Non-profit Institutions Act Covers Pharmaceuticals Dispensed to Retired Employees, FTC Staff Advises

Staff of the Federal Trade Commission have advised the Connecticut Hospital Association (CHA) that the Non-Profit Institutions Act covers pharmaceuticals that its member hospitals dispense to their retired employees as permitted by state law. The Act 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." The opinion supersedes a 1996 staff opinion that concluded that drugs dispensed to retired employees were outside the scope of the Act.

CHA is a trade association whose membership includes the not-for-profit acute care hospitals and healthcare systems in Connecticut. These hospitals purchase pharmaceuticals at preferential prices pursuant to the Non-Profit Institutions Act. The state legislature recently authorized hospitals to sell pharmaceuticals to "a retiree of such hospital or the retiree's spouse in accordance with the retiree's retirement or pension plan." CHA stated that some of its member hospitals would like to permit current retirees with vested retirement or pension benefits to purchase pharmaceuticals from the hospital pharmacy at discount prices. The Association asked whether the conclusion of the 1996 staff opinion letter to North Mississippi Health Services, that drugs dispensed to retired employees were not purchased for a nonprofit hospital's "own use" within the meaning of the Act, would apply in the circumstances described in its request letter.

The FTC staff opinion letter, signed by Jeffrey W. Brennan, Assistant Director of the Health Care Services and Products Division of the Bureau of Competition, applied the analysis set forth in the Supreme Court's opinion in Abbott Laboratories v. Portland Retail Druggists Association, 425 U.S. 1 (1976). In that case, the Court held that the Non-Profit Institutions Act covers supplies used in a way that promotes the hospital's intended institutional operation in the care of persons who are its patients. The Court specifically held that the Act covers pharmaceuticals dispensed to employees of a hospital because the employees are necessary for the hospital to function, and providing them with pharmaceuticals enhances the hospital's operation.

Applying this standard, the earlier staff opinion letter had concluded that the requesting hospital's basic institutional function of caring for its patients was not promoted by providing pharmaceuticals to persons who no longer were employed. Based on the information provided by CHA in its request for an advisory opinion, however, the staff concluded that providing access to discounted pharmaceuticals to persons with vested retirement or pension benefits likely would help the hospitals to attract and retain qualified employees. In this way, according to the staff letter, the proposed conduct would directly promote the hospitals' intended operation in the care of its patients within the meaning of Abbott Labs.

NOTE:  This letter sets out the views of the staff of the FTC's Bureau of Competition, as authorized by the Commission's Rules of Practice. It has not been reviewed or approved by the Commission. As the Commission's Rules explain, the staff's advice is rendered "without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding."