15 U.S.C. § 13c. 1

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 1 2

(Oct. 8, 2009).

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 3

(June 4, 2010) (citing a desire to protect against potential physician shortages in its service area

and a general trend among hospitals to function more as multipurpose health systems).

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

WASHINGTON, D.C. 20580

Bureau of Competition

Health Care Division

August 16, 2010

Robert J. Walerius

4400 Two Union Square

601 Union Street

Seattle, Washington 98101

Re: Yakima Valley Memorial Hospital Advisory Opinion

Dear Mr. Walerius:

This letter responds to your request on behalf of Yakima Valley Memorial Hospital

(“Memorial”) for an advisory opinion concerning whether its proposal to sell discounted

pharmaceutical products to employees of two affiliates, Memorial Physicians, PLLC (“MP”) and

Valley Imaging (“Valley”) 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.” For the reasons explained below, and with the 1

noted caveats, we have concluded that Memorial’s proposal would fall within the scope of the

NPIA. 

Factual Background

As we understand the facts based on information you provided, Memorial is a Washington nonprofit corporation. It began as an acute care hospital, and, over time, to better meet the needs of 2

the population it serves, expanded the range of services it offers to include clinical care services.3

It currently operates an on-site pharmacy and offers NPIA-discounted pharmaceuticals to its

employees through the pharmacy. It now wants to extend the availability of the NPIA-
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 2

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 1 4

(Oct. 8, 2009).

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 5

(Jan. 29, 2010).

 Memorial is in the process of merging these clinics into MP to reduce Washington 6

State tax liability and to streamline their operations. The mergers will have no effect on the

clinics’ ownership or relationship to Memorial. See Letter from Robert J. Walerius, Miller Nash

LLP, to Ellen Connelly, FTC, at 5 (Mar. 30, 2010).

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 4 7

(Mar. 30, 2010). Despite the ownership relationship between MP and Memorial, MP’s

employees are not covered by Memorial’s health plan, because, after acquiring MP, Memorial

decided to allow the MP employees to retain their plans for their convenience. See id, at 4-5.

 See id, at 3 - 4. 8

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 9

(Jan. 29, 2010).

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 1 10

(Oct. 8, 2009). 

discounted pharmaceuticals to employees of two other affiliated entities: MP and Valley. 

Specifically, Memorial proposes to use NPIA-discounted pharmaceuticals in connection with

prescriptions filled for MP and Valley employees at Memorial’s on-site pharmacy.4

MP is a member-managed Washington professional limited liability company. It operates a 5

group of Memorial-owned outpatient medical clinics, providing services such as human

resources, billing, and information systems for those clinics. Memorial is MP’s sole member. 6

As MP’s sole member, Memorial owns 100 percent of MP and “has total control over all of

MP’s operations, officers, and employees.” For instance, Memorial manages and controls MP’s 7

business affairs, appoints and removes MP officers, and makes decisions regarding MP’s

finances. Furthermore, according to MP’s Operating Agreement, MP at all times must “‘be 8

operated in a manner consistent with and so as to preserve Memorial’s 501(c)(3) tax exempt

status under the Internal Revenue Code.’”

9

Valley is a Washington State corporation that has elected to be treated as a non-profit

corporation under Washington State law. In 2008, it received an Internal Revenue Service 10
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 3

 See id. 11

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3 12

(Jan. 29, 2010). See also Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly,

FTC, at 2 (Mar. 30, 2010). In your June 4, 2010 letter you clarified that apparent discrepancies

between your representations relating to Memorial’s membership in Valley and Valley’s Articles

of Incorporation were the result of Valley’s change from a corporation to a non-profit. See

Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3 (June 4, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 4 13

(June 4, 2010). Only some of Valley’s employees are covered by Memorial’s health plan. As

with MP, this is the result of Valley’s acquisition history. Prior to 2004, Valley was owned by

Memorial and another hospital. In 2004, Memorial obtained complete ownership of Valley and

for their convenience, allowed Valley employees to keep their existing plan. See Letter from

Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 5 (Mar. 30, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 14

(Oct. 8, 2009). 

 425 U.S. 1 (1976). 15

determination letter confirming its status as a 501(c)(3) tax-exempt entity. It is a free-standing 11

outpatient diagnostic imaging center that provides imaging services for Memorial’s patients, and

is geographically separate from Memorial. Valley does not operate under Memorial’s hospital

license or provider number, but Memorial is Valley’s sole member. As Valley’s sole member,

12

Memorial has “the exclusive right to control Valley by electing directors, authorizing the sale,

lease, exchange of all or substantially all the property and assets of Valley, amending Valley’s

Articles of Incorporation and Bylaws, and voting on a merger or dissolution of the

corporation.” You have represented that Valley is operated “exclusively for the benefit of, to 13

perform the functions of, and to carry out the purposes of Memorial.”14

 

Analysis

1. Memorial’s, MP’s and Valley’s Eligibility for the NPIA Exemption to the

Robinson-Patman Act

To fall within the NPIA exemption to the Robinson-Patman Act, an organization must be an

“eligible entity” and must use the exemption to purchase supplies for its “own use.” Because

15

the NPIA is limited in its application to certain types of “eligible entities,” we begin our analysis

with a discussion of Memorial’s, Valley’s, and MP’s eligibility for the exemption. Among other

“eligible entities,” the NPIA exempts from the Robinson-Patman Act “hospitals, and charitable
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 4

 15 U.S.C. § 13c. 16

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 1 17

(Oct. 8, 2009). 

 See id. 18

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 19

(Mar. 30, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 20

(Jan. 29, 2010). See also RCW 24.04.017 (“Any corporation organized under any act of the state

of Washington for any one or more of the purposes for which a corporation may be organized

under this chapter and for no purpose other than those permitted by this chapter, and to which

this chapter does not otherwise apply, may elect to have this chapter and the provisions thereof

apply to such corporation”). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at Tab

21

C (Mar. 30, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 22

(continued...)

institutions not operated for profit.” As you state in your letter, Memorial is a non-profit 16

hospital. Thus, by the language of the statute, Memorial appears to be an entity eligible for the 17

exemption, and indeed already uses the exemption with regard to its hospital employees.18

Similarly, Valley has elected to be treated as a non-profit corporation as permitted under

Washington State law. As we understand from the materials you have provided, the Washington

State Nonprofit Corporations Act (RCW 24.03) allows Washington corporations to elect nonprofit status without having to go through the expense and logistical complications of dissolving

and reincorporating. We further understand from the information that you have provided that a 19

corporation making a non-profit election under Washington State law may only do so if it would

otherwise qualify for non-profit treatment. That is, Valley was able to make the election for

non-profit treatment because it would have met all of the requirements for incorporation as a

non-profit in the first instance. Furthermore, you have provided an Internal Revenue Service 20

determination letter confirming Valley’s classification as a public charity. Thus, Valley, as a 21

non-profit, charitable organization appears also to be an eligible entity under the NPIA and could

itself qualify to use NPIA-discounted pharmaceuticals in accordance with the “own use”

requirement discussed below. 

MP, on the other hand, is not a non-profit corporation. It is a professional limited liability

company (“PLLC”). You explain that MP must operate “in a manner consistent with and so as 22
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 5

(...continued) 22

(Jan. 29, 2010).

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 1 23

(Oct. 8, 2009).

 We note that there may be a variety of ways for Valley, which itself appears to be an

24

eligible entity under the NPIA, to obtain the NPIA-discounted pharmaceuticals for its “own use.” 

For instance, it would appear that as an eligible entity, Valley itself, independent of its affiliation

with Memorial, could purchase and distribute the NPIA-discounted pharmaceuticals to its

employees, or that Memorial could transfer NPIA-discounted pharmaceuticals to Valley for

Valley’s “own use.” With this opinion, however, we only address the current proposal – to have

Memorial extend the use of its NPIA-discounted pharmaceuticals to Valley’s employees. 

 425 U.S. 1 (1976). 25

 Id., at 13. 26

to preserve Memorial’s 501(c)(3) status,” but, in our view, that requirement alone is not 23

sufficient to allow us to conclude that MP is itself a non-profit eligible for the NPIA exemption. 

MP’s eligibility must depend on its association with, and relationship to, an eligible entity – in

this case Memorial.

2. Memorial’s Provision of NPIA-Discounted Pharmaceuticals to MP and Valley

Employees and the “Own Use” Requirement

As we explained above, we conclude that both Memorial and Valley (but not MP) appear to be

eligible entities under the NPIA and thus each could use NPIA-discounted pharmaceuticals for

its “own use.” As we understand the proposal, however, it is Memorial, through its on-site

pharmacy, that will provide the NPIA-discounted pharmaceuticals to the Valley and MP

employees. Thus, we base the rest of our analysis on whether this use by Memorial (as the 24

eligible entity) can properly be considered for Memorial’s “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). In that case, retail pharmacies sued 25

pharmaceutical manufacturers under the Robinson-Patman Act, challenging the discounted sale

of drugs to non-profit 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.” Rather, the Court interpreted the “own use” test to shield only purchases that 26

“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
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 6

 Id., at 14 (emphasis in original). 27

 Id., at 16. 28

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3 29

(June 4, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3 30

(Mar. 30, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 31

(Jun. 4, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3 32

(Jan. 29, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2- 3 33

(Mar. 30, 2010). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 2 34

(Oct. 8, 2009). 

patients.” The Court went on to determine that pharmaceuticals dispensed to certain categories 27

of individuals, including hospital employees, would qualify for the hospital’s own use. Hospital

employees were considered necessary for the hospital to carry out its intended institutional

mission. 

28

As you explain, Memorial’s mission is to improve the health of those it serves. It has operated 29

as an acute care hospital. More recently, to continue to meet the changing needs of the

community it serves, and in response to changes in the health care industry, it has expanded the

range of health care services it offers to include clinical care. To this end, you explain that it 30

has acquired or formed entities such as MP and Valley, and depends on the services provided 31

by MP and Valley to meet its goal of improving the health of its patients. 

32

As we understand from your letters, both MP and Valley operate for the express purpose of

supporting Memorial’s aim of fully meeting the health care needs of the people it serves. Both

MP and Valley are controlled by Memorial and operated exclusively for Memorial’s benefit. 

Any profits earned by MP will be used to advance Memorial’s charitable mission. Valley’s 33

sole purpose is to offer its imaging technology in support of Memorial. 

34

We conclude, based on the facts you have provided, that Memorial’s central institutional

function, within the meaning of Abbott Labs, is to deliver comprehensive health care services to 
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 7

 See De Modena v. Kaiser Foundation Health Plan, Inc., 743 F.2d 1388, 1392-93 (9 35 th

Cir. 1984) (discussing the changing nature of the health care industry and accepting a broad

institutional function of providing “a complete panoply of health care” services). 

 See Letter from Robert J. Walerius, Miller Nash LLP, to Ellen Connelly, FTC, at 3- 4 36

(Mar. 30, 2010). 

 See e.g. St. John’s Health System (Sept. 2006) (staff opinion) (proper to treat the St. 37

John’s organization as a whole) (available at http://www.ftc.gov/bc/advisoryopinions/060913

stjohnsadvisoryopinion.pdf); Valley Baptist Medical Center (Sept. 1996) (staff opinion) (“Valley

Baptist’s provision of medical services through its [affiliated] family practice clinic would be

considered simply an extension of the hospital’s basic services beyond its four walls and into a

setting more accessible to the community and that therefore pharmaceuticals and other goods

purchased for distribution as part of treatment provided by the Clinic would be purchased for

Valley Baptist’s own use”) (available at http://www.ftc.gov/bc/adops/valleyba.shtm); William

W. Backus Hospital (June 1996) (staff opinion) (treating the Backus organization as a whole)

(available at http://www.ftc.gov/bc/adops/backusfn.shtm); Presentation Health System (Dec.

1993) (Commission opinion) (proper to treat hospitals and long-term care facilities that are

separate corporate non-profit entities, but controlled by a single religious order, as a unit)

(available at http://www.ftc.gov/bc/adops/010.shtm).

 We do not believe that, given the circumstances of Memorial’s acquisition of MP and 38

Valley, and its desire to allow the employees of those entities to maintain continuity of care, the

particular health plan (Memorial or non-Memorial) to which the employees belong is

determinative. The important points are that they appear to be properly considered employees of

the Memorial system and that they enable Memorial to carry out its intended institutional

function.

 See 425 U.S. 1, 16 (1976); Connecticut Hospital Association (Dec. 2001) (staff

39

(continued...)

its patients. In furtherance of this mission, it acquired and operates MP and Valley. By virtue 35

of its 100 percent ownership interest in MP and its status as sole member of Valley, Memorial

effectively has ultimate control and decision-making authority over those entities. It is our 36

view that Memorial’s control over both MP and Valley effectively makes those entities part of

Memorial to such a degree that one could treat Memorial, MP, and Valley as one unit. This

conclusion is consistent with a number of prior staff advisory opinions. The employees of MP

37

and Valley provide critical services to Memorial’s patients, and these services are key to

Memorial’s ability to fulfill its intended institutional function of improving the health care of

those it serves. It thus appears to us to be consistent with both Abbott and prior advisory 38

opinions to find that Memorial’s provision of NPIA-discounted pharmaceuticals to employees of

MP and Valley falls within the exemption.39
Yakima Valley Memorial Hospital Advisory Opinion

August 16, 2010

Page 8

(...continued) 39

opinion) (available at http://www.ftc.gov/opa/2001/12/chaadvisopinionletter.shtm); BJC Health

System (Nov. 1999) (staff opinion) (treating BJCHS and its affiliates as part of one unit and

finding that “BJCHS’ employees, as a group, like the hospital employees in Abbott Labs, are

directly related to the accomplishment of their employer’s core functions”) (available at

http://www.ftc.gov/bc/adops/bjclet.shtm).

We emphasize, however, that the NPIA exemption is dependent on Memorial ensuring that no

ineligible entity benefits from the exemption. MP itself does not appear to be independently

eligible for the exemption, and our opinion is based on your assurance that any financial benefit

from the proposal ultimately will accrue to Memorial by virtue of Memorial’s relationship with

MP. 

Conclusion

As discussed above, and with the noted caveats, we conclude that Memorial’s proposal to extend

the sales of discounted pharmaceuticals to employees of two affiliated entities – MP and Valley

– appears to fall within the NPIA exemption to the Robinson-Patman Act.

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(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 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,

Markus H. Meier

Assistant Director