Advisory Opinion to Toppin (01-07-98)

January 7, 1998

Bruce J. Toppin, Esq.
North Mississippi Health Services
830 South Gloster Street
Tupelo, MS 38801

Dear Mr. Toppin:

This letter responds to your request for a staff advisory opinion on behalf of North Mississippi Health Services ("NMHS"). As you have described the situation in your letters and on the telephone, NMHS is a non-profit health delivery system whose nonprofit, charitable hospital subsidiary, North Mississippi Medical Center, Inc. ("the hospital"), purchases pharmaceuticals at discounted prices under the Non-Profit Institutions Act, 15 U.S.C. 13c ("Act"). The hospital has a division, called the Cancer Center, which is housed in a building half a block from the hospital, that provides cancer treatment. NMHS has an affiliated charitable trust, the NMHS Foundation, that administers a Cancer Patient Fund consisting of money donated or raised for it by employees of the Cancer Center, the hospital, and other NMHS affiliates. The purpose of the Cancer Patient Fund is to help needy cancer patients with their medical expenses, which include the cost of the drugs they need for their cancer treatment. You have asked whether it would be permissible under the Nonprofit Institutions Act for NMHS to provide cancer drugs at cost, plus handling expenses, through its Cancer Patient Fund to cancer patients who have been screened and certified as indigent by the Center’s social workers.

You have stated that most of the cancer patients who would purchase these drugs at cost are inpatients in the Cancer Center’s hospital, but that some cancer patients are treated on an outpatient basis. The hospital’s sales of cancer treatment drugs to the hospital’s own patients - whether inpatient or outpatient - qualify as the hospital’s "own use," as defined by the Supreme Court in Abbott Laboratories v. Portland Retail Druggists Ass’n, Inc., 425 U.S. 1 (1976), and are therefore permissible under the Act. The role of the Cancer Patient Fund is not material to this part of the analysis - it is purely a bookkeeping matter whether the Cancer Patient Fund pays the patients or the hospital pharmacy for the drugs dispensed.

You have also told us that it is your understanding that certain federal anti-fraud laws prohibit NMHS from offering incentives to Medicare and Medicaid patients and thus would forbid NMHS to limit its offer of discounted cancer drugs to its own patients. Therefore, some of the cancer patients the Cancer Center certifies as indigent and to whom NMHS wishes to sell cancer drugs at cost may not be patients of the hospital itself, but instead, may be patients of

oncologists who are not acting as hospital staff. You have asked whether the Non-Profit Institutions Act would also permit NMHS, through its Cancer Patient Fund, to provide cancer drugs at cost, plus handling expenses, to this last group of indigent cancer patients even though they are not patients of NMHS’s hospital. Although at-cost sales of drugs to these patients would not ordinarily qualify as a hospital’s "own use," we conclude that, because NMHS is not limited to its hospital but is a broader institution that encompasses the Cancer Patient Fund, NMHS’s provision of at-cost drugs to indigent cancer patients through its Cancer Patient Fund is another aspect of NMHS’s charitable, non-profit mission of delivering healthcare and is therefore permited by the Nonprofit Institutions Act..

In De Modena v. Kaiser Foundation Health Plan, 734 F. 2d 1388 (9th Cir. 1984), the Ninth Circuit considered whether non-profit healthcare providers should be considered charitable organizations for purposes of qualifying to purchase discounted pharmaceuticals under the Nonprofit Institutions Act and to resell the drugs at cost to the healthcare providers’ patients. In this context the court noted that the concept of what institutions are charitable had expanded since earlier times, "when health organizations were recognized as charitable only if they were supported primarily by donations and used those donations to provide health care for the indigent." Id., at 1392. However, we do not need to consider whether an expanded definition of "charitable" is appropriate here because the Cancer Patient Fund meets even the narrowest test for a charity - it is supported primarily by donations and uses those donations to provide health care to the indigent. Therefore, we believe that NMHS’s provision of cancer treatment drugs through NMHS’s Cancer Patient Fund to indigent cancer patients, even those who may not be patients of the hospital, qualifies as a separate, charitable "own use" as a part of its mission as a non-profit, charitable health care organization providing needed medical care to all patients, including the indigent.

You have set forth the criteria the Cancer Center uses in screening cancer patients to determine their eligibility for financial assistance from the Cancer Fund that NMHS employees have established and to which they personally contribute. Although we have no authority or expertise in this area and therefore we cannot specifically endorse the Cancer Center’s indigency criteria, our opinion assumes that the criteria are valid and that the NMHS Foundation and its Cancer Patient Fund are legitimate charitable entities.

We hope this opinion letter is helpful to you. It is limited to the situation described above, as explained in your letters and our subsequent discussions. It does not constitute approval for actions that are different from those described.

The above advice is an informal staff opinion. Under Commission's Rule of Practice §1.3(c), the Commission is not bound by this advice and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the question involved and, with notice to the requesting party, to rescind or revoke its opinion if the request is used for improper purposes, or if it would be in the public interest to do so.

Sincerely yours,

Michael D. McNeely
Assistant Director
Bureau of Competition