UNITED STATES OF AMERICA 

FEDERAL TRADE COMMISSION 

WASHINGTON, D.C. 20580 

Bureau of Competition 

Health Care Division 

September 13, 2006 

Michael Merrigan 

General Counsel 

St. John’s Health System 

1235 East Cherokee Street 

Springfield, Missouri 65804 

Re: St. John’s Health System Advisory Opinion 

Dear Mr. Merrigan: 

This letter responds to your request on behalf of St. John’s Health System (“St. John’s”) for an 

advisory opinion on whether St. John’s Regional Health Center (“Hospital”) may provide 

pharmaceuticals to its Hospital outpatients and to patients of St. John’s Clinic (“Clinic”), through 

three Hospital-owned pharmacy sites, under 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 the NPIA would 

apply to pharmaceuticals provided by the Hospital through its three Hospital-owned pharmacies 

to both the Hospital’s outpatients and the Clinic’s patients, because it would be for St. John’s 

“own use,” so long as the pharmaceuticals are prescribed in connection with ongoing treatment 

that patients receive at the Hospital or the Clinic. 

Based on information you provided, St. John’s is a non-profit Missouri corporation currently 

receiving preferential price treatment in its purchase of pharmaceuticals for treatment of Hospital 

inpatients as permitted under the NPIA. St. John’s would like to extend the use of NPIA 

discounted pharmaceuticals for use by Hospital outpatients and by Clinic patients filling 

prescriptions at the three Hospital-owned pharmacies. 

St. John’s is an integrated health services delivery system, and manages the care of approximately 280,000 covered lives through various arrangements it has with third-party payers. The 

Hospital, a fully-owned subsidiary of St. John’s, is a Missouri non-profit corporation that has 

provided services in the Southwest Missouri area for over 100 years. It is a full-service tertiarycare hospital, and is the only Level 1 trauma center in Southwest Missouri. The Clinic, which is 

also a fully-owned subsidiary of St. John’s and a Missouri non-profit corporation, has a number 

of office locations both on the Hospital’s grounds and in other buildings owned by St. John’s. 

Approximately 465 Clinic-employed physicians of various specialties treat the Clinic’s patients. 

1 15 U.S.C. § 13c. 
St. John’s Health System Advisory Opinion 

September 13, 2006 

Page 2 

As explained in your letter, the Hospital offers pharmacy services to its outpatients and to Clinic 

patients. Those patients can fill Hospital and Clinic prescriptions in the main Hospital facility, 

or at three pharmacies that are 100 percent owned by the Hospital: the Fremont Pharmacy, the 

Smith-Glynn Pharmacy, and the Nixa Medical Building pharmacy. The Fremont Pharmacy is 

located on the Hospital’s grounds. Both the Smith-Glynn Pharmacy and the Nixa Medical 

Building pharmacy are located in medical office complexes occupied by Clinic physicians and 

Hospital departments. The three Hospital-owned pharmacies are also open to the public. 

The NPIA applies to pharmaceuticals purchased by a hospital or other eligible institution for its 

“own use.”2

 Though not explicitly enumerated as eligible institutions in the NPIA’s statutory 

language, non-profit integrated health delivery systems, such as St. John’s, appear to be a type of 

non-profit charitable institution that Congress intended to exempt in the statute. Specifically, in 

De Modena v. Kaiser Foundation Health Plan, Inc., a United States court of appeals treated a 

similarly structured organization as an eligible entity under the NPIA.3 We believe the same 

treatment is warranted for St. John’s, the Hospital, and the Clinic. 

The NPIA requires, however, that even an institution eligible for the NPIA exemption must 

purchase the discounted pharmaceuticals for its “own use.” The starting point for analysis of the 

“own use” requirement is the Supreme Court’s opinion in Abbott Laboratories v. Portland Retail 

Druggists Association.

4 In Abbott, the Court suggested that to determine what constitutes an 

eligible institution’s own use, one should focus on the function performed by the institution in its 

purchase and resale role. The Court stated, “‘their own use’ is what reasonably may be regarded 

as use [by the eligible institution] in the sense that such use is a part of and promotes [its] 

intended institutional operation.”5 The treatment of its own patients through the Hospital and the 

Clinic is clearly part of St John’s institutional mission as a non-profit provider of integrated 

health services. Whether that treatment requires the dispensation of pharmaceuticals on an 

inpatient basis or the filling of a prescription written in connection with the Hospital’s or the 

Clinic’s ongoing care of an outpatient at one of the three Hospital-owned pharmacies does not 

change the analysis. One may justifiably regard the St. John’s organization as a whole as having 

purchased pharmaceuticals for its “own use,” which includes treatment of patients of both the 

2 Abbott Laboratories v. Portland Retail Druggists Ass’n, 425 U.S. 1, 14 (1976). 

3 See De Modena v. Kaiser Foundation Health Plan, Inc., 743 F.2d 1388, 1391-92 (9th 

Cir. 1984) (treating for analytical purposes a number of hospitals and health plans as one eligible 

organization). 

4 See Abbott at 14. 

5 Id. 
St. John’s Health System Advisory Opinion 

September 13, 2006 

Page 3 

Hospital (whether inpatient or outpatient) and the Clinic.6 This is what the Commission 

previously concluded in an advisory opinion letter it issued in response to a similar request for 

advice.7 

Further, we do not believe that the use of the three Hospital-owned pharmacies, whose profit 

accrues solely to the Hospital to be used in the furtherance of St. John’s mission, changes the 

analysis, provided that proper safeguards are taken to ensure that the pharmaceuticals purchased 

at NPIA pricing are not dispensed to patients who are not patients of the St. John’s system. If 

these pharmacies, for example, were to sell the discounted pharmaceuticals to walk-in customers, 

such activity would not qualify as being for St. John’s “own use,” and the NPIA exemption for 

purchasing those pharmaceuticals at a discount would not apply. 

Based on the information you have provided, “over 90% of the prescriptions filled and dispensed 

at [the three Hospital-owned pharmacies] are written by Clinic physicians for the benefit of their 

patients.” The remainder of the prescriptions filled at the three Hospital-owned pharmacies are 

for non-St. John’s patients. To avoid any improper sales of the discounted pharmaceuticals to a 

non-exempt entity or for a non-exempt use, St. John’s will establish a separate accounting 

mechanism of the type mentioned in Abbott to track these transactions.8 Thus, with these 

caveats, we conclude that the pharmaceutical purchase and distribution program proposed by St. 

John’s would 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 

Federal Trade Commission’s Rules of Practice. Under Rule § 1.3(c), the Commission is not 

bound by this staff opinion and reserves the right to rescind it at a later time.9 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 would be in the public interest to do so. 

Sincerely, 

Markus H. Meier 

Assistant Director 

6 See De Modena at 1392. 

7 Presentation Health System, 16 F.T.C. 1526 (1993). 

8 See 425 U.S. at 19. 

9 16 C.F.R. § 1.3(c).