Dunlap Memorial Hospital

1 15 U.S.C. § 13c.
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Bureau of Competition
~
Jeffrey W. Brennan
Assistant Director
Health Care Services & Products
Direct Dial
(202) 326-3688
January 6, 2004
Judy Erb
Vice President
Dunlap Memorial Hospital
832 South Main Street
Orrville, Ohio 44667
Dear Ms. Erb:
This letter responds to your request on behalf of Dunlap Memorial Hospital for an advisory
opinion whether Dunlap’s provision of pharmaceuticals to the Viola Startzman Free Clinic
would fall within the scope of the Non-Profit Institutions Act (NPIA). The NPIA exempts from
the Robinson-Patman Act “purchases of their supplies for their own use by schools, colleges,
universities, public libraries, churches, hospitals, and charitable institutions not operated for
profit.” 1 For the reasons explained below, we have concluded the NPIA would apply to
pharmaceuticals transferred by Dunlap to the Free Clinic.
As we understand the facts based on the information you provided, Dunlap is a non-profit
hospital. The Free Clinic is a non-profit institution, funded entirely by donations, grants, and
unpaid services of volunteer physicians, that provides free medical care to adults in and around
Wayne County, Ohio. Dunlap purchases pharmaceuticals through Amerinet, a hospital
purchasing group. The hospital pays a lower price than is currently available to the Free Clinic,
which purchases drugs prescribed by Clinic doctors from a local pharmacy at the average
wholesale price plus a dispensing fee. You have asked whether the NPIA would apply to drugs
purchased by Dunlap and then transferred to the Free Clinic, where they would be dispensed to
patients of the Clinic. You also ask whether Dunlap could charge a fee to cover its cost of
providing the pharmaceuticals to the clinic.
The NPIA applies only to pharmaceuticals purchased by a hospital for its “own use” – that

Judy Erb
Page 2
2 Abbott Laboratories v. Portland Retail Druggists Assn, 425 U.S. 1, 14 (1976).
3 St. Peter’s Hospital of the City of Albany, 92 F.T.C. 1037 (1978).
4 Letter from Michael D. McNeely to Sheldon Klein (North Ottawa Community
Hospital) (October 22, 1996).
is, for use in the care the hospital renders to its patients.2 Since the patients of the Free Clinic are
not Dunlap’s patients, the NPIA would not apply to pharmaceuticals dispensed directly by the
hospital to those individuals. The Commission, however, has concluded that the Act covers the
transfer of supplies, at cost, from a non-profit hospital to another organization that is entitled to
NPIA protection for its own purchases, so long as those supplies are for the receiving
institution’s “own use” within the meaning of the NPIA.3
The Free Clinic appears to be a non-profit charitable institution entitled to purchase supplies
under the NPIA, and it will use the pharmaceuticals that it receives from Dunlap for its “own
use” in the care of Clinic patients. Accordingly, Dunlap’s purchase of pharmaceuticals for
transfer to the Free Clinic at its cost would be covered by the NPIA.
The Commission’s reasoning in the St. Peter’s opinion would not apply if Dunlap sold
pharmaceuticals to the Free Clinic at a profit. The Commission’s staff has concluded, however,
that an institution making a transfer to another NPIA-eligible institution may charge the
receiving institution not only its acquisition cost for the materials but also a fee sufficient to
cover any additional costs it incurs as a direct result of making the transfer (but not overhead
expenses that the institution would incur without regard to the transfer).4 Dunlap will retain the
protection of the NPIA, therefore, if it transfers pharmaceuticals to the Free Clinic at a price that
does not exceed its direct costs in purchasing and transferring the materials.
This letter sets out the views of the staff of the Bureau of Competition, as authorized by the
Commission's Rules of Practice. Under Commission Rule § 1.3(c), 16 C.F.R. § 1.3(c), the
Commission is not bound by this staff opinion and reserves the right to rescind it at a later time.
In addition, this office retains the right to reconsider the questions involved and, with notice to
the requesting party, to rescind or revoke the opinion if implementation of the proposed program
results in substantial anticompetitive effects, if the program is used for improper purposes, if
facts change significantly, or if it would be in the public interest to do so.
Sincerely yours,
Jeffrey W. Brennan
Assistant Director