of the

ASSEMBLY Committee on Commerce and Labor


Seventy-Second Session

May 14, 2003



The Committee on Commerce and Laborwas called to order at 12:34 p.m., on Wednesday, May 14, 2003.  Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Guest List.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.


Note:  These minutes are compiled in the modified verbatim style.  Bracketed material indicates language used to clarify and further describe testimony.  Actions of the Committee are presented in the traditional legislative style.




Mr. David Goldwater, Chairman

Ms. Barbara Buckley, Vice Chairwoman

Mr. Morse Arberry Jr.

Mr. Bob Beers

Mr. David Brown

Mrs. Dawn Gibbons

Ms. Chris Giunchigliani

Mr. Josh Griffin

Mr. Lynn Hettrick

Mr. Ron Knecht

Ms. Sheila Leslie

Mr. John Oceguera

Mr. David Parks

Mr. Richard Perkins








Senator Valerie Wiener, Clark County, Senatorial District No. 3




Vance Hughey, Principal Research Analyst

Wil Keane, Committee Counsel

Diane Thornton, Senior Research Analyst

Sharee Gebhardt, Committee Secretary




Jack Jeffrey, Legislative Advocate, Brown & Williamson Tobacco

Barton Freedman, Consultant, Brown & Williamson Tobacco, Louisville, Kentucky

David Jones, President, PJ’s Liquor & Wine Shop, Gardnerville

Myrna Blankenship, Owner, Smokes, Gifts & Java, Las Vegas

Marjit Narwal, Owner, G&S Mini Mart & Smoke Shop, Las Vegas

Edward Allison, Legislative Advocate, Brown & Williamson Tobacco

Mary Lau, Executive Director, Retail Association of Nevada

Sam McMullen, Legislative Advocate, Philip Morris USA, Inc.

Michael Alonso, Legislative Advocate, Lorillard Tobacco Company

Steve McCauley, Nevada Athletic Trainers Association

Alfredo Alonso, Legislative Advocate, Lionel Sawyer & Collins

Tom Skancke, Legislative Advocate, Nevada Chiropractors Association

Rocky Finseth, Legislative Advocate, Nevada Physical Therapy Association

Frank Daykin, Commissioner, Uniform State Laws

Michael Alonso, Legislative Advocate, Nevada Bankers Association

Fred Hillerby, Legislative Advocate, Nevada State Board of Pharmacy

Keith Macdonald, Executive Secretary, Nevada State Board of Pharmacy

Louis Ling, General Counsel, Nevada Board of Pharmacy

Michael Alonso, Legislative Advocate, Medco Health Services

Helen Foley, Legislative Advocate, Association of Nevada Pharmaceutical Wholesalers

Steve Gibson, Legislative Advocate, Association of Nevada Pharmaceutical Wholesalers

Birgit Baker, Administrator, Employment Security Division, Nevada Department of Employment, Training and Rehabilitation

Keith Lee, Legislative Advocate, State Board of Medical Examiners

Gregory Hayes, Associate Professor, University of Nevada, Reno


Chairman Goldwater:

We’ll open the meeting on Commerce and Labor.  Note for the record that everyone is present, and we have a quorum.  The Senate is in session and there are some senators who want to do their bills, so we’ll get started on some others and go out of order.  I’d like to open the hearing on S.B. 66.


Senate Bill 66 (1st Reprint):  Requires supplier of cigarettes to reimburse retail cigarette dealer for consumer price discount or consumer promotion provided to consumer within 90 days after retail cigarette dealer provides discount or promotion to consumer. (BDR 52-186)


Jack Jeffrey, Legislative Advocate, Brown & Williamson Tobacco:

[Introduced himself.]  We’re here today to present S.B. 66.  Bart Freedman, an attorney with Brown & Williamson from Louisville, Kentucky, will present the bill.  We also have an amendment to offer (Exhibit C).  We’ll be working from the amendment because the bill is incorporated in that amendment. 


Barton Freedman, Consultant, Brown & Williamson Tobacco, Louisville, Kentucky:

[Provided written testimony (Exhibit D).  Introduced himself.]  I have provided you a copy of the amendment to S.B. 66.  I think the bill, as it now stands, is step one in a process to try to bring fair and level competition back to the cigarette retail market place in the state of Nevada.  The bill, as it now is written, requires a cigarette manufacturer to reimburse retailers within 90 days for various promotions that the retailer participates in.  That is intended to resolve a major problem facing many Nevada retailers.  Our amendment goes further and prohibits manufacturers from coercing or forcing cigarette retailers into excluding the participation of other cigarette manufacturers in the retailer’s store.  We have a practice that has been ongoing since 1998 and even before.  It changes its picture every two or three months.  People who oppose this bill always say, “We’ve solved the problem; we’ve fixed it; there’s no need for legislation.”  However, this is a moving target.  These are programs that all of the cigarette manufacturers utilize in one form or another. 


The cigarette manufacturers, as a group, always find a way to restrict the retailers’ freedom to run the store the way the retailers want to.  That is what our amendment is attempting to do.  It prohibits a broad range of marketing programs that interfere with the retailers’ ability to run their stores the way they wish.  When we first presented this bill in the Senate, one comment made was that the Legislature would not want to get into such detail in regulating a marketing program.  I have discussed this with several senators and I would like to assert to all of you today that the Legislature has done this in many instances. 


The best example is in the dairy industry.  Nevada Revised Statutes 584.581 and sections around that specify the unfair trade practices in the dairy products marketing area. 


We think that we have an exact parallel here with the amendment that we are proposing to S.B. 66.  Our language simply says to the retailer, “Here is conduct that is wrong if it’s inflicted on you.  It is an unfair practice and you have the ability to do something about it.”  The existing statutes are so broad that the typical retailer doesn’t have the money, doesn’t have the wherewithal, and doesn’t have the time to retain counsel and go to court and spend what could be hundreds of thousands of dollars to try to get relief from an obnoxious, anti-competitive practice.  What our bill does, similar to the milk statutes and similar to what already exists with the cigarette wholesale minimum price laws in Nevada, is spell out conduct that is prohibited in a way that a retailer can hopefully protect himself right at the outset by telling the cigarette manufacturer, “You cannot do this.  Nevada statutes say that you cannot buy space on a percentage basis.  You can’t force me to exclude a competitor of yours in order to participate in a program.  You can’t force me to raise prices on a competitor’s cigarettes.” 


These are subjects that are covered in our amendment.  It spells out in such simple detail for the retailer that hopefully the retailer can solve his or her competitive problem without going to court.  It will save the courts a lot of trouble and protect the retail community from having programs that are disturbing to them.  This is not special interest legislation of any kind.  It has been said that Brown & Williamson and Philip Morris are at war with each other.  Of course we are at war with each other; we are competing with each other.  This bill is about the retailer at war with all cigarette manufacturers.  Because we’re trying to compete with each other, we’re being squeezed.  We have a witness sitting next to me who can articulate this far better than I can because he lives it every day, and I understand we have witnesses in Las Vegas who will be testifying. 


David Jones, President, PJ’s Liquor & Wine Shop, Gardnerville:

[Introduced himself.  Spoke from prepared testimony (Exhibit E).]  I have been in the retail business for 23 years and have dealt with tobacco companies for most of that time.  Today I speak to you as a representative of PJ’s Liquor & Wine Shop, a Nevada-based Subchapter S Corporation located in Gardnerville, Nevada.  The business employs seven full-time employees and last year had sales of $2.3 million.


[David Jones continued.]  Let me begin by giving you a brief verbal picture of the current nature of retail tobacco sales.  There are two types of retailers.  [There are] those who aggressively seek to sell a volume of product by discounting, promoting, and carrying a very large selection of brands and styles.  These stores sell about 90 percent of the total volume of tobacco.  [And there are] those who do not discount, who only carry a limited selection, and who do not rely on the revenue of tobacco sales to keep their businesses viable.  This group generally consists of supermarkets, drug stores and small rural stores.  They sell only about seven percent of the total volume of retail tobacco. 


At PJ’s Liquor & Wine Shop, along with our liquor sales, we are an aggressive outlet for tobacco.  We are a mid- to large account, with sales in excess of 500 cartons of cigarettes a week.  To maintain this volume and stay competitive, we must do several things:



Why must we contract?  To participate in the tobacco companies’ “buy-down” and promotions programs.  In a “buy-down” situation the tobacco company reimburses a set amount, usually between $6 and $9 per carton, if we reduce our retail the same amount.  Our competition does this and we must do the same.  Promotions are generally a multi-pack offering with free goods.  An example would be “buy two packs, get one free.”  Consumers know when these are available and expect that we will have them.  Remember, only contracted stores participate in buy-downs and promotions.  A retail price $6 to $9 higher than the store down the street would mean the loss of our customers and their business.  Contracting is not really a matter of our choosing; it is a necessity for survival.


The contract we must sign is the subject of this legislation.  To contract with Philip Morris, we at PJ’s must give them 52 percent of all the visible space we allocate to tobacco products.  Don’t be misled when they tell you they have many levels of contracts, they all require the same percentage of space.  To contract with R.J. Reynolds, the second largest company, we agree to give them 35 percent of all visible space.  In addition to the space issue, we must agree to carry all brands and styles they dictate, whether they sell or not.  We have to accept every new item they produce, and we are obligated to accept additional inventory when they choose to send it.  We have to wait sometimes for months for reimbursement of monies owed to us for promotions.  The contracts are preprinted.  [There is] no give and take, no negotiation, no meeting of the minds.  You take it or leave it.  With one-third or more of total sales coming from tobacco, we must take. 


[David Jones continued.]  In our store, these two companies control 87 percent of the space visible to the consumer.  They have more room than they need to merchandise their products and attract the eyes of the interested shopper.  There is more than enough room to attach signage and promotional pricing.  It is an example of overkill.  The benefit to them is obvious; all of the competition is crammed into the remaining space or under the counter where no one sees it.  Signage for these companies has to be very small so as not to cover another product.  The consumer will most likely not even see it.


The only way to promote a product from one of the smaller companies is to put it on the counter.  Of course, on the counter means it is self-serve and Philip Morris will penalize me ten cents a carton for every carton of their product we buy while that promotion is ongoing.  During a one-month special that [practice] could cost us $200 or more in contract payments.  Accepting the loss of these dollars we decide to do it anyway, but that’s not the end of the story.  Let’s say that Lorillard tobacco has a great deal on their Newport brand and we decide to take advantage of the special pricing.  It’s a good deal for our customers.  When we put this special on the counter, we must put an additional three displays from Philip Morris and two from R.J. Reynolds on the same counter.  That’s in the contract. 


We now have six displays, which will require at least six feet of counter space.  We don’t have six feet of counter space to give so we have to tell the Lorillard representative that we can’t run the promotion.  The contracts we have to sign restrict any chance of a rival tobacco company promoting their product and they know that.  They have drafted these contracts with “unstated but designed consequences.”  The next time you’re in a grocery store, ask the manager if he is forced to display Coca-Cola when he promotes Pepsi, or Tide detergent when he has Cheer detergent on sale.  Tobacco companies should not be able to exert this much control over the marketplace.


The proposed legislation you have before you addresses these two main points.  It would prohibit a tobacco company from requiring a fixed percentage of category space for a retailer to contract.  In our situation, we would not be forced to give 87 percent of our tobacco space to two companies.  All stores could participate without regard to space and percentage considerations.  A merchant could sell any or all of his space if he chooses to do so.  A tobacco company could buy space or the best selling location if the merchant decides to sell, but could not tie that amount of purchased space to promotions or retailer incentives.  The retailer would have the ability to make choices that will benefit his particular business.


[David Jones continued.]  The second point prohibits the contract from requiring a tie-in to any other promotion such as the example I gave with the “Newport” display.  Nothing in the legislation prohibits a merchant from having as many displays as he chooses.  Nothing prevents him from accepting payments from the tobacco companies for these displays.  He is not, however, forced to have six displays when he wants only one. 


Without your help we have few choices.  We can refuse to contract and try to compete with non-competitive prices.  We know that is not an option.  We can sit quietly, saying and doing nothing, and next year they will demand more as the competition grows weaker.  You will hear someone tell you that we should take them to court if we believe they have engaged in unfair trade practice, antitrust or coercion.  It took the states’ attorneys general years and millions of taxpayers’ dollars to win the “Master Settlement Agreement.”  We don’t have the money or the connections to pursue that option.  We need your help.


You will hear that this is a contract issue that does not need legislative interference.  A contract is a “meeting of the minds,” a give and take which should benefit both and be voluntarily entered into.  They are so powerful they do not negotiate.  They sign you to a contract that makes it possible for you to continue in business. 


They will say they are paying for shelf space.  You can’t sell them 10 or 20 percent.  Their contracts tell you the minimum they will accept.  Someone may tell you that they are helping by showing us how to merchandise the tobacco category.  How to help themselves at the expense of their competition is the result.  The big get bigger and the small cease to exist.


You will hear that the marketplace is full of contracts.  That is true, but they are different.  Contracts on candy, chips, soft drinks, and bread are common.  Manufacturers buy the space they need to merchandise their product.  The store can add footage to a category for other products if the need is there.  We can add space likewise, but the contracted companies take their percentage of that space also.  Corporate retail executives fear that “paying for space” could be impaired if percentage contracts in tobacco were made illegal.  Untold billions of dollars flow to corporate coffers as a result of slotting and merchandising payments.  These dollars are not at risk with this bill.  Tobacco companies will still pay these same dollars for premium placement, signage, and promotion.


You will probably hear from one lobbyist or another that their contracts do not limit competition in any way.  I hope I have been able to persuade you that they do.  The cumulative effect of even two contracts is devastating for competition.


[David Jones continued.]  The current situation is not good for the retailer, the consumer, or the long-term health of the business climate.  Left unchecked, the giants of manufacturing may decide what consumers can buy and whom they will buy it from.  Don’t let this happen.  True competition will give us the best products, the lowest prices, and a real choice in the market place. 


Chairman Goldwater:

Regarding the amendment, it seems like the Senate took action.  Can you explain to us what the process has been?  You amended the original bill?


Jack Jeffrey:

The original bill was similar to the bill that is before you today.  [The Senate] amended the bill on a 4 to 3 vote and forwarded the “prompt pay” revisions to you.  We have made some changes in the bill and have been working with the Senators and believe that we’ve got a better than even chance of passing the bill on that side.  The concepts are basically the same language. 


Myrna Blankenship, Owner, Smokes, Gifts & Java, Las Vegas:

[Introduced herself.]  What the gentleman from Gardnerville said is true.  I’ve owned this store for fifteen months, and the last thirteen months have been an absolute nightmare.  In the last two months I have finally said, “That’s it!  I’m fighting back.”  I have obtained the services from attorneys to try to get money that’s owed to me.  They [the cigarette companies] have canceled contracts and have not told me about it and let me sell the cigarettes at the discounted price and then refused to pay me for them.  They come into the store.  They physically move other vendors’ cigarettes out of the way so that they can’t be seen.  It’s just been a real nightmare and I am for S.B. 66


Chairman Goldwater:

[Mr. Jones,] in your testimony, you mentioned that this would not prohibit contracting for space and the like.  But it appears that it would very specifically prohibit those kinds of contracts.


David Jones:

The only portion that it would prohibit would be the percentage.  When the tobacco company comes to you, they will tell you that in your market, it’s 50 percent, it’s 52, 57, 58 [percent], and that’s the percentage of your total category space that is visible to the consumer that they have to have for even a minimum level of contract.  With this amendment in place, they could still come to you and they certainly would.  They will contract so that you will participate in their promotions.  The dollars that are currently being spent for contracts would still be spent.  They could still contract for the number one location.  They could still contract for a variety of different displays or signage.  They could contract for all of the other aspects of merchandising, and offer the merchant money for those things that they feel are valuable to them.  But they couldn’t tie it to a percentage market share.  That’s the major difference between what we have now and what the bill, as amended, would do.


Barton Freedman:

The bill very clearly allows most traditional types of merchandising contracts.  A manufacturer can buy on a square-footage basis.  A manufacturer can buy a number of rows or columns, or in the cigarette business, carton or pack facings.  [A manufacturer can buy] anything that the imagination brings to mind other than these specific prohibited acts of buying by percentage or forcing the retailer to shrink the size of the space to squeeze everybody else out even more.


Chairman Goldwater:

This Committee deals on a fairly frequent basis with the acknowledgement of competition and the regulation of large market players.  Can you tell me what the level of competition is as far as companies in the tobacco market? 


Barton Freedman:

We would contend that the level of competition is nowhere near what it ought to be.  There will be manufacturers who come in and say that they are slugging it out everyday.  We have programs, as Mr. Jones testified, where a manufacturer comes in and basically squeezes everybody else out of the store and calls that competition. 


Chairman Goldwater:

What are those companies’ market share and power in the market?  These things wouldn’t worry me if everyone was engaging in it, and they weren’t.


Barton Freedman:

Philip Morris’s market share hovers around 50 or 55 percent.  Their Marlboro brand alone raises a level of about 40 percent.  Marlboro is the number one leading brand by far.  The number two brand barely reaches 5 or 6 percent.  The retailer, as Mr. Jones has said, has to have Marlboro.  You have no choice.  If I’m a manufacturer and come in to you and say, “In order to get promotions on Marlboro, here’s what you have to do,” I listen.  R.J. Reynolds has about a 25 percent market share.  They run a program where they pay the retailer very handsomely for excluding anybody else whose price may be cheaper than Reynolds’ promoted brand.  To me that is almost borderline price-fixing.  They basically require their retailer to raise prices on other brands if they want to get paid or they forbid the retailer from selling a lower priced product.  It’s referenced twice in the amendment at [subsection] (3)(a) and then at (4)(b).  That is designed to reach that type of program. 


Marjit Narwal, Owner, G&S Mini Mart & Smoke Shop, Las Vegas:

[Spoke from prepared testimony (Exhibit F).  Introduced himself.]  I own G&S Mini Mart & Smoke Shop [provided address] in Las Vegas, which is located in Chairman Goldwater’s district.  I have a pricing and promotions contract with several tobacco companies, but the company that I have the worst time dealing with is Philip Morris. 


My Philip Morris representative is always complaining about space, display, signage, and visibility issues.  [Philip Morris] has constantly threatened to cancel my contract with them. 


Even though they represent the largest percentage of my sales, not all of my customers smoke their brands.  Their attitude is that they are the number one company, and that no other company matters in their opinion.  I am a small business owner, and I have to be able to cater to 100 percent of my customers with competitive prices. 


Philip Morris demands more shelf space than they actually need in my store, which prevents me from being able to advertise all of the brands that I have available.  I have to keep some brands underneath my counter because I have to waste so much space on Philip Morris’ brands.  Unfortunately, I have no other choice but to go along with their demands because they are the number one company.  I need their discounts to stay competitive.


Philip Morris refuses to work with small business owners like me.  They are more concerned about their competition than they are about the retailers’ bottom lines. 


I just want to be able to run my store in an efficient manner without being dictated to.  I want to be able to contract with several companies without their contracts interfering with other companies’ contracts.


Thank you for supporting small business owners. 


Edward Allison, Legislative Advocate, Brown & Williamson Tobacco:

[Introduced himself.]  The issue presented by the proposed amendment today is not about two or three tobacco companies having a quarrel.  Rather, it is about small business owners and managers you’ve heard from today.  There are hundreds more who will confirm, to some degree or another, problems similar to those described by witnesses here.  In fact, I have made it a point to visit several of these small stores personally and hear and see their problems first hand.  This is about small business and an essential ingredient of our economic fiber in Nevada and in our country.  It’s about small business having the ability to choose how to conduct its business.  [It’s about] a choice whether or not to sign a contract without unfair and costly repercussions.  Under the existing situation, the small business owner is “damned if he does, and damned if he doesn’t.”  This is not right; it’s not fair.  Please be assured, regardless of what you hear today, this amendment in no way interferes with the right of businesses, large or small, to contract in the fashion desired.  Rather, it allows a small businessperson a choice without being penalized by a dominant supplier. 


[Edward Allison continued.]  It’s understandable that Philip Morris and others are aware that they have the lead and they know that government restrictions restrict the competition.  Here’s the key:  government restrictions prevent competition [of] fair enterprises.  So why not pile on and bury an opponent?  I think I would be inclined to do the same.  But the problem is that this is an instance where we don’t have free enterprise.  We do not have a level playing field.  You might ask, “Why?”  Because of federal interference.  Surely we in Nevada can understand how federal interference can “screw things up.”  In this case, the federal government has outdone itself.  “Big Brother” has made it virtually impossible to fairly compete in this highly regulated and restricted industry.  Thus, a market leader is able to unfairly expand to become the market bully.  The little guy is a victim. 


When all is said and done, the amendment before you simply allows a business to make a choice.  [It is] a choice that today doesn’t exist because the big boy on the block, aided perhaps unwittingly by the federal government, can “blackjack” a business economically. 


Some may suggest that this matter be resolved by litigation.  Nonsense!  The small businesspersons, for the most part, have neither the time nor the resources for a prolonged legal battle.  I think everyone of us knows that when you go up against deep financial pockets in a legal battle, it will be costly and it will be lengthy.  Appropriately, in this instance, the small businessperson has petitioned the Legislature – they’re your constituents – asking that you allow them to level the playing field in the free market, to allow him or her a choice.  We urge you to support the amendment and free the little guy from his captivity.  It’s that simple; it’s that important.


[Exhibit G, distributed to the Committee, is comprised of written testimony supporting S.B. 66 from the following individuals:  David Larson, Boulder Basic Exxon; Debra Reyna, Smokers; Shoaib Tamim, Smokes & More; Simon Boles, Vegas Smokeshop; Mike Lints, Town Center Grocery; Denise Crotts, Funny’s Texaco; Vahan Alexanian, American Cigarette Station; Mo Herrawi, Discount Cigarettes, Etc.; Ray Koerntgen, Amy’s Deli & Pizzaria; Nick Hanna, Plaza Market.]


[Opponents of the bill were invited to come forward.] 


Mary Lau, Executive Director, Retail Association of Nevada:

[Introduced herself.]  We are opposed to any amendments to S.B. 66.  We testified in opposition to S.B. 66 in the Senate, and, as indicated earlier, all of this was amended out.  During the last vote, they were concerned about the “prompt payment” language.  Since that time, I’ve been able to confirm that the contracts are being changed to “off pricing,” so we no longer feel a need for S.B. 66 at all, and we did not support the passage of it as a whole. 


Part of the issue is strictly a battle between people that we want nothing to do with.  We represent the grocery stores [and] the chain drug stores in Nevada.  7-11 franchisees, Green Valley Grocers, and Buy-Rite Market are members of our association.  We have had two board meetings on this issue and both times it was rejected.  It is my understanding there was a lawsuit on this issue and it was also rejected.  [In reference to] the Robinson-Patman Act, the federal government said anti-competitive language is not to protect competitors; it is to protect the consumers. 


We feel very strongly that our contract issues are exactly that.  We’ve been before this committee, and many other committees, saying contracts are not judicial issues, they are our issues.  They are changing.  There’s a new growth in the cigarette industry [with small companies] like Roger, Geronimo, [and] Basic.  If this was so problematic, why are off-brand cigarettes growing?  It’s a money issue for retailers, and I won’t try to say that it isn’t.  You get a buy-down agreement; the more cigarettes you sell, the larger your agreement.  You have shelf space.  We also have shelf space in another agreement [for] Procter & Gamble, Clorox, [and] Bon Ami.  I’ve used that example several times. 


It was talked about in the dairy [industry].  The dairy [issue] is a national issue about milk pricing.  It was protecting dairies and their cattle.  Those whole issues are still here, but it is not germane to this, in my opinion. 


Contracts do help retailers to adhere to programs such as “We Card” youth prevention issues.  You will see in the stores, like Cigarettes Cheaper, where contracts are now giving bonuses for no self-service, so no teenagers will be able to access cigarettes.  We strongly support the ability for retailers to sign contracts and we strongly oppose any amendments to S.B. 66


Sam McMullen, Legislative Advocate, Philip Morris USA, Inc.:

Going through the substance of the bill, the point about a level playing field is every retailer now has the ability to decide whether or not they want to do this.  This actual amendment would probably, in all reality, take away these contracts even though they say that it’s only relating to a percentage of the category management.  The issue is the payment for space on shelves.  If there isn’t going to be some sort of understanding of exactly how that shelf space is going to be used, there isn’t going to be any contract.  You need to understand that. 


The most important [point] that needs to be emphasized from Philip Morris’s point of view, is that, besides the money that retailers make for selling their space and organizing it in terms of category management based on different brands and different payments, all [Brown & Williamson would] have to do to level the playing field is pay the money that someone else is paying.  In addition to those shelving contracts, we have also used this as a mechanism for implementation of the provisions that we settled in the Master Settlement Agreement relating to counter space, self-service, certain advertising, and other things that were agreed upon in the Master Settlement.  This bill would outlaw this as a mechanism.  We use the incentive of a price-per-pack rebate to encourage the compliance of the retailers and the businesses with those [terms], which wouldn’t necessarily be in their interest and they certainly weren’t parties to the agreement unless there was some incentive for them to do that.  That is clearly a set of promotion guidelines that we have as a premium and payment for those.  Consequently, this bill would outlaw that level of implementation where Philip Morris has really put their money where their mouth is and said, “We meant it when we said we would agree to the Master Settlement Agreement.  We think those provisions need to be implemented.”  [We accomplished that by giving] a “price off” on the pack in relation to the retailer’s contract.  Understand that if you are handling this amendment positively, and including it back in the bill, you are taking away one of the major tools that we have, in fact the only tool that they figured was effective, for implementation of the Master Settlement Agreement in terms of anti-teen provisions at the retailer level.


Chairman Goldwater:

So if Marlboro can’t get 51 percent of the shelf space, we are not going to be able to send our kids to college? 


Sam McMullen:

That’s an inaccuracy, too.  It doesn’t have anything to do with sending them to college.  It has to do with whether or not you’re going to get effective, across-the-board implementation of the restrictions.  I would say, too, that there is no one standard percentage.  That percentage of shelf space is malleable depending on the specific circumstances of that retailer and what the market looks like in his area.  So it’s not always one solid provision.  There is not one contract; there are multiple contracts; these people have lots of choices.  It is offered to everyone; it’s not offered only to a few.


Michael Alonso, Legislative Advocate, Lorillard Tobacco Company:

[Introduced himself.]  We are neutral on the bill and we are neutral on the original draft of the bill.  We did not testify in the Senate. 


The issue that we have is the first reprint of S.B. 66 on the 90-day payment requirement.  We agree with that language, but we have an amendment that we are passing out (Exhibit H) that we would like.  The language gives some room for disputed claims [and says] the payment would be made within 90 days after the program is ended.  However, it’s contingent on the retailer being in compliance with the terms of the contract for the price discount and the promotion, including all documentation related to the promotion. 


We are trying to deal with any dispute between the manufacturer and the retailer over the promotion, to clear up language that the payment is not required if there’s a dispute.  I note that Section 2 of the amendment proposed by Brown & Williamson also has the same language of the 90 days, so I would propose this amendment to that section as well. 


Jack Jeffrey:

Mr. Freedman would like to rebut a statement made by the representative of Philip Morris about the Master Settlement Agreement.  That is an important issue. 


Barton Freedman:

The Master Settlement Agreement does not require “behind the counter;” the state of Nevada does not require “behind the counter.”  Most retailers do not need Philip Morris’s assistance to comply with the law.  There is nothing in this bill that prohibits Philip Morris from asking the retailers to put Marlboro behind the counter, if that’s what Philip Morris wants to do.  If other companies choose to put their products behind the counter, they can negotiate with the retailer.  If they don’t choose to put their products behind the counter, then they don’t have to negotiate with the retailer.  The statute speaks to cigarette departments’ cigarette category space.  It doesn’t prohibit any manufacturer from negotiating what happens behind the counter or in front. 


Chairman Goldwater:

That’s going to conclude the hearing on S.B. 66.  I will close the hearing on S.B. 66 and I will bring it back in our work session document with Mr. Alonso’s proposed amendment and Mr. Jeffrey’s proposed amendment.  We will open the hearing on S.B. 27.   



Senate Bill 27 (1st Reprint):  Provides for regulation of athletic trainers. (BDR 54-5)


Senator Valerie Wiener, Clark County, Senatorial District No. 3:

[Spoke from prepared testimony (Exhibit I).  Introduced herself.  Provided copies of “SB 27:  Licensure of Athletic Trainers” (Exhibit J).]  Today I come before you to urge your support for S.B. 27, which would allow for the licensure of certified athletic trainers.  Most of you who have served on this committee more than one session know that I sponsored Senate Bill 357 of the 70th Legislative Session.  That bill sought licensure for athletic trainers.  Based on the vigorous response to S.B. 357, that particular bill was amended in the Senate in the final hours.  The amended bill replaced what I was offering.  It required the creation of a committee to develop legislative language to bring to this legislative session, and that’s what S.B. 27 does. 


The committee, created by the amended version of my bill, was comprised of four certified athletic trainers and one member who was an athletic trainer as well as a physical therapist.  This committee met 17 times for very lengthy sessions.  I attended the last 3 along with Legislative Counsel Brenda Erdoes, who participated by telephone.  The language that we crafted is before you. 


You will recall my concerns for bringing this bill originally in 1999, and I can assure you that those reasons and those concerns have only increased during the past four years.  Simply, this is a recognized health care profession that provides an invaluable service to athletes.  Yet there are those who hold themselves out as athletic trainers who are not qualified to address athletic injuries. 


What happens when an unqualified trainer works with athletes?  Minimally, the athlete and his or her health are put at risk for exacerbated or new injuries.  Without licensure, unqualified trainers will continue to put our athletes at risk, the vast majority of whom are children and young adults.  Without licensure, we will have no standards to impose on athletic trainers, or those who claim to be athletic trainers.  Without licensure, no level of accountability exists for people who know, or don’t know, how to render service to athletes who are injured. 


[Senator Wiener continued.]  Many of you might be concerned about “personal trainers.”  Section 55 of the bill includes references to these individuals who are also described as fitness instructors.  S.B. 27 would allow the Board of Athletic Trainers to establish a registry of personal trainers and fitness instructors.  The Board would notify people on the registry about public hearings – no fewer than five.  At these hearings, the Board would solicit input to develop recommendations for regulation of this profession.  On or before January 15, 2005, the Board shall submit to the next Legislature a report of its findings and recommendations concerning the regulation of personal trainers and other fitness professionals.


As a competitive athlete myself, I recognize and appreciate the importance of accountability.  I know that it’s important to be able to trust the person for help, whether it’s preventing an athletic injury or in addressing an injury that has already been incurred.  I know how essential it is to get help from qualified people when I am training for fitness or training for competition.  I also know from experience that it’s easy to fall prey to those people who hold themselves out as qualified.  Unfortunately, too late I learned that the person I was relying on as a personal trainer five years ago wasn’t.  I incurred fairly substantial injuries because of it. 


We, as legislators, have the opportunity with S.B. 27 to protect the public from the unqualified and often unscrupulous athletic trainers and fitness professionals.  As I said in 1999, I want to restate [that] the issue before you is more than just a licensing bill.  It’s a consumer protection bill; it’s a public safety bill.  It’s a bill that will help protect our athletes, many of whom are children and young adults, to be treated by qualified people, both fitness professionals and athletic trainers. 


I would like to thank the Nevada Physical Therapy Association for its willingness and assistance in working with the Nevada Athletic Trainers Association to draft S.B. 27.  Representatives of both organizations worked long hours during the past several months to reach an equitable compromise.  [I give] another thank-you to the Nevada Chiropractic Association for their invaluable input as well.


At this time I would like to introduce three witnesses who are the appropriate ones to follow me because I can’t address specifics of the bill.  Steve McCauley has been a certified athletic trainer for 14 years.  He is the vice president of the Nevada Athletic Trainers Association and chairman of that organization’s legislative committee.  Marc Paul is the head athletic trainer at the University of Nevada, Reno.  Alfredo Alonso helped draft Senate Bill 357 of the 70th Legislative Session and assisted with S.B. 27 in getting a very strong compromise bill before you.  I urge the Committee’s support of S.B. 27


Steve McCauley, Nevada Athletic Trainers Association: 

Just to reiterate what Senator Wiener has said, this legislation will provide consumer protection for those individuals seeking athletic training services and provides a forum for the public to address inappropriate conduct and/or services provisioned by the athletic trainers.  S.B. 27 also requires that the athletic trainers’ examining board, through multiple public hearings, review ways to regulate the profession of personal training and submit that review to the 73rd Legislative Session.  Most importantly, though, this legislation is a by-product of four years of diligent work.  It provides you with precedent-setting legislative language done by the Athletic Trainers Association, the Physical Therapists Association, and the Nevada Chiropractic Association.  I believe that needs to be promoted just as much as the consumer protection component of the bill.


Chairman Goldwater:

There are some duties in this bill and no resources provided in the bill.  Are these associations or interested parties going to provide the resources to engage in these duties?


Steve McCauley:

The budget you have before you (Exhibit K) [includes] funds that have been set aside to start up the process.  Those funds are targeted to begin the process of constructing the Board. 


Chairman Goldwater:

Do you want to start charging fees?  It’s a fee revenue?


Steve McCauley:



Alfredo Alonso, Legislative Advocate, Lionel Sawyer & Collins:

[Introduced himself.]  This bill was a concerted effort by all parties.  It took four years to draft and I think what you have before you is not only a bill that works with respect to the Board but is self-funded.  The budget that you have before you was compared to other boards and memberships of adequate size and I think you’ll find, in comparing it to other states as well, it is competitive. 


Chairman Goldwater:

We appreciate your diligent work. 


Tom Skancke, Legislative Advocate, Nevada Chiropractors Association:

[Introduced himself.]  I support this legislation.  We worked with both associations on this bill and find it to be a very good bill.  I was also a part of the testimony on the budget.  Senator Carlton was the chair of the subcommittee on this and she deals with most of the state boards.  She went through that budget with a “fine-toothed comb.”  I represent other boards in the state and found that the budget was sufficient.  The fees that they are charging prove [sufficient] to establish a self-sustaining board.  We went through it fairly well for the past couple months and we support the bill. 


Rocky Finseth, Legislative Advocate, Nevada Physical Therapy Association:

[Introduced himself.]  We just want to say that we support the bill.


Chairman Goldwater:

Are your members aware there is a fee?


Steve McCauley:

We have made, for the past 18 months, a concerted educational effort on the part of the membership of the Nevada Athletic Trainers to make them aware that fees will be incurred.  Once this budget was agreed upon, that educational process continued.  To my knowledge, there have been no complaints from the membership. 


Chairman Goldwater:

Mr. Finseth, will you represent for the record as well that the Nevada Physical Therapy Association is aware and supportive of the fees?


Rocky Finseth:

Yes, I will.  They understand and they are aware.  They are supportive of the fees.


Chairman Goldwater:

Mr. Skancke is indicating the Chiropractic Association is also supportive of these new fees. 


Tom Skancke:

That is correct. 


Chairman Goldwater:

[There was no further testimony.]  We’ll close the hearing on S.B. 27






THE MOTION CARRIED.  (Assemblymen Beers, Knecht, Oceguera, and Perkins were absent for the vote.)


Chairman Goldwater:

We’ll open the hearing on S.B. 196



Senate Bill 196:  Enacts Uniform Prudent Investor Act and Uniform Principal and Income Act (1997). (BDR 13-1107)


Frank Daykin, Commissioner, Uniform State Laws:

[Introduced himself.  Provided Exhibit L, “Explanation of S.B. 196.”]  This is a combined bill containing the Uniform Prudent Investor Act and the Uniform Principal and Income Act (Exhibit M).  They are combined in one bill because neither one can yield its full benefit without the other.  The basic thrust of the Prudent Investor Act is to remove the old, restrictive legal list of investments permissible for trustees, which Nevada has tended to follow – not as strictly as some states have – but to substitute for that the common law rule, which has been in place since the 1840s, and the Harvard College case that the trustee may invest in anything that a prudent person considering both preservation of capital and derivation of income would choose to invest his personal funds.  [It has] that breadth.  Then it is fleshed out in the Act with considerations that the trustee should follow.  If one does that in today’s market, desirable investments will sometimes yield comparative little income.  Therefore, the conference undertook to revise the Principal and Income Act, which has been on the books for 60 years and gone through a few revisions.


Chairman Goldwater:

I’m reading the bill and it’s certain that it would require a disclosure and abstention on my behalf, as I am a fiduciary on trusts.  I implore modern portfolio theory.  I delegate investment decisions to qualified and supervised agents.  I do sophisticated risk return analysis in my private life.  That is all I do.  There’s my disclosure, and I will indicate that I will abstain on this. 


Frank Daykin:

You have very well stated exactly what this is all about.  The good fiduciary does employ these tools. 


[Frank Daykin continued.]  Very briefly, the Principal and Income Act has two branches.  One of them is to permit adjustments between principal and income in order to take advantage of investments which may yield a substantial appreciation of principal while yielding relatively little income in the conventional sense, or, conversely, an investment which yields a relatively high conventional income might yield a disproportionately low possibility of appreciation of principal.  The trustee may take those factors into account.  He may make the adjustment between principal and income so that each class, the income beneficiary and the remainder beneficiary, otherwise expressed as the life tenant or the remainder man, are fairly treated.  The other aspect of the revision of principal and income is to bring in various types of income, which have developed over the years and provide a little greater specificity.  For example, income from timber, where you obviously have income at various times, but at the same time, in deriving the income, you are destroying a portion of the principal and to regulate the adjustment between those.  The bankers have asked for, and I have no objection to the adoption of, an amendment (Exhibit N). 


Michael Alonso, Legislative Advocate, Nevada Bankers Association:

[Introduced himself.]  First of all, I will clarify that the amendment was not proposed in the Senate because we didn’t get the amendment language back from the trust lawyers at various banks and, once we got the language we sent it to Mr. Daykin so that he could look at it to give his agreement to the amendment, he put it together in the form you see now.  I will defer to Mr. Daykin to explain to you what the amendment does. 


Frank Daykin:

The purpose of the amendment is to absolve a trustee from any liability for not making an adjustment, or not thinking about an adjustment, and to provide an extensive procedure where he is thinking about a proposed course of action under this bill.  He can notify the various beneficiaries, the various beneficiaries can object or consent, and the court can order action or inaction regarding what the trustee proposes.  That uniform law conference has no objection, of course, to either of those thoughts because the purpose of the Uniform Act is to enable fiduciaries to act intelligently in taking advantage of all of the aspects of modern portfolio theory as you have alluded.  But it is not to penalize anyone for doing or not doing it.  There are various standards for the trustee to follow if he does.  This is not meant to be a penal or punitive statute. 


As far as the procedure is concerned, it is not the practice of the conference ever to provide procedural statutes to the states.  Each state tends to have its own rules and procedure, but this procedural statute appears to be well drawn and I see no reason why Nevada should not adopt it. 


Assemblywoman Buckley:

We’ve had this issue in the Judiciary Committee and I have had conversations with Mr. Sande about it.  I want to see how it interplayed with this bill, if at all.  My question involves the issue of self-dealing with a fiduciary where a fiduciary wants to sell property to another company that they own or sell a service of one of their affiliates.  How is that self-dealing provision handled, if at all, in this uniform act?


Frank Daykin:

In Section 4 of the bill, the standard for prudent investment is that a trustee shall invest and manage the trust property solely in the interest of the beneficiaries.  Self-dealing is therefore prohibited. 


Assemblywoman Buckley:

In the bill that we have in Judiciary, the current law is that if a trustee wants to do any self-dealing, he can, but [he must] gain approval through a court action.  [Mr. Daykin agreed.]  This doesn’t interfere with that current statutory section?


Frank Daykin:

No, it would not.  In fact, in the amendment before you, Section 17.6 would provide the mechanism for submitting that sort of a proposal and, of course, the beneficiaries may take it or object to it.  It would not interfere with what you were contemplating. 


Assemblywoman Buckley:

[With] this mechanism in [Section] 17.6, if a beneficiary agreed, could they agree to self-dealing without court approval? 


Frank Daykin:

They could, of course, acquiesce.  They could either not oppose or they could come in and tell the court, “Yes, we agree.”  If I were counsel to a beneficiary who assented to self-dealing, unless the benefit to him was clearly in his favor, I would tell him he had rocks in his head.  But that is up to each beneficiary to determine for himself.


Assemblywoman Buckley:

I am just worried about beneficiaries who are unable to assent – minor children, people for whom a trust was created because of infirmity.  I like having the court oversight on the self-dealing issues.


Frank Daykin:

The court oversight certainly would be required here because of the general requirement that the trust be managed solely for the interest of the beneficiaries.  At the same time, if there is a situation where there could be self-dealing, but [it was] beneficial to the beneficiaries, they could get the court’s approval. 


Chairman Goldwater:

You probably still need to meet the fiduciary’s standard, as well.  [Mr. Daykin agreed.]


Assemblywoman Giunchigliani:

When you talk about trusts and beneficiaries, does this expand to things like living trusts and then you have executors over those as well, or is that a different matter?


Frank Daykin:

The living trust is a trust and to the extent that it is a genuine trust, this would apply to it.  Many of the living trusts, however, are so drafted that one person is the trustee, the settlor [or] person furnishing the property, and the beneficiary.  In that case, he [speaks for] himself. 


Assemblywoman Giunchigliani:

I’m talking about in the circumstance when someone sets up a living trust, names an executor to manage the trust, then passes away.  The individual now administers it on behalf of the beneficiaries.  How is this affected? 


Frank Daykin:

This would govern the conduct of a person administering a trust in that situation.  Yes.  There is no difference between the so-called living trust and a testamentary trust. 


Assemblywoman Giunchigliani:

If I look at the language where if you have special skills and so on and so forth, not everybody necessarily has that.  I could name my father as my executor.


Frank Daykin:

It doesn’t necessarily require that the trustee be selected for special skills.  It says that if the trustee is going to delegate the management to someone else, the trustee is still responsible for seeing that the delegate has special and appropriate skills.


Assemblywoman Giunchigliani:

Some of these are with wills.  The way wills are established are through living trusts as well. 


Frank Daykin:

The wills would appoint a trustee.  The trustee could either manage the trust himself or delegate the investment of it.  If he manages it himself, he must do it according to the standards here of selection of prudent investment and disposition of income and so forth.  If he chooses to delegate any part of that, for example there might be an individual who would want a bank, or, if he really had rocks in his head, a broker, to do that sort of thing for him, he is still responsible to the beneficiary for the results and there are standards for special skills and so forth that he should consider in choosing the person.


Assemblywoman Giunchigliani:

Should there be a definition in here of a trustee, because we have defined quite a few other things, but [not] “trustee,” or is that someplace else in statute?


Frank Daykin:

We have a lot of things, but I think trustee is pretty much self-defining.  A trustee is the person who manages trust assets. 


Assemblyman Hettrick:

I have to disclose that I am a trustee of a couple of different trusts and serve in a capacity where I do designate other people to occasionally administer or invest for the trust.  I don’t think this bill would affect me any differently than anybody else, so I will be voting since I don’t do this in a professional capacity. 


Chairman Goldwater:

Mr. Daykin, thank you, as usual, for your thorough presentation.  We’ll close the hearing on S.B. 196.  We’ll bring that back to work session and let everybody digest that.  We’ll open the hearing on S.B. 425



Senate Bill 425 (2nd Reprint):  Makes various changes relating to pharmacy. (BDR 54-530)


Fred Hillerby, Legislative Advocate, Nevada State Board of Pharmacy:

[Introduced himself.]  There are two things I want to say [before our executive secretary and our legal counsel speak.]  One is that the Board had requested this legislation without the knowledge that Senator Titus had a bill, S.B. 387, that you have processed on generic drugs.  Clearly, it will create conflict amendments.  We would suggest that probably the best course of action and maybe the cleanest would be to have staff prepare a brief amendment that would delete Sections 38 and 39 of this act, because they will conflict with Senator Titus’ bill and we support her bill.  We are on the record in the Senate that we would agree with whatever was in her bill because we did not realize that we were both going to be addressing the generic substitution issue.


Chairman Goldwater:

She sent me some suggested amendments, which I have forwarded to Mr. Hughey. 


Fred Hillerby:

Secondly, I would like to point out that Section 3.5, which will be explained in greater detail, is a result of a workshop we had with Senator Carlton, who chairs the subcommittee on boards at the Senate Commerce and Labor Committee.  She worked with some interested parties and us in the wholesale business, and this was a compromise that we agreed to that the Senate Commerce and Labor Committee and the full Senate voted to put in this bill.  We would consider any further amendments to that section to be unfriendly amendments if they are presented, which we understand may happen. 


Assemblywoman Buckley:

I’m always curious when we create yet another occupation [such as] a pharmacy technician, a pharmacy technician assistant.  I’d like some information on whether those people are licensed.  If not, what is the problem?  [I] just [want] to make sure that we’re looking consciously at that issue. 


Fred Hillerby:

We will go into that in some detail because you did catch one of the things we are changing.  We’ll have plenty of information in our testimony.


Keith Macdonald, Executive Secretary, Nevada State Board of Pharmacy:

[Introduced himself.]  S.B. 425 is a Board of Pharmacy bill and there are many sections to it.  I’ll skip the section that is the amendment regarding wholesalers and let Mr. Ling discuss that.  I’ll start with the basic issues and respond to Assemblywoman Buckley.  The Board intended to register every person that works in the secure premises of a pharmacy.  The reason for this is we have had statutory language that had the term “supportive personnel,” which included pharmacy technicians and technicians-in-training.  It left out clerks, cashiers, insurance specialists, and others.  It’s been the experience of the Board of Pharmacy that many people like to work in pharmacies because they handle drugs and some of those people like to divert drugs and misuse drugs.  We have no way of knowing whether they are no longer employed by that store, or if they were dismissed or terminated [for diverting] drugs.  Then they can go to work at yet another pharmacy and possibly victimize that pharmacy.  Under the provisions of S.B. 425, these people would be registered as supportive personnel.  There are three levels of registration:  pharmacists, pharmaceutical technicians, and supportive personnel [the third category]. 


[Keith Macdonald continued.]  It isn’t the intent at all to make another profession.  The intent is purely to have the people who work in a pharmacy be identified so that if things happen, we can identify them to other places where they may have victimized other persons.  That has occurred and people have moved on without anyone’s knowledge.  What we have done is define pharmaceutical technician and pharmaceutical technician-in-training. 


In Section 20 of the bill, the fees have not changed and supportive personnel have not changed.  We’ve discussed this with the Retail Association, and their concerns about charging a large fee have been understood by us.  Possibly we won’t charge any fee, or maybe charge $10 to handle that registration.  These people least of all do not need to have some onerous high cost of registration.  More to the purpose, we are just trying to identify them.  Those Sections 2, 3, 4, 7, 13, 16, 20, 21, and 36 all deal with that area of trying to identify all persons who work in a pharmacy.  Section 20 is the one that adds the fees. 


In Section 5, page 2, lines 13 – 15, the Board intended to require that anybody who is handling confidential prescription information be licensed as a pharmacy.  Presently you’ve seen almost a cottage industry of businesses advertising that they can get drugs for you at deep discounts.  Those are principally organizations that are mailing patient information out of the country to obtain drugs from foreign sources, which at the present time is illegal by the FDA.  The unfortunate part is that they are receiving prescription information that they are not authorized to have.  In fact, they may be misused in defiance of the HIPP Act (Health Insurance Premium Payment) because they would not be controlled.  What we are asking is that the persons who receive prescriptions should be licensed by the Board of Pharmacy. 


In Section 5 (8), on page 3, lines 29 – 31, the Board intended to acknowledge the modern practice of pharmacy by which pharmacists can, under a doctor’s direction and supervision, order lab tests with which they may adjust a drug regimen.  This is already occurring in most hospitals and institutions.  It works and saves money.  This is an instance where practice has preceded law or regulation. 


The Legislative Counsel Bureau throughout this bill has thought to give me an official name.  Starting with Section 8 and going through Section 27, they’re changing the name of secretary to “executive secretary,” to just make it workable throughout our statutes. 


[Keith Macdonald continued.]  In Section 11, the Board intended to allow graduates of a Canadian college of pharmacy to be treated the same as [graduates] from an American college of pharmacy.  All colleges that are approved and accredited by the American Council on Pharmaceutical Education have reached an agreement with the Canadian Council for Accreditation of Pharmacy [Programs].  Those [students from] schools that have passed the standard would be allowed licensure in Nevada.  We think this is helpful to lessen the shortage of pharmacists in our state.


Section 23 required a business that uses the words “pharmacy,” “prescription drugs,” or “Rx” to be licensed with the Board.  That statute has been in place for sometime but was just not clear.  We’re trying to clarify that language. 


In Section 26, on page 16, the Board intended to harmonize the standards by which out-of-state and particularly Internet pharmacies would be allowed to dispense controlled substances.  Under the changes that we have intended in the bill, a pharmacist will be required to assure that a bona fide doctor/patient relationship exists for an out-of-state controlled substance prescription, meaning that the doctor has physically examined the patient at least within the last six months.  That standard is true already for dangerous drugs but somehow is not included in the controlled substances act. 


In Sections 27 and 28, on page 17, the Board intended to allow local law enforcement officers a limited ability to review and remove prescriptions from the files of a pharmacy.  Currently, only the state agency, the law enforcement agency, and the drug enforcement administration, as well as the Board of Pharmacy, can remove an original prescription.  The pharmacy did not have the [right] to give a law enforcement officer [information regarding the prescription of] a prescription forger or another person trying to perpetrate a crime on a pharmacy, so he was very frustrated.  [He would say] “I came down here to stop this person trying to obtain illegal drugs, and you won’t give me the documentation that he presented to you [indicating] something’s wrong here.”  So Sections 27 and 28 authorize an officer to obtain evidence in the investigation of crimes reported. 


In Section 35, the Board intended to change a workable statute requiring the intervention in an application for rehearings.  The [current] statute suggests that the Board has to authorize a rehearing.  The Board only meets every seven to eight weeks, so this would be much quicker if the Executive Secretary were able to allow a rehearing and set it for the next regular meeting of the Board.  Mr. Hillerby has already mentioned that in Sections 38 and 39.  Those would be removed in the interest of Senate Bill 387


[Keith Macdonald continued.]  In Section 40, the Board intended to include dispensing practitioners, people who sell prescriptions [such] as a doctor or other practitioner, who would report their controlled substance prescription data to the Controlled Substance Abuse Prevention Task Force.  That task force has been in operation for nearly seven years.  It is working very well to obtain information to stop doctor shopping and has been very helpful to practitioners throughout the state.  They would also be able to participate in giving that information to the pharmacies.  We’ve worked with the dispensing practitioners group and have had their agreement for this inclusion in the statute. 


In Section 41 the Board intended to harmonize Nevada law with a recently developed federal law that allows the doctor to post-date prescriptions.  Currently our statute says that the prescription must be filled on or before the 14th day after the date of issuance.  This would allow a doctor to say on that prescription, “Do not fill this prescription until July 1, or August 1,” [for example], and it gives an opportunity for patients who don’t need to see a doctor every 30 days to have predated prescriptions.  The issue comes forward when the insurance organizations that fund most of the prescriptions limit them to only a 30-day supply.  Patients are constantly going back to the doctors, which is [an additional] cost and unnecessary in many cases of intractable pain or severe pain, or a child, for example, who may have been on some type of drugs for attention deficit and hyperactivity disorder. 


The amendments in Sections 40.5 and 41.5 are intended to allow students to be able to [prescribe] dangerous drugs and controlled substances under supervision as part of their training in physical therapy, respiratory therapy, and other places where they are working in institutions. 


We have four sections that are being repealed.  The allowance of a license by other than college degreed persons would be removed from our statutes.  We had a historical statute that allowed persons who were not college degreed pharmacists to reciprocate.  We would like removed from the statutes the allowance to [license] a non-college degreed person. 


Another section will remove the inactive status of licensure.  There are only three times in my 15-year tenure that persons wanted to be on an inactive status of licensure.  The way it is currently structured, [pharmacists] have to continue their education and do other things.  The purpose [here is] to remove the section and not make it confusing to people.  They would just stay licensed.  There is a provision that a person can forfeit their license for five years.  If a person becomes handicapped or believes that he will not be able to practice pharmacy for sometime in the future, he can forfeit that license and reinstate up to five years later.  That works as effectively as the inactive status of licensure.


[Keith Macdonald continued.]  A third repealed section would be a list of publications we require for nuclear pharmacies.  The list is outmoded.  Those pharmacies making radioactive pharmaceuticals don’t need the books that we told them they did.  If, indeed, we want to prescribe some type of publications that they find necessary, we can do it by regulation. 


The fourth section to be repealed was that of a sign regarding substitution.  The sign would have different language in it pursuant to Senate Bill 387 and some of our amendments in this bill, so we’re asking the sign be removed.  If a sign is necessary, we could do it by regulation.  The language in the sign is inappropriate.  Substitution today is not very interesting to most people because approximately 85 to 90 percent of all prescriptions are paid for by a third party.  People aren’t negotiating a price.  It would be better if we had a sign that says, “Ask us about your co-pay.”  That’s what they are mostly interested in when they go to get a prescription. 


Those are the repealed sections.  I’m going to leave the more substantive amendment, Section 3.5, to Mr. Ling.


Assemblywoman Giunchigliani:

In Section 7, on page 4, you’re redefining supportive personnel as any person, other than a pharmacist, intern pharmacist, pharmaceutical technician, pharmaceutical technician in training, et cetera, who has access to secured premises.  Does that include the cashier that you mentioned at the beginning?  Could you restate [that part] for me?


Keith Macdonald:

It would include a cashier if she were in the secured area.  As you are aware, many pharmacies have a cashier that would be outside that secured area.


Assemblywoman Giunchigliani:

Who else could that possibly be?


Keith Macdonald:

It could be a person who does submission of insurance claims.  It could be a person who is a stock clerk or any other person who works inside the pharmacy. 


Assemblywoman Giunchigliani:

Besides now having to be registered, what else do you require?  Background checks?  Fingerprints?


Keith Macdonald:

We don’t at this time.  We don’t require any other kind of qualification, no education or any other type of qualification.  There are educational requirements for pharmaceutical technicians and technicians-in-training, but not the clerks or the other supportive personnel.


Assemblywoman Giunchigliani:

So at this time, that means you would have to come back to us for that change?  Or the Board could do it?


Keith Macdonald:

If we required education statutorily we would have to come back and ask you if we wanted to make those qualifications. 


Assemblywoman Giunchigliani:

And your reason is because people who work in these places might want to have access to drugs in the first place?


Keith Macdonald:

It’s an unfortunate experience that we –


Assemblywoman Giunchigliani:

I worked in a pharmacy and I didn’t, so I have no clue to that.


Louis Ling, General Counsel, Nevada Board of Pharmacy:

[Introduced himself.]  I would like to address the one substantive amendment that Mr. Macdonald did not discuss, which is Section 3.5 that starts on page 2.  Part of that amendment has also been put in Section 25, which is on page 15.  I’ll be discussing those two together. 


What you have under Tab 1 [Exhibit O] is the regular drug distribution chain.  This is the kind of drug distribution that occurs for about 95 to 98 percent of your drugs.  The drugs are moved from the manufacturer to a wholesaler, from a wholesaler to your pharmacy, and then from your pharmacy to you.  That’s the normal way drugs move. 


The next page is what we have called the irregular drug distribution chain.  This is an industry that is sprouting up all over the country.  It’s been in operation for probably about 10 to 15 years and involves secondary source wholesalers.  This particular drug distribution system has a closed-door pharmacy at the front end.  This is a place that promises that it’s only going to serve nursing home beds.  They actually make contracts where they say, “We will only serve nursing home beds.  We will only use this for our own use.”  That’s what the “own use” clause is.  They then immediately upon getting licensed start buying drugs in wholesale quantities and sell them to secondary source wholesalers.  These drugs are deeply discounted in some cases. 


[Louis Ling continued.]  In some of our recent investigations we have seen drugs that could be obtained by these closed-door pharmacies at 10 percent of what a wholesaler could obtain these drugs.  That’s a 90 percent profit space in that particular drug.  Then these drugs are sold from the closed-door pharmacies to the secondary source wholesalers who sell these drugs to other secondary source wholesalers.  We’ve seen these drugs move as many as seven or eight times before they finally end up with the major wholesaler.  There are some serious risks to this system and we are concerned about that; [hence] this amendment. 


Tabs 2, 3, 4, and 5 [provide further information regarding where] the ills of this industry have become very prominent.


Chairman Goldwater:

I don’t think we have had the amendment presented to us. 


Louis Ling:

I was trying to give you some background for the amendment so I could explain how the amendment works. 


Fred Hillerby:

Section 3.5 is the amendment that was adopted in the Senate.  That is the amendment; there is no new amendment from us.


Louis Ling:

The counterfeit drug cannot enter the legitimate stream of commerce and end up in your pharmacy, absent this secondary source market.  In the straight-line approach we showed you on the first page of Tab 1, the manufacturer is selling the drug directly to the wholesaler who is selling it directly to the pharmacy.  There is no way that counterfeits enter that.  The secondary source market is where and how counterfeits enter the market.  There are foreign drugs [and] illegally repackaged drugs, and all sorts of ills in our drug supply through the secondary source market.  We are trying to take this system, on the second page of Tab 1, and turn that into a straight-line system.  That’s what our amendment in Section 3.5 does.  It removes the ability for this drug to go around in this circle.  It will break that circle and force these drugs to move in a straight line.


[Louis Ling continued.]  Section 3.5 is the result of nine months of negotiation that the Board of Pharmacy has been engaged in with some secondary source wholesalers in our state.  We tried to do some of this by regulation, and, unfortunately, we could never reach an agreement.  When this matter came up before the Senate, there was a proposed amendment that was unacceptable to us.  The Senate sent us out to subcommittee.  We had two separate meetings before the subcommittee meeting at which we met with representatives of the industry.  That is the fruit of that and the agreement that came out of that subcommittee meeting is Section 3.5. 


Section 3.5 (1) and (2) set up a system whereby, when the drug is sold into Nevada or sold out of Nevada, we will be licensing the selling wholesaler and the buying wholesaler if they’re out-of-state.  Section 3.5 (4) sets up the criteria for what would be considered a bona fide transaction.  We were trying to define what kinds of transactions are not offensive and are not going to cause harm to the public.  We set out criteria that we would require of a wholesaler to turn that transaction into a bona fide transaction, a transaction that is there if we’re not going to be susceptible to counterfeiting or other ills that this industry has experienced.  It requires that the drugs be purchased directly from the manufacturer, or if you’re not buying it from the manufacturer and you’re buying it from another wholesaler, that you have a reasonable belief that it was originating with the manufacturer.  This should [remedy] the situation where the closed-door pharmacy is the source of the drug. 


That’s never shown on any of the paperwork, by the way.  You never see the closed-door pharmacy showing up on the paperwork.  You get what is called the “immaculate pedigree.”  The pedigree is the document that is designed to allow you to track the drug all the way back to the manufacturer.  We call it the immaculate pedigree [because] suddenly the drug just shows up.  They don’t want to disclose that they bought it from a pharmacy, because that’s illegal.  The first-step wholesaler will simply say the drug just shows up at the doorstep somehow.  Then the pedigree starts from there and we don’t know, therefore, where the drug actually originated.  This will require that the wholesaler know that the drug originated with the manufacturer. 


We also have to see that there were circumstances that show that the drug wasn’t purchased through ways that are prohibited by law.  The wholesaler has to check the product to make sure it’s not counterfeited, adulterated, mislabeled, or damaged.  A drug has to be shipped directly to the wholesalers and can no longer be drop shipped, which is another trick that is being played; the drugs are moving one direction and the paperwork is going another way.  This will require that the paperwork and the drugs move along together.  Ultimately now, when we look for the records, we will find the shipping records attached to the invoices, so we will be able to track where those drugs actually originated.  That’s the substance of Section 3.5. 


[Louis Ling continued.]  In Section 25 of the bill, on page 15, is the other [item] that is subject to amendment as part of this package.  All it does is change some of the abilities for the Board to be able to obtain these records when they are in the hands of these wholesalers.  We have had some extreme difficulties in some cases.  In Tab 5, just as an example, wholesalers moved $34 million of drugs and never produced a record.  We had to get the records through backdoor [methods] and, to this day, we are in court because they still refuse to tell us from whom they bought their drugs.  We need a tool to be able to handle those wholesalers that refuse to give us routine records. 


That’s what Section 25 does.  It allows us to go in, copy the records and take the records if we need to, if it’s a bulky bunch of records.  Section 25 (4) allows us that tool, that hammer if you will, if they refuse to give us those records or allow us to see those records.  We can suspend them right then and there, do summary suspension, and then take disciplinary action against the license.  We don’t envision having to use this tool very often.  It would have to be an intentional failure to provide us the records.  But in that odd case where that’s happening – keep in mind, it’s a wholesaler who now is refusing to tell us where they are getting their drugs and where they’re selling their drugs – and it is truly endangering our public, we would have the ability then to say, “Hold it!  If you’re not going to tell us where you’re getting the stuff, you’re done.  You’re summarily suspended until we can get some compliance.”  It’s a heavy hammer; we acknowledge that, but we simply cannot find any other way to deal with that situation. 


In the Dalfens, Inc. case [Exhibit O, Tab 5, Nevada State Board of Pharmacy v. Dalfens, Inc., before the Nevada State Board of Pharmacy], they had intentionally removed the records and put them in the garage of their house.  I don’t have a search warrant power, and I’m not going to expose my investigators to two Rottweilers behind locked gates.  We were physically unable to get the records.  That is an unacceptable situation for the protection of our public.  That is why Section 25 is structured the way it is.  All of that was part of the deal presented to Senator Carlton that was subsequently approved by the Senate.  As Mr. Hillerby indicated earlier, if there are any substantive suggestions or amendments to this, they would be unfriendly at this point because this is a well-crafted amendment, it was part of an agreement, and it’s going to work very well if it’s implemented because it will give us the ability to track these drugs in a much more effective way. 


Michael Alonso, Legislative Advocate, Medco Health Services:

[Introduced himself.]  Medco Health Services is a licensed wholesaler of prescription drugs.  The only section of S.B. 425 that affects us directly is Section 3.5 that Mr. Ling just went through.  We do not believe this section affects legitimate transactions related to prescription drugs and therefore we support this bill and Section 3.5. 


Assemblyman Hettrick:

I am wondering what the impact of this language is because it says a wholesaler has to purchase or sell to somebody who is licensed by the Board.  Are we licensing everybody all over wherever there are wholesalers legally moving drugs? 


Louis Ling:

Presently we license 402 wholesalers in the state of Nevada.  Of those, 40 are in state, 362 are out-of-state wholesalers.  So presently we are already doing this.  What this bill does is make more explicit what the practice already is. 


Assemblyman Hettrick:

Have we any idea how many wholesalers there are nationally?


Louis Ling:

The best estimate that I have seen in some of the press articles is that in the major wholesaler realm, there are three major wholesalers.  There is a series of second-tier wholesalers, and the total number of those is probably less than 1,000.  Then, in the secondary source market, the estimates are somewhere between 3,000 and 5,000.  Florida, for example, is wrestling with this right now.  They have 450 in one county.  They are having a very difficult time [controlling] this industry. 


Assemblyman Hettrick:

So you’re not going to need more staff to keep up with licensing all of these people if you had a thousand come in here and want to get a license? 


Louis Ling:

No, we would be able to handle that.  In our licensing process right now, we are able to turn around licenses generally in the same week.  So if you applied to us on Monday, you’ll have your license by Friday.  We have the staff to handle any extra influx that might be a result of this. 


Assemblyman Hettrick:

It seems rather broad that anyone who sells or buys has to be licensed by our board, but if you think you’re comfortable with it –


Louis Ling:

I can explain why we’re asking to do that, because it does seem a little broad.  Presently in some of the cases we’ve investigated, the Nevada wholesaler will intentionally sell to a wholesaler out of state who is not licensed with our board and that, therefore, makes our trail go cold.  We have no way to demand that a Montana or a California wholesaler, who is not licensed with us, provide us documents.  In every case where we have asked for the documents voluntarily, we have been turned down.  They simply don’t want us to be able to follow this trail.  This gives us the ability to get records in either direction. 


Assemblyman Hettrick:

I can understand that.  If they are licensed in Montana, can you not get those records through the licensing board in Montana?


Louis Ling:

We have had some states with which we cooperate very well, Florida, for example.  We cooperate very well with Texas.  There are other states where the licensure of wholesalers is not done by the pharmacy boards; it’s done by another agency.  We’ve had some states where getting records has proven to be nearly impossible.  Sometimes it’s for want of concern or care, and sometimes it’s just for want of resources; they don’t have the people to send out to get three boxes of records for us.  It’s been a patchwork kind of system, as I mentioned before.  We have 362 licensed out-of-state right now and for those, when we ask for records because they are licensed with us, they comply and we have no problems getting records from them.  We simply ask them to get it to us in about 10 days and they make copies and mail them to us. 


Assemblyman Hettrick:

[Regarding] Section 3.5, “A wholesaler may sell a prescription drug only to [a] a pharmacy or practitioner; or [b] another wholesaler if [1] the wholesaler who purchases the drug is licensed by the Board,” so I’m a wholesaler and I’m going to sell to a wholesaler in Montana.  I ask him whether he is licensed by the Nevada Board.  He says, “Yes.”  I sell.  What’s the implication for me if it turns out that he’s not?  


Louis Ling:

You have two questions here.  First of all you would have an unlicensed wholesaler in Montana, obviously.


Assemblyman Hettrick:

He might be licensed in Montana but he told me he was licensed here in Nevada. 


Louis Ling:

We would be doing two things at that time.  We would expect that the wholesaler here in Nevada would do some due diligence.  They do right now, by the way.  They have and maintain lists of wholesalers they’re dealing with and the license numbers that they are receiving, so they do check on that before they purchase.


Assemblyman Hettrick:

But if he was lied to in the case of someone doing a first time transaction?


Louis Ling:

I don’t know if I can answer that question specifically.  We would have to examine it at that point.  As you can see here, the bona fide transaction standards under subsection 4 require that “the circumstances of the purchase reasonably indicate that the drug was not purchased from a source prohibited by law.”  There is a rule of reason there.  Would a reasonable wholesaler have called the state, for example, to find out whether they were licensed?  That’s a simple phone call; we get those phone calls all day.  So you could call the state if you had any reason to question that or if you wanted to be absolutely sure before you do business with somebody.  Call the state and make sure they are licensed.  As I have said, we field those calls all day long. 


Assemblyman Hettrick:

On page 3, lines 6 and 7, [regarding] a bona fide transaction [it says] “if there is a reasonable assurance by the wholesaler who purchases the drug that the wholesaler will sell [the drug] directly and only to [a pharmacy or practitioner].”  Are we back to a wholesaler on this end having to get that assurance?  If he gets the assurance, we’re back to the same thing; we’re making some assumptions here.  Typically when we put things like this into law and they don’t do it, they are misdemeanors, at least.  I’m wondering what we’re doing here.  Is this what we want?


Louis Ling:

Yes, we would expect the Nevada wholesaler would have to have a reason – reasonable assurance is the standard – to believe that these drugs are going to be sold to what we call “end users,” getting them out of this wholesale chain in other words.  This is one of the reasons why we need to have that downstream purchaser licensed.  If we then want to test the reasonable assurance, we need to be able to ask that wholesaler – who may now be in California, or Montana, or Florida – for records that prove to us what they did with those drugs.  If they sold those drugs to another wholesaler, then obviously we would be able to inform the Nevada wholesaler, “We have done a little looking and the guy you’re selling to isn’t following our law, so you don’t have reasonable assurance anymore that this person is going to be doing what he promised you he would do, which is he’s not selling it to end users.”  Again we’ve built into this, as part of the negotiation process, these “reasonable man” standards because obviously you deal with those all day [and] the courts deal with those all day.  That is a good standard and it gives us a way to be able to work with the reasonable man standard to test whether these things are being provided.


Assemblyman Hettrick:

I would be more comfortable with that section being reworded to say that you can’t sell to someone who has been shown by the Nevada Board to not be selling to somebody else.  I’m sure no wholesaler, unless he is a criminal in the first place, is ever going to sell to someone who he calls up and says, “Give me reasonable assurance that you’re going to sell this only to legal people,” and the guy on the other end says, “No, I’m not.”  It’s not going to happen.  To me this may be a reasonable man’s statute, but this doesn’t make sense.  You’re telling him he has to do something that he’ll never get a “No” answer to.  It seems to me it would be better put to say, “If we determine that he’s not selling it appropriately, you can’t sell to him anymore.”  Then you enforce it on the Nevada licensee, rather than having him try to get a reasonable assurance from somebody that he has no control over. 


Keith Macdonald:

You are exactly correct, and that’s what we do.  We probably advise the wholesaler that he is selling inappropriately according to our licensing laws in this particular statute and advise him to cease and desist, otherwise we will take action against his license.  When we’ve had misdemeanor or felony statutes in some drug crimes, we don’t enforce those administrative agencies anyway.  What we principally do is administer licensure authority and your description is exactly what we would do.  We’d tell the person, “You’re selling to a place that is not licensed.  Please desist.”  We have a standard letter that we send out to wholesalers who solicit hospitals and other places on a continuing basis from all over the country.  We ask the hospitals to provide us with the faxed sheets they get from these places and we send those to them and we say, “Get licensed here.”  Some refuse and say, “I don’t do enough business in Nevada and the heck with you.”  Others do get licensed.  We do pursue it by the licensee and we would tell them, “Don’t do business with that organization because they’re not licensed with us.” 


Assemblyman Hettrick:

I’m comfortable with that and I’m sure that’s what you do.  I just hate to see us make the wholesaler a criminal first by saying that somehow he didn’t follow the reasonable assurance because he was given it.  Whether he was or wasn’t is kind of meaningless.


Keith Macdonald:

I understand your concern.  We would certainly use a due process in administrative hearings to assure that we aren’t going to do something without the opportunity of the person to be heard. 


Helen Foley, Legislative Advocate, Association of Nevada Pharmaceutical Wholesalers:

[Introduced herself and Rob Miller and Steve Gibson.]  If you would take a look at the original bill of S.B. 425, nothing that deals with the wholesaler issue is really included in that bill.  It was because of our urging to the Senate Commerce and Labor Committee that new legislation, specifically Section 3.5 was brought forward, that we were able to reach primarily a compromise.  There are a couple of areas of contention certainly, but we believe that it goes a long way in providing a pedigree, a tracking of drugs, that no other state has.  We’re very proud of that movement. 


However, as Assemblyman Hettrick said, we are very concerned about the notion of making out-of-state companies register in Nevada.  We have proposed an amendment to you (Exhibit P) and I have redlined it to make it easier [for review].  We believe it would be far more appropriate to say that the purchasing wholesaler is licensed by the Board or by another state’s board or relevant regulatory authority in both of those places, if you sell or if you purchase. 


Quite frankly, if someone were selling in the state of Nevada, that person would have to be licensed now.  We feel that that is very appropriate.  If someone is purchasing in the state of Nevada, we also believe that that wholesaler should have to be licensed by the state board here.  But, those outside of the state are another story, and we know from our research that there are no other states that mandate that.  We really question why the state of Nevada would get involved in something that appears to be out of line and not something that other states have done. 


Another issue that has come to our attention, which concerns us, is highlighted in yellow on the sheet, Number 5.  The Senate committee decided, and quite appropriately – and this is the language that Louis Ling actually came up with that we wholeheartedly agreed with – if there is a Walgreen’s [for example] that has a wholesaler in another state and they send the drugs to another Walgreen’s here in the state, we refer to that as “intracompany transfers,” that they should be able to do that and there should be no problem. 


[Helen Foley continued.]  The bill drafter, Kevin Powers, Legal Counsel for the Senate Commerce and Labor Committee, did not draft the amendment.  When the amendment was drafted, the bill drafter needed clarification and asked Louis Ling for the clarification, and now it has an entirely different meaning.  I will refer you to page 3, lines 17 and 18.  It’s not just an intracompany transfer; it’s only those corporations that are publicly traded.  That’s far different from what was adopted by the [Senate] Committee.  This came directly from Mr. Ling and it’s really a stretch from what the Committee approved under Senator Maggie Carlton’s subcommittee.  We’re surprised and a bit shocked at that.


The final issue that we’re very concerned about is on the second page of our amendment at the bottom and it deals with summary suspension.  We wholeheartedly believe that if there is an immediate emergency health risk and there is any evidence of that, there should be some type of procedure in place, but in looking at all of the other statutes in Nevada, we could not find any that were as punitive as this where one individual, quite possibly Mr. Ling, could come in and summarily suspend someone’s license.  We believe that this language is far more rational and treats people with due process. 


Steve Gibson, Legislative Advocate, Association of Nevada Pharmaceutical Wholesalers:

[Introduced himself.]  Mr. Ling has characterized this industry, at times, as “illegitimate” and then he has stepped aside and said he shouldn’t use the word illegitimate in characterization of closed-door pharmacies.  The way the trade goes is interesting, but we are very concerned by it.  Mr. Ling has gone on public record, or at least publicly, to say that he wants to put this industry out of business.  Mr. Miller represents a wholesaler and is a wholesaler who does legitimate business.  Trade from what Mr. Ling calls closed-door pharmacies is not unlawful.  The complexity of the legal issues, with respect to the Robinson‑Patman Act and the 1938 amendments thereto, are not addressed by Mr. Ling.  I would like leave to say that the complexity of these issues cannot be fully addressed this afternoon.  Mr. Ling makes a representation that there may be only a thousand more out-of-state wholesalers.  The federal government lists approximately 6,700 secondary wholesalers.  There are many businesses out there. 


We spent a lot of money over the past nine months to work with the Board in good faith.  We met with Mr. Ling and Mr. Macdonald and came up with language, the reasonable assurance standard and others.  I indicated before the subcommittee that we needed the approval of all of our clients of the Association to the changes.  The committee met on a Friday morning and passed this legislation without any further discussion.  I got back word from my client and we agree with the vast majority, if not the overwhelming majority, to this language.  We believe that this language is very positive.  It will address any illegitimate actors in the industry, but for Nevada to take upon itself to ensure that every purchase made by a wholesaler that is already licensed in another state must be the subject of a licensing procedure in the state of Nevada is a breathtaking scope.  It offends interstate commerce principles and is completely untoward when you compare it to other state legislatures’ approaches.  We have other changes, but we are highlighting those two. 


[Steve Gibson continued.]  The summary suspension language is indeed, as Mr. Ling indicated, a heavy hammer, and frankly we are concerned with Mr. Ling’s characterizations of this industry and some of his conduct.  We believe our amendments speak to something that is far more familiar to the state Legislature.  If there is that immediate and clear risk, then of course, protect the public and suspend that license, but due process is very important. 


Chairman Goldwater:

You’ve brought a perfect segue way into something that our legal counsel would like to review regarding the commerce clause.  Mr. Keane, will you reveal what you shared with me?


Wil Keane, Legal Counsel, Legislative Counsel Bureau:

[Introduced himself.]  Our office had the opportunity very quickly to look into the commerce clause issue.  Certainly there are two aspects to Section 3.5.  The first aspect is the requirement of licensing of out-of-state sellers, sellers who are going to be selling in Nevada.  Mr. Ling provided us with a Sixth Circuit [Court of Appeals] case – I’m sure you are familiar with it – which in our opinion does address that circumstance and upholds that concept.  The other aspect certainly is requiring out-of-state buyers to be licensed.  In our quick search, we could not find case law either supporting or opposing that, so our position would be that without case law deciding it one way or another, given that legislation is entitled to presumption of constitutionality, our office is not opposing inclusion of that language as it stands.


Steve Gibson:

Mr. Chairman, may I speak to that?


Chairman Goldwater:

We don’t want to engage in a debate, but –


Steve Gibson:

I understand.  I respect that opinion.  I am familiar with that Sixth Circuit case.  There is a lot of commentary on that case.  We would contend that there would be issues associated [with it] without further debate.  There is also a practical notion and that is having potentially 6,700 people go through a licensing process.  While Mr. Ling and Mr. Macdonald may indicate that it’s an easy process, we would want them to go through due diligence, and it would maybe not be a weak process.  We would want them to make sure that these people are, in fact, legitimate.  It would not be just a rubber stamp; we believe it would be a substantial exertion of tax money and effort and all of those other things.  The standards here with respect to summary suspension and the out-of-state licensing of the buyers is indeed a heavy hammer, particularly given Mr. Ling’s known feeling that this industry perhaps should be driven out of business. 


[Steve Gibson continued.]  Please remember as well that this is intended as a substitution for a present regulation, which is called the “10 percent rule,” which was promulgated as of April 1, 2002, and has never been enforced, that wanted to prohibit any transactions between wholesalers at a 10 percent level.  This was deemed to be that substitution.  We believe that 10 percent rule was designed to drive this industry out of business.  The industry, in fact, can live legitimately and thrive potentially if our amendments are taken into consideration. 


The other consideration is our amendment to NRS 639.234(3).  Presently there is a rule that records may be inspected and copied but not removed.  With respect to other instances, removal is only permitted if certain procedures occur.  We want to apply the current rules to removal of original records so that people can’t just come in, take records out upon a moment’s notice, and then if they don’t feel that the private business is being as responsive as they would like them to be, summarily suspend their license, particularly when we have this level of animus.  We are very concerned about the course of some of this legislation and I feel that we are being, frankly, very compromising with respect to our perspectives. 


Helen Foley:

It was surprising to me in the Senate and in the Assembly to hear Mr. Ling talk about how horrible it was that prices were deeply discounted and that someone may be able to purchase drugs for a lot less than what they normally would directly from the manufacturer.  In looking at some of the legislation that you have been addressing this session, we see where there are problems in the Department of Corrections [and] Human Resources where they have an overabundance of drugs.  How do they get it back on the market before expiration date and move it to places more appropriate when they cannot utilize those drugs?  It’s wholesalers that provide that very important service.  Right now in Nevada we have no warehouses for major manufacturers.  That means if we ended up with some type of SARS outbreak or something else and we immediately needed to bring in as many drugs for those purposes as possible, it would be very difficult without the use of wholesalers.  They provide a very important service and I do believe that in many ways they have been villainized by the Board.  We are proud of the amendments that have been brought forward.  Had it not been for us, we would not have this more strenuous rule with wholesalers and we could certainly live with that with a few minor amendments. 


Chairman Goldwater:

[There was no further discussion on S.B. 425.]  Mr. Ling, would you like to respond? 


Louis Ling:

Let me just address these [issues] point by point. 


Chairman Goldwater:

That is not necessary.  Why don’t you just summarize what you’re trying to do? 


Louis Ling:

One thing I need to address, the requirement that the intracompany transfers occur between publicly traded companies was, to my recollection, exactly what the Senate had asked us to do.  I did nothing underhanded there.  I simply was helping LCB with some language.  That is my recollection of what the Senate wanted.


Chairman Goldwater:

And the Senate had the ability to vote on that on the Floor, so I appreciate that. 


Louis Ling:

The licensing of the out-of-state purchasers addresses Mr. Hettrick’s concern.  It was the wholesalers who brought to us the concept of this reasonable assurance.  Without the ability to get those records from that out-of-state wholesaler, the reasonable assurance language is worthless.  We will simply have no way to verify that the downstream purchaser, in fact, sold those drugs to an end user, absent them being licensed with us and our ability to ask them for records.  I would just say that you can’t have reasonable assurance unless you also license the downstream purchaser.


Chairman Goldwater:

What about the commerce clause concerns?


Louis Ling:

[Regarding] the commerce clause concerns, there’s one case out there in the jurisprudence right now.  It’s that Ferndale case that he was discussing.  It [concerns] the very compelling interest a state has in protecting the integrity of its drug supply.  This bill goes a long way with these amendments toward doing just that, and the same compelling public interests that would require somebody selling into our state to be licensed with us also looks into somebody who is buying from us. 


Chairman Goldwater:

Why couldn’t we just require that they’re licensed or regulated by a similarly licensing authority in another state?  Why is that not sufficient to protect the state’s interest?


Louis Ling:

The reason is because, as I said before, our experience has been when we have tried to get those records from somebody who’s not licensed by us, they do not respond.  We simply don’t get the records.  In states where their interest and their abilities to go out and do this for us – because that’s what you’re asking somebody else to do in another state with an overtaxed agency just like ours – you’re asking them to now go out and grab three boxes of records for another state.  It just doesn’t happen.  That’s reality.  That’s the world we’re in.


Chairman Goldwater:

Why do you need these records now?


Louis Ling:

To prove that the person the Nevada wholesaler is going to sell to, if they’re out–of-state, has to sell those drugs to either pharmacies or doctors or hospitals.  In other words, they can’t spin them and keep them spinning around in the market.  The only way that we will be able to verify that they are selling the drugs to end users is to be able to ask them, “Who did you sell these drugs to?”  If we can’t ask and get a response, that reasonable assurance language is pretty much worthless. 


Assemblyman Hettrick:

Your last statement was interesting that they have to sell to an end user.  Would that prohibit a wholesaler who had excessive inventory from reselling to another wholesaler? 


Louis Ling:

Under this, if the Nevada wholesaler was selling to that downstream wholesaler, that downstream wholesaler would have to assure the Nevada wholesaler that they were going to sell to an end user, yes. 


Assemblyman Hettrick:

So he could never sell his inventory to another wholesaler? 


Louis Ling:

There have already been several steps before that.  In the real world, the way this industry actually works, that isn’t what’s occurring out there.  Everybody knows all along the way who has what product before they ever buy it from the one before them.  The orders go one direction; the drugs go the other.  We are not talking about excess stuff; we’re not talking in this particular industry about addressing and selling to Nevadans.  The reality in every case we’ve investigated, which is in the booklet you have in front of you, is there’s never been a single sale to a Nevada pharmacy or hospital.  This industry doesn’t sell to pharmacies and hospitals; they sell to each other.  The need then to have this ability to sell out excess inventory and [such] really isn’t what we’re trying to stop, because that’s not what’s happening. 


Steve Gibson:

Mr. Miller appeared before the Nevada Board of Pharmacy with me last year and there is a substantial percentage of the pharmaceuticals that are, in fact, sold to end users, hospitals, and pharmacies.  The question is, if we put this industry out of business, where would they get those other goods?  The other thing is that the reasonable assurance documentation, all of the documentation that we build in here, needs to be possessed by the Nevada wholesaler.  The Nevada wholesaler needs to receive the reasonable assurance.  If they don’t receive the reasonable assurance, just as Assemblyman Hettrick indicated, they’re going to be the ones who are in violation.


Chairman Goldwater:

That makes sense to me, Mr. Ling.  Is that true?


Louis Ling:

No.  In every case that we’ve investigated, we cannot trust the documentation we’ve been provided by the Nevada wholesaler.  We are required, through the backdoors, to find the people who they are selling to or buying from and go to them and try to get the records.  In every case, I build my case by having to go outside the Nevada wholesalers because we can’t trust their records.


Chairman Goldwater:

If you can’t trust the documents and you can’t trust the reasonable assurance, why couldn’t you then punish the Nevada wholesaler?  I mean, it’s certainly them.  Then you would either get the documents or you would have them provided to you.  You couldn’t take action against that licensee. 


Louis Ling:

Except in the real world they will have, as they do now, their pedigree, which is a document already legally required and has been for a decade.  We are finding in [many] investigations that those pedigrees are false.  In order to verify the falsity, we have to get somebody else’s documents.


Chairman Goldwater:

Why can’t you take action against Nevada licensees?


Louis Ling:

I will, but I can’t know it’s false if all I have are their documents.  The only way I can prove the falsity is to have the other documents of the downstream sales to show what they’re representing – or the upstream purchases – either way.  To piece these cases together, I go to the other people outside of the Nevada wholesaler to prove the falsity, because their records are “squeaky clean.”  If you look at the Nevada wholesalers’ records, they look good.  It’s only when you start looking underneath and try to figure out what really happened – believe me, these cases are humongous.  They take a ton of research and a ton of effort on our part to put them together.  I literally have to get boxes of records from out of state, compare them to what I’m seeing from Nevada, and unfortunately we’re not getting good records from our Nevadans.  So the only tool I have when I’m investigating these cases is to be able to check the records as they’re going both directions.  That’s the tool we need.  If they are in fact complying with this, there shouldn’t be any objection. 


When I ask that downstream purchaser, he will have given them the reasonable assurance.  We’re going to have a reasonable assurance form that’s going to just say, “Yes, I give you reasonable assurance that I will sell this downstream.”  But when I go downstream and he’s selling to end users, game over!  If they are, in fact, doing what they’re supposed to do, I have no case, and that’s great.  We want that.  We want these drugs to get out of this cycle, so that’s why we agreed to this.  This is a good structure.  All we’re asking for is the tools to make sure this happens.  That’s all.  The only way we can think to do that is to be able to get those records downstream and ask that [the wholesaler] what he really did with the drugs.  There’s really no other way to do that. 


Steve Gibson:

The documentation that Mr. Ling is referring to all comes from the sellers, the pedigrees – what comes into the state, not what goes out of the state, except for the reasonable assurance document.  As Mr. Ling has already indicated, the PDMA, the Prescription Drug Marketing Act, and other federal laws, as well as other state laws already mandate that they must receive these documents.  We are not in any way suggesting that the selling wholesaler – and it’s not presently the case, as Mr. Ling will indicate to you – should not become licensed.  We are willing to compromise on that and say, “Yes, we can work with that.”  But to have the buying wholesaler – we need to give the pedigrees to the buying wholesaler who is in Missouri or Florida, and they’re not going to be giving us the pedigree, or these other documents.  There’s something that’s not flowing here very logically.


Mr. Ling is also saying they’re all false in all of our investigations, and he is able to identify all of these with the evidence that he has been able to get and say that they automatically provide us with these documents.  We need these heavy hammers upon private industry that we believe, potentially, can kill this industry.  So we’re willing to reach a compromise and get out the illegitimacy, but something isn’t flowing very well here.


Louis Ling:

All I can say is what we know.  We have had case after case where they are laundering the drugs by getting them out of our state into the hands of somebody not licensed by us.  Our trail goes cold.  We have no recourse.  At that point we, therefore, cannot assure not only the safety of Nevadans, but –


Chairman Goldwater:

They are getting out of state?


Louis Ling:

Yes.  This is a good design, but the only way we can verify this design and actually be able to assure you that we will be doing our job is to allow us to license that downstream purchaser so that we can ask for the records.  That’s what we need. 


Chairman Goldwater:

I appreciate it.  That was all very helpful.  [There was no further testimony.]  We’ll close the hearing on S.B. 425.  We’ll open the hearing on S.B. 423.



Senate Bill 423:  Makes various changes relating to unemployment compensation benefits. (BDR 53-476)


Birgit Baker, Administrator, Employment Security Division, Nevada Department of Employment, Training and Rehabilitation:

[Introduced herself.  Spoke from prepared testimony (Exhibit Q).]  S.B. 423 was requested by the Division to enhance Nevada’s unemployment insurance program, and offer training funds to Nevada employers to upgrade the skills of the workforce.  The bill proposes several changes to Chapter 612 of the Nevada Revised Statutes, which governs unemployment compensation law.  These changes address electronic methods of unemployment claim filing, streamlining employer notifications, enhancing the Division’s ability to collect fraudulent benefit overpayments, and expanding the utilization of the career enhancement program for training of incumbent workers. 


[Birgit Baker continued.]  Beginning on page 1, line 11, we are proposing to amend the statute [NRS 612.365] to provide the Division with the flexibility to collect overpaid unemployment insurance benefits for up to five years, and authorize wage garnishment and asset attachment as additional collection tools. 


Chairman Goldwater:

Excuse me, Ms. Baker, is there anyone here opposing this bill?  [There were no opponents.]


Birgit Baker:

These proposed changes were recommended by your legislative auditor and so this would implement the recommendation of the auditor. 


Chairman Goldwater:

Was this opposed at all in the Senate?


Birgit Baker:

No, this bill was not opposed.  For those of you who serve on the Committee on Ways and Means, you may recall your closing action this morning, which actually included a section of this bill that provides funding for training opportunities for incumbent workers.  We’ve been working with the Commission on Economic Development and with development authorities on that proposal, so as far as I know, there is no opposition to the bill.


Chairman Goldwater:

Is there anyone here opposing S.B. 423?  [There was no one.]


Assemblywoman Buckley:

On page 3, line 22, I am curious about the import of that change.  If the Division loses a case through an appeals hearing and then wants to appeal, would this allow the Division to file that appeal in Carson City to the detriment of a claimant who resides in Las Vegas? 


Birgit Baker:

This is really actually helping, as I understand it.  As you are aware, currently we have electronic methods of claim filing [such as] Internet claims and telephone claims.  What we are doing here is opening up the statute to provide flexibility for individuals who currently are required to file the appeal in the county in which they filed their claim.  They now have the flexibility to file that appeal in any district court of the state, whether it’s their county of residence or wherever is the most convenient for them.  As far as the Division goes, we already file our appeals in Carson City because that is where the administrator is based.  We wouldn’t be changing that method.  This is really to assist the claimants because they currently are no longer filing that claim in person. 


Assemblywoman Buckley:

I’ll ask Mr. Keane if, when he gets a chance, he could review that, or anyone else on the Committee.  I thought now if the administration felt like they were wronged in a decision, they had to file their request for judicial review in that county.  So if someone files for unemployment, it’s in Clark County.  If you get a bad decision from the Board of Review, then you would have to file that judicial review in Clark County.


Birgit Baker:

That’s correct.  That’s currently the statute and what we are saying is for the convenience of the claimant.  You do not know if you are filing your claim in Clark County.  You’re filing your claim by telephone, which means that claim could be taken in Carson City.  Technically that means you would have to travel to Carson City to file your appeal.  We’re trying to prevent that from happening.  We’re trying to allow them to file their appeal in a place that is most convenient for them [regardless of] how the claim was taken electronically and where that might have been. 


Assemblywoman Buckley:

Okay, but it doesn’t really say that.  It says that you could file it in any district court of this state. 


Birgit Baker:

Yes, it says any aggrieved party “may secure judicial review by commencing an action in any district court of this state.”  It is for their convenience.  They can file that appeal in any district court, rather than being limited to filing that appeal in the county in which their claim was filed. 


Assemblywoman Buckley:

Okay, we’re not communicating, so maybe after the hearing we could talk again, because you’re not getting what I’m saying or I’m not getting what you’re saying.


Assemblywoman Giunchigliani:

I just wanted to point out that I received an e-mail from Bob Shriver [Director, Nevada Committee on Economic Development], and I am sure the rest of the Committee did, that he couldn’t be here but he was in support of this bill.  I wanted to put that on the record.  


Chairman Goldwater:

Is there anything else?  Ms. Baker, will you communicate with Ms. Buckley?  [Received confirmation.]  Is there further testimony on S.B. 423?  I don’t see any.  I’ll close the hearing on S.B. 423.  [I’ll open the hearing on] S.B. 332



Senate Bill 332 (2nd Reprint):  Revises qualifications of State Health Officer, clarifies restrictions on use of “M.D.” title and makes various changes relating to licensure of physicians. (BDR 40-1036)


Keith Lee, Legislative Advocate, State Board of Medical Examiners:

[Introduced himself]  Present here with me at the table is Dr. Gregory Hayes, a physician in the state of Nevada, who is also an associate professor of medicine at the University of Nevada School of Medicine.  We are here to present several proposed amendments to S.B. 332 that we have worked through with Dr. Hayes and his assistants.


Chairman Goldwater:

I don’t know if we are going to do amendments on this, simply because this came from Senate, went to another Assembly committee, and now it’s here.  If we’re amending it, I don’t think we’re going to make it.  So what do you think?


Keith Lee:

I understand that position.  The proposals we are making (Exhibit R), are not compromising the strict licensing standards that we have in the state [but] address a couple of the issues that have arisen most recently with respect to the shortage of physicians in the Clark County area.  We’ve done that by addressing sections of [NRS] 630.160, the licensing standard, that addresses certain issues of the reality of how, particularly the respective Board, certifications apply now.  The broader amendment that is being proposed here is one that was based upon the provisions of NRS 630.164 that allows, in our proposal, the governor to declare in any geographic area of the state that there is a critically unmet need in a particular specialty or subspecialty.  If the governor declares that, then the Board of Medical Examiners may waive subsection (d) of NRS 630.160, which is the progressive three-year graduate education requirement, in order to allow that physician to practice in that geographic area in that specialty that has been declared to be unmet.  


Assemblywoman Buckley:

Could you refresh my memory?  During the past year or year and a half, did the Governor propose some loosening of some restriction, which was soundly panned?  Is this the same exact one?


Keith Lee:

I think it is.  What the Governor requested of the Board of Medical Examiners was to take the provisions of NRS 630.164, which this Committee has addressed in the past, that allow the county commissioners in a particular county to declare that their area is a geographically unmet area in a particular field, and if that declaration is made, the Board of Medical Examiners may waive the provisions of subsection (d) of NRS 630.160.  I think it was the conclusion of both the Board of Medical Examiners and the Governor, after consultation with his Council, that the issue of the unmet OB/GYN specialty need in Clark County would not fit within this particular provision.  That is why we have suggested what I have proposed here as an additional new section to S.B. 332.  We think that goes a long way in addressing that particular need that we couldn’t address a year ago when it arose. 


Chairman Goldwater:

Isn’t there a lengthier residency requirement in Nevada statutes relative to other states for physicians?


Keith Lee:

There is, and that is in regulation.  I can report to you that that regulation is being the subject of a workshop and a regulatory change.  The workshop is being held June 16 and 17, in which those timing issues, the residency issues, and others of that nature will be addressed, and, assuming that the public input is what we believe it will be, those will be changed.  Those are in regulation, not statute.


Assemblywoman Buckley:

I had [LCB] Research [Division] prepare an analysis contrasting our licensing requirement with every state and noting where we differed.  It’s pretty interesting.  I have one question about competency testing.  It seems to me that the Board’s gone in the wrong direction with this.  Most of the physicians that I talk to have said the doctors who are making mistakes are pretty good technically, but there’s something [else] wrong, either there’s a drug or alcohol problem or there’s a bad divorce.  And so a test isn’t going to detect their problems, which are leading to multiple malpractice.  That, in fact, what you might do is just put yet another burden, another onerous measure, on the good physicians, where if the Board just cracked down with the evidence that it has at its disposal, they’d be doing the state a service.  Any comment?


Keith Lee:

You’re addressing what we refer to as post-licensure competency regulations.  I can report to you that a couple of weeks ago there was a day-long hearing in Las Vegas and a day-long hearing in Reno on those particular regulations.  I can report to you that it is an action item that is set on the agenda for the May 30‑31 meeting.  I have been advised by the president of the Board, Dr. English, that no action will be taken on those regulations.  The Board feels because of the input, primarily as you’ve addressed it with oppositions and with questions and concerns, they’re going to go through another series of workshops and public hearings to take additional testimony and receive additional information and proceed.  I have not attended any of those meetings, nor will I be at the Board meeting, but my sense is that that regulation probably is going nowhere. 


Gregory Hayes, Associate Professor, University of Nevada, Reno:

[Introduced himself.]  I teach medical ethics.  I want to give a real brief summary of my bulleted comments (Exhibit S).  We are talking just about the amendment.  I created the original language last year when Mr. Stalworth couldn’t be hired, as he drove west from Georgia, to be our new health officer.  Several other friends who had been board-certified in emergency medicine for more than 20 years couldn’t return to Nevada to practice where they had done so before because they didn’t have residency training, which didn’t exist where they were trained.  I said, “Something needs to be fixed here.”  The original bill, which passed 21 to 0 out of the Senate, really just addresses some key points in the law that are too inflexible and were keeping some really qualified doctors out of our state.  I want those doctors to serve the public of our state.  It just seemed unfair.  During these other hearings, the only voice that was against was Mr. Lee, representing the licensing board.  Nonetheless, it passed through the Senate without a nay vote.  Since then we have worked together, and that’s why I think the other parts of his amendment are very relevant to [NRS] 630.160, because we have added just a little language, which to me does not change the intent of S.B. 332 to let those quality doctors serve the people of Nevada.  We’re keeping some good people out. 


Chairman Goldwater:

I thought all the doctors wanted to leave Nevada.  Isn’t that what they have been telling us?


Gregory Hayes:

On the OB/GYN side in Clark County it seems that way.  That’s a whole other issue.  This new part that we want to add in terms of this critical unmet need, I’m less familiar with.  It wasn’t part of the language that I wrote.  I’m more familiar with all the other parts that deal with hiring a health officer who is a really good administrator but doesn’t have residency training, to get him a restrictive administrative license to do what he does best.  There are some really excellent ones out there.  If they applied here, that would be a tool for the Health Division and the search committee to grab that good person if he’s the best one.  I’m trying to short-circuit this. 


There are several other points that have to do with board certification and that being the gold standard in a given specialty and letting that hold sway, not saying they necessarily have to have 36 months of post-graduate training, [that is] residency.  Some of the people who created the first residencies in emergency medicine and family practice who taught in them, didn’t have them because they didn’t exist.  There are some excellent people in the field who choose to come here with all of that experience and many years as board-certified doctors.  We should welcome their application.   


We’ve worked these new amendments out with the one nay voice, i.e. the licensing Board, on these other issues in [NRS] 630.160.  [There’s] a little bit of language change and we’re totally happy with that.  This is a non-partisan issue.  It’s good for the people of Nevada.  I’ll let you make your own judgments [regarding] the other issue, the critical unmet need.  It seems reasonable.  I don’t know if it’s practical.


Assemblyman Hettrick:

I would like to put on the record that I had a situation where a doctor actually signed a contract with Barton Hospital, which operates in California and Nevada, and wanted to move into Douglas County.  The man found out after he signed a contract to come here that his license wouldn’t work in Nevada based on the requirements of the Board as they exist.  He didn’t have enough residency acquired, even though his training went far beyond and would far more than satisfy [the requirements].  Both of these gentlemen allowed me to attempt to amend this bill in Committee here, but after discussion with the Board and what went on, they are trying to address some of these issues in regulation.  We need to take quality doctors that don’t fit the letter, but actually have better qualifications, and get them here because they would serve our public well.  I think the Board is trying to do that, and I think this bill does that as well.  I really don’t have much problem with the amendment if we think we can do it timely.


Chairman Goldwater:

[There was no further testimony.]  I’ll close the hearing on S.B. 332.  That concludes our work today.  Friday will be a long work session.  There are 30-some bills on that work session.  [Explained future hearings.] 


The meeting is adjourned [at 3:23 p.m.]   








Sharee Gebhardt

Committee Secretary








Assemblyman David Goldwater, Chairman