UNITED STATES OF AMERICA 

Federal Trade Commission 

Washington, D.C. 20580 

Bureau of Competition 


Health Care Division 


October 20, 2017 

Jennifer R. Bolster, Esq. 

Hancock Estabrook, LLP 

1500 AXA Tower I 

100 Madison Street 

Syracuse, NY 13202 

Re: Crouse Health Hospital Advisory Opinion 

Dear Ms. Bolster: 

This letter responds to your request on behalf of Crouse Health Hospital ("Crouse Hospital") for 

an advisory opinion concerning whether its proposal to sell discounted phannaceutical products 

to the employees, retirees, and their dependents of its affiliate, Crouse Medical Practice, PLLC 

("Crouse Medical Practice"), would fall within the scope ofthe Non-Profit Institutions Act 

("NPIA"). The NPIA exempts from the Robinson-Patman Act "purchases oftheir 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, and with the 

noted caveats, we conclude that the NPIA exemption applies to Crouse Hospital's proposal. 

Description of the Proposal 

We understand from your letter that Crouse Hospital is a not-for-profit corporation that is located 

in Onondaga County, New York, and provides a variety ofhealth-care services to patients living 

in a 15-county area in central New York.2 Crouse Hospital's mission is to "provide the best in 

patient care," "promote community health," and "provid[ e] physician services designed to 

improve the access to and quality ofhealth care."

3 As you explain, Crouse Hospital currently 

provides a benefits package with a prescription-drug benefit to its employees, retirees, and their 

dependents. Crouse Hospital also owns and operates an on-site pharmacy that offers NPIAdiscounted pharmaceuticals only to Crouse Hospital employees, retirees, and their dependents. 

The employee pharmacy is separate from another pharmacy that serves Crouse Hospital 

I 15 U.S.C. § 13c. 

2 Letter from Jennifer R. Bolster, Hancock Estabrook, LLP, to Office ofthe Secretary, Federal Trade Commission 

at 1 (September 29, 2017) ("Crouse Request Letter"). 

3 Id. 
Crouse Health Hospital NPIA Advisory Opinion 

October 20, 201 7 

Page2 

inpatients.

4 As we understand your proposal, Crous~ Hospital seeks to purchase NPIAdiscounted phannaceuticals to fill prescriptions for employees, retirees, and their dependents of 

its affiliate, Crouse Medical Practice, at Crouse Hospital' s on-site employee phannacy. 

Crouse Hospital formed Crouse Medical Practice to develop an integrated medical service 

system to encourage both organizations to "work in conjunction with each other to improve 

access to care and to provide better care for patients in the community."5 The approximately 73 

primary care and specialist physicians and other health-care professionals employed by Crouse 

Medical Practice treat patients at Crouse Hospital and at offices close to Crouse Hospital or in 

nearby communities within Crouse Hospital's service area. Crouse Medical Practice requires its 

physicians to hold and maintain good standing on Crouse Hospital's medical staff and requires or 

encourages its physicians to refer their patients to Crouse Hospital unless the patient prefers 

otherwise or such referral is not in the patient's best medical interest. Crouse Medical Practice 

physicians provide call coverage at Crouse Hospital.6 

We understand from your letter that Crouse Hospital formed Crouse Medical Practice as a forprofit, professional limited liability company in compliance with requirements under New York 

law governing the corporate practice ofmedicine. As you explain in your letter, Crouse Hospital 

does not own Crouse Medical Practice because only a physician can own corporations 

employing physicians in an outpatient, non-hospital setting under New York law.7 Although 

Crouse Hospital does not own Crouse Medical Practice, Crouse Medical Practice has in place 

"various structural and financial components to ensure [Crouse] Hospital has ultimate control 

over the practice. "8 For example, the sole member ofCrouse Medical Practice is a Crouse 

Hospital physician employee. Crouse Hos~ital may require the member to transfer all ofhis or 

her interest to a Crouse Hospital designee. Crouse Hospital appoints the Practice Administrator, 

Physician Administrator, and Executive Director ofCrouse Medical Practice. These individuals, 

along with Crouse Hospital representatives, manage the day-to-day practice for Crouse Medical 

Practice and ensure that the practice complies with Crouse Hospital's charitable purpose. 

The sole member of Crouse Medical Practice must manage and operate it "consistent with an 

organization operated exclusively to promote and support the charitable purposes of [Crouse] 

4 Id. at 4. 

5 Id. at 2. 

6 Id. at 3. 

7 Id. at 2. 

9 Amended and Restated Operating Agreement ofCrouse Medical Practice ("Operating Agreement") at§ 7.2 

(Crouse Request Letter, Attachment 2). 
Crouse Health Hospital NPIA Advisory Opinion 

October 20, 2017 

Page3 

Hospital." 10 In furtherance ofthis requirement, Crouse Medical Practice obtained 50l(c)(3) taxexempt status under the Internal Revenue Code based on its affiliation with and control by 

Crouse Hospital. 11 Crouse Hospital also must approve various business transactions for Crouse 

Medical Practice, including admitting new members, selling property, incurring certain debts or 

loans, dissolving the medical practice, or merging with or acquiring other physician practices. 12 

No part ofthe net earnings ofCrouse Medical Practice may inure to the benefit ofany members, 

employees, officers, or private individuals other than reasonable compensation for their 

services. 13 The sole member also irrevocably assigns his or her right to any dividends or profits 

to Crouse Hospital. 14 

Analysis 

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

for their "own use." 15 As we understand your proposal, Crouse Hospital will purchase and offer 

the NPIA-discounted pharmaceuticals to Crouse Medical Practice employees, retirees, and their 

dependents. Therefore, we analyze below whether (1) Crouse Hospital is an "eligible entity," and 

(2) the NPIA-discounted pharmaceuticals that Crouse Hospital proposes to offer to Crouse 

Medical Practice are properly considered "supplies" for Crouse Hospital's "own use."16 

1. Crouse Hospital's Eligibility for the NPIA Exemption 

An "eligible entity" under the NPIA includes, among others, "hospitals .. . not operated for 

profit." 17 As you state in your letter, Crouse Hospital is a not-for-profit hospital. Therefore, based 

on the language in the NPIA, Crouse Hospital appears to qualify as an eligible entity and, in fact, 

currently uses the exemption to offer NPIA-discounted pharmaceuticals to its own employees, 

retirees, and their dependents. 

10 Id. at§ 5.2. 

11 Letter from Internal Revenue Service to Crouse Hospital (Crouse Request Letter, Attachment 1 ). 

12 Crouse Request Letter at 2. 

13 Operating Agreement at§ 2.5(c). 

14 Id. at§ 4.3. 

15 15 U.S.C. § 13c. 

16 Because we detennine that Crouse Hospital qualifies as an " eligible entity" and that the NPIA-discounted 

phannaceuticals offered to Crouse Medical Practice are for Crouse Hospital's "own use," we do not need to reach 

the question ofwhether Crouse Medical Practice- a for-profit corporation with 501(c)(3) tax-exempt statusqualifies as an " eligible entity." 

11 Id. 
Crouse Health Hospital NPIA Advisory Opinion 

October 20, 2017 

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2. 	 Crouse Hospital's Provision of NPIA-Discounted Pharmaceuticals to Crouse 

Medical Practice Appears to Be for Crouse Hospital's Own Use 

We next consider whether the proposal involves the purchase of"supplies" for Crouse Hospital's 

"own use." As we have found in prior advisory opinions, the term "supplies," as used in the 

NPIA, may include an eligible entity's purchases ofpharmaceuticals. 18 The te1m "own use" 

means an eligible entity's use that "is a part of and promotes the [entity's] intended institutional 

operation." 19 

The principal authority on the meaning and scope ofthe "own use" requirement is Abbott 

Laboratories v. Portland Retail Druggists Ass 'n.

20 In Abbott, not-for-profit hospitals purchased 

discounted pharmaceuticals from manufacturers and resold them to hospital patients. Retail 

pharmacies challenged the discounted sale of pharmaceuticals to the hospitals under the 

Robinson-Patman Act. The Supreme Court held that the NPIA exemption is limited and does not 

give hospitals a "blank check" for all purchases ofsupplies.21 Rather, the Court held that the 

exemption applies to purchases for the hospital's "own use," and that own use means "what 

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 ofpersons who are its 

patients. "

22 The Supreme Court determined that pharmaceuticals dispensed to hospital 

employees and their dependents, among other individuals, would qualify for the hospital 's own 

use. In the Court' s view, employees enable a hospital to function and providing them with 

pharmaceuticals "enhances the hospital function. "

23 Consistent with Abbott, we determined in 

prior advisory opinions that offering employees, retirees, and their dependents health-insurance 

plans with prescription-drug benefits helped hospitals and other eligible entities attract and 

maintain a capable and healthy workforce to further their intended institutional missions.

24 

18 See, e.g., Quest Analytics Group (March 7, 2014) (FTC staff opinion letter) (NPIA exemption applied to 

educational institutions' purchases ofdiscounted specialty drugs for their own use); Yakima Valley Memorial 

Hospital (August 16, 2010) (FTC staff opinion letter) (non-profit hospital's provision of pharmaceuticals to 

employees ofits affiliates qualified for NPIA exemption); see also Abbott Labs. v. Portland Retail Druggists Ass 'n, 

425 U.S. 1, at 5 (1976) (noting that the district court had ruled that purchases ofpharmaceuticals by the hospitals 

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

19 425 U.S. at 14. 

20 Id. 

21 Id. at 13. 

22 Id. at 14. 

23 Id. at 16. 

24 See, e.g., Quest Analytics Group (NPIA exemption applied to educational institutions' employees, retirees, and 

their dependents); Yakima Valley Memorial Hospital (NPIA exemption applied to hospital employees of hospital 

affiliates); University ofMichigan (April 9, 2010) (FTC staff opinion letter) (NPIA exemption applied to 

University's employees, retirees, and their dependents); BJC Health System (November 9, 1999) (FTC staff opinion 

letter) (NPIA exemption applied to employees of health-care system). 
Crouse Health Hospital NPIA Advisory Opinion 

October 20, 2017 

Page5 

Whether the exemption applies to Crouse Hospital's purchases ofpharmaceuticals for Crouse 

Medical Group employees, retirees, and their dependents depends on whether this use ofthe 

pharmaceuticals is part ofand promotes Crouse Hospital's institutional mission.25 You have 

explained that Crouse Hospital' s mission includes promoting community health and providing 

physician services designed to improve access to quality health care. In furtherance ofits 

mission, Crouse Hospital fonned Crouse Medical Practice to develop an integrated medical 

service system to encourage both organizations to work together to improve care and promote 

the charitable purposes ofCrouse Hospital. Crouse Medical Practice physicians and other 

employees provide vital services to Crouse Hospital and its patients necessary to help Crouse 

Hospital fulfill its intended institutional function. 

Crouse Hospital has ultimate decision-making control and authority for Crouse Medical Practice 

as described in your letter and Crouse Medical Practice' s Operating Agreement. Furthermore, the 

Crouse Medical Practice member assigns any profits to Crouse Hospital and neither the member 

nor the employees are entitled to any net earnings. While Crouse Hospital does not have an 

ownership interest in Crouse Medical Practice, we believe that the substance ofthe relationship 

between Crouse Hospital and Crouse Medical Practice governs our analysis.26 Based on this 

relationship, it is reasonable to conclude that Crouse Medical Practice is an integral part of 

Crouse Hospital's ability to fulfill its intended institutional function ofproviding care and 

promoting community health. And, accordingly, it is reasonable to treat Crouse Hospital and 

Crouse Medical Practice as one unit in analyzing the applicability ofthe NPIA exemption. This 

conclusion is consistent with prior staff opinions.27 Therefore, consistent with Abbott, we find 

that the NPIA exemption covers Crouse Hospital's proposal to offer discounted pharmaceuticals 

to Crouse Medical Practice. 

We emphasize that this opinion is premised on the relationship between Crouse Hospital and 

Crouse Medical Practice described in your letter and your assurance that any financial benefit 

from the proposal will ultimately accrue to Crouse Hospital pursuant to the relationship between 

the two entities. 

25 See 425 U.S. at 14. 

26 See, e.g. , Arkansas Children's Hospital (March 13, 2003) (FTC staff opinion letter) (substance ofrelationship 

between two entities not under common ownership in the care of a common patient population supported conclusion 

that the exemption applied); Valley Baptist Medical Center (March 13, 2003) (FTC staff opinion letter) (the role 

contract workers had in hospital 's provision of care to its patients, rather than the fact that the hospital chose not to 

employ the workers, was relevant to determining that the exemption applied). 

27 See, e.g. , Yakima Valley Memorial Hospital (hospital's control over its affiliates effectively made affiliates part of 

the hospital to such a degree that could treat as one unit for the purpose ofthe NPIA exemption). 
Crouse Health Hm1pital NPIA Advisory Opinion 

October 20> 2017 

Page6 

Conclusion 

As discussed above, and with the noted caveats, it is our opinion that Crouse Hospital's proposal 

to exte11d the sales ofdiscounted phannaceuticals to its affiliate, Crouse Medical Practice, as 

described in. your September29, 2017 letter, would fall within the.NPfA exemption to the 

Robinson-Patman Act. This letter sets out the views ofthe staff of the Bureau of Competition, as 

authorized by the Commissfon's Rules of Practice, based on the facts you have presented to us. 

Un:der 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 ala:ter 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 ifimplementation ofthe proposed program results in substantial anticompetitive 

effects, ifthe program is ti.sed for improper purposes, iffacts change significantly, or ifwould be 

in the public interest to do so. 

Sincerely, 

Markus H. Meier 

Assistant Director