Non-profit exemption

The 1938 Nonprofit Institutions Act (15 U.S.C. §13c), which expressly permits price breaks on “purchases of their supplies for their own use by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit” (emphasis added), created a broad exemption from the general price-discrimination prohibition. As the Court of Appeals for the Ninth Circuit stated in 1967: The underlying intent in granting such an exemption was indisputably to permit institutions which are not in business for a profit to operate as inexpensively as possible.13 Two Supreme Court opinions, announced in the mid-1970s and early 1980s, provided significant interpretations of the scope of the nonprofit exemption from the Robinson-Patman prohibition. Both involved challenges to the practice of a pharmaceutical supplier who was selling its products to certain hospitals at prices lower than those charged to retail pharmacists in the areas surrounding the hospitals in question. Abbott Laboratories v. Portland Retail Druggists Association, Inc., 425 U.S. 1 (1976), discussed the “for their own use” phrase in the Nonprofit Institutions Act, and interpreted the provision strictly. The Court relied largely on the “for their own use” language to hold that not all purchases made by a nonprofit hospital are necessarily exempt from price discrimination prohibitions. The exemption is applicable only to those purchases made in order to enable the hospital to meet the needs of the hospital (e.g., dispensing to inpatients, outpatients treated in the hospital, emergency room use) and those of staff physicians, medical and nursing students, and their dependents: “The Congress surely did not intend to give the hospital a blank check.”14 Although the Court included within permissible uses by the hospital, “genuine take home prescription[s], intended, for a limited and reasonable time, as a continuation of, or supplement to, the treatment that was administered at the hospital to the patient who needed, and now continues to need, that treatment,” it specifically excluded from the Robinson-Patman exemption embodied in the Nonprofit Institutions Act “the refill for the hospital’s former patient.”15 Further, the Court refused to sanction purchases by the hospital-based physician for use in “that portion of his private practice unconnected with the hospital.”16 While the primary concern addressed by the Court in Portland was the sale of pharmaceuticals to nonprofit hospitals for all uses, including patient care and resale, four years later, in Jefferson County Pharmaceutical Ass'n., Inc. v. Abbott Laboratories, 460 U.S. 150 (1983), the Court set out the limits of the exception to Robinson-Patman for government purchases: Jefferson County presented an issue “limited to state [read “nonprofit hospital”] purchases for the purposes of competing against private enterprise—with the advantage of discriminatory prices—in the retail