Staff Opinion Letter Concerning Discounted Pharmaceuticals and Medical Devices Under the Non-Profit Institutions Act

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D. C . 20580
Bureau of Competition
Health Care Division
September 2, 2021
John B. Reiss, Esq.
Vice-President, General Counsel
and Chief Compliance Officer
Doylestown Health
595 West State Street
Doylestown, PA 18901
Re: 	Doylestown Health Advisory Opinion
Dear Mr. Reiss:
This letter responds to your request on behalf of Doylestown Health Foundation d/b/a
Doylestown Health for an FTC staff advisory opinion. The question you raise is whether VIA
Affiliates d/b/a Doylestown Health Physicians, a subsidiary of Doylestown Health, qualifies to
provide discounted pharmaceuticals and medical devices to Doylestown Health’s affiliated
hospital, Doylestown Hospital, under 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, and with the noted caveats, we conclude
that the NPIA exemption applies to Doylestown Health Physicians’ proposed arrangement to sell
discounted pharmaceuticals and medical devices to Doylestown Hospital.
Doylestown Health
We understand from your letter2 that the Village Improvement Association of Doylestown,
Pennsylvania (“Association”), a not-for-profit, 501(c)(3) corporation, established Doylestown
Health to carry out the Association’s purpose of “encouraging and promoting public health
work,” “improving the health and welfare of the residents of . . . Doylestown and Bucks
County,” and “supporting a community hospital and other health care facilities for the benefit of
all persons.”3 Doylestown Health is a healthcare system that provides a range of care, including
inpatient and outpatient, skilled nursing, urgent care, home health, hospice, and other services.
Doylestown Health Physicians and Doylestown Hospital, two not-for-profit, 501(c)(3)
1 15 U.S.C. § 13c.
2 Letter from John Reiss, Doylestown Health, to Robert Canterman (April 16, 2021) (“Doylestown Letter”).
3 Amended and Restated Articles of Incorporation of Village Improvement Association of Doylestown,
Pennsylvania at § 3 (Doylestown Letter, Exhibit B.1).

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September 2, 2021
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corporations,4 are part of Doylestown Health, and the same executive team manages both
organizations.5
Doylestown Health Physicians has approximately 100 primary care and specialist physicians
practicing in 23 locations in the Doylestown area. Several of the specialists’ offices are located
on Doylestown Hospital’s campus and most primary care offices are within 10 miles of the
hospital. The physicians treat their patients requiring inpatient or outpatient care at Doylestown
Hospital. Doylestown Health Physicians’ purpose includes “conducting exclusively charitable,
scientific and educational activities within the meaning of Section 501(c)(3) of the Internal
Revenue Code . . . including directly or indirectly managing and supporting the provision of
health care and related services and making donations and other transfers to or for the benefit of
the Village Improvement Association . . . , Doylestown Health Foundation and Doylestown
Hospital.”6
Doylestown Hospital is a community hospital with 271 beds that serves Bucks County and part
of Montgomery County in Pennsylvania, and parts of Hunterdon and Mercer Counties in New
Jersey. Doylestown Hospital’s purpose includes “operating and maintaining a community
hospital . . . for the benefit of all persons” and “encouraging and promoting public health in
general.”7 Doylestown Hospital maintains a pharmacy at its facility for dispensing products for
in-hospital use and does not have any affiliated retail pharmacy.8 While Doylestown Hospital
also participates in a number of joint ventures that are for-profit, or include for-profit
participants, to provide community health, medical imaging, outpatient surgery, and other
services, you have indicated that the hospital’s participation in these joint ventures does not
affect its not-for-profit, tax-exempt status.9
Description of the Proposed Arrangement
As you explain, Doylestown Health Physicians currently purchases discounted pharmaceuticals
and medical devices to provide infusion therapy and other treatments administered to patients in
its physician offices. Patients do not receive a prescription or have access to these products
outside Doylestown Health Physicians’ offices. As we understand from your proposal,
Doylestown Health Physicians seeks to purchase similar pharmaceuticals and medical devices
for inpatients and outpatients treated at Doylestown Hospital’s facilities.
4 Articles of Incorporation of VIA Affiliates (“Physicians Articles of Incorporation”) at § 3 (Doylestown Letter,
Exhibit B.2); Amended and Restated Articles of Incorporation of Doylestown Hospital (“Hospital Articles of
Incorporation”) at § 3 (Doylestown Letter, Exhibit D).
5 Doylestown Letter at 3.
6 Physicians Articles of Incorporation at § 3.
7 Hospital Articles of Incorporation at § 3.
8 Email from John Reiss to Robert Canterman (June 22, 2021) (“June 22 Email”).
9 Doylestown Letter at 1.

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We understand from your letter that one or more Doylestown Health Physicians’ offices will
purchase and arrange for delivery of the discounted pharmaceuticals and medical devices to the
Doylestown Hospital pharmacy (and not a retail pharmacy) or other appropriate location at the
hospital.10 A Doylestown Health Physicians office manager will have responsibility for
implementing the proposed arrangement and maintaining the chain of custody of the products.
Similarly, a Doylestown Hospital manager in the pharmacy or other department will have
responsibility for receiving and maintaining the products. These administrators will closely track
the purchases and chain of custody to ensure the discounted products are used only for patients
of Doylestown Hospital or Doylestown Health Physicians, whether they are treated in the
physicians’ offices or at the hospital. The executive team that manages both Doylestown Health
Physicians and Doylestown Hospital will ultimately be responsible for overseeing the proposed
arrangement.11
We understand that Doylestown Hospital will only dispense the pharmaceuticals and use the
medical devices at hospital inpatient and outpatient facilities.12 Doylestown Hospital will pay an
administrative fee to Doylestown Health Physicians to cover the costs of the proposed
arrangement and not for any other purpose. You have represented that Doylestown Hospital’s
for-profit joint ventures will not receive or use any of the discounted products and will not
receive any benefit from the arrangement.13
Analysis
The NPIA exemption is limited to certain “eligible” not-for-profit entities’ purchases of
“supplies” for their “own use.”14 As we understand your proposal, Doylestown Health
Physicians will purchase and offer the discounted pharmaceuticals and medical devices to
Doylestown Hospital for treating inpatients and outpatients at Doylestown Hospital’s facilities.
Therefore, we analyze below whether (1) Doylestown Health Physicians is an “eligible entity,”
and (2) the discounted pharmaceuticals and medical devices that Doylestown Health Physicians
proposes to offer to Doylestown Hospital are properly considered “supplies” for Doylestown
Health Physicians’ “own use.”
1. 	Doylestown Health Physicians Appears to be Eligible for
the NPIA Exemption
An “eligible entity” under the NPIA includes, “schools, colleges, universities, public libraries,
churches, hospitals, and charitable institutions not operated for profit.”15 In finding that health
10 Doylestown Letter at 1.
11 Id. at 3.
12 June 22 Email.
13 Id.
14 15 U.S.C. § 13c.
15 Id.

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plans are “charitable institutions” under the NPIA, the court in De Modena v. Kaiser Foundation
Health Plan recognized that “all non-profit organizations which promote health are considered
charitable under the law of charitable trusts.”16 We concluded in an earlier FTC staff advisory
opinion that a not-for-profit, charitable multispecialty clinic qualified as an eligible entity.17
While multispecialty physician group practices like Doylestown Health Physicians are not one of
the types of institutions specifically enumerated in the NPIA, we believe that it qualifies as an
“eligible entity” under the NPIA as a “charitable institution not operated for profit.” In fact,
Doylestown Health Physicians currently purchases discounted pharmaceuticals and medical
devices for its physicians to treat their patients in their offices. Based on your letter, Doylestown
Hospital, a not-for-profit hospital, also appears to be an eligible entity under the NPIA and could
itself qualify to purchase NPIA-discounted pharmaceuticals and medical devices in accordance
with the “own use” requirement discussed below.
2. 	Doylestown Health Physicians’ Provision of Discounted Pharmaceuticals and
Medical Devices to Doylestown Hospital Appears to Be for Doylestown
Health Physicians’ Own Use
We next consider whether the proposal involves the purchase of “supplies” for Doylestown
Health Physicians’ “own use.”
a. 	“Supplies”
We determined in previous advisory opinion letters that pharmaceuticals are “supplies” within
the meaning of the NPIA in applying the exemption.18 The same analysis would likely apply to
medical devices and equipment. The Ninth Circuit in Logan Lanes, Inc. v. Brunswick Corp.19
interpreted the term “supplies” broadly to include “anything required to meet the institution’s
needs, whether it is consumed or otherwise disposed of, or whether it constitutes, or becomes
part of, a material object utilized to enable the institution to carry on its activities.” The court
noted that “the underlying intent of granting such an exemption was undoubtedly to permit
institutions which are not in business for a profit to operate as inexpensively as possible.” And it
held that a not-for-profit university’s bowling alleys were “supplies” because the university used
the facilities for students to fulfill physical education requirements and all net income was used
16 743 F.2d 1388, 1392 (9 th Cir. 1984).
17 Harvard Vanguard Medical Associates, Inc. (December 18, 2001) (FTC staff opinion letter) (sale of
pharmaceuticals by not-for-profit, multispecialty clinic to employees and patients of the clinic).
18 See, e.g., Quest Analytics Group (March 7, 2014) (FTC staff opinion letter) (NPIA exemption applied to
educational institutions’ purchases of discounted specialty drugs for their own use); Yakima Valley Memorial
Hospital (August 16, 2010) (FTC staff opinion letter) (not-for-profit hospital’s provision of pharmaceuticals to
employees of its affiliates qualified for NPIA exemption); see also Abbott Labs. v. Portland Retail Druggists Ass’n,
425 U.S. 1, 5 (1976) (noting that the district court had ruled that purchases of pharmaceuticals by the hospitals were
purchases of “supplies” for the hospitals’ “own use”).
19 378 F.2d 212, 216 (9th Cir.), cert. denied, 389 U.S. 898 (1967).

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to finance other student activities and improvements to the university.20 Because physicians and
hospitals use pharmaceuticals and medical devices “to carry on their activities” of treating
patients, we also find that they are “supplies” within the NPIA.
b. 	“Own Use”
The term “own use” means an eligible entity’s use that “is a part of and promotes the [entity’s]
intended institutional operation.”21 The principal authority on the meaning and scope of the “own
use” requirement is the Supreme Court’s decision in Abbott Laboratories v. Portland Retail
Druggists Ass’n.22 In Abbott, not-for-profit hospitals purchased discounted pharmaceuticals from
manufacturers and resold them to hospital patients. Retail pharmacies challenged the discounted
sale of pharmaceuticals to the hospitals under the Robinson-Patman Act. The Supreme Court
held that the NPIA exemption is limited and does not give hospitals a “blank check” for all
purchases of supplies.23 Rather, the Court held that the exemption applies to purchases for a
hospital’s “own use,” and that own use means “what reasonably may be regarded as use by the
hospital in the sense that such use is a part of and promotes the hospital’s intended institutional
operation in the care of persons who are its patients.”24 The Supreme Court determined that a
not-for-profit hospital’s purchases of pharmaceuticals are for its own use when dispensed to
patients for treatment at the hospital.
Whether the exemption applies to Doylestown Health Physicians’ purchases of pharmaceuticals
and medical devices for Doylestown Hospital’s inpatients and outpatients depends on whether
this use is part of and promotes Doylestown Health Physicians’ institutional mission.25 Based on
Doylestown Health Physicians’ stated purpose in its Articles of Incorporation, Doylestown
Health Physicians’ purchases would appear to promote “managing and supporting the provision
of health care and related services” and “making donations and other transfers to or for the
benefit of . . . Doylestown Hospital.” As part of an integrated health system, the physicians treat
their patients requiring inpatient care at Doylestown Hospital. Doylestown Health Physicians’
purchase of discounted pharmaceuticals and medical devices for Doylestown Hospital’s patients
will support the provision of health care and related services at Doylestown Hospital. Consistent
with Abbott, we find that the NPIA exemption appears to cover Doylestown Health Physicians’
proposal to offer discounted pharmaceuticals and medical devices to Doylestown Hospital.
Similarly, Doylestown Hospital’s purchase of these supplies from Doylestown Health Physicians
appears to be for Doylestown Hospital’s “own use” because it will use the supplies to further its
20 378 F.2d at 212 (sale of bowling equipment and lanes to a university was exempt from the Robinson-Patman Act
under the NPIA).
21 Abbott Labs. v. Portland Retail Druggists Ass’n, 425 U.S. 1, 14 (1976).
22 Id.
23 Id. at 13.
24 Id. at 14.
25 Id.

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institutional purpose to operate “a community hospital . . . for the benefit of all persons” and
promote public health.
We emphasize that this opinion is premised on your representation that Doylestown Hospital’s
for-profit joint ventures will not have access to the discounted pharmaceuticals and medical
devices and your assurance that the joint ventures, or any other for-profit entities, will not benefit
financially from the proposed arrangement in any way.
Conclusion
As discussed above, and with the noted caveats, it is our opinion that Doylestown Health
Physicians’ proposal to extend the sales of discounted pharmaceuticals and medical devices to its
affiliate, Doylestown Hospital, as described in your April 16, 2021 letter, would fall within the
NPIA exemption to the Robinson-Patman Act.
This letter sets out the views of the staff of the Bureau of Competition, as authorized by the
Commission’s Rules of Practice, based on the facts you have presented to us. 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,
_________________________
Markus H. Meier
Assistant Director