The Methodist Hospital System

Bureau of Competition
Health Care Division
November 30, 2012
Dionne C. Lomax
Vinson & Elkins LLP
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHTNGTON, D.C. 20580
2200 Pennsylvania Avenue NW
Suite 500 West
Washington, DC 20037
Re: 	The Methodist Hospital System Advisory Opinion
Dear Ms. Lomax:
This letter responds to your request on behalf of The Methodist Hospital System ("Methodist")
for an advisory opinion concerning Methodist's proposal to sell certain critical shortage drugs to
Baytown EMS, a division of the Baytown, Texas, city government, during the pendency of the
shortage. Baytown EMS serves as the exclusive 9-1-1 emergency transport service for Baytown
residents. You requested our view on the permissibility of these proposed sales under the
Robinson-Patman Act.' Specifically, you requested that we opine on the applicability of the
Non-Profit Institutions Act ("NPIA") to the proposal. The NPIA provides an exemption from
liability under the Robinson-Patman Act for purchases of supplies by certain non-profit
organizations for their own use. 2
We need not reach the NPIA question, however, because Methodist's proposal, as presented,
appears to be a pennissible emergency humanitarian gesture. As explained below, Methodist
proposes to sell pharmaceuticals to Baytown EMS for the sole purpose of assisting Baytown
EMS in the care of patients during a time of nationwide shortages of certain critical drugs. Given
these facts, it is our view that, pursuant to the Supreme Court's discussion ofa hospital's role in
an emergency in Abbott Labs. v. Portland Retail Druggists Ass 'n, Inc., 425 U.S. I (1976) and the
Commission's similar discussion in its St. Peter's Hospital of the City ofAlbani advisory
, 15 U.S.C. § 13.
2 15 U.S.C. § 13c (exempting from the Robinson-Patman Act "purchases of supplies for their own use by
schools, colleges, universities) public libraries, churches, hospitals, and charitable institutions not operated for
profit").
3 St. Peter's Hospital of the City of Albany, 92 F.T.C. 1037 (1978) (Commission advisory opinion).

The Methodist Hospital System Advisory Opinion
November 30, 2012
Page 2
opinion, Methodist may resell the needed pharmaceuticals to Baytown EMS as a humanitarian
gesture during the shortages. 4
Factual Background
As we understand the facts based on information you provided, Methodist is a non-profit
hospital system that provides comprehensive care to its patients. It is based in Houston, Texas,
and purchases its pharmaceuticals through a group purchasing organization at an NPIA-
discounted price. 5 Methodist is comprised of inpatient facilities, outpatient surgery centers,
imaging centers, and emergency care centers. CUlTently, its facilities include five hospitals. One
of Methodist's hospitals is San Jacinto Methodist Hospital, which is a 392-bed general acute care
inpatient facility located about 30 miles east of downtown Houston, in Baytown, Texas. 6 San
Jacinto Methodist is the only hospital within Baytown's city limits.' Further, it is the only
hospital in the Baytown area that provides the full range of acute care inpatient health services.s
Baytown EMS is the exclusive transport provider for the City of Baytown's 9-1-1 service. It is a
division of the city of Baytown and was created under the Emergency Healthcare Act for the sole
purpose of providing critical medical care and emergency medical transportation services to the
citizens of Baytown. By city ordinance, Baytown EMS is the only emergency medical service
transport allowed to respond within the city limits. It employs 21 paramedics and has four front-
line ambulances. 9 The vast majority of Baytown EMS's emergency transports go to San Jacinto
4 This advisory opinion should not be construed as taking the position that the Robinson-Patman Act
necessarily applies to these facts, or that Methodist's proposed sale to Baytown EMS would violate the Robinson-
Patman Act absent the shortage situation or other applicable exemption. We provide this opinion, under these unique
circumstances of critical drug shortages~ in an effort to provide reassurances that may be helpful to entities in their
efforts to cope with the current drug shortages.
5 Letter from Dionne C. Lomax, Vinson & Elkins LLP, to Markus H. Meier, FTC (July 25, 2012)
[hereinafter "July Letter"]; Letter from Dionne C. Lomax, Vinson & Elkins LLP, to Robert S. Canterman, FTC
(Sept. 6, 2012) [hereinafter "September Letter"]'
6 See http://www.methodisthealth.com (viewed September 17,2012); July Letter.
, September Letter.
8 July Letter.
9 July Letter; September Letter.

The Methodist Hospital System Advisory Opinion
November 30,2012
Page 3
Methodist. 10 Though it can collect fees for its services, Baytown EMS does not generate a
profit."
As you have explained, during transport of patients to hospitals for care, it may be necessary for
Baytown EMS to administer certain phannaceuticals prior to arrival at the hospital. Indeed, the
administration of certain phannaceuticals at the first point of care can be critical to a patient's
clinical outcome. Recently, however, owing to well-publicized nationwide shortages of certain
critical drugs, Baytown EMS has been unable to keep its ambulances stocked with safe inventory
levels of certain of these clitical pharmaceuticals. Efforts to secure supply from other vendors
have not succeeded, and the problem appears to be prevalent throughout the region.'2
To assist Baytown EMS in dealing with the drug shortages and to ensure that its patients, which
comprise tlte vast majority of Baytown EMS's transports, receive the necessary clinical care en
route to the hospital, Methodist proposes to sell, at cost, critical shortage drugs to Baytown EMS.
As you explained to us, Methodist would continue this arrangement only for so long as the drugs
are in shortage.'3
Analysis
The Supreme Court's opinion in Abbott Labs. v. Portland Retail Druggists Ass 'n, Inc., 425 U.S.
1 (1976) guides our analysis of permissible uses of NPIA-discounted phannaceuticals. There,
in addition to clarifying the applicability of the NPIA exemption to the Robinson-Patman Act,
the Supreme Court addressed the appropriate role of a hospital in an emergency situation. It
stated:
We recognize, however, that there may be an occasion when the hospital
pham1acy is the only one available in the community to meet a particular
emergency situation .... So long as the hospital phannacy holds the emergency
situation within bounds, and entertains it only as a humanitarian gesture, we shall
not condemn the hospital and its suppliers to a Robinson-Patman violation
because of the presence of the occasional walk-in dispensation of that type. '4
10 See id.
" September Letter.
'2 July Letter; September Letter.
13 See id.
'4 See Abbott at 18. The Court further noted that the occasional emergency would likely be de minimis in
any event.

The Methodist Hospital System Advisory Opinion
November 30,2012
Page 4
Applying the Supreme Court's reasoning in Abbott, the Commission previously has determined
that a hospital could resell pharmaceutieals it purchased pursuant to the NPIA diseount to the
general public during an emergency caused by a Medicaid strike. In its St. Peter's opinion, the
Commission concluded that "if needed pharmaceuticals are not available or difficult to obtain,
[the hospital) may resell the needed pharmaceuticals to the general public as a humanitarian
gesture during the emergency caused by the [Medicaid) strike.,,15
Methodist's proposal appears consistent with both the Supreme Court's reasoning in Abbott and
the Commission's reasoning in St. Peter's. As we understand the facts you have presented,
Methodist runs the only hospital within Baytown's city limits. To assist Baytown EMS during a
time of well-publicized nationwide shortages of clitical drugs, Methodist seeks to sell certain
shortage drugs that it obtains at the NPIA-disconnted price to Baytown EMS. These shortage
drugs are necessary to the care of Baytown EMS's emergency transport patients, most of whom
are transported to Methodist and ultimately become patients of Methodist. Despite its efforts to
do so, Baytown EMS has been nnable to secure adequate supply of these drugs from other
sources. Methodist only proposes to assist Baytown EMS during the pendency of the shortages.
Thus, applying Abbott and St. Peter's, it is our opinion that Methodist may resell the needed
shortage drugs to Baytown EMS to assist Baytown EMS in its efforts to maintain safe inventory
levels of those products for use in the treatment of its emergency transport patients.
Conclusion
As diseussed above, we conclude that Methodist's proposal to resell pharmaceuticals to Baytown
EMS to assist Baytown EMS in its efforts to cope with shortages of certain critical drugs would
be a permissible humanitarian gesture and that Methodist may resell the needed pharmaceuticals
to Baytown EMS during the shortages.
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.P.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 ifit otherwise would be in the public interest to do so.
Sincerely,
MPI.L~Markus H. Meier
Assistant Director
IS St. Peter's H05pitai of the City of Albany, 92 F.T.C. 1037 (1978) (Commission advisory opinion).

Vinson &Elkins
Dionne C. Lomax dlomax@v ela w.com
Tel +1 .202.639.6610 Fax +1 .202 .879.8843
July 25, 2012
Markus H. Meier
Assistant Director
Federal Trade Commission
Bureau of Competition
Health Care Services and Products
601 New Jersey Avenue
Washington, D.C. 20001
Re: 	Requestfor Staff Advisory Opinion Relating to the Non-Profit Institutions Act
Dear Mr. Meier,
On behalf of The Methodist Hospital System ("Methodist"), I am submitting a request for a
staff advisory opinion pursuant to 16 C.F.R. §l.l regarding the applicability of the Non-
Profit Institutions Act ("NPIA") to the sale of pharmaceuticals by Methodist to Baytown
EMS.
Factual Background
Methodist is a non-profit hospital system based in Houston, Texas, that purchases 	its
pharmaceuticals through a distributor at a GPO discount. 	Methodist is comprised of five
inpatient facilities as well as numerous outpatient surgery centers, imaging centers and
emergency care centers. 	The discounted pharmaceuticals purchased by Methodist are used
for its hospitalized patients for inpatient needs, emergency room patients, in-clinic treatment,
as well as periodic discharge prescriptions.
Baytown EMS is a division of the City of Baytown, Texas. 	It employs 21 paramedics and
provides critical medical care and emergency medical transportation services to the citizens
of Baytown. 	As the exclusive transport providers for 9-1 -1 service for the City of Baytown,
Baytown EMS responds to approximately 8,200 calls for service each year, resulting in
approximately 	5,300 	transports. l Baytown 	EMS 	patients are 	typically 	transported 	to
Methodist's Baytown facility, San Jacinto Methodist Hospital, a 392-bed general acute care
inpatient facility located approximately 30 miles from Houston. 	It is the only facility in the
Baytown area that offers a full range of acute care inpatient health services.
1 http://www.baytown.orglsafetyhealthlems
Vinson & Elkins LLP Attorneys at Law
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V&E 	Markus H. Me ier 	Ju ly 25, 20 12 Page 2
As you may know, drug shortages in the United States have been increasing in frequency and
severity in recent years and adversely affecting patient care. 	As a result of these shortages,
Baytown EMS has experienced difficulties keeping its ambulances stocked with certain
prescription drugs that are critical to ensure quality patient care. 	In an effort to resolve the
problem, Baytown EMS seeks to purchase certain drugs from Methodist that are in short
supply.
Methodist's central institutional function 	is to deliver comprehensive acute health care
services, including pharmaceuticals, to all of its patients. 	Its patients include Baytown area
residents who rely on Baytown EMS ' s emergency transport services. Methodist is dedicated
to quality patient care, and thus, would prefer that certain drugs be administered to patients
while in transport to its Baytown facility rather than once the patient has arrived at the
hospital. 	The administration of critical drugs at the first point of care rather than after
transport can be critical to a patient's clinical outcome. 	Methodist, therefore, seeks to sell
pharmaceuticals to Baytown EMS to ensure that the patients it serves receive critical care in
a timely manner. Methodist proposes to sell pharmaceuticals to Baytown EMS at a price that
does not exceed its direct costs in purchasing and transporting the drugs. 	In most cases the
drugs are likely to be picked up by paramedics employed by Baytown EMS when making
normal transport runs to Methodist's Baytown facility.
For the reasons explained below, we believe that the NPIA should apply to pharmaceuticals
transferred by Methodist to Baytown EMS, but are writing to request an opinion from the
FTC staff regarding the extension of the NPIA to this government agency.
Analysis
The Robinson-Patman Act ("the Act") prohibits price discrimination between different
purchasers to whom contemporaneous sales of like goods are made, where the effect of such
discrimination may be to adversely affect competition. 	The Non-Profit Institutions Act
("NPIA") exempts from the Robinson-Patman Act "purchases of . .. supplies for their own
use by schools, college s, universitie s, public libraries, churches, hospitals, and charitable
institutions not operated for profit.,,2 To fall within the NPIA exemption to the Robinson-
Patman Act, an organization must be an "eligible entity" and must use the exemption to
purchase supplies for it s "own use .,,3
' IS U. S. c. § 13c(emphasis added).
3 Abbott Laboratories v. Portland Reta il Druggists Ass 'n" 425 U. S. 1 (1976).

V&E 	Markus H. Meie r 	July 25 , 20 12 Page 3
According to the Commission's holding in St. Peter's Hospital, the Act covers the transfer of
supplies, at cost, from a non-profit hospital to another charitable 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 ofthe NPIA. 4
I. 	Eligibility of Baytown EMS for Exemption from the Robinson-Patman Act
Under the NPIA
The basic purpose of the Robinson-Patman Act is to eliminate unfair competition among
those engaged in private enterprise where such practices might result in restraint of trade or
injury to competition. 	The law seeks to cover within its scope every person engaged in
business whose activities might restrain or monopolize commerce. 	Courts have held the
federal 	government immune from 	liability under the Act, and in the NPIA, Congress
specifically excluded non-profit organizations and certain other entities that are not otherwise
engaged in competition in the private market.
As a division of the City of Baytown, Baytown EMS is a government instrumentality entitled
to coverage under the NPIA. 	The rationale underlying the exclusion of public libraries,
hospitals, and other non-profit institutions from the proscriptions of the Robinson-Patman
Act are easily extended to Baytown EMS. 	Baytown EMS is engaged in a traditional
government function of ensuring the health, safety and welfare of area residents. 	It does not
compete with private parties within the meaning of the Act (e.g., it is the exclusive EMS
service in Baytown), and its activities are not affected by a profit-making motivation. To the
contrary, the services provided by Baytown EMS are undertaken on behalf of the City of
Baytown to ensure the health Of its citizens. 	In that sense the central institutional function of
Baytown EMS is to provide a traditional government function, not to gain competitive
advantage in the pri vate market. 	Thus, Baytown EMS's eligibility under the NPIA appears
entirely consistent with the intent of the NPIA to make the Act's exemption available to
hospitals, public libraries and other charitable organizations.
2. 	Pharmaceuticals for Bavtown EMS 's "Own Use"
The sole purpose of Baytown EMS is to transport patients in need of emergency medical
services to an area inpatient facility for acute care medical treatment. 	To alleviate the
instances in which Baytown EMS lacks the appropriate drugs (as a result ofthe national drug
shortage) to treat patients at the point of care, it seeks to purchase drugs from Methodist. The
pharmaceuticals will be used by Baytown solely for the treatment of patients under its care
4 St. Peter·s Hospital of the City of Albany. 92 F.T.C. 10 37 (1978).

V&E 	Mar1<.us H. Meier 	Ju ly 25, 2012 Page 4
prior to or while en route to an acute care medical facility. 	The immediate administration of
such drugs will enhance Baytown's ability to provide quality care to patients prior to their
arrival at an acute care medical facility and enhance its ability to have good patient outcomes.
Since the sole purpose of Baytown' s use of the pharmaceuticals will enable it to carry out its
activities as an emergency medical service provider to provide quality health care to area
residents, we believe that the provision of discounted pharmaceuticals to Baytown EMS as
part of its provision of emergency medical services to patients would be for its "own use,"
and thus would be covered by the NPIA exemption.
Conclusion
As discussed above, we believe that the sale of pharmaceuticals by Methodist to Baytown
EMS should receive coverage under the NPIA. 	Given its institutional purpose and function,
Baytown EMS should be characterized as an NPIA-eligible institution. 	The pharmaceuticals
will be sold to Baytown EMS at cost and will be used solely by Baytown EMS to care for
patients prior to or while transporting patients to Methodist's Baytown facility or other acute
care facilities. 	In many ways, the services provided by Baytown EMS are essentially an
extension 	of Methodist's 	basic 	services 	to 	area 	residents 	and 	contributes 	directly 	to
Methodist's 	ability 	to 	fulfill 	its 	central 	institutional 	function 	to 	deliver 	high-quality
comprehensive acute health care services to its patients.
Should you have any questions or comments, please do not hesitate to contact me at 202-639-
6610.
Sincerely,
~ 	4~
Dionne C. Lomax 	?"
Counsel for The Methodist Hospital System
US 1498924 v.1