Advisory Opinion to Lee (12-21-93)

December 21, 1993

Tamara D. Lee, Esq.
Office of the General Counsel
Presentation Health System
610 West 23rd, Suite 1
P.O. Box 38
Yankton, South Dakota 57078

Dear Ms. Lee:

This letter responds to your September 1, 1993, letter requesting an advisory opinion from the Commission on the application of the Non-Profit Institutions Act, 15 U.S.C. § l3c, to sales of pharmaceuticals 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 Now-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 institution's own use.” Commission Opinion

Letter, 89 F.T.C. 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 Institutions Act. The Presentation organization may be regarded an a unit having purchased the pharmaceuticals for its "own uses* comprised of the use by its hospitals and its long-term care facilities.

In light of the above, the Commission believes that the resales of pharmaceuticals an 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 Practice, to rescind or revoke its opinion, if the public interest so requires.

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.

By direction of the Commission.

Donald S. Clark

Secretary

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1 This opinion letter was issued in response to a request for advice from St. Peter's Hospital of the City of Albany. The request described a situation where a nonprofit hospital receiving preferential price treatment permitted by the Non-Profit Institutions Act wished to resell pharmaceuticals, at cost, to a non-profit nursing home that was purchasing its drugs at retail from local drug stores.