Advisory opinion on the application of the Non-Profit Institutions Act, 15 U.S.C. § 13c, to sales of pharmaceuticals by non-profit hospitals to related non-profit long-term care facilities

1526 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	116 F.T.C.
Re: 	The application of the Non-Profit Institutions Act to
sales of pharmaceuticals by non-profit hospitals to re-
lated non-profit long-term care facilities. [Presentation
Health System, 	P934006}
December 21, 1993
Dear Ms. Lee:
This letter responds to your September I, 1993, letter requesting
an advisory opinion from the Commission on the application of the
Non-Profit Institutions Act, 15 U.S.C. 13c, to sales of pharma-
ceuticals by non-profit hospitals to related non-profit long-term
care facilities.
According to your letter, your client, Presentation Health
System, manages hospitals and long-term care facilities that are
separate corporate non-profit entities controlled and sponsored by
a single religious order, The Sisters of the Presentation of the
Blessed Virgin Mary of Aberdeen, South Dakota. You ask whether
the hospitals, which own and operate in-house pharmacies and
receive preferential 	price 	treatment 	that is exempt from 	the
Robinson-Patman Act, 15 U.S.C. 13, by virtue of the Non-Profit
Institutions Act, may resell pharmaceuticals at cost to their long-
term care affiliates. 	Based on the information provided in your
letter, we believe that the sales you describe would be similarly
exempt under the Non-Profit Institutions Act, as long as the
long-term care facilities purchase the pharmaceuticals for their own
use.
The Non-Profit Institutions Act exempts from the Robinson-
Patman Act "purchases of their supplies for their own use by . ..
hospitals, and charitable institutions not operated for profit."
Although the phrase "for their own use" limits the categories of
individuals to 	whom the supplies can 	be resold, see Abbott
Laboratories v. Portland Retail Druggists Ass'n, 425 U.S. 1 (1976),
the Commission has said that the "own use" limitation is not
"intended to apply to resales of supplies, at cost, by one charitable
institution to another that are limited, in turn, to the latter charitable

PRESENTATION HEAL TH SYSTEM 	1527
1526 	Advis ory Opinion
institution's own use." Commission Opinion Letter, 89 FTC 689
( 1977). 1 The Commission further stated that:
A resale of this nature would constitute a not-for-profit transfer of supplies from
one institution, eligible under the exemption, to another such institution, also
eligible under the exemption. In the Commission's view, the exemption was
intended to insulate from Robinson-Patman application all purchases of supplies
(for their own use) by the designated classes of institutions not operated for
profit. The transactions, as above described, would not appear in conflict with
such a purpose.
Id.
In the situation that you describe, where the hospitals and
long-term care facilities are affiliated, the Commission believes that
there is a further basis for exemption under the Non-Profit Institu-
tions Act. The Presentation organization may be regarded as a unit
having purchased the pharmaceuticals for its "own use," comprised
of the use by its hospitals and its long-term care facilities.
In light of the above, the Comμ.iission believes that the resales
of pharmaceuticals as you describe would be exempt from the
Robinson-Patman Act, provided that the pharmaceuticals are
acquired for the long-term care facilities' "own use," as interpreted
in Abbott Laboratories.
This advisory opinion, like all those issued by the Commission,
is limited to the proposed conduct described in the petition being
considered. 	The Commission retains the right to reconsider the
questions involved and, with notice to the requesting party in
accordance with Section 1.3(b) of the Commission's Rules of Prac-
tice, to rescind or revoke its opinion, if the public interest so
reqmres .
Copies of your request and this response are being placed on
the public record pursuant to Section 1.4 of the Commission's
Rules of Practice.
1 This o pini o n letter was issued in response to a req uest for advice from St. Peter' s H ospital of the
City of Al bany. Th e request described a situation where a no n-profit hospital receiving preferential price
treatment permitted by the Non- Profit In stitutions Act wis hed to rese ll pharmaceut ica ls, at cos t. to a
no n-profit nurs in g ho me that was purchasin g it s dr ugs at retail from local drug stores.

1528 	FEDERAL TRADE COMMISSION DECISIONS
Advisory Opinion 	I 16 F.T.C.
Letter of Request
September 1, 1993
Dear Sir:
As legal counsel for the Presentation Health System (hereinafter
referred to as "PHS"), a nonprofit corporation organized and
existing under the South Dakota Nonprofit Corporation Act, I am
hereby requesting an advisory opinion, pursuant to 16 CFR I. I, et.
seq. from the Commissioner with regard to the following proposed
sales of pharmaceuticals by nonprofit hospitals which are part of
the Presentation Health System.
Facts
The Sisters of the Presentation of the Blessed Virgin Mary of
Aberdeen, South Dakota, a 50 I (c )(3) religious order corporation,
sponsors and controls certain nonprofit hospitals and nonprofit
long-term care, nursing home entities within the State of South
Dakota. The Presentation Health System, a nonprofit corporation,
is 	delegated 	the 	managerial 	responsibilities 	for 	these 	health
institutions (hospitals and long-term care facilities).
The hospitals own and operate pharmacies within the walls of
the respective hospital institutions, and as such are entitled to the
preferred price treatment permitted to such hospitals by virtue of
the Nonprofit Institutions Act exemption under the Robinson-
Patman Act. 15 U.S.C. 13c.
The hospitals referred to are all organized and exist under the
South Dakota Nonprofit Corporation Act. The hospitals are each
situated in separate communities within the State of South Dakota,
and in each community wherein a hospital is located there is also,
separately located, a long-term care institution.
It should be noted that the hospitals and long-term care facilities
are separate corporate entities, however, all are controlled and
sponsored by the Religious Order.

PRESENTATION HEALTH SYSTEM 	1529
1526 	Advi sory Opinion
The hospitals are members of a group purchasing organization
which enables purchasing of pharmaceuticals at discounts.
Issue
The hospitals wish to sell pharmaceuticals within this related
group of long-term care facilities for the same reduced cost that the
hospitals purchase from the pharmacy suppliers. 	The long-term
care facilities do not have their own pharmacies and must purchase
from local retail pharmacies at higher prices.
(1) 	Would proposed sales of pharmaceuticals from these
hospitals to the long-term care facilities, which are related, be
considered permissible sales under the Nonprofit Institutions Act
exemption set forth in the Robinson-Patman Act?
(2) If it would not be a sale deemed to be permissible can such
sale be justified on the grounds that the long-term care facility
would in and of itself be entitled to preferential price treatment if
it elected to own and operate a pharmacy within the long-term care
facility?
Thank you for your time and attention to this matter. You may
send the Advisory Opinion to me at the above address.
Very truly yours,
Tamara D. Lee
Office of General Counsel