Advisory Opinion to Keiss (03-08-02)

March 8, 2002

Stephen D. Kiess
Everett & Hite, LLP
200 South Washington Street
Post Office Box 1220
Greenville, NC 27835-1220

Dear Mr. Kiess:

This letter responds to your request for any advisory opinion on behalf of Viquest and Pitt County Memorial Hospital.(1) According to your letter, Health Access, Inc., d/b/a Viquest, is a wellness center that provides health care programs, including disease, weight and stress management, smoking cessation, and occupational health services, to residents of greater Pitt County, North Carolina. Health Access is an affiliate of, and is controlled by, Pitt County Memorial Hospital, Inc. (PCMH), a 731-bed tertiary care teaching hospital located in Greenville, North Carolina. Both Health Access and PCMH are nonprofit corporations exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code.(2) Your inquiry relates to the applicability of the Non-Profit Institutions Act, 15 U.S.C. § 13(a), to Viquest's proposed acquisition of certain vaccines and other materials from PCMH's pharmacy.

One of Viquest's activities is offering vaccines and tuberculin skin tests to employee groups and to the general public through its occupational health and community vaccine programs. Viquest currently purchases the vaccines(3) directly from the manufacturers or from wholesalers. In the future, it would like to obtain these materials from the PCMH pharmacy at PCMH's cost. The materials would be used only in Viquest's occupational health or community vaccine programs, and all materials would be directly administered to patients by Viquest staff members at the patients' work site or at another community location. Your inquiry is whether the proposed arrangement between Viquest and the PCMH pharmacy would be covered by the Non-Profit Institutions Act (NPIA or the Act). For the reasons discussed below, we conclude that it would.

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."(4) Commission and staff advisory opinions have treated nonprofit nursing homes, home health and occupational health agencies, hospices, and health systems that operate a variety of health care providers, in addition to hospitals, as eligible entities.(5) Moreover, the Commission has found that the Act covers the transfer of supplies, at cost, among affiliated institutions that are eligible entities under the Act, so long as the supplies are purchased for the receiving institution's "own use" within the meaning of the NPIA. The proposed transactions, therefore, appear to be covered by the Act, so long as the materials are purchased for Viquest's own use.

The principal authority on the meaning and scope of the "own use" test is Abbott Laboratories v. Portland Retail Druggists Association (Abbott Labs).(6) In that case, retail pharmacies sued pharmaceutical manufacturers under the Robinson-Patman Act, challenging the discounted sale of drugs to nonprofit hospitals. The hospitals resold those drugs to patients in a number of different situations. The Court interpreted the "own use" test to shield only purchases that "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."(7)

The vaccines described in your request letter appear to be purchased for Viquest's own use for purposes of the Abbott Labs analysis. A staff opinion letter issued to William W. Backus Hospital on June 11, 1996, concerned an occupational health services clinic affiliated with a nonprofit hospital. The clinic wished to obtain pharmaceuticals and other supplies from the hospital pharmacy for use in conjunction with patient treatment at the clinic. The opinion letter noted that the clinic did not intend to operate its own pharmacy or to fill prescriptions, and that the pharmaceuticals would be administered by clinic staff to patients undergoing treatment on the clinic premises. In those circumstances, the staff opinion letter concluded, the supplies were purchased for the clinic's "own use" and were covered by the NPIA.

The facts presented in your letter warrant a similar conclusion. While the vaccinations will not take place at Viquest's premises, the vaccines will be directly administered by Viquest personnel as part of the health care services that Viquest provides. The vaccines appear to be an integral element of the health care services provided by Viquest to its patients and, thus, they are used by Viquest in furtherance of its "intended institutional operation in the care of persons who are its patients."(8) Accordingly, the vaccines are purchased for Viquest's "own use" within the meaning of the Act.

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 otherwise would be in the public interest to do so.

Sincerely yours,

Jeffrey W. Brennan
Assistant Director

Endnotes:

  1. While your letter is dated November 21, 2001, we did not receive it until December 31. This delay appears to have resulted from the disruptions in mail service caused by concerns about potential anthrax contamination. I apologize for any inconvenience this has caused.
     
  2. Section 501(c)(3) applies to entities organized and operated "exclusively for religious, charitable, scientific, testing for public safety, literary, or education purposes."
     
  3. This request concerns only the following products: influenza vaccine, pneumococcal vaccine, tetanus-diphtheria vaccine, hepatitis B vaccine, measles/mumps/rubella vaccine, measles vaccine, mumps vaccine, rubella vaccine, varicella vaccine, and tuberculin skin test solution.
     
  4. 15 U.S.C. § 13c.
     
  5. See, e.g., Presentation Health System, 116 F.T.C. 1526 (1993) (hospitals and affiliated long-term care facilities); St. Peter's Hospital of the City of Albany, 92 F.T.C. 1037 (1978) (nursing home); BJC Health System (Nov. 9, 1999) (staff opinion) (integrated health system and home health care agency); North Ottawa Community Hospital (Oct. 22, 1996) (staff opinion) (hospice); William H. Backus Hospital (June 11, 1996) (staff opinion) (occupational health services clinic). FTC staff opinions can be accessed online at www.ftc.gov.
     
  6. 425 U.S. 1 (1976).
     
  7. Id. at 14 (emphasis in original). Applying this test, the Court found that pharmaceuticals were purchased for the hospital's own use when they were resold to hospital inpatients, emergency room patients, and registered outpatients for consumption on the premises; when they were used to fill limited "take-home" prescriptions given to hospital inpatients, emergency room patients, and registered outpatients upon discharge as a continuation of or supplement to the treatment that was administered at the hospital; and when they were dispensed to a hospital employee, a student, or a non-employee member of the hospital medical staff for his or her own use or the use of a dependent. Pharmaceuticals dispensed to former patients (through refills of take-home prescriptions), sales to non-hospital patients of staff physicians, and sales to walk-in customers of the hospital pharmacy were deemed insufficiently related to the hospital's institutional function and therefore outside the exemption.
     
  8. See id.