FTC Staff Advises Nonprofit Institutions Act Covers Drugs Dispensed To Retired Workers

January 15, 2002
Copyright permission granted by BNA's Health Law Reporter, January 3, 2002

The staff of the Federal Trade Commission Dec. 20, 2001, advised the Connecticut Hospital Association (CHA) that the Non-Profit Institutions Act (NPIA) covers pharmaceuticals that its member hospitals dispense to their retired employees as permitted by state law.

Robert M. Langer, of Hartford, Conn., office of Wiggin & Dana, on behalf of CHA, requested an advisory opinion on the applicability of the NPIA to sales of pharmaceuticals by CHA member hospitals to their retired employees.

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 FTC indicated that this opinion supersedes a 1996 staff opinion that concluded that drugs dispensed to retired employees were outside the scope of the act.

Analysis. CHA is a trade association whose membership includes all 31 not-for-profit acute care hospitals and health care systems located in Connecticut. The member hospitals purchase pharmaceuticals at preferential prices pursuant to the NPIA.

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." Some of CHA’s member hospitals would like to permit current retirees with vested retirement or pension benefits to purchase pharmaceuticals from the hospital pharmacy at discount prices. CHA asked whether the conclusion reached in 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.

Jeffrey W. Brennan, assistant director of the Health Care Services and Products Division of the Bureau of Competition, who signed the FTC staff opinion letter, applied the analysis in the U.S. Supreme Court’s opinion in Abbott Laboratories v. Portland Retail Druggists Ass’n, 425 U.S. 1 (1976). The court concluded that the NPIA 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 explicitly 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.

When the earlier staff opinion letter applied this standard, it concluded that the requesting hospital’s basic institutional function of caring for its patients was not promoted by providing pharmaceuticals to persons who were no longer employed. However, based on the information provided by CHA in its request for an advisory opinion, the staff concluded that providing access to discounted pharmaceuticals to persons with vested retirement or pension benefits would likely help the hospitals to attract and retain qualified employees.

Thus, the staff determined that the proposed conduct would directly promote the hospitals’ intended operation in the care of its patients within the meaning of Abbott Labs.