of these fundaental benefits to consumers is a serious 
deficiency of the draft report. 
We also believe the draft to be deficient in its methodology, faiing to meet the objective stad 
ard necessar to give credibility to its findigs. Rather, the report accepts and 
trats public per 
ceptions as a methodological premise. It cites no studies or statistics revealing actual
documented abuse by physicians who dispense drgs. While those who oppose physician dis 
pensing have claimed that the practice has resulted in higher prices, improper supervision, im 
proper labeling and packaging, overprescribing, unnecessar prescribing, outdated dispensing 
and lack of choice by patients, we ar awar of no actual documentation of these allegations. 
Indeed, the drt report itself states (page 4) that none of the state officials contacted was 
aware of any analyses or surveys of physician dispensing in any of the states. As your own 
remarks at the October 6 National Institute on Clinical Laboratory Reimbursement and Policy 
proceedigs recognized, public policy made in the absence of "goo solid data" fruently
results in very flawed policy decisions. 
The draft report appear to be largely based upon telephone conversations eliciting opinions of 
representatives of organizations, government agencies and state regulatory 
boars. These 
opinions describe the industr in general terms, leading to a tenuous basis for the findigs of 
the report. Examples include:  References to "industr spokespersons" who are uncenain as to the amount ofrevenues 
involved in the practice of physician dispensing but who "predct drmatic growth in the 
industr" without identiying who these "industr spokespersons" ar, the interests they 
represent, nor the basis for their "predctions. " 
of the incidence of physician dispensing without identiictin 
An overview of  estimates 
ofrelevant and statistically sound facts from which these estimates ar made. .. 
References to complaints received by state regulatory boards regardig physician

dispensing without stating the number of complaints received, from whom these
complaints were received, nor the content of the complaints received. It would also be
useful to know how these complaints were resolved.
the number of
Continued references to state regulatory board offcials who  thought 
complaints had been increasing. Again, the report s reliance on perceptions is
demeaning both to the legal and political significance of your effort.
References to disciplinar action taken by states against physicians without a 
comparson with actions taken against pharacists during the same period, leaving a 
negative impression concerning disciplinar problems with physicians who dispense 
drgs, when in fact the number of actions taken against physicians may be minial. 
Reliance upon generalities and opinions as the basis for formulating conclusions jeopardizes
the objectivity a report of this natue should possess. Many of those whose opinions were
solicited were pharacists or their advocates. Many state regulatory boards having jursdic 
tion in this ara are largely composed of pharacists. Such persons may reasonably be ex
pected to have a bias against physician drg 
dispensing. A report based upon biased opinions

cannot help but reflect such bias.
We agree that any regulation of physician dispensing should remain within the states' purview. 
They are best positioned to make reasonable and infonned decisions as to whether and what 
regulations are needed. 
Yet, in makng recommendation to the states, the draft report is again deficient in that it ig 
nores an important distinction for states to consider when promulgating regulations. The 
report should emphasize that states contemplating regulation of physician 
drg dispensing 
must recognize the difference between dispensing repackaged drgs and dispensing drgs " 
bulk." Dispensers of drugs "in bulk" purchase drgs in large quantities; when a patient needs 
the drg, the required quantity is taen from a large contaner and sold " as is." Little attention 
is given to such important quality and safety factors as proper packaging, labeling, and expira 
tion dates of the bulk drugs. In contrast, physicians who dispense prepackaged drgs sell only 
drugs purchased from a prepackager licensed by the Food and Drug Admnistration which re-
quires the prepackager to adhere to strct federal manufacturing standards, Drg Enforcement 
Admnistration regulations \which meet or exceed state-mandated pharacy  and 
regulations), 
applicable state regulations. Moreover, dispensing of prepackaged drgs eliminates essential- Iy all of the risks of handling associated with traditional dispensing by pharacists. These 
critical distinctions substantialy reuce the need for state concern for many potential abuses 
in the dispensing of prepackaged drgs
Another deficiency of the report concerns statements of fact which we believe fail to reflect 
the complete picture. Examples include:
The statement that revenues realzed by repackagers may increase from an estimated 
$25 millon last year to as much as $400 millon to $500 mion by 
1990 and possibly 
as much as $2 billon within 5 to 7 years. These estiates seem dubious in light of the 
fact that the largest companies in the drg repackagig industr, ISP (Stat-Pak) and PPS 
are barely increasing sales. A minimum of a trpling of sales would be required by 
every company each year in order to realize the revenue increase estimates stated in the 
Report. 
A conclusion in the report stating that physician drg dispensing across the countr 
seems to be growing. Yet, the report does not note that much of the growth in physician 
dispensing is due to the conversion of bulk dispensers of drgs to the safer practice of 
dispensing of prepackaged drgs. 
It would be helpful and important if the report would update the several changes in state laws 
as follows: 
In llinois , wrtten prescriptions do not have to be provided to patients; rather, the 
patient must be advised of the choice of receiving a wrtten prescription. 
In California, patients are advised of their choice to fil prescriptions elsewhere. 
In Oklahoma and Washington, prescription charges or profits are not prohibited. The 
same prohibition has been overturned by the West Virginia Attorney General and is 
under review in Virginia. 
Appendix I should delete Nebraska and Oklahoma from the list of states with "very 
restrctive" regulations. The report states that in these states the "required board 
approval reportedly has been given very sparngly," when, in fact, the required board 
approvals in these states is granted regularly. 
Appendix II should note that this year the Florida legislature removed its restrction 
requirng six hours annually of continuing medical education and replaced it 
with a 
simple registration requirement. 
Finaly, the report only superfcially presents its "fmdings." For example, the report estab. 
lishes a major conclusion in the face of facts to the contrar. On page 17 a "fmding" of the 
report highlights the fact that "many respondents from States with regulation thought stronger  requirements are needed," despite the fact that the text of the report asserts that "
a thd of the 
regulatory changes were neeed in their 
respondents from States with regulation thought  no 
States" while still others "thought their States had not had sufficient experience with reent 
regulatory changes to consider any furter activities soon. 
" (Emphasis added.) More con
sideration should be given to these statements due to the signcant number of respnonedeentis n 
who advocate that either no regulations are neeed at  .rguatons are 
al or that no 
the near futur.

Another example can be found on page 19. There the report recommends that "State govern
ments . . . take initiatives to promote strnger, more effective regulation of physician dispens 
ing." The report should include an appendix identiying states which have reently strck 
down regulations for being too restrctive in order to remind states of the danger of over-
regulation. 
We are pleased to have had the opportunity to submit the foregoing comments and 
trst that 
you wil let us know if we can provide further information or assist you in any way in fmaliz
ing the report. 
For example, page 9 of the report refers to the fact that state regulatory bod offcia are of the 
view tht states should implement regulations authoriing dispnsing only by the physicia them-
selves. In the case of a physician who dispenses prepackaged drgs-as oppose to dinsers of 
drgs "in bul" there is little nee for such a regulation. 
In support of this proposition, the Annual Scherig Report IX prepar by Scherig Laratories in 
Kenilworth , New Jersey (1987), concludes that consumers get bener instrctions from physicians 
th from a typical drug store where the patient is likely to reive prescriptions from a cahier. 
The report shows that 92% of the patienlS sureyed were given detaled instrctions on dosage by .

their physician at the time they reeived a prescription. This compars to 43% who received in 
strctions from a phanacy. ' .
OIG RESPONSE TO CHCC COMMENTS
With respect to the CHCC' s comments on the scope of our report, we reiterate that the focus 
of our inquir was primaly dicted at gaiing furer understadig of the States ' regulatory 
approaches to drg dispensing by physicians. That an examnation of economic issues in 
volved in physician dispensing was beyond the scope of this inquir diishes neither..e.ig 
nicance of the economic issues nor of the regulatory issues which we did examne. .
The CHCC believes our methodology was deficient and suggests the report contas insuff 
cient data to justify our recommendations for strnger, more effective regulation. As noted 
earlier, we believe our approach was reasoned and 
creble given the purose and scope of the 
inquir and that it balanced the perspectives of both medcine and pharcy. We acknow 
ledge we did not compare disciplinar actions 
taen by State boards agaist physicians with 
those taen against pharcists. We question the signifcance of such a comparson given the 
disparty in State regulation of the practice between the two professions and given that the dis 
pensing of prescription drgs is at the core of pharacy practice and closely monitored by 
regulatory officials. For all the reasons detaled above, we believe our data on regulatory re 
quirements provides a solid basis for our policy recommendations. 
The CHCC takes issue with our finding summarzing the views of regulatory board officials 
with respect to the need for stronger regulation of the practice. We believe the interpretation 
and emphasis we give to the supportng data is correct. As stated in the report, one-third of 
the officials from States with regulation thought no further  changes  were currently neeed, not 
that "no regulations are needed at all or that no regulations are needed in the near futue. 
The CHCC suggests we include an appendix to the report in which we identify those States 
which have recently strck down regulations for being too restrctive..." We would welcoJ1
furer information in this regard. Our research for this study yielded no examples of States 
having rescinded any requirements for dispensing by physicians once they had been imple 
mented. We have leamed of only one State, after our research had been completed, which 
repealed an existing requirment but did so while adding other requirements to strngten the 
State s overall control over the practice. 
We appreciate the comments on the accuracy of curnt State requirements and of estiated 
revenues of repackagers. We have modfied the data for some States; for others we made no 
changes because we believe our descriptions 
ar correct. Our statement regarding revenues of 
the repackaging industr ar based on published estimates from the sources we reference in ap 
pendix IV. 
We accept the distinction made by the CHCC between dispensing drgs "in bulk" and dispens 
ing prepackaged drugs. The Coalition maintains that prepackaged 
drgs ar safer. We ac 
knowledge that repackaged drugs may have important differences from drgs  in bulk. 
However, that fact does not, in our view, obviate the need for stronger State regulatory control 
of the tye we recommend. Regardless of whether drgs are dispensed "in bulk" or in smaller 
quantities from repackaging companies, we think State governments need to be able to iden- , "
tify dispensing physicians, to assur that patients have from of choice in 
filig prescrip

tions, and to assure compliance with all the procedur requirments we suggest in order to
protet the public and the integrty of the drg distrbution system.
NATIONAL ASSOCIATION OF CHAIN DRUG STORES COMMENTS
The National Association of Chai Drg Stores, Inc. (NACDS) appreiates the opportity-to,
comment on the draft report entitled  Physician Drug Dispensing: An Overview of State
Regulation." NACDS represents 173 chain drg corporations 
operatig in excess of 21

reta pharacies nationwide that dispense 40 percent of the nation s prescrption drg
products. As a long-stadig integr component of the health car delivery system, we ap 
plaud your initiative in this ara, as you have clearly recognize the serious implication for the
safety and welfare of the American consumer.
Based upon the conclusions reached in the report, it is apparent that the Inspector General
believes that a conflct of interest exists when a physician both prescribes and dispenses
prescription drgs. With increasing cost contanment pressures on physicians, the oversupply
of physicians, and the resultant reduction in their annual incomes, it can be expected that ths
practice wil only increase since the only incentive to dispense prescrption drgs is an oppor 
tunity for supplementa income. Additionaly, recent passage of the Medcare Catastrophic
Coverage Act, expandig the Federal Government s involvement with outpatient prescription
drg programs, may furher this practice and its related abuses. Thus, physician dispensing
has nothing to do with better health care, but is encouraged and drven by a 
grwing drg
repackagig industr promising increased profits to physicians.
While we agre with the conclusions of the report that there is a basic and compellng need for
a closer scrutiny of physician dispensing, we recommend that the practice be prohibited al 
together except for those situations in which a medcal emergency arses or the physician is
fulfllng a patient s imediate needs. Only by a strngent control on this practice can the
public health be served.

It is well established that the pharacist is the primar source of information on prescription
drgs not only for the consumer but also to the physician. The pharacist is the only member
of the health care delivery system educated and licensed for this importt 
function.
As is clearly shown by your study, physicians have not and wil not tolerate regulation of
themselves. Absent any credible justification, NACDS encourages the Inspector General not
to give credence to a system that does not serve or benefit the health nees of the consumer.
In conclusion, NACDS appreciates this opportunity to comment on the draft report.
OIG RESPONSE TO NACDS COMMENTS
We are pleased with the positive response of the NACDS to our inquir. It is important to
note, however, that in stating our conclusions we do not intend to suggest that physician drg
dispensing represents a conflict of interest. On the 
contrar, the focus of our inquiry and the
 resultat findings do not permt our takng a position on the question of whether physicians 
should or should not dispense prescription drgs. Rather, the fmdings of our inquir support 
our recommendations, namely, that should States choose to permt dispensing by physicians, 
they should impose adequate regulatory controls over the practice to assur the protection 
public health and the integrty of the drg distrbution system. 
AMERICAN PHARMACEUTICAL ASSOCIATION CO.MMENTS  t..
We ar pleased to submit our comments on the draft report entitled "Physician Drg Dispens 
ing: An Overvew of State Regulation." APhA is the national professional society of phar 
th 
macists, representing the  largest health profession, comprising more than 150,
pharcy 
practitioners, pharaceutical scientists and pharacy 
students. Your office and staf
are to be commended for their attention to a serious problem facing the American public. The
representatives of the State agencies that you sureyed for this report ar very knowledgeable 
about the laws you sought to review. Because our member pharacists are so 
dictly af 
fected by these laws, we trust you wil give our comments the weight we believe they deserve.
We have circulated the report among our leadership and sta, as well as all of the state phar 
macy association executives, in an effort to provide you with comments that are 
trly repre 
sentative of pharacists' views. As you know, we worked closely with Dr. Yessian and Ms. 
Kvaa to assist them whenever possible. 
The fmdings of the inspection appear to be faily collected, accurate, and presente in a 
balanced fashion. The profiling of state laws by elements is parcularly insightful. APhA's 
own informal research and the findings of the Glassman Oliver Report...corroborate the find 
ings that the incidence of physician dispensing for profit is expandig, that attempts to regu 
late the practice 
ar increasing, and that attempts to enforce existing laws and regulations have.
been largely ineffective due to budgeta and political diffculties. It is also 
tre that con 
siderable support exists for furher regulation.
Pror to discussing APhA' s specific recommendations concerning the inspection report we 
want to make it clear that APhA policy opposes any form of nonpharacist dispensing. The 
APhA policy on nonpharacist dispensing, adopted March 31, 1987, states:
The American Pharaceutical Association support the principle that all patients 
receiving prescription medications are entitled to comprehensive pharaceutical 
services. These services include, but ar not limted to, patient counseling, main 
taining patient profIes, and providing the check and balance system with other 
health professionals to help prevent prescriber errors and adverse drg interactions. 
The American Pharaceutical Association opposes nonpharacist dispensing of 
prescription medications.  Discussion of the APhA House of Delegates recognized that emergency situations occur. Be-
cause of the exceptional natur of emergencies and the concern that formal recognition would 
weaken the language and alow loopholes in legislation to become standad practice, the 
APhA House of Delegates chose to omit that formal recognition. 
APhA supports the recommendations contaed in the inspection report. However, our view" 
that regulation of the practice is a necessar step should not imply that APhA views physic 
dispensing as acceptable if regulated. Rather, our position is based upon the belief that ap 
propriate regulation of the dagerous practice of physician dispensing is better than no regula 
tion at all. 
APhA believes that the Inspector Genera' s recommendations in the fmal report should: 
Support federal legislation. The Inspector General is encouraged to support federal 
legislation that would limt physician dispensing to emergency situations, e.
g., Con
gressman Wyden s bil (H.R. 2168). In those situations, minimum federal stand 
ards simlar to those governing pharacy practice should apply. This bil is likely 
to be reintroduced in the next Congrss. 
Three signifcant factors requir swift and uniform federal action to protect the welfare of the 
American public. They include: 
Expanded activities of the profit -minded drug repackagers; 
in this traditional area of state authority; and 
The intrsion of the  FTC 
The inability of states to effectively enforce laws and regulations concerng the . 
practice. 
Many drg repackaging companies have encouraged physicians to sell prescription medica 
tion. A national repackaging association has predicted that fifty percent of all practicing 
physicians could be dispensing within the next five years. 
Three states were wared against regulating the practice by letters and public statements made 
by Federal Trade Commssion Chairman Daniel Oliver and his staff. These wamings have in 
hibited other states from pursuing regulations. Chaian Oliver has taken the position that dis 
pensing physicians add to the pool of competitive outlets, thus makng the market more 
competitive. APhA maintains that physician dispensing is anticompetitive. Patients 
ar un
likely to question a physician when told to "stop at the desk on the way out and pick up your 
prescription medication. 
As the report explains, states have a most diffcult time enforcing their laws to limit physician 
dispensing. Minimum federa laws and regulations would assist the States by sending a clear 
message that this is a serious issue. Thus, we encourage you to support federal legislation in 
your fmal report.  '" 
, "

Encourge federal agencies to assist in the enforcement of state laws. The Inspector 
General should urge the Deparent of  Huma Servces to insur that 
Health and 
any prescriber authorized to parcipate in any state and/or federaly funded 
prescription drg progr meets minium stadas of pharcy practice. 
It is most appropriate that federal agencies begin paying closer attention to the distrbution of
stada 
drg products by physicians. The federa government has established  for thepur 
and safety of drg proucts and safeguars governg drg products with a potential for 
abuse. While these regulations afect physicians, they are much more 
strgently applied to 
pharcists who are the traditional caretaers of these drg products and for whom the laws 
were designed. The states have traditionally determned who shall prescribe and who shall dis 
pharcy 
pense drg products. The laws and regulations controllng the highly competitive 
marketplace in the United States have evolved over the past 125 years and include a combina
tion of federal and state laws. State boards of pharacy control the licensur of pharacists 
and pharacies, but they have little or no authority over physicians who choose to dispense 
medication. 
Investigate dispensing physicians' conflict of interest. The Inspector General should 
consider an expanded study to investigate the conflict of interest that occur when 
a prescriber both chooses the patient s medcation and profits from the sale of that 
medication. 
The Congress, in the recent passage of the Medicare Catastrophic Coverage Act, has recog
nized a conflict of interest when physicians profit from referrals of home IV therapy patients. 
Severe penalties are to be imposed upon violators of those provisions as a means of deterrng 
such practices. The same condition occurs when a physician selects his own "pharacy" by 
dispensing a drg product to a patient and profiting from that sale. Yet ths smaler, but equal,-
Iy significant, transaction goes unnoticed in the law. 
Dispensing prescribers tyically have a limited inventory of 
drg products which reduces the 
opportnity for effective drg product selection. If the prescriber cares only one brand of 
multi-source product, patients wil no longer have the wide range of choices which makes our 
health care system one of the best in the world. 
Dr. Arold Reiman, editor of  echoe our concerns 
the  New England Journal of Medicine 
when he said  (A physician) should not be a business man with an inventory of 
drgs on his 
hands that he wants to sell you at a profit. The risk is that a 
parcular drg wil be used when 
it may not be the best drg or when you may not nee a drg at al." In another document, he 
stated, "When doctors profit by sellng their patients drgs that they themselves have 
prescribed, they are attempting to fill two basically incompatible roles--those of fiduciar and 
vendor. (Federal legislation) is necessar to protect the public from possible abuse resulting 
from the confusion of these roles and to make clear that we want our doctors to act as protec
tors of their patients ' interest and not as ordinar tradespeople.  Include all prescribers in recommendations to contrl the practice. Whe the term 
physician dispensing" has become commonplace, the Inspector General is asked 
to urge Congrss and federal agencies to include al prescribers in reommenda 
tions to control the practice of prescribers ' dispensing for profit. 
Many federal and state laws allow varous groups of practitioners to prescribe and (either 

dictly or by omission) dispense drg products. These include, but may not be lited to,. 
dentists, osteopaths, podatrsts, optometrsts, physicians ' assistats, nurse practitioners, and 
veterinarans. If "physician" dispensing for profit is il-advised, then other practitioners' dis
pensing for profit is il-advised as well. 
Urge lawmakers and regulatory agencies to reuir dispensing prescrbers to do so
dictly to the patient. Special emphasis should be placed upon reuirments that 
prescribers authorized to dispense do so dictly to the patient, rather than delegat 
ing responsibility or activities in any way. 
It is dagerous enough to elimiate the safety net of overlapping responsibilities between 
physicians and pharacists by allowing physicians to dispense to patients without pharacist 
involvement. The growing practice by dispensing physicians of 
delegatig dispensing func
tions to nures or nonprofessionals increases the chances for error and incomplete or inac 
curate information. 
Every effort must be made to insur that physicians do not delegate this important work. 
Update the char of state laws to reflect recent changes. The char classifying varous 
elements of state laws should be updated to reflect the enclosed clarfications and 
, Florida, and Iowa. 
recent changes in California
Attached for the Inspector s use are letters and supportng documents from the Calfornia 
Florida, and Iowa Pharacists Associations. These documents addrss specific elements of 
the char dealing with state laws and should be used to make the char as up-to-date as pos 
sible. 
In closing, APhA thanks the Inspector General for the opportunity to comment on a well-re-
searched and well-wrtten inspection report. It is our hope that the recommendations con
tained in this letter wil be considered carefully for inclusion in the fmal report. In so doing, 
the American public might be one step closer to protection from the il effects of a dagerous 
practice. We are willing to meet with you at any time to discuss these issues, and we look for-
ward to receiving your final report. 
OIG RESPONSE TO APHA COMMENTS 
We appreciate the positive response of the APhA to our overall report and offer the following 
comments with respect to their suggestions.  The APhA suggests the report support Federal legislation to limit physician dispensing. We
believe any Federal legislation must take into account curnt State regulation on this subject.
We hope this analysis wil be useful to government policymakers at al levels as they design a
framework for further regulation of this practice.
The APhA encourges Federa agencies to assist in enforcement of State laws and the Depar 
mium stada 
ment, in parcular, to ensure that dispensing prescbers meet  ofphar,, 
macy practice. APhA points out that dispensing stadads for pharcists ar more strgent 
than those for physicians. We have addrssed this disparty in our recommendation that a mi 
imum thrshold be adopted by States. We would also argue, as we have above, that curent 
FDA policy is inconsistent in applying the prescrption dlUg labeling requirments of the 
Federa Foo, Drug, and Cosmetic Act to drgs dispensed by pharacists but not to those dis 
pensed by physicians. 
The APhA suggests that the OIG evaluate the conflct of interest aspect of physician drg dis 
pensing. Although an examation of this issue was beyond the scope of ths study, it may 
warant study at a later date. 
We agree with the thrst of APhA' s concern that our reommendations ought to apply to dis 
pensing by all prescribers rather than only to dispensing by physicians. In fact, we found that 
in many States, the regulation goveming dispensing by physicians also included dispensing by 
other types of practitioners such as dentists, osteopaths, podatrsts, veteriarans, etc. 
However, because we limted our inquir to State requirements for dispensing by physicians,
we cannot technically justify inclusion of other  reommen 
tyes of dispensing providers in the 
dations of this report.
We shar the concern of APhA regarding the need for supervisory control over the dispensing.. 
process and have suggested, as par of the theshold of regulation we recommend, that States
address diectly this aspect of dispensing in their regulatory reuirements.
Finally, we appreciate the clarfication and updatig of State laws. We have noted these chan 
ges in the report and its appendices.
FEDERATION OF STATE MEDICAL BOARDS COMMENTS 
drt
The Federation of S tate Medical Boards appreciates the opportunity to comment on the 
report entitled "Physician Drug Dispensing: An Overview of State Regulation. 
The report is highly informative and presents a thorough examnation of State reuirments 
for the dispensing of prescription drgs by physicians. It is importt to emphasize, however 
that the findigs and recommendations of the report address regulation of dispensing by 
physicians in amounts larger than free samples. Furter, in our view, any regulation of this 
practice should be thoughtfully crafted keeping in mind the best interest of the patient. 
The Federation supports the OIG recommendation that we and the National Association of 
Boards of Pharacy work together to provide leadership to State boards in the regulation of  , "  , "
drg dispensing by physicians. The FSMB revises its publication  Guide to the Essentials of 
a Modem Medcal Prctice Act," every 3 years and wil consider includig the topic of drg 
dispensing by physicians in the next edtion in 1991. 
We look forward to receiving the final report. 
OIG RESPONSE TO FSMB COMMENTS
We appreiate the overall positive response of the FSMB to our report and, in parcular, its
wi1gness to address physician drg dispensing in its guidelies to State medcal boars as 
well as in cooperation with the effort of the National Association of Boards of Pharacy. 
NATIONAL ASSOCIATION OF BOARDS OF PHARMACY COMMENTS
I am pleased to comment on behal of the National Association of Boards of Pharacy 
(NABP) in regard to the draft report entitled, "Physician Drug Dispensing: An Overview of 
State Regulation." The NABP is the national association of the 50 state boards of pharacy, 
the Distrct of Columbia, Puerto Rico, the Virgin Islands, some provinces of Canada and, most 
recently, the Pharacy Board of Victoria, Australa. 
In our view, the report provides an excellent overview of physician drg dispensing. I want to 
commend Dr. Yessian, Ms. Kvaal and other members of the project team for their thorough
ness and objectivity. Without question, the issue of physician drg dispensing is controversial 
and often elicits emotional and political considerations. The draf report steers clear of these 
considerations and presents the facts of the issue, clearly and concisely.
The following comments are offered by NABP to provide more insight into the issue and offer. 
suggestions on how better to regulate the practice of physician drg dispensing. 
FINDINGS: 
The Incidence of Physician Drug Dispensing: 
The incidence of physician drg dispensing is extrmely diffcult to document. Although the 
majority of respor;dents to the survey estimated "that 5 percent or less of the physicians in 
their states are dispensing for profit " it is important to understand that physician 
drg dispens 
ing is much more commonplace. 
The report notes this on page 1  Physicians have always dispensed drgs to some degree 
par of the practice of medicine." The dispensing that occurs as "par of the practice of 
medicine " because of the myrad of activities it may assume, is a significant threat to the 
health and welfar of the public by the mere fact that it cannot be documented. However, the 
tie 
physician drg dispensing we are referrng to, and examed by the report, is not the one 
admnistration dose" or "staer dose" occurences. It is the consistent and repeated dispens
ing of drgs by the physician diectly to his/her patients.  If asked to estiate this percentage, ignoring the qualfication of "for profit," and having no
hard data to substantiate the estite, we would offer a percentage approachig 10 percent.
We can explain the low estiate in the report as being attbutable to the distinction of "for 
profit," This distiction may have skewed the respondents ' estiates. 
Although this may seem a minor point, its significance extends beyond the nee to establish. 
possi!
an accurte estimate. The significance lies in the number of individuals that.could 
affected by ths practice. Even if the report s estimate of 5 percent is corrct, millons of 
people are affected. N ABP would encourge the report to provide some explanation of the 
magnitude of the problem in terms of the number of people afected by 
ths practice. 
State Requirements:
We offer several comments in regard to state requirements to regulate dispensing by 
physicians. 
The primar concern of the state boards in regulating physician dispensing is to protect 
the public health (page 5). The need for regulation and the concern expressed by the 
respondents reflects the danger that exists if the practice of physician dispensing is left 
unregulated or at the mercy of economic forces.
The reuirements imposed by the boars of pharacy on the regulation of pharacists
practicing pharacy are more strngent than the requirments on the dispensing of 
prescription drgs by physicians, (pages 9-10). This disparty is accentuated when one 
considers that the professional education and experience obtained by physicians in 
regard to drgs is far less than that of a pharacist. 
At the least, it would seem in the best interest of the public to impose the same require 
ments for physicians as pharacists. Theoretically, because the physician lacks the 
same education and training as a pharacist, it would seem appropriate to requir more 
strngent requirements for the physician dispensing drgs. Strcter requirments for 
such practitioners might provide another safeguard to prevent inappropriate or unsafe 
dispensing by unqualifed practitioners.
The regulation governing phy ician dispensing must be effectively enforced. The report 
notes that States' efforts to enforce their regulation is only moderately effective (page 
12) because most States lack the resources to enforce their regulatory requirments 
(page 14), have limited abilty to inspect the offces of dispensing physicians (page 14), 
find that the basis for the regulatory requirements is divided among the medcal and
pharacy boards or fall outside of the purview of both of these boards (page 15). These 
findigs ilustrate the need to develop, implement and enforce effective legislation. The 
states need diection and appropriate funding to fulfill their responsibilities. It is quite 
clear from the information NABP has reviewed that the authority over physician 
dispensing sometimes falls into a legislative quagmire asking the pharacy and medical 
boards to decipher what their responsibilties and enforcement activities ar.  Physician dispensing should be regulated by the States. The great majority of 
respondents emphasize the importance of the States regulatig physicians dispensing 
drgs (page 16). Although some respondents favored federal action (page 18), it would 
appear that the action preferred is not the passage of legislation but the development of 
uniform standads. Collectively, thugh organizations like NABP, the States have done 
an exemplar job of setting uniorm stadads and sharg inormation. 
We believe that the regulation of physician drg dispensing should be the responsibilty of the 
States. The States should also work together and establish uniform stadas. The federa 
government, if it indeed wants the practice of physician dispensing properly monitore, must 
realze that the States ar the best source for this authority and provide fundig and other sup-
port. 
RECOMMENDATIONS:
We strongly concur with the recommendations set forth in the report. We would like to em 
phasize parcularly that the States need to take the initiative in implementig effective regula 
tion for physician dispensing, that States be empowered and funded to adequately enforce 
such regulations and that NABP and the FSMB serve as the guiding forces for the develop 
ment of uniform standards and model regulations. 
We would also like to add to the report s reommendations the comments made earlier that, at 
the very least, physicians should be held accountable to the same 
reuirements that phar 
macists are. These requirments include, but are not limite to, the proper labeling, storage 
and record-keeping for drgs. In essence, if a physician is dispensing drgs he/she must meet 
the same miimum requirements that a pharacist must meet. Uniform stadards and require" 
ments would protect the public from the dagers of inappropriate dispensing and unqualifed 
practitioners. It would certainly provide the tools to more effectively regulate the practice and 
provide licensing authorities with the proper record-keeping to monitor the practice. 
NABP appreciates the opportunity to comment on this excellent report. If we can be of fur 
ther assistance to you, please feel free to contact me. Thank you!
OIG RESPONSE TO NABP COMMENTS 
We appreciate NABP's comments on the incidence of physicians who are dispensing prescrip 
tion drgs. As noted elsewhere, our inquir focussed on dispensing by physicians in amounts 
larger than samples and starer dosages. We therefore asked regulatory offcials to estiate 
the proporton of physicians dispensing drugs for profit in their States. We agree that although 
the estimates of incidence var, a sizeable number of physicians and patients may nonetheless 
be involved. 
We agre with the observations of NABP regardig the States' requirements for dispensing by 
physicians. As noted previously, the requirments imposed on dispensing by pharcists in 
most States are much more strngent that those imposed on dispensing by physicians. This dis- strg 
party is even more  in view of the additional requirements for licensure which al 
States require of pharacists. Hence, in our recommendations, we state our view that should 
States choose not to prohibit dispensing by physicians in amounts 
grater than samples or 
staer dosages, they then, at the very least, should impose reuirements to reuce ths inequity 
in regulation of prescription drg dispensing. 
We shar the concern of NABP regarding the nee for effective enforcement of existig.re.. 
quirments. Accordigly, we included with our recommendation on enforcement specifc ac 
tions States might consider for strngthening their enforcement efforts.  APPENDIX /I
METHODOLOGICAL NOTES 
This study focused on State regulation of physicians dispensing prescription drgs from their 
offices. Our inquiry concentrated specifcally on State-imposed requirments for dispensing, 
prescription drgs in amounts grater than samples. Although we ar aware that other prac- . 
titioners such as dentists may also dispense drgs, we chose to limt our inquir to physicians 
because they constitute the largest group of medcal practitioners in each State. 
th 
The information for this study was based on  tyes of inquir: 
Review of a wide range of printed materials related to the practice of physician 
dispensing including congressional hearngs, drg repackager marketing materials, 
stUdies, consumer sureys, and arcles in the public press and in professional and trade 
association publications. 
Discussions with representatives of organizations and agencies concerned with issues 
related to physician dispensing. These included staff from the FDA and HCFA withn 
the Deparment, Federal Trade Commssion, Drg Enforcement Admnistration, U. 
Congress, American Medical Association, American 
Pharaceutical Association 
Competitive Health Care Coalition , (representing drg repackagig companes), 
Federation of State Medical Boards, National Association of Boards of Pharacy, 
National Association of Chain Drug Stores, and NARD (formerly National Association 
of Retail Druggists). 
Telephone discussions with staff from 108 State regulatory boards/agencies in all 50 
States and the Distrct of Columbia. These included 45 medcal boards, 45 pharacy 
boards, four centralized umbrella regulatory agencies, and, in 14 States 
, agencies that 
are separate from the boards but are involved in enforcement of 
drg laws. Usually we 
taled with the executive diectors of the boards, but in some instances, we spoke with 
other staff suggested to us by the executive diectors. 
Two methodological considerations ar importt to note with respect to the telephone discus 
sions. First, although we spoke with 108 individuals using a single discussion guide, some 
questions were asked only of a subset of the total universe. Also, a few individuals had no 
comment for some questions. Therefore, we have included as respondents in our percentages 
and figurs (N= -) only those individuals who responded to the questions. Second, the guide 
used in the telephone discussions consisted of both closed and open-ended questions. Because 
we did not distrbute these guides prior to the discussions, the open-ended questions requird 
respondents to answer spontaneously. Thus, the percentages of parcular responses to these 
questions var more than would have been the case had the respondents been presented with 
limited response options or had they reviewed the questions prior to the discussions.  Spreadsheet of the States' Regulatory Requirements 
figu n
The spreadsheet, included as  , summarzes regulatory 
reuirments implemente by 
priary
the States as of August 1 , 1988. Information about the reuirements was gathere 
though the telephone discussions with officials from those reguatory boars/agencies havig 
major responsibility for enforcement within each State. We chose ths approach for two 
reasons. First, we could locate no readiy accessible, comprehensive,. and up-todate co 
tion of all the States' statues and regulations goveming the practice of physician dispensing. 
Second, we found that recent summes of State regulation prepar by the Arzona Board of 
Pharacy (1986), American Medcal Association (1987), National Association of Boars of 
Pharacy (1987), and the Federation of State Medcal Bbars (1988) were sometimes in dis 
agreement or were not complete for all States. Therefore, we developed for our own use a 
checklist which grouped into five types of regulation the requirements most commonly 
adopted by the States. After refining the checklist according to comments received from 
selected national organizations and State regulatory boards, we mailed copies to respondents
prior to the telephone discussions so they would be famliar with the information we were
seeking. By completig the checklist durg the telephone discussions, we were able to obtan
the comprehensive, up-to-date, specific information we needed.
Because we relied priary on secondar sources for our information on State requirements, 
we cannot confirm that the information is completely accurate or al-inclusive. As much as 
possible, however, we compard the information gathered from al respondents within a State
with each other as well as with copies of those States' statutes and regulations available to us.
We tred to resolve all inconsistencies with follow-up telephone cals to respondents.
Classifcation of States by Restrictiveness of Regulation
We classified the States according to the types of regulation in effect on August 1, 1988
as follows:
(4):
Extremely Restrictive Regulation 
Massachusetts, Montana, Texas , Utah 
These States have regulation that limts physician dispensing to emergencies, or to situa 
tions in which pharacy services ar unavaiable, or the physician is meeting the
patient's imediate needs (Type I). Respondents from these States all described their
regulation as essentially prohibiting physicians from dispensing. We excluded Arzona
from this category because the medcal and pharacy boards reported that their practice
acts differ over whether dispensing is allowed or is limited to emergency situations only. . . 
(3): 
Very Restrictive Regulation 
ebraska, ()klorna 
Arkansas, 
These States require physicians to receive approval or a permt from a State regulatory 
board prior to dispensing (Type n). We included only these States in this category be-
cause the reuired board approval reportedy has ben given very 'spargly. . 
Moderately Restrictive Regulation (13): 
Arzona, Connecticut, Florida  , Georgia, lliiois, Iowa, Louisiana, Michigan, Mississip 
orth Carolina, Oregon, Washington 
evada, 
These States have some or all of the procedura requirments (Type V) as well as one or 
more of the requirements from Type n (dispensing physicians must identify themselves 
to regulatory boards/agencies), from Type 1l (limitations on fees and profits), and from 
Type IV (patient choice). 
ew Hampshir from this category because its registration 
We excluded  reuirement ap 
plies only to physicians in professional associations or corporations that dispense drgs. 
Virginia and West Virginia were also excluded because respondents there concurred 
that the regulation restrcting profit is so vague that the restrction, in practice, is mean
ingless. 
(25): 
Minimally Restrictive Regulation 
Alabama, Calfornia , Colorado, Delaware, Distrct of Columbia, Idao, Indiana, Kan 
sas, Kentucky, Maine, Minnesota, Missour  ew Hampshie, New Mexico  ew York 
ort Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Vermont, 
Virginia  , West Virginia, Wisconsin 
These States have procedural requirements (Type V) only.
No Regulation (6): 
Alaska, Hawaii, Marland*  ew Jersey, Rhode Island, Wyoming 
These States reported having implemented no regulation as of August 1 , 1988. 
* Both Maryland and Virginia wil implement recent statutory changes after regulations have been 
developed. On the basis of these changes, bOlh Slates would be considered 10 hae moderalely 
restrictive regulation.  California implemented the following new additional requirements on Januar 1, 1989:
Dispensing physicians must offer a wrtten prescription to patients (IV g) and provide 
patients with wrtten disclosure regardig choice to obtan prescriptions from a 
physician or from a pharacy (IV h); 
Dispensing physicians must store all drgs in a secure area (V I); 
State licensing board shall encourage physicians to 
tae a course in 
pharacology/pharaceuticals as par of contiuing education requirments; 
Varous requirements were added to handlg of complaints and for status reports to the 
legislatue in 1990 and 1991 on complaints. 
On the basis of these changes, Calfomia s regulation would be considered moderately restrc 
tive. 
Florida implemented the following new  , 1988: 
reuirments on October 1
Requirement for continuing education repealed (II d); 
Added to existing registration requirement a fee of $25; 
Dispensing physicians must provide wrtten prescription to patients (IV g) and orally or 
in wrting advise patients of choice in filing prescriptions (IV h); 
Mandatory inspections of offices of dispensing physicians. 
On the basis of these changes, Florida remains a State with moderately restrctive regulation.  APPENDIX /I
OTHER REGUlATORY REQUIREMENTS FOR PHYSICIAN DISPENSING AS OF 
AUGUST 1, 1988
CALIFORNIA
Drgs must be necessar to tratment of the condition for which the patient is under' 
care. 
Use of mechanical dispensing devices is prohibited unless the devices and contents are
owned by the physician. Leasing of drg-vending machines is prohibited
Dispensing Schedule II controlled substaces is prohibited except in an amount 
necessar for 72 hours. 
FLORIDA
Dispensing physicians must comply with requirments of the Florida Pharacy Act 
regarding substitution of drgs. 
IOWA
Upon a physician s authorization, a physician assistant or a registered nurse may supply 
drgs to patients when pharacy services are not available or when the supplying of 
such drgs is in the best interests of the patient. (This has been interpreted to mean rual 
clinics only. ) Additionally, such rual clinics must secure a consultant pharacist to 
provide advice regarding the distrbution, storage, and appropriate use of drgs. 
MONTANA
Dispensing by physicians "as a usual course of doing business" is prohibited; 
dispensing of drugs occasionally" is permtted. 
NORTH DAKOTA 
If the amount of drg dispensed is greater than a 72-hour supply, the dispensing is 
subject to requirements for labeling, record-keeping, patient counselling and patient 
profile system. 
PENNSYLVANIA
Physicians who dispense sympathomimeticamies must have approval 
frm the medcal

board and must meet special reportng requirements.
VIRGINIA
Permtted" physicians in rural areas are allowed to dispense to their own and other
patients. , " , "  , "

APPENDIX IV
ENDNOTES
For a discussion of the historical background of physician dispensing, see Michael L.
Glassman and Donald L. Marn  Physician Dispensing of Prescription Drugs: An
Economic and Policy Analysis," Glassman-Oliver Economic Consultants, Inc.
Washington, D.C., 1987.
Joy Swiss Thompson  Opportunities in the Pharaceutical Repackaging Market, An
Industr Study," Wessels, Arold & Henderson, Minneapolis, Miesota, October 1987.
New Investment Market In Dispensing of Pharaceuticals,  The Srock Marker
Januar - Februar 1987, pp. 4-
Magazine, 
3. For a discussion of issues surrounding physician dispensing, see "Physician Dispensing of
Drugs " Hearg before the Subcommittee on Health and the Environment of the Commt 
tee on Energy and Commerce, United States House of Representatives, Apri 22, 1987.
The requirements for controlled substances are contaied in the Controlled Substances
Act of 1970 and the Comprehensive Crime Control Act of 1984. The Prescription Drug
Marketig Act of 1987 amended the Federal Food, Drug, and Cosmetic Act to impose
restrctions on drg samples.

For pharacy standards of practice, see Samuel H. Kalman and John F. Schlegel  Stad 
ards of Practice for the Profession of Pharacy,  Vol. NS 19,
American Pharmacy, 
No. 3, March 1979/135, pp. 21-33. For a summar of State pharacy 
laws, see  Survey of

Phal7cy Law--1987  88, National Association of Boards of Pharacy, Park Ridge, Il 
linois.
The Srock Marker Magazine  op. cit.
Pharacists Protest Doctors' Drug Sales,  The New York Times,  September 17, 1987,
Section B, p. I.
One-Stop Medicine  Sciendfic American  November 1987.
Arold S. Reiman, M.D., "Doctors and the Dispensing of Drugs,  The New England
Journal afMedicine  July 30, 1987, pp. 311-312.
Regulatory officials were asked to estimate the proportion of physicians in their States
who were dispensing for profit in an effort to distinguish them from those dispensing only
samples and starer dosages. We excluded regulation limited exclusively to controlled substances and child-resistat 
packaging because of Federa reuirments applicable to dispensing physicians nation-
wide. 
9. The requirements discussed below and summarze in figu II 
and figue II are those im 
plemente by the States as of August 1 , 1988. We have recently become aware of new re 
quirments implemented since August 1988 in Californa and Florida. Those changes ar 
noted in appendi II but could not be incorporated here without our having reconfirmed 
requirements for al the States. 
10. This regulation is separate from the registration require by the Drg Enforcement Ad-
ministration for controlled drgs. 
II. Medical Licensure and Discipline: An Overview, Offce of Analysis and Inspections, 
Offce of Inspector General, Deparent of Health and Human Services, June 1986.