Stevens Hospital, of Edmonds, Washington

115 U.S.C. § 13c.
2425 U.S. 1 (1976).
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Bureau of Competition
David Pender
Acting Assistant Director
(202) 326-2549
April 18, 2005
Mr. Gordon J. Oakes
Director of Pharmacy
Stevens Hospital
21601 76 th Avenue West
Edmonds, WA 98026
Dear Mr. Oakes:
This letter responds to your request on behalf of Stevens Hospital for an advisory opinion
concerning whether Stevens’ proposed pricing of pharmaceuticals would fall within the scope of the
Non-Profit Institutions Act (NPIA). The NPIA 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.” 1 For the reasons explained below, we
have concluded that Stevens’ proposed pricing would fall within the scope of the NPIA.
As we understand the facts based on information you provided in your letter and in
telephone conversations, Stevens is a nonprofit hospital that owns a number of clinics, as well as
four physician practices. The physicians that work at the clinics are all Stevens employees, and all
medical services provided at the hospital and at the clinics are billed under Stevens’ tax
identification number. Stevens also maintains liability insurance for the clinics and staff.
Stevens Hospital’s pharmacy purchases pharmaceuticals at reduced pricing from Cardinal, a
drug wholesaler. It currently uses these pharmaceuticals for its hospitalized patients for inpatient
needs, for periodic discharge prescriptions, and to supply Stevens’ emergency department, its
outpatient surgical program, and its clinics for in-clinic treatment. You advised us that Stevens
plans to expand the use of its reduced-priced pharmaceuticals, by selling those pharmaceuticals to
patients receiving treatment from its clinic physicians.
Analysis of whether the NPIA covers Stevens’ proposed use of its reduced-price
pharmaceuticals for patients receiving treatment from its clinic physicians depends on whether the
pharmaceuticals would be for Stevens’ “own use.” The principal authority on the meaning and
scope of the “own use” test is Abbott Laboratories v. Portland Retail Druggists Association (Abbott
Labs).2 In that case, retail pharmacies sued pharmaceutical manufacturers under the Robinson-

3425 U.S. at 13.
4Id. at 14 (emphasis in original).
5(Dec. 18, 2001) (staff opinion).
6See Valley Baptist (Sept. 1996) (staff opinion).
7425 U.S. at 15.
2
Patman Act, challenging the discounted sale of drugs to nonprofit hospitals. The hospitals resold
those drugs to patients in a number of different situations. The Supreme Court held that the NPIA
exemption is a limited one, and does not give hospitals “a blank check” that applies to “whatever
new venture the hospital finds attractive.” 3 Rather, the Court interpreted the “own use” test to shield
only purchases that “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.” 4
Applying this test, the Court found that pharmaceuticals were purchased for the hospital’s
own use when they were resold to hospital inpatients, emergency room patients, and registered
outpatients for consumption on the premises; when they were used to fill limited “take-home”
prescriptions given to hospital inpatients, emergency room patients, and registered outpatients upon
discharge as a continuation of, or supplement to, the treatment that was administered at the hospital;
and when they were dispensed to a hospital employee, a student, or a non-employee member of the
hospital medical staff for his or her own use or the use of a dependent. Pharmaceuticals dispensed
to former patients (through refills of the take-home prescriptions), sales to non-hospital patients of
staff physicians, and sales to walk-in customers of the hospital pharmacy were deemed insufficiently
related to the hospital’s institutional function and therefore outside the exemption.
We conclude, based on the facts you present, that Stevens’ central institutional function,
within the meaning of Abbott Labs, is to deliver comprehensive and continuing health care services,
including pharmaceuticals, to all of its patients. The clinics, which are owned by Stevens and
staffed by Stevens-employed physicians, contribute to the furtherance of this mission. Having the
clinics’ pharmacies dispense pharmaceuticals to clinic patients contributes directly to the ability of
the clinics to deliver comprehensive care. This analysis is consistent with that contained in earlier
staff advisory opinions, including Harvard Vanguard,5 and covers Stevens’ proposed use of its
reduced pricing. This use includes prescriptions written by doctors at the clinic and prescriptions
written by specialists to whom patients are referred as part of a continuing course of treatment by a
clinic physician with whom they maintain an ongoing relationship. If, however, a patient who is
referred by Stevens’ or its clinics’ staff to a specialist becomes a regular patient of the specialist and
no longer sees the Stevens’ or clinic staff for primary care, we would consider the patient no longer
a patient of Stevens or its clinics and the exemption would be lost. 6
We also conclude that refills for clinic patients who are under the ongoing care of a clinic
physician are covered by the exemption. But, Abbott Labs does not extend the exemption to refills
for former patients. 7 Thus, if a patient is no longer seeing a Stevens physician or clinic staff for care
on an ongoing basis, that patient would become a former patient, and the exemption would be lost as

3
to refills for that patient.
Based on the factors discussed above, it is our opinion that the clinic pharmacies may
dispense products purchased under the NPIA to all patients who are treated at clinics staffed by
employed physicians and who are under the continuing care of such physicians. Walk-in customers
to Stevens’ retail pharmacy, Hadfields, on the other hand, would not be eligible to receive reduced
price pharmaceuticals, as those patients would not be considered to be under the ongoing care of a
Stevens’ physician.
This letter sets out the views of the staff of the Bureau of Competition, as authorized by the
Commission’s Rules of Practice. Under Commission Rule § 1.3©), 16 C.F.R. § 1.3©) (1994), the
Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In
addition, this office retains the right to reconsider the questions involved and, with notice to the
requesting party, to rescind or revoke the opinion if implementation of the proposed program results
in substantial anticompetitive effects, if the program is used for improper purposes, if facts change
significantly, or if it otherwise would be in the public interest to do so.
Sincerely,
David Pender
Acting Assistant Director