us-ftc-advisory-opinions-879c5770f9fd257aff10e7b599598a00•Oneida City Hospital
Oneida City Hospital
us-ftc-advisory-opinions-879c5770f9fd257aff10e7b599598a00Oneida City HospitalGuidance
re: Concerning the sale of prescription drugs by a city-operated hospital to city employees at a price reflecting discounts received by the hospital.
G S I Y E D STATES OF AMERICA FEDERAL TRADE COMMISSION U'ASMINGTON, D C. 20580 June 1, $992 L i n u e W e WaLtsn, Esq. C i t y Attorney C i t y o f Oneida Department of Law 2 3 3 Cedar Street Oneida, NV 13421 Dear Mr- Waleon: This letter r e s p n d s to y o u r rewest for an a d v l s s q opinion concerning the applicability of the Robinson-Paman A c t to t h e sale of prescription dnasgas by the city-oprated Oneida C i t y Hospital Lo C i t y of Oneida employees at a price refleeting diecounts received by t h e hospital, As we explained to you An our telephone conversation on May S F your Letter raises st leset o n e p e s t i o n that is not clearly resolved by current au%AorAt8es, However, w e believe t h a t if t h e City Hospital were to pursue t h e proposed course o f action, it would not b able to invoke the Nsn-Profit Inetitutions Act exemption from the Robinson-Patman Act ( " t h e A c t " ) and would sehemise b subject to the rewiremenla of the A c t , We do not address the separate c?yc\estLsn @ of whether, assuming that rhe A c t applied, procuring drugs at a discount for resale to city employees would violate it* You ask three s p c i f i c questions. One i a whether %he City is exempt from t h e Robinson-Patman A c t as a gover neal @R$$~Y* Y o u also ask whether t h e Non-Profit Lnatitutions "to t h e Act would cover t h e C i t y Hospital" dcf8spnclfngl to elty of Oneida employees who do not work at the hospital. Your third westion caneems whether t h e City Hospital i i ~a mn-profit institution under the Mion-Profit I n s t i t u t i o n s A c t , A8 we brave discussed, t h i s letter does not discuss ysux third p e s t i o n b c a u s e t h e answer .&at h e second westion makes kt t. W e Mlieve we can confidently answer %Ire first q e s t i o w in 160 U D S o neon-Patman A c t applies to %he sale of pbamaceu%lea2 U G L ~LO state or local govermene hospitals for =sale in e o m p t i t i o n w i t h private phamaeies, a s s u i n g these act%vLtbes are n o t exempt under the Eiion-Profi% Institutions Act,
The Non-Profit Institutions Wet, S e c t i o n 13c of t h e Robinson-Paman A c t , stares : Nothing in [ t h e A c t ) shall apply to purchases o f t h e i r eupplies for their own use By schools, colleges, univereities, public libraries, churches, hospitals, and charitable institutions n o t operated for prafit. S i n c e the C i t y Hospital is genesally subject ts t h e A c t , any poesible exemption would depend on, among other things, whether t h e purchase of drugs f s t resale to c i t y employees not employed by C i t y Hospital amounts to a purchase for t h e hospital" %i"awn u s e . " &CIP view is that t h i s a c t i v i t y would n o t qualify as "own u s e *" 47 LIEd,Zd 537 (1976). In that case, dmg manufacturers w e r e selling phamaeeutieals more cheaply to certain private, non- profit hospitals than to retail phamacies, The plaintiff, an assoeiatfon of retail phamacists, complained that these purchases violated the Robinson-Patman A c t b e a u s e t h e hospitals were reselling some of t h e drugs at a profit to out-patieate and others %or off-premises use, The Supreme Court suggested that i n order to d e t e r n i n e what constitutes a hospital" own use, we should foeus on t h e f u n c t i o n pmfomed by-the institution i n its purchase and resale role: "Their own use" Is what reasonably may Be regarded as use i n t h e sense t h a t such us8 .is a part of and promotes the hospital% sintended institutional operation i n the care of p r s a n s who are its patients. (emphasis i n t h e original). 42%U.S. at 14, The Court proceeded to conclude that certain categories sf sales of as mounted to sales for the hospital's "OWA use'' and were exem These were sales to in-patients, emergency Boom patients, out-patients fos u s e on hospital premises, in-patients and out-patients f s s t a b hame use, hospital employee@ and mdical students for theis use or use by t h e i r d e p n d e n t s , and sales to t h e hospital" s d % c a lstaff %or t h e i n p r e s n a l use or use by t h e i r d e p n d e n t a , The Court d e c l i n d to exempt sales of prescription refills, sales La the hospieal" mdieal, staff bar: resale Ln pr6wake prcael;ictil, anad rraLes es walk-in customers who wexe no fng treated at t h e IrosgLtal. The parebase and resale of s to out-pat&@*@ and to hospital p r s o n n e l f o r their p r e o n a l use were exmpt &cause these transactions were a continuation of the Irospllal" &basic Institutional f u n c t i o n , On the other hand, the =re refiLllng of prescriptions f o r fomer patients, or the sale to employees o f
7 t I I h E * drugs to be used by "on-dependent t:iifd persons, was h e l d to be beyond &he protection of t h e statute, Your letter indicates how that, s i n c e sales by t h e hospital to its employees were specifically exempt i n sales by t h e Oneida C i t y Hospital to c i t y employees would also be exempt, know of no authority that more specifically addresses t h e daeue of "own use" as it applies to a noneprofit institution's employees, However, it may b u s e f u l to hook at decisions that deal w i t h sales to other p r s o n s who have a particular conneetion w i t h the institution in westion, I n an FTC a d v i s a q opinion dated J u l y 19, 1978, t h e Comission advised a g e r o n t o l o ~ foundation that its propsed course of action would not qualify f o r Nsn-Profit Institutions A c t exemption from Robinson-Patman. The question h f o r e t h e Comiseion was whether t h e Foundation %or Later Life E n n i c h e n t , a asn-profit foundation created to fund gesantslom research and to provide goods and semiees to the age8 ~t low coat, could resell donated pnobi"uc&s and products obtained at wholesale prices to the elderly. I n its advisoq opinion, t h e Csmiea%on interpreted t h e ", (emphasis added). The ComlssLon went on to state thet Le did not view t h e purchase of products for resale to the elderly "as in any manner a f u n c t i o n integral to t h e operaFion, institutionally, of a gerontological. research foundation." Additionally, it has been h e l d t h a t purchases by an HnO for resale to its plan members were exempt from t h e A c t as purchases for t h e own use, When we consider t h e s e authorities together with the i n d o m a t i o n we have u't t h e sole of the City Hospital, we conclude t h a t the hospital" ppropsed course sf conduet cannot meet t h e " o m use" test, As we understand it, the City Hospital f u n c t i o n s l i k e any othem c~csneralpu se hospital. We f u r t h e r understand t h a t t h e hospital and ei a h i a i s l r a t i o n s are not closely linked, and eRaL t h c h o s p i t a l owrates as a separate entity, The basic institutional function of differ from that of the hospitals in or most general p u r p s e hospitals, the resale of prescription drugs to c i t y employees who have no 1. 3 E l KinLner & J. Baues, Federal A n t i t m s t Law, S %5.9# p. 168 $1983). 2 9 2 FTC 1819, 1020.
direct relationship to t h e hospital. Consequently, purchases for resale g o c i t y employees n o t employed by the hospital would not constitute purchases foe t h e City Hospital" sown use that are exempt u n d e r t h e Non-Profit Xnstitutione A c t . W e hope this opinion letter Is helpful to you, It is limited to the rewest described above, as explained In your letter of P e b r u a q 27, 199% and in our May 5 telephone conversation, It does not constitute approval for actions t h a t are different from those described, or that are n o t s p c b f i e d in your letter, The a b v e advice i s an infoman stafe opinion. Under Comission" Rule of Practice %,3(c), the Comission is not bound by this advice and resemes the right to rescind it at a later time* In addition, this office retain8 t h e right eo reconsider t h e westion involved and, with notice to t h e r e v e s t i n g party, to rescind or revoke its opinion if t h e rewest is used for inpropm puqosee, or if i t would b in t h e public interest to do so. S i n c e r e l y yours, -s Michael D. McNeely Assistant Director Bureau of Competition
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