UNITED STATES OF AMERICA 

FEDERAL TRADE COMMISSION 

Health Care Division 

Bureau of Competition 

March 7, 2014 

James L. S. Cobb 

Wyrick Robbins Yates & Ponton LLP 

4101 Lake Boone Trail, Suite 300 

Raleigh, North Carolina 27607 

Re: Quest NPIA Advisory Opinion 

Dear Mr. Cobb: 

WASHINGTON, D.C. 20580 

This letter responds to your request for an advisory opinion on whether a group purchasing 

organization based prescription-drug program that Quest Analytics Group intends to operate for 

the benefit of a group of non-profit schools, colleges, and universities would fall within the NonProfit Institutions Act ("NPIA"). 1 As we understand it from your letter and from our conversations with you, schools, colleges, and universities have asked Quest to design the program to 

help them address the increasing cost of specialty drugs? Based on the information that you 

provided, we conclude that, subject to certain caveats set forth below, the NPIA exemption 

applies to the purchase of specialty drugs through Quest's proposed program by the educational 

institutions identified below. 

Description of the Proposed Program 

We understand from your letter that Quest develops and distributes audit, sourcing, group 

purchasing organization, and technology lease services. It also designs and implements audit and 

purchasing tools for hospitals, insurance companies, long-term care facilities, and self-funded 

employer groups3 

The Independent Colleges and Benefits Association ("the Association"), which is a health-care 

cooperative serving Florida non-profit educational institutions,4 has obtained audit and strategy 

1 15 U.S.C. § 13c. The 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 See Letter from James L.S. Cobb, Wyrick Robbins Yates & Ponton LLP, to DonaldS. Clark, Federal Trade 

Commission, I, 3 (Jan. 10, 2014) (hereinafter "Quest Request Letter"). 

3 See Quest Request Letter, at 2. 

4 See http://www.icuba.org (viewed Jan. 16, 2014): Quest Request Letter, at 3. 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 2 

consulting services from Quest since 2010. 5 As you have explained, the Association approached 

Quest in 2012 to obtain assistance in controlling specialty-drug costs for its member institutions6 

In response to the Association's request, Quest proposes to establish and operate a prescriptiondrug benefit program7 to enable certain non-profit educational institutions (collectively the 

"educational institutions") to benefit from the NPIA exemption. Those educational institutions 

are Arthur I. Meyer Jewish Academy, Barry University, Beacon College, The Bolles School, 

Central Florida Area Health Education Center, Clearwater Christian College, Corbett Preparatory 

School of IDS, Edward Waters College, Everglades Area Health Education Center, Florida 

Institute of Technology, Florida Memorial University, Good Shepard Episcopal School, Nova 

Southeastern University, Palm Beach Atlantic University, The Poynter Institute, Rollins College, 

Saint Edward's School, Saint Leo University, Saint Mark's Episcopal Day School, Saint Paul's 

School, San Jose Episcopal Day School, Tampa Preparatory School and The University of 

Tampa. 8 Only the educational institutions' employees, retirees, and their dependents (the 

"members") will be eligible to participate in the program. All of the educational institutions 

currently provide health programs with prescription-drug benefits to their members, but these 

programs do not include NPIA-discounted drugs9 The program's goal is to allow the educational 

institutions to access NPIA pricing when that pricing is the least expensive option. 10 

Under the proposed program, Quest will (I) negotiate discounts with specialty-drug 

manufacturers for the educational institutions' specialty-drug needs, (2) audit claims to 

determine whether any are eligible for NPIA-discount pricing and to monitor compliance with 

pharmacy benefits manager ("PBM") contracts, (3) request rebates from specialty 

pharmaceutical manufacturers when the NPIA price is the lowest available price, and ( 4) provide 

reports to the educational institutions on claims volumes, rebates received, and other data points. 

Quest will not be purchasing any specialty drugs itself. 11 

To implement the program, Quest will engage the services of pharmacies and PBMs. 12 The 

program's initial pharmacy will be NSU Clinic Pharmacy, a non-profit pharmacy affiliated with 

5 See Quest Request Letter, at 3, 6. 

6 See Quest Request Letter, at 3. 

7 We understand from your letter and from our discussions with you that the program is modeled on, though not 

identical to, the program described in our 2010 advisory opinion to the University of Michigan. 

8 See Quest Request Letter, at 2. 

9 See Quest Request Letter, at 2. 

10 See Quest Request Letter, at 3. 

11 See Quest Request Letter, at 6. 

12 Y au state that Quest may add additional educational institutions. pharmacies, and PBMs to the program at a later 

time. As explained further below, this opinion only applies to the program as currently structured and described in 

your January 10, 2014 letter. 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 3 

Nova Southeastern University. Catamaran PBM of Illinois ("Catamaran") will be the program's 

initial PBM. 13 The program will work as follows: 

• The pharmacy will fill members' prescriptions by mail or retail distribution, collect copays, execute best practice customer service, manage the cost of the claims for the 

educational institution, and submit claims to the PBM for processing and payment. 

• Upon receipt of the claims, the PBM will reimburse the pharmacy for the prescriptions 

dispensed to program members at the pharmacy's billed costs plus a dispensing fee. The 

dispensing fee will be a flat fee not dependent on the type of claim (NPIA or not) 

processed. 

• The applicable educational institution then will pay the PBM, per its contract, for the cost 

of the drugs plus the dispensing fee paid to the pharmacy. Any administrative fees 

charged by the PBM will also be flat fees not dependent on the type of claim (NPIA or 

not) processed. 

• The PBM periodically will provide the educational institutions' claims data to Quest, and 

Quest, using its proprietary algorithms, will compare prices already paid by the 

educational institutions with the NPIA-discounted rate available through the group 

purchasing organization from manufacturers with which Quest has negotiated discounts. 

• If Quest determines the NPIA-discounted rate is lower than the rate already paid, Quest 

will submit a claim to the manufacturer to rebate the difference in the rates directly to the 

educational institution or place it in a non-interest bearing escrow account administered 

by a bank for distribution to the educational institution. 

The program's goal, in other words, is to allow the educational institutions to obtain the NPIA 

price, where that price is the lowest price available, thereby reducing the cost educational 

institutions incur for health-benefits programs.

14 

Analysis 

The NPIA exemption is limited to certain eligible non-profit entities' purchases of supplies for 

their own use. Thus, our analysis of whether Quest's proposed program is eligible for the NPIA 

exemption requires us to determine (I) whether those educational institutions for whose benefit 

the proposed program will operate are eligible entities under the statute, and (2) whether the 

NPIA-discounted pharmaceuticals are properly considered "supplies" for the educational 

13 See Quest Request Letter, at 3. 

14 See Quest Request Letter, at 3-4. 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 4 

institutions' "own use." 15 Additionally, because the proposed program also involves various forprofit entities, including Quest and Catamaran, we address whether these entities affect eligibility 

for the exemption through their involvement in the proposed program. 

1. The Educational Institutions' Eligibility for the NPIA Exemption 

The 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." 16 You represent in your letter that the educational institutions are all 

non-profit schools, colleges, or universities. 17 Thus, as the types of eligible entities specifically 

listed in the language of the statute, the educational institutions appear to be eligible for the 

NPIA exemption to the Robinson-Patman Act. 18 

2. The "Supplies" and "Own Use" Requirements 

We next examine whether the proposed program involves the purchase of "supplies" for the 

educational institutions' "own use" as required by the statute. Courts have construed the term 

"supplies," as used in the NPIA, broadly to include "anything" required to meet the eligible 

institution's needs. 19 The term "own use" means use by an eligible entity "that is part of and 

promotes the [entity's] intended institutional operation."20 

As you explain, the educational institutions currently provide health-insurance plans with a 

prescription-drug benefit to their employees, retirees, and their dependents. Continuing to offer 

this program as an employee benefit contributes to their ability to attract and maintain a capable 

and healthy workforce. We reached similar conclusions in our 20 I 0 University of Michigan and 

15 15 U.S.C. § l3c. 

16 15 U.S.C. § l3c. 

17 Our understanding is that they are either specifically incorporated as non-profits or to the extent they are not 

explicitly incorporated as non-profits (some because their organization predates such statutory requirements), they 

have all the indicia of non-profit entities. For instance, they operate for the advancement of education, do not operate 

for the profit of any individual, and maintain 50 l ( c )(3) classifications under the federal tax code. See Quest Request 

Letter, at 4 (fu. 8). Additionally, we understand that the two Health Education Centers are non-profit 50l(c)(3) 

organizations affiliated with Nova Southeastern University and established to extend health education and resources 

to Florida's underserved communities. See Quest Request Letter, at 2 (fn. 4); http://tlahec.org (visited Jan. 17, 

2014). It seems to us that these entities, based on their affiliations with local universities and their educational 

missions, could qualify as schools under the NPlA and that, in any event, they likely qualify as non-profit 

"charitable" institutions. 

"15 U.S.C. § 13c. 

19 See Logan Lanes v. Brunswick Corp., 378 F.2d 212,216 (91

" Cir. 1967), cert. denied, 389 U.S. 893 (1967); see 

also Abbott Lab. v. Portland Retail Druggists Ass 'n, 425 U.S. I, 5 (1976) (noting that the district court had ruled 

that purchases of pharmaceuticals by the hospitals were purchases of"supplies" for the hospitals' "own use."). 

20 425 U.S. l, at 16 (1976). 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 5 

2006 Alpena Public Schools advisory opinions21 In those opinions, we noted that employees 

enable schools, colleges, and universities to carry out their educational missions. The availability 

of health benefits, including a prescription-drug benefit, has become a critical consideration in an 

individual's employment decision-making process, and as such, the continued availability of 

these plans is essential to the educational institutions' ability to attract and retain the employees 

necessary to carry out their institutional purposes. Providing a prescription-drug benefit to 

employees also promotes an organization's efficient operation by making medicine more 

affordable and accessible to its employees, thereby improving their health and reducing 

employee absences. 

We believe that this analysis is consistent with the Supreme Court's decision in Abbott Laboratories v. Portland Retail Druggists Association.22 In Abbott Laboratories, retail pharmacies 

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

sale of pharmaceuticals to non-profit hospitals. The hospitals resold those discounted phannaceuticals to various types of patients. The Court held that pharmaceuticals purchased for resale to 

hospital employees and their dependents were covered by the NPIA, because the employees were 

essential for the hospital to function. In the Court's view, providing them with pharmaceuticals 

enhanced the hospital's operation.23 Thus, consistent with Abbott Laboratories and with prior 

FTC staff advisory opinions, we find that the educational institutions' provision of discounted 

pharmaceuticals to their employees and their dependents as part of their programs of providing 

employee benefits would be covered by the NPIA exemption. It contributes to their ability to 

maintain the workforce necessary to further their educational missions. 

Further, we conclude that including retirees in the proposed program does not affect eligibility 

for the NPIA exemption. As we explained in our University of Michigan advisory opinion, 

retiree benefits are an integral part of the compensation package offered to current and 

prospective employees and may help the educational institutions attract and retain qualified 

employees. In this regard, providing a prescription pharmaceutical benefit to retirees furthers the 

educational institutions' missions just as in the case of current employees. Thus, it is our view 

that application of the NPIA discount to retirees' prescription-drug claims as part of an 

established retirement benefit plan is within the educational institutions' "own use" in the same 

way as it is for current employees' claims.24 

Finally, we do not think the fact that the educational institutions will access the NPIA discount 

through a rebate program, rather than through the actual transfer of NPIA -discounted 

pharmaceuticals, affects the analysis. In fact, a rebate program seems to mitigate the risk that 

21 See University of Michigan (Apr. 9, 2010) (FTC staff opinion letter); Alpena Public Schools (May 22, 2006) 

(FTC staff opinion letter). See also Valley Baptist Medical Center (Mar. 31, 2003) (FTC staff opinion letter). 

22 415 U.S. 1 (1976). 

23 !d. at 16. 

24 See University of Michigan (Apr. 9, 2010) (FTC staff opinion letter). 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 6 

NPIA-discounted pharmaceuticals could be inappropriately diverted for ineligible uses, because 

the rebate system will ensure that the NPIA discount is only applied after Quest determines a 

claim is NPIA eligible. 

3. The Involvement of For-Profit Entities 

The proposed program will involve a number of for-profit entities, initially including Quest and 

Catamaran and potentially expanding to include other for-profit PBMs and pharmacies. Although 

the involvement offor-profit entities does not automatically disqualify the program for NPIA 

eligibility, it does require caution to ensure that the for-profit entities--which are ineligible for 

the NPIA exemption--do not benefit from it in any way.25 

First, we address Quest's role to develop and implement the proposed program. As we 

understand it, Quest developed the program at the request of the NPIA-eligible educational 

institutions. Those institutions were concerned about the rising cost of continuing to provide a 

health-benefit plan that includes specialty-drug coverage. They asked Quest, which already 

provided them with certain services through the Independent Colleges and Benefits Association, 

for assistance, and Quest proposed this program. As explained above, Quest's role in the 

program is limited to negotiation of discounts, claims auditing, rebate processing, and data 

reporting. The educational institutions will pay Quest for these services on a flat-fee-per-claim 

basis whether or not Quest determines the claim is NPIA eligible.26 Quest will not charge any 

membership fees for participation in the proposed program nor will it charge the educational 

institutions a percent-of-dollars-spent on group purchasing organization services. Thus, any 

financial benefit Quest receives under the program will be in exchange for its administrative 

services only and will not result from the application of the NPIA discount. This is a critical 

feature of the program because Quest, as a for-profit entity, is ineligible to benefit in any way 

from the NPIA exemption. The exemption applies only to the eligible educational institutions. 

Furthermore, we understand that Quest may seek to add additional educational institutions to the 

program or otherwise expand it at some time in the future. This advisory opinion only addresses 

Quest's proposal in its current form. Any changes or additions to the proposed program would 

also need to comply with the NPIA. 

Next, we examine the role of Catamaran, the for-profit PBM, and the possible eventual inclusion 

of for-profit pharmacies in the proposed program. Again, we understand that the PBMs and 

pharmacies involved in the program will provide only administrative services to the educational 

institutions. Fees earned by Catamaran and the pharmacies will cover only their costs and a flat 

fee that does not depend on the NPIA eligibility of the claim. Thus, as we understand the 

program, neither Catamaran nor any for-profit pharmacy that may participate in the program 

stands to benefit from the NPIA exemption. If, however, over the course of the program's 

25 We also note that Independent Colleges and Benefits Association, though not a for-profit entity, does not appear 

to quality as one of the types of entities eligible for the exemption. 

26 See Quest Request Letter, at 6. 
Quest NPIA Advisory Opinion 

March 7, 2014 

Page 7 

operation, it turns out that any ineligible for-profit entity (e.g., Quest, Catamaran, or a pharmacy) 

is benefitting financially from the NPIA exemption, the reasoning contained in this opinion 

would not apply. 

Finally, we understand that the structure of the proposed program, whereby Quest will confirm 

each claim's eligibility for the NPIA discount before arranging the rebate, should effectively 

eliminate the risk of the exemption being applied to ineligible claims such as walk-in customers. 

In any event, Quest will maintain an auditable record through which it will confirm on an 

ongoing basis that the program is operating within the boundaries of the NPIA. 27 

Conclusion 

As discussed above, and with the noted caveats, it is our opinion that the non-profit educational 

institutions' purchases of specialty drugs through Quest's proposed program as described in your 

January 10, 2014 letter 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, and based on the facts as presented by the requesting 

entity. Under Rule§ !.3(c), 16 C.F.R. § l.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 anti competitive 

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 

27 See Quest Request Letter, at 7.