Vinson &Elkins 

Dionne C. Lomax dlomax@velaw.com 

Tel +1 .202.639.6610 Fax +1 .202.879.8843 

July 25, 2012 

Markus H. Meier 

Assistant Director 

Federal Trade Commission 

Bureau of Competition 

Health Care Services and Products 

601 New Jersey Avenue 

Washington, D.C. 20001 

Re: Requestfor Staff Advisory Opinion Relating to the Non-Profit Institutions Act 

Dear Mr. Meier, 

On behalf of The Methodist Hospital System ("Methodist"), I am submitting a request for a 

staff advisory opinion pursuant to 16 C.F.R. §l.l regarding the applicability of the NonProfit Institutions Act ("NPIA") to the sale of pharmaceuticals by Methodist to Baytown 

EMS. 

Factual Background 

Methodist is a non-profit hospital system based in Houston, Texas, that purchases its 

pharmaceuticals through a distributor at a GPO discount. Methodist is comprised of five 

inpatient facilities as well as numerous outpatient surgery centers, imaging centers and 

emergency care centers. The discounted pharmaceuticals purchased by Methodist are used 

for its hospitalized patients for inpatient needs, emergency room patients, in-clinic treatment, 

as well as periodic discharge prescriptions. 

Baytown EMS is a division of the City of Baytown, Texas. It employs 21 paramedics and 

provides critical medical care and emergency medical transportation services to the citizens 

of Baytown. As the exclusive transport providers for 9-1 -1 service for the City of Baytown, 

Baytown EMS responds to approximately 8,200 calls for service each year, resulting in 

approximately 5,300 transports. l Baytown EMS patients are typically transported to 

Methodist's Baytown facility, San Jacinto Methodist Hospital, a 392-bed general acute care 

inpatient facility located approximately 30 miles from Houston. It is the only facility in the 

Baytown area that offers a full range of acute care inpatient health services. 

1 http://www.baytown.orglsafetyhealthlems 

Vinson & Elkins LLP Attorneys at Law 

Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston l ondon Moscow 

New York Palo Alto Riyadh San Francisco Shanghai Tokyo Washington 

2200 Pennsylvania Avenue NW. Suite 500 West 

Washington, DC 20037-1701 

Tel +1 .202.639.6500 Fax +1 .202.639.6604 www.velaw.com 
V&E Markus H. Meier July 25, 2012 Page 2 

As you may know, drug shortages in the United States have been increasing in frequency and 

severity in recent years and adversely affecting patient care. As a result of these shortages, 

Baytown EMS has experienced difficulties keeping its ambulances stocked with certain 

prescription drugs that are critical to ensure quality patient care. In an effort to resolve the 

problem, Baytown EMS seeks to purchase certain drugs from Methodist that are in short 

supply. 

Methodist's central institutional function is to deliver comprehensive acute health care 

services, including pharmaceuticals, to all of its patients. Its patients include Baytown area 

residents who rely on Baytown EMS's emergency transport services. Methodist is dedicated 

to quality patient care, and thus, would prefer that certain drugs be administered to patients 

while in transport to its Baytown facility rather than once the patient has arrived at the 

hospital. The administration of critical drugs at the first point of care rather than after 

transport can be critical to a patient's clinical outcome. Methodist, therefore, seeks to sell 

pharmaceuticals to Baytown EMS to ensure that the patients it serves receive critical care in 

a timely manner. Methodist proposes to sell pharmaceuticals to Baytown EMS at a price that 

does not exceed its direct costs in purchasing and transporting the drugs. In most cases the 

drugs are likely to be picked up by paramedics employed by Baytown EMS when making 

normal transport runs to Methodist's Baytown facility. 

For the reasons explained below, we believe that the NPIA should apply to pharmaceuticals 

transferred by Methodist to Baytown EMS, but are writing to request an opinion from the 

FTC staff regarding the extension of the NPIA to this government agency. 

Analysis 

The Robinson-Patman Act ("the Act") prohibits price discrimination between different 

purchasers to whom contemporaneous sales of like goods are made, where the effect of such 

discrimination may be to adversely affect competition. The Non-Profit Institutions Act 

("NPIA") exempts from the Robinson-Patman Act "purchases of . .. supplies for their own 

use by schools, colleges, universities, public libraries, churches, hospitals, and charitable 

institutions not operated for profit.,,2 To fall within the NPIA exemption to the RobinsonPatman Act, an organization must be an "eligible entity" and must use the exemption to 

purchase supplies for its "own use.,,3 

' IS U.S.c. § 13c(emphasis added). 

3 Abbott Laboratories v. Portland Retail Druggists Ass 'n" 425 U.S. 1 (1976). 
V&E Markus H. Meier July 25, 2012 Page 3 

According to the Commission's holding in St. Peter's Hospital, the Act covers the transfer of 

supplies, at cost, from a non-profit hospital to another charitable organization that is entitled 

to NPIA protection for its own purchases, so long as those supplies are for the receiving 

institution's "own use" within the meaning ofthe NPIA.4 

I. Eligibility of Baytown EMS for Exemption from the Robinson-Patman Act 

Under the NPIA 

The basic purpose of the Robinson-Patman Act is to eliminate unfair competition among 

those engaged in private enterprise where such practices might result in restraint of trade or 

injury to competition. The law seeks to cover within its scope every person engaged in 

business whose activities might restrain or monopolize commerce. Courts have held the 

federal government immune from liability under the Act, and in the NPIA, Congress 

specifically excluded non-profit organizations and certain other entities that are not otherwise 

engaged in competition in the private market. 

As a division of the City of Baytown, Baytown EMS is a government instrumentality entitled 

to coverage under the NPIA. The rationale underlying the exclusion of public libraries, 

hospitals, and other non-profit institutions from the proscriptions of the Robinson-Patman 

Act are easily extended to Baytown EMS. Baytown EMS is engaged in a traditional 

government function of ensuring the health, safety and welfare of area residents. It does not 

compete with private parties within the meaning of the Act (e.g., it is the exclusive EMS 

service in Baytown), and its activities are not affected by a profit-making motivation. To the 

contrary, the services provided by Baytown EMS are undertaken on behalf of the City of 

Baytown to ensure the health Of its citizens. In that sense the central institutional function of 

Baytown EMS is to provide a traditional government function, not to gain competitive 

advantage in the pri vate market. Thus, Baytown EMS's eligibility under the NPIA appears 

entirely consistent with the intent of the NPIA to make the Act's exemption available to 

hospitals, public libraries and other charitable organizations. 

2. Pharmaceuticals for Bavtown EMS's "Own Use" 

The sole purpose of Baytown EMS is to transport patients in need of emergency medical 

services to an area inpatient facility for acute care medical treatment. To alleviate the 

instances in which Baytown EMS lacks the appropriate drugs (as a result ofthe national drug 

shortage) to treat patients at the point of care, it seeks to purchase drugs from Methodist. The 

pharmaceuticals will be used by Baytown solely for the treatment of patients under its care 

4 St. Peter·s Hospital of the City of Albany. 92 F.T.C. 1037 (1978). 
V&E Mar1<.us H. Meier July 25, 2012 Page 4 

prior to or while en route to an acute care medical facility. The immediate administration of 

such drugs will enhance Baytown's ability to provide quality care to patients prior to their 

arrival at an acute care medical facility and enhance its ability to have good patient outcomes. 

Since the sole purpose of Baytown's use of the pharmaceuticals will enable it to carry out its 

activities as an emergency medical service provider to provide quality health care to area 

residents, we believe that the provision of discounted pharmaceuticals to Baytown EMS as 

part of its provision of emergency medical services to patients would be for its "own use," 

and thus would be covered by the NPIA exemption. 

Conclusion 

As discussed above, we believe that the sale of pharmaceuticals by Methodist to Baytown 

EMS should receive coverage under the NPIA. Given its institutional purpose and function, 

Baytown EMS should be characterized as an NPIA-eligible institution. The pharmaceuticals 

will be sold to Baytown EMS at cost and will be used solely by Baytown EMS to care for 

patients prior to or while transporting patients to Methodist's Baytown facility or other acute 

care facilities. In many ways, the services provided by Baytown EMS are essentially an 

extension of Methodist's basic services to area residents and contributes directly to 

Methodist's ability to fulfill its central institutional function to deliver high-quality 

comprehensive acute health care services to its patients. 

Should you have any questions or comments, please do not hesitate to contact me at 202-639-

6610. 

Sincerely, 

4~ Dionne C. Lomax ?" 

Counsel for The Methodist Hospital System 

US 1498924v.1