FTC Extends NPIA Exemption to Hospital’s For-Profit Affiliate
In an Advisory Opinion dated October 20, 2017, to Crouse Health Hospital (“Crouse Hospital”), the Federal Trade Commission (“FTC”) agreed that the Non-Profit Institutions Act (“NPIA”) would protect the sale of discounted drugs from Crouse Hospital to the employees, retirees, and their dependents of an affiliated medical practice (Crouse Medical Practice, PLLC) (“Medical Practice”) from antitrust liability under the Robinson-Patman Act. Significantly, the FTC provided this advice despite the fact that the Medical Practice is a for-profit entity, and is not owned by Crouse Hospital.
The Robinson-Patman Act is primarily a consumer protection statute that prohibits, among other things, discrimination in the sale of like kind products, including pharmaceuticals, to different buyers. As a result, and absent some exemption, the resale of discounted drugs purchased by a not-for-profit hospital to its patients would be subject to challenge.
The NPIA, however, exempts from the reach of the Robinson-Patman Act the sale of discounted drugs to “schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit,” provided those drugs are purchased for that entity’s “own use”. 15 U.S.C.A. § 13(f). The Supreme Court, in Abbott Laboratories v. Portland Retail Druggists Ass’n, 425 U.S. 1 (1976), defined “own use” to mean “what 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.” Id. at 14. The Supreme Court went on to conclude, among other things, that the resale of discounted drugs to a hospital’s employees and their dependents would qualify as the hospital’s “own use.” The FTC, in a number of prior Advisory Opinions, further extended the application of the NPIA to the sale of discounted drugs to employees of hospital affiliates, and other similar entities. However, those entities were generally not-for-profit entities, likely eligible for protection under the NPIA on their own, and owned and/or controlled by the hospital.
The Advisory Opinion to Crouse Hospital is unique in that the Medical Practice is a for profit entity and clearly would not be eligible for protection on its own under the NPIA. Furthermore, the Medical Practice is not directly owned by Crouse Hospital calling into question whether the resale could qualify as the hospital’s “own use” as required by the NPIA.
Despite these facts, the FTC concluded that NPIA should apply to the resale of discounted drugs to the employees, retirees, and their dependents of the Medical Group because: 1) Crouse Hospital was responsible for the formation of the Medical Practice and did so “to develop an integrated medical service system to encourage both organizations to work together to improve care and promote the charitable purposes of Course Hospital”; 2) Crouse Hospital, despite not owning the Medical Practice, still had ultimate decision-making control and authority over the Medical Practice; and, 3) all profits earned by the Medical Practice were assigned to Crouse Hospital. Based on these factors, the FTC determined that “Crouse Medical Practice is an integral part of Crouse Hospital’s ability to fulfill its intended institutional function of providing care and promoting community health,” and, therefore, the resale was for Crouse Hospital’s own use.
Hospitals and health systems should take note that simply because an affiliate is a for profit entity does not automatically mean NPIA protection does not apply. A deeper look into the relationship between the hospital and affiliate, and consideration of the affiliate’s mission may support an extension of the NPIA.