1 15 U.S.C. § 13c.

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

WASHINGTON, D.C. 20580

 Bureau of Competition

 ~

 Jeffrey W. Brennan

 Assistant Director

 Health Care Services & Products

 Direct Dial

 (202) 326-3688

January 6, 2004

Judy Erb

Vice President

Dunlap Memorial Hospital

832 South Main Street

Orrville, Ohio 44667

Dear Ms. Erb:

This letter responds to your request on behalf of Dunlap Memorial Hospital for an advisory

opinion whether Dunlap’s provision of pharmaceuticals to the Viola Startzman Free Clinic

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 the NPIA would apply to

pharmaceuticals transferred by Dunlap to the Free Clinic.

As we understand the facts based on the information you provided, Dunlap is a non-profit

hospital. The Free Clinic is a non-profit institution, funded entirely by donations, grants, and

unpaid services of volunteer physicians, that provides free medical care to adults in and around

Wayne County, Ohio. Dunlap purchases pharmaceuticals through Amerinet, a hospital

purchasing group. The hospital pays a lower price than is currently available to the Free Clinic,

which purchases drugs prescribed by Clinic doctors from a local pharmacy at the average

wholesale price plus a dispensing fee. You have asked whether the NPIA would apply to drugs

purchased by Dunlap and then transferred to the Free Clinic, where they would be dispensed to

patients of the Clinic. You also ask whether Dunlap could charge a fee to cover its cost of

providing the pharmaceuticals to the clinic.

The NPIA applies only to pharmaceuticals purchased by a hospital for its “own use” – that
Judy Erb

Page 2

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

3 St. Peter’s Hospital of the City of Albany, 92 F.T.C. 1037 (1978). 

4 Letter from Michael D. McNeely to Sheldon Klein (North Ottawa Community

Hospital) (October 22, 1996). 

is, for use in the care the hospital renders to its patients.2 Since the patients of the Free Clinic are

not Dunlap’s patients, the NPIA would not apply to pharmaceuticals dispensed directly by the

hospital to those individuals. The Commission, however, has concluded that the Act covers the

transfer of supplies, at cost, from a non-profit hospital to another 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 of the NPIA.3 

The Free Clinic appears to be a non-profit charitable institution entitled to purchase supplies

under the NPIA, and it will use the pharmaceuticals that it receives from Dunlap for its “own

use” in the care of Clinic patients. Accordingly, Dunlap’s purchase of pharmaceuticals for

transfer to the Free Clinic at its cost would be covered by the NPIA.

The Commission’s reasoning in the St. Peter’s opinion would not apply if Dunlap sold

pharmaceuticals to the Free Clinic at a profit. The Commission’s staff has concluded, however,

that an institution making a transfer to another NPIA-eligible institution may charge the

receiving institution not only its acquisition cost for the materials but also a fee sufficient to

cover any additional costs it incurs as a direct result of making the transfer (but not overhead

expenses that the institution would incur without regard to the transfer).4

 Dunlap will retain the

protection of the NPIA, therefore, if it transfers pharmaceuticals to the Free Clinic at a price that

does not exceed its direct costs in purchasing and transferring the materials.

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 would be in the public interest to do so.

Sincerely yours,

Jeffrey W. Brennan

Assistant Director