Letter From Markus H. Meier, Assistant Director, Bureau of Competition, Concerning Crouse Health Hospital's Proposal To Sell Discounted Pharmaceutical Products to the Employees, Retirees, and Their Dependents of Its Affiliate, Dated October 20, 2017

UN ITED STATES OF AMERICA
Federal Trade Commission
Washington, D.C. 20580
Bureau of Co mpeti ti on
Health Care Division
October 20, 2017
Jennifer R. Bolster, Esq.
Hancock Estabrook, LLP
1500 AXA Tower I
100 Madison Street
Syracuse, NY 13202
Re: 	Crouse Health Hospital Advisory Opinion
Dear Ms. Bolster:
This letter responds to your request on behalf of Crouse Health Hospital ("Crouse Hospital") for
an advisory opinion concerning whether its proposal to sell discounted phannaceutical products
to the employees, retirees, and their dependents of its affiliate, Crouse Medical Practice, PLLC
("Crouse Medical Practice"), 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, and with the
noted caveats, we conclude that the NPIA exemption applies to Crouse Hospital 's proposal.
Description of the Proposal
We understand from your letter that Crouse Hospital is a not-for-profit corporation that is located
in Onondaga County, New York, and provides a variety of health-care services to patients living
in a 15-county area in central New York.2 Crouse Hospital 's mission is to "provide the best in
patient care ," "promote community health," and "provid[ e] physician services designed to
improve the access to and quality of health care."3 As you explain, Crouse Hospital currently
provides a benefits package with a prescription-drug benefit to its employees, retirees, and their
dependents. Crouse Hospital also owns and operates an on-site pharmacy that offers NPIA
discounted pharmaceuticals only to Crouse Hospital employees, retirees, and their dependents.
The employee pharmacy is separate from another pharmacy that serves Crouse Hospital
I 15 U.S.C. § 13c.
2 Letter from Jennifer R. Bo lster, Hanco ck Estabrook, LLP, to Office of the Secretary, Federal Trade Commission
at 1 (September 29, 2017) ("Crouse Request Letter").
3 Id.

Crouse Health Hospital NPIA Advisory Opinion
October 20, 201 7
Page2
inpatients.4 As we understand your proposal, Crous~ Hospital seeks to purchase NPIA
discounted phannaceuticals to fill prescriptions for employees, retirees, and their dependents of
its affiliate, Crouse Medical Practice, at Crouse Hospital' s on-site employee phannacy.
Crouse Hospital formed Crouse Medical Practice to develop an integrated medical service
system to encourage both organizations to "work in conjunction with each other to improve
access to care and to provide better care for patients in the community."5 The approximately 73
primary care and specialist physicians and other health-care professionals employed by Crouse
Medical Practice treat patients at Crouse Hospital and at offices close to Crouse Hospital or in
nearby communities within Crouse Hospital 's service area. Crouse Medical Practice requires its
physicians to hold and maintain good standing on Crouse Hospital 's medical staff and requires or
encourages its physicians to refer their patients to Crouse Hospital unless the patient prefers
otherwise or such referral is not in the patient 's best medical interest. Crouse Medical Practice
physicians provide call coverage at Crouse Hospital.6
We understand from your letter that Crouse Hospital formed Crouse Medical Practice as a for
profit, professional limited liability company in compliance with requirements under New York
law governing the corporate practice of medicine. As you explain in your letter, Crouse Hospital
does not own Crouse Medical Practice because only a physician can own corporations
employing physicians in an outpatient, non-hospital setting under New York law.7 Although
Crouse Hospital does not own Crouse Medical Practice, Crouse Medical Practice has in place
"various structural and financial components to ensure [Crouse] Hospital has ultimate control
over the practice. "8 For example, the sole member of Crouse Medical Practice is a Crouse
Hospital physician employee. Crouse Hos~ital may require the member to transfer all of his or
her interest to a Crouse Hospital designee. Crouse Hospital appoints the Practice Administrator,
Physician Administrator, and Executive Director of Crouse Medical Practice. These individuals,
along with Crouse Hospital representatives, manage the day-to-day practice for Crouse Medical
Practice and ensure that the practice complies with Crouse Hospital 's charitable purpose.
The sole member of Crouse Medical Practice must manage and operate it "consistent with an
organization operated exclusively to promote and support the charitable purposes of [Crouse]
4 Id. at 4.
5 Id. at 2.
6 Id. at 3.
7 Id. at 2.
9 Amended and Restated Operating Agreement of Crouse Medical Practice (" Operating Agreement") at§ 7 .2
(Crouse Request Letter, Attachment 2).

Crouse Health Hospital NPIA Advisory Opinion
October 20, 2017
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Hospital."10 In furtherance of this requirement, Crouse Medical Practice obtained 50l(c)(3) tax
exempt status under the Internal Revenue Code based on its affiliation with and control by
Crouse Hospital. 11 Crouse Hospital also must approve various business transactions for Crouse
Medical Practice, including admitting new members, selling property, incurring certain debts or
loans, dissolving the medical practice, or merging with or acquiring other physician practices. 12
No part of the net earnings of Crouse Medical Practice may inure to the benefit of any members,
employees, officers, or private individuals other than reasonable compensation for their
services. 13 The sole member also irrevocably assigns his or her right to any dividends or profits
to Crouse Hospital. 14
Analysis
The NPIA exemption is limited to certain "eligible" non-profit entities' purchases of "supplies"
for their "own use." 15 As we understand your proposal, Crouse Hospital will purchase and offer
the NPIA-discounted pharmaceuticals to Crouse Medical Practice employees, retirees, and their
dependents. Therefore, we analyze below whether (1) Crouse Hospital is an "eligible entity," and
(2) the NPIA-discounted pharmaceuticals that Crouse Hospital proposes to offer to Crouse
Medical Practice are properly considered "supplies" for Crouse Hospital' s "own use."16
1. 	Crouse Hospital's Eligibility for the NPIA Exemption
An "eligible entity" under the NPIA includes, among others, "hospitals .. . not operated for
profit."17 As you state in your letter, Crouse Hospital is a not-for-profit hospital. Therefore, based
on the language in the NPIA, Crouse Hospital appears to qualify as an eligible entity and, in fact,
currently uses the exemption to offer NPIA-discounted pharmaceuticals to its own employees,
retirees, and their dependents.
10 Id. at§ 5.2.
11 Letter from Internal Revenue Service to Crouse Hospital (Crouse Request Letter, Attachment 1).
12 Crouse Request Letter at 2.
13 Operating Agreement at§ 2.5(c).
14 Id. at§ 4.3.
15 15 U.S.C. § 13c.
16 Because we detennine that Crouse Hospital qualifies as an " eligible entity" and that the NPIA-discounted
phannaceuticals offered to Crouse Medical Practice are for Crouse Hospital's "own use," we do not need to reach
the question of whether Crouse Medical Practice- a for-profit corporation with 501(c)(3) tax-exempt status
qualifies as an " eligible entity."
11 Id.

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2. 	Crouse Hospital's Provision of NPIA-Discounted Pharmaceuticals to Crouse
Medical Practice Appears to Be for Crouse Hospital's Own Use
We next consider whether the proposal involves the purchase of "s upplies" for Crouse Hospital's
"own use." As we have found in prior advisory opinions, the term "s upplies," as used in the
NPIA, may include an eligible entity's purchases of pharmaceuticals. 18 The te1m "own use"
means an eligible entity's use that "is a part of and promotes the [entity 's ] intended institutional
operation." 19
The principal authority on the meaning and scope of the "o wn use" requirement is Abbott
Laboratories v. Portland Retail Druggists Ass 'n.20 In Abbott, not-for-profit hospitals purchased
discounted pharmaceuticals from manufacturers and resold them to hospital patients. Retail
pharmacies challenged the discounted sale of pharmaceuticals to the hospitals under the
Robinson-Patman Act. The Supreme Court held that the NPIA exemption is limited and does not
give hospitals a "blank check" for all purchases of supplies.2 1 Rather, the Court held that the
exemption applies to purchases for the hospital 's "own use ," and that own use means "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. "22 The Supreme Court determined that pharmaceuticals dispensed to hospital
employees and their dependents, among other individuals, would qualify for the hospital 's own
use. In the Court' s view, employees enable a hospital to function and providing them with
pharmaceuticals "enhances the hospital function. "23 Consistent with Abbott, we determined in
prior advisory opinions that offering employees, retirees, and their dependents health-insurance
plans with prescription-drug benefits helped hospitals and other eligible entities attract and
maintain a capable and healthy workforce to further their intended institutional missions.24
18 See, e.g., Quest Analytics Group (March 7, 2014) (FTC staff opinion letter) (NPIA exemption applied to
educational institutions' purchases of discounted specialty drugs for their own use); Yakima Valley Memorial
Hospital (August 16 , 2010) (FTC staff opinion letter) (non-profit hospital's provision of pharmaceuticals to
employees of its affiliates qualified for NPIA exemption); see also Abbott Labs. v. Portland Retail Druggists Ass 'n,
425 U.S. 1, at 5 (1976) (noting that the district court had ruled that purchases of pharmaceuticals by the hospitals
were purchases of "supplie s" for the hospitals' "own use").
19 425 U.S. at 14.
20 Id.
21 Id. at 13.
22 Id. at 14.
23 Id. at 16.
24 See, e.g., Quest Analytics Group (NPIA exemption applied to educational institutions' employees, retirees, and
their dependents); Yakima Valley Memorial Hospital (NPIA exemption applied to hospital employees of hospital
affiliates); University of Michigan (April 9, 2010) (FTC staff opinion letter) (NPIA exemption applied to
University's employees, retirees, and their dependents); BJC Health System (November 9, 1999) (FTC staff opinion
letter) (NPIA exemption applied to employees of health-care system).

Crouse Health Hospital NPIA Advisory Opinion
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Whether the exemption applies to Crouse Hospital's purchases of pharmaceuticals for Crouse
Medical Group employees, retirees, and their dependents depends on whether this use of the
pharmaceuticals is part ofand promotes Crouse Hospital's institutional mission.25 You have
explained that Crouse Hospital' s mission includes promoting community health and providing
physician services designed to improve access to quality health care. In furtherance of its
mission, Crouse Hospital fonned Crouse Medical Practice to develop an integrated medical
service system to encourage both organizations to work together to improve care and promote
the charitable purposes of Crouse Hospital. Crouse Medical Practice physicians and other
employees provide vital services to Crouse Hospital and its patients necessary to help Crouse
Hospital fulfill its intended institutional function.
Crouse Hospital has ultimate decision-making control and authority for Crouse Medical Practice
as described in your letter and Crouse Medical Practice' s Operating Agreement. Furthermore, the
Crouse Medical Practice member assigns any profits to Crouse Hospital and neither the member
nor the employees are entitled to any net earnings. While Crouse Hospital does not have an
ownership interest in Crouse Medical Practice, we believe that the substance of the relationship
between Crouse Hospital and Crouse Medical Practice governs our analysis.26 Based on this
relationship, it is reasonable to conclude 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, accordingly, it is reasonable to treat Crouse Hospital and
Crouse Medical Practice as one unit in analyzing the applicability of the NPIA exemption. This
conclusion is consistent with pri or staff opinions.27 Therefore, consistent with Ab bott, we find
that the NPIA exemption covers Crouse Hospital's proposal to offer discounted pharmaceuticals
to Crouse Medical Practice.
We emphasize that this opinion is premised on the relationship between Crouse Hospital and
Crouse Medical Practice described in your letter and your assurance that any financial benefit
from the proposal will ultimately accrue to Crouse Hospital pursuant to the relationship between
the two entities.
25 See 425 U.S. at 14.
26 See, e.g. , Arkansas Children' s Hospital (March 13 , 2003) (FTC staff opinion letter) (substance ofrelationship
between two entities not under common ownership in the care of a common patient population supported conclusion
that the exemption applied); Valley Baptist Medical Center (March 13, 2003) (FTC staff opinion letter) (the role
contract workers had in hospital 's provision of care to its patients, rather than the fact that the ho spital chose not to
employ the workers, was relevant to determining that the exemption applied).
27 See, e.g. , Yakima Valley Memorial Hospital (hospital's control over its affiliates effectively made affiliates part of
the hospital to such a degree that could treat as one unit for the purpose of the NPIA exemption).

Crouse Health Hm1pital NPIA Advisory Opinion
October 20> 2017
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Conclusion
As discussed above, and with the noted caveats, it is our opinion that Crouse Hospital's proposal
to exte11d the sales of discounted phannaceuticals to its affiliate, Crouse Medical Practice, as
described in. your September29, 2017 letter, would fall within the.NPfA exemption to the
Robinson-Patman Act. This letter sets out the views of the staff of the Bureau of Competition, as
authorized by the Commissfon's Rules of Practice, based on the facts you have presented to us.
Un:der Commission Rule§ 1.3{c), 16 C.F.R. § 1.3(c), the Commission is not bound by this staff
opinion and reserves the right to rescind it at ala:ter 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, ifthe program is ti.sed for improper purposes, if facts change significantly, or if would be
in the public interest to do so.
Sincerely,
Markus H. Meier
Assistant Director