Preferential Pricing for Nonprofit Hospitals: A Review

Pharmacy Practice in Focus: Health SystemsJuly 2014
Volume 3
Issue 4

Pharmacy directors should educate hospital administrators about an important case and its implications and limitations on what is permissible and what is impermissible.

Pharmacy directors should educate hospital administrators about an important case and its implications and limitations on what is permissible and what is impermissible.


This article will review the federal court case Portland Retail Druggists Ass’n v Abbott Laboratories, dealing with with how nonprofit hospitals purchasing medications at preferential prices may use those items. The case went all the way to the US Supreme Court1 and foreshadowed the changing role of hospitals, eg, providing shorter inpatient stays and shifting much more into serving patients who are ambulatory. The discussion follows the case through the federal court system looking at how the courts at various levels addressed the issues. The article will also address 2 follow-on cases, one addressing applicability of the decision to governmental hospitals and another addressing applicability to drug purchases by nonprofit health maintenance organizations (HMOs).

Traditionally, the financial goal of the department of pharmacy has been to maximize the generation of revenue through accurate tracking of charges for medication dispensed. Hospital administrators used this excess of revenue from pharmacy operations to offset shortfalls in other operating subdivisions of the institution. That approach worked fine when institutions were primarily reimbursed for services provided to patients on the basis of the charges incurred while providing needed care. However, Medicare changed the rules of the game when it implemented reimbursement to hospitals based on Diagnosis Related Groups (DRGs).

Under the DRG system, a hospital knows when a Medicare beneficiary is admitted and exactly how much the reimbursement will be for the care of that patient. This approach is oftentimes erroneously described as “prospective payment,” a misdesignation because the payment is not made in advance. What occurs in advance is rate setting, not payment. More recently, Medicare has announced that it will not reimburse participating hospitals for expenses associated with treating a list of maladies falling under a higher-paying DRG because they are deemed acquired or caused by the experience of being in the institution for treatment of something else. Given that Medicare is a principal, if not the primary, payer for care in many of the nation’s nonprofit hospitals, the approaches adopted by that federal program are often mirrored by private underwriters.

All this puts a highly focused spotlight on the ability of pharmacists to reduce total expenditures through cost avoidance for care of a patient by achieving optimal medication selection (eg, use of a more expensive antibiotic because it likely will clear up the infection more promptly so the patient can be discharged earlier, timely intravenous to oral drug substitution so patient can be discharged earlier, initiating stress ulcer prophylaxis). Another example is the enhanced role of pharmacists in the institution working to avoid the occurrence of “non-reimbursable serious hospital-acquired conditions,” such as manifestations of poor glycemic control or certain surgical site infections, appearing on the list for which Medicare does not provide reimbursement.

The November 2011 issue of Hospitals and Health Networks featured an article entitled “In Struggle to Cut Expenses, Hospitals Eye the Pharmacy.”2 Several noteworthy points were emphasized. First, pharmacy costs can “make up 10-20 percent of the average hospital’s operating budget.” Second, “unlike other hospital departments, personnel costs represent only about 20 percent of the average pharmacy budget.” An official from the Healthcare Financial Management Association was quoted about the potential role of pharmacists as being valuable because “they’re also always thinking about the clinical effectiveness of that drug. So they truly are marrying the financial and clinical piece of the drug for the best patient outcome.”

Hospital pharmacists’ focus on both the cost of medications along with their relative effectiveness reinforces the importance of pharmacists in nonprofit institutions being aware of limitations or restrictions on how medications obtained preferential prices may permissibly be used. A new generation of hospital pharmacy leaders may well have arrived since the decision of the US Supreme Court in the Portland case. If an institution gets a special price for pharmaceuticals due to its nonprofit status, how may those pharmaceuticals be used? That was the issue presented in one of the relatively rare cases involving hospital pharmacy to reach the US Supreme Court.

One business practice that contributes to the profitability of the hospital pharmacy is the practice of pharmaceutical manufacturers giving price breaks to nonprofit institutions such as hospitals. This is referred to as preferential pricing. If all purchasers of pharmaceuticals do not pay the same price to obtain the medications, there are some legal implications.

What is the magnitude of the difference in acquisition cost? Of course, this will vary widely among institutions and suppliers due to hospitals’ practice of purchasing on a bid basis and it may also vary from 1 therapeutic category to another. This author’s experience running an outpatient pharmacy in an academic health center a number of years ago is that it would not be unusual for the institution to pay 10% of the product acquisition cost a community pharmacy would pay, which would be, say, $1.80 for a 1-month cycle of oral contraceptives which would cost a community pharmacy $18 back in those days.

What would motivate a manufacturer to do this—to extend this price concession? There are several possible explanations, the most notable of which is competition in the marketplace. Increasing gross sales volume and increasing market share are constant goals for pharmaceutical manufacturers. Another goal of manufacturers, particularly with teaching hospitals and other units affiliated with academic health centers, is to get their products in use (eg, on formularies) to be seen by medical students, residents, and fellows who will then, hopefully, carry a positive impression of that product with them out into practice.

How can this be financially viable for the manufacturer? The answer to that turns on the distinction between fixed and variable costs. Fixed costs are those that do not vary with the quantity of product produced (real estate, equipment, etc), while variable costs are those costs that do fluctuate with the quantity produced—materials consumed in production, labor costs, and utilities. Thus, if a manufacturer has some reserve capacity at the manufacturing plant, why not keep the capsule machines running for an extra hour in order to sell the additional quantity of product at a reduced price? So long as fixed costs are covered by revenue from standard sales and pricing, why not generate some additional revenue by submitting a bid to sell the “excess” product to a nonprofit institution at a price below that normally charged, especially when such sales can pay dividends in the future because of medical students’ and residents’ exposure to the product while in training?

Furthermore, some would argue that the selling price of pharmaceuticals bears little relationship to the actual expense of manufacturing them due to the need to recoup extremely high research and development expenses along with the expense of collecting and compiling all the information to be submitted for regulatory approval of the product.

In addition, it is worth noting for the context of this decision that the Portland case was decided during a time when the role of the hospital was undergoing significant change. The traditional focus almost exclusively on the provision of services to inpatients who occupied a bed at the institution was morphing into a role of hospitals that heavily emphasized using their resources to provide services on an ambulatory basis to outpatients. Imaging services, along with other sophisticated, technologically advanced testing and patient assessment resources, were being made available to outpatients. At the same time, advances in surgical procedures and other modalities were making what once would have required a 2- or 3-day stay in the hospital something that could be done on an outpatient basis. Hospitals operating off-site facilities such as outpatient surgery or imaging centers created new issues in this area.

The Robinson-Patman Act

Congress has enacted a number of statutes over the years designed to protect the critical basis of our economic system—free competition. The Sherman Antitrust Act of 1890 and the Clayton Act of 1914 are 2 notable examples of this legislative activity. Our attention for this discussion is directed to an additional federal statute known as the Robinson-Patman Act, enacted during 1936 at the height of the Great Depression to amend the Clayton Act.

The Robinson-Patman Act is designed to address wrongdoing by sellers of products in the form of price discrimination across groups or categories of purchasers. The objective of this federal statute is to prohibit price discrimination by sellers among purchasers of goods of like grade and quality sold in interstate commerce if the effect of the discrimination is likely to injure competition. The impetus for this legislation came from manufacturers and distributors selling products to chain stores at prices lower than independent retailers could access. The retailers sought the legislation and were joined by wholesalers who wanted to head off large chain stores from dealing directly with manufacturers at lower prices. Several points are deserving of emphasis from this statement:

  • The focus of the statute is on the activities of sellers, not purchasers.
  • The focus is on sales of goods, not sales of services.
  • The discrimination in price must occur with goods of like grade and quality.
  • Another focus is on the effect of the discrimination—is likely to injure competition.

Enforcement of the provisions in this statute can occur 2 ways. The federal government can file a criminal action in federal court, with the lead agency usually being the Federal Trade Commission. Alternatively, civil actions can be filed in federal court by private parties seeking to recover monetary damages alleged to flow from the violations of the statute. It should be noted in passing that some 20 states also have parallel provisions in their statutes creating a right to sue through state courts. For the federal statute to be brought into play the goods being sold must have been in interstate commerce. In the principal case being reviewed here there was a civil lawsuit filed by an organization of independent pharmacy owners seeking monetary damages and injunctive relief due to what they thought were objectionable sales practices by the defendant pharmaceutical manufacturers.

Should an allegation be advanced that a seller has run afoul of the prohibitions in the Robinson-Patman Act, there are several defenses based on the statute that can a raised to prevent conviction of a violation. One is a cost justification, meaning that if a seller is facing a Robinson-Patman lawsuit it can raise the defense that the price it was charging was based on and justified by differences in costs incurred in manufacturing, selling, or delivering the product.

A second acceptable defense is meeting competition. This means that a seller acting in good faith to meet a low price established by a competitor does not violate the statute. Note that this latter defense is tied to the overarching laudable goal of enhancing competition. However, it is worth noting at this juncture that only the seller/manufacturer knows the basis for the preferential price being charged. Thus, it may be necessary to go to court to have a trial to uncover the actual basis of the priced concessions and their impact on injuring competition.

“Own Use”

The most relevant defense for this discussion, however, is sales of products to a nonprofit charitable institution for its “own use.” Those 2 words in the statute were the focus of the court cases being considered here. There is a specific provision added to the elements of the Clayton Act of 1914 and Robinson-Patman Act of 1936 by the Federal Non-Profit Institutions Act of 1938 as follows:

Nothing in the Act approved June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, shall apply to purchases of their supplies for their own use by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit.3 [Italics added]

Note that this amendment came only 2 years after enactment of the Robinson-Patman Act. This subsequent legislative action was prompted by an outcry regarding the adverse effect of the 1936 statute on the prices that could be extended to and accepted by nonprofit organizations. The 1936 enactment had left many questions about whether it was permissible for a seller of goods to give a break on the purchase price of goods being sold to a nonprofit organization. The 1938 amendment was designed to make a clear statement that such actions were indeed lawful.

The Portland Case

The Portland case was launched when a collection of more than 60 community pharmacies filed suit in US District Court for the District of Oregon against 12 pharmaceutical manufacturers alleging that the defendants were violating the Robinson-Patman Price Discrimination Act of 1936. The federal lawsuit was maintained in the name of the organization of owners of independent pharmacies, the Portland Retail Druggists Association (PRDA). The alleged wrongdoing was that the manufacturers were selling their products to nonprofit hospitals in the Portland area at prices lower than what the community pharmacies had to pay to acquire the same products for patients served there. The filing by the association on behalf of the pharmacy owners sought treble damages and a court-ordered injunction prohibiting continuation of the pricing practices.

In response, the defendant manufacturers pointed to the Federal Nonprofit Institutions Act of 1938, which had amended the Robinson-Patman Act. The amendment specified that purchases of supplies for their own use by hospitals not operated for profit were exempt from the provisions of the Robinson-Patman Act. This clarified the principal legal issue in the case—what constitutes a nonprofit hospital’s own use of pharmaceuticals purchased at preferential prices?

The PRDA argued in their legal filings with the trial court that use of these medications for treatment of inpatients should be the only permissible use. The defendant manufacturers took a more expansive view of how these medications could be applied to various categories of patients coming in contact with the hospital. In addition to treatment of inpatients they argued that these medications could be used for sale to employees or students, for take-home supplies for patients being discharged, for sale to physicians on the hospital staff, and even for an occasional “walk-in” patient seeking service at a hospital’s outpatient pharmacy.

Before a trial commenced, the defendant manufacturers moved for summary judgment, in essence asking the trial court judge to rule that there was no material fact or issue needing a decision so the case should be dismissed. The trial court judge granted that motion, meaning that no trial was to be held.4

The collection of pharmacy owners appealed that adverse decision of the trial court judge to the US Court of Appeals for the Ninth Circuit situated in San Francisco. Their arguments met with more success with this appellate court adopting a much more restrictive meaning of the key phrase, “own use.” The Court of Appeals identified only 2 categories of uses that it deemed permissible for medications purchased at preferential prices:

  • Drugs dispensed to inpatients
  • Drugs dispensed to emergency department patients

The Court of Appeals labeled as impermissible the following uses of these medications:

  • Discharge supplies of medications
  • Refills for former patients
  • Outpatients in home care programs
  • Walk-in patients at the pharmacy
  • Hospital employees
  • Medical staff members

Once the Court of Appeals opened the door to categorization of uses of medications aligned with various groups of patients, the issue shifted from the straightforward position advocated by the pharmacy owners, ie, use for inpatients only, to the question of which side of the line—permissible or impermissible—should various categories of transactions fall.5

The group of manufacturers viewed this as a loss and filed a request with the US Supreme Court that it review this issue. The Justices of the Supreme Court did indeed agree to hear the case and then got into their own categorization and line-drawing.1

The Court started with a list of permissible uses that had the first 2 categories as being identical with the classification by the Court of Appeals. It then shifted discharge supplies from the impermissible category to the permissible one. Focusing on use of medications by outpatients, the court divided that category in 2 based on where the medications would be used, finally settling on an approach that deemed uses by outpatients as permissible irrespective of where that occurred. Taking up the category of hospital employees as used by the intermediate appellate court, the highest court added students in with employees and then expanded that category to include the dependents of both groups, limiting it to medications being obtained for personal use. The medical staff category that came up from the Court of Appeals was switched from impermissible to permissible and expanded to include dependents with, once again, the limitation for personal use only.

The nation’s highest court designated refills for former patients and walk-in patients at the pharmacy as impermissible uses, both categories where it agreed with the classification made by the Court of Appeals. Turning to the issue of sales of pharmaceuticals to medical staff members, while the Supreme Court viewed such sales as permissible if for personal use by the staff member or a dependent, a different classification as impermissible would apply if the medications were to be resold as part of the practice, eg, medications sold to patients as part of the visit to the physician’s office.

Categorization by the US Supreme Court

Permissible Uses

  • Drugs dispensed to inpatients
  • Drugs dispensed to emergency department patients
  • Discharge supplies of medications
  • Outpatients for use on the hospital premises
  • Outpatients for use off the hospital premises
  • Hospital employees and students (including dependents) but for personal use only
  • Medical staff (including dependents) but for personal use only

Impermissible Uses

  • Refills for former patients
  • Walk-in patients at the pharmacy
  • Sales to medical staff for resale

It is important to bear in mind the procedural flow of this case. The case was dismissed at the trial court level and the Court of Appeals as well as the Supreme Court were focused on interpreting the phrase “own use” by drawing lines between permissible and impermissible uses of medications purchased at preferential prices. Neither appellate court ruled on the merits of the arguments advanced by the coalition of community pharmacy owners. The Supreme Court expanded the list of permissible uses but did not rule on whether the community pharmacies should prevail on the main legal argument.

Following consideration at the level of the Supreme Court the case was sent back to the trial court in Oregon for a decision in line with the categorizations made by the highest court. The trial court judge was to now conduct the trial that he had originally considered unnecessary based how he had interpreted the statute. When the trial was held it was now to be done taking into account the categorizations coming from the US Supreme Court.

In the process of deciding the case the US Supreme Court indicated that the manufacturers who were defendants in the suit could avoid liability under the relevant statutes by seeking certification from the purchasing hospital that the medications purchased at special prices would be used in conformity with the Court’s guidelines. In fact, the Court outlined 2 approaches that could be used by the purchasing hospital: [1] abide by the categorizations decided by the Supreme Court; or [2] maintain 2 separate inventories of medications, one purchased at preferential prices and another purchased at regular prices, with the attendant recordkeeping and certifications to the sellers. Given the costs of the latter approach—acquisition costs, storage space costs, and recordkeeping costs—few institutions have adopted that second method.

Manufacturers have responded to this decision by modifying the language of their sales contracts with nonprofit institutions to transfer the burden of implementing the limits imposed by the Supreme Court ruling to the purchaser. Consequently, sales contracts and even invoices will bear wording about the necessity that the purchaser use the products being transferred only in conformity with the legal expectations.

The Jefferson County Case

Seven years after the Supreme Court decided the Portland case, a spin-off case reached that level of the federal judicial system. A group of community pharmacy owners in the Birmingham, Alabama, area sued a group of pharmaceutical manufacturers. At issue was their practice of selling at preferential prices to governmental institutions, especially state hospitals. A parallel allegation was that those medications were being resold by the hospitals in competition with the community pharmacies.

The procedural flow of this case was somewhat similar to the Portland case. The trial court judge ruled that sales to governmental hospitals were “beyond the intended reach of the Robinson-Patman Price Discrimination Act.” The case was dismissed at the trial court level and the pharmacy owners appealed to the US Court of Appeals for the Fifth Circuit, which upheld the dismissal. Reaching the US Supreme Court, the case took a different turn. The nation’s highest court ruled that the Robinson-Patman Act and its restrictions do indeed apply to sales of pharmaceuticals to governmental hospitals at preferential prices. The outcome was that the case was returned to the trial court so the group of pharmacy owners could proceed with the trial.6

The De Modena Case

Just the following year, another case presenting Robinson-Patman Act issues in the context of sales of pharmaceuticals at preferential prices made its way through the federal court system. This case arose in California and presented a slightly different twist. The Jefferson County case had presented the Portland case issue in the context of governmentally operated hospitals. Now this case brought to the fore issues related to sale of pharmaceuticals to nonprofit HMOs.

In this proceeding, known as the DeModena case, a group of community pharmacy owners filed suit against an HMO that was active in their area. Note that this suit was filed against the purchaser of the pharmaceuticals, not against the sellers as in the prior 2 cases discussed. The allegation was that the same constraints enumerated by the Supreme Court in the Portland case should apply to the activities of nonprofit HMOs. Once again, a group of pharmacy owners was unsuccessful at the trial court level so they pursued the matter to the US Court of Appeals for the Ninth Circuit. In this matter, the appellate court ruled that the HMOs may use the medications purchased at prices based on its nonprofit status for uses consistent with the basic institutional function of the HMO. The constraints outlined in the Supreme Court’s Portland decision were not considered applicable to the activities of HMOs. Conceptually, the court viewed the HMO and the hospitals operated by it as one integrated organization with the purpose of that entity being broadly conceived. That resulted in nearly all uses of medications purchased at special prices being considered as falling within the phrase “own use” for purposes of the Robinson-Patman statute.7

Having lost at the Court of Appeals level, the pharmacist owners filed a petition for the US Supreme Court to hear the case but that request was denied. This meant that the decision at the Court of Appeals level was the applicable one.

This is a great example of a series of lawsuits where the hospitals were not parties to the litigation, but their activities were greatly impacted by the decisions that came from the federal courts. That is so because the statute is directed at the activities of sellers, not purchasers. So even though the ultimate goal of the community pharmacy owners in Portland was to combat what they perceived to be unfair competitive activities by the local hospitals, they could not mount a direct attack under the law to accomplish that goal. They had to use the indirect route of going after the sellers of the product because of the way the statute was worded.

Concerns of Community Pharmacy Owners

Why would community pharmacy owners object to hospitals receiving medications at greatly discounted prices? There are several possible reasons, with patient perception and diversion of medications bought at special prices being the 2 principal ones. The latter has been addressed by federal legislation.

One situation on which the author was consulted and with which familiarity exists was this question from a hospital pharmacy director: “Well, if the community pharmacy owners are upset with the very low prices we can charge due to paying a fraction of the acquisition cost, why don’t we just raise our prices to be more in line with theirs? We could price these products as if we had paid standard acquisition cost.” That approach is legally unacceptable because that leads to unfairness due to the greatly enhanced profit reaped by the “nonprofit” entity, resources that can be applied to other portions of the operation.

It should be noted that the objections of the community pharmacy owner were not without basis or concern. For example, as noted above, the author is familiar with a situation that once existed where due to the nonprofit status of the institutional purchaser a 1-month supply of oral contraceptives could be purchased by a patient at the outpatient pharmacy for one-tenth of the acquisition cost paid by a community pharmacy. This led to circumstances where, for example, a female student would purchase oral contraceptives at the university outpatient pharmacy during the academic year, paying the low price per cycle, but upon returning home for the summer and in need of a refill, she would go to the local community pharmacy only to experience sticker shock when asked to pay more than 10 times the price she regularly paid. Even though the hometown pharmacist might be pricing oral contraceptives more aggressively than other medications in the inventory, the impression created with the young patient is that she’s being ripped off!

A continuing issue is whether the price concession is due to the purchaser’s nonprofit status or due to quantity of purchases. If the former, Portland case guidelines apply. If the latter, they are inapplicable because special prices based on quantity of purchases is a specifically enumerated statutory defense to an allegation of a Robinson-Patman Act violation. This leaves an unresolved issue of how does a pharmacy director receiving substantial price concessions know the basis for those discounts—nonprofit status, cost justification, or meeting competition—any 1 of 3 which could provide a defense in a claim against a manufacturer?

While most of this discussion has had as its focus the sales of products to and subsequent resale of those products by nonprofit hospitals, how does all this affect for-profit hospitals? The author was consulted once by a director of pharmacy at a chain of more than 100 for-profit specialty hospitals about the special prices that operation secured from manufacturers. Pharmacy management within the chain had been assured by sellers that the very substantial price concessions were wholly attributable to quantity of purchases across the 100-plus unit operation, rather than the for-profit or nonprofit status of the conglomerate.

Tax-Exempt Nonprofit Status

A brief discussion of the law applicable to entities that are nonprofit and tax-exempt is in order. The 2 concepts are related but not the same. The nonprofit status of a hospital is determined under the state law applicable to business organizations, such as corporations, while the tax-exempt status of that same organization is determined using relevant federal or state laws related to taxation. In order to be classified as a tax-exempt nonprofit organization under the US Internal Revenue Code, and hence be eligible for receiving the pricing discounts discussed in this article, a hospital must meet a number of criteria that are complex.

Most hospitals rely on the “charitable purposes” provision of Section 501(c)(3) of the US Internal Revenue Code, which defines tax-exempt organizations as including: “Corporations….[that are] organized and operated exclusively for…charitable….purposes…”

Traditionally, there has been an expectation of community benefit from the activities of nonprofit organizations, with an example being provision of a certain amount of patient care on an unreimbursed basis. The health care reform legislation of recent years has added other requirements as well, such as a requirement to conduct a community health needs assessment every 3 years and prepare a plan to implement a strategy to meet the unmet health needs so identified. Also, such institutions must implement and publicize a written financial assistance policy for indigent patients.

While the Internal Revenue Code does not recognize provision of health care services as an exempt purpose under the principal federal tax statute, the Internal Revenue Service (IRS) has recognized that an institution that provides health care services can be viewed as furthering the “charitable purposes” mentioned above. In 1969, the IRS issued a ruling that promotion of health is consistent with a charitable purpose. This is so even if those in the group who receive benefit from the charitable activities do not include all members of the community. That is to say, if a hospital provides a certain amount of unreimbursed care to a portion of the local community those services will be considered charitable activity so long as the amount of unreimbursed care is not so small that that it does not benefit the community. This is known as the “community benefit standard” and a nonprofit hospital is expected to provide a reasonable amount of unreimbursed care in order to be viewed as having a charitable purpose and, therefore, be tax-exempt.

An historical note is in order as it relates to a concern mentioned above. Some hospital pharmacy departments engaged in a practice of purchasing pharmaceuticals at preferential prices and then reselling them to community pharmacies and other outlets. Such diversion of pharmaceuticals bought at special prices from legitimate channels of distribution contributed to enactment of the Prescription Drug Marketing Act of 1987, which was signed into law on April 22, 1988.8 The availability of drug products with such a tempting difference in price created a situation too difficult to resist. There is no telling where the impetus for these actions arose—pharmacy directors or hospital administrators above. This is an untoward example of how pressure on the pharmacy as a profit center within the institution to generate revenues to offset losses in other operating units of the institution has led to undesirable activities in the past.

This is of contemporary interest because the pressure persists to this day as hospitals strive to identify alternative sources of revenue, including some proposals that bring them into direct competition with community pharmacies.

On rare occasions it may become necessary for a nonprofit institution to respond to humanitarian concerns, deviating from the strictures of the Supreme Court’s guidelines to do so. Examples might include a patient needing a rarely used medication that community pharmacies would be unlikely to keep in inventory or, less likely in these days of certain community pharmacy prescription departments being open on a 24-hour basis, patients needing medications when services are unavailable at a community pharmacy.

Antitrust laws are designed to protect competition and make it fair; it is not their goal to protect competitors. Indeed, with pure competition those who are inefficient and lagging in innovation will fall by the wayside. Through a series of decision in the federal courts some degree of clarity has been achieved regarding exactly how medications purchased at preferential prices by nonprofit health care institutions can be applied during the process of patient care

It is incumbent on pharmacy directors to educate hospital administrators about this case and its implications and limitations on what is permissible and what is impermissible. As nonprofit hospitals strive to succeed in the contemporary highly competitive health care market place, they may be tempted to test the limits. Failure to adhere to the expectations enumerated by the US Supreme Court and comply with those directives may jeopardize the institution’s future access to medications at preferential prices.


1. Abbott Laboratories v Portland Retail Druggists, 425 US 1 (1976).

2. Edwards, R. In struggle to cut expenses, hospitals eye the pharmacy. Hospitals Health Networks. 2011; 28-32.

3. 15 U.S.C. 13(c). Exemption of Non-Profit Institutions from Price Discrimination Provisions. United States Code; 2006 ed, supp. 5, title 15.

4. Portland Retail Druggists Association, Inc, et al v Abbott Laboratories et al. Civil No.

71-543, US Dist. Ct. D. Oregon, oral opinion (May 25, 1973).

5. Portland Retail Druggists Association, Inc, et al v Abbott laboratories, et al, 510 F.2d 486 (9th Cir. 1974).

6. Jefferson County Pharmaceutical Assn v Abbott Laboratories, et al, 460 US 150 (1983).

7. Mario DeModena, dba Sixth Avenue Pharmacy, et al v Kaiser Foundation Health Plan, Inc, et al. 743 F.2d 1388 (9th Cir. 1984).

8. Text of the Prescription Drug Marketing Act of 1987, P.L. 100-293; 100th Congress. April 22, 1988.

Additional Resources

Fink JL III. Special uses for drugs purchased at special prices: The Portland and Jefferson County cases. Legal Aspects Pharm Pract. 1984;7(6):1-2.

Greenberg RB. Portland Retail Druggists Association vs Abbott Laboratories et al, part 1. Am J Hosp Pharm. 1976;33(6):572-573.

Greenberg RB, Mandl FL. Portland Retail Druggists Association vs Abbott Laboratories et al, Part 2. Am J Hosp Pharm. 1976;33(7);648-651.

Greenberg RB. Robinson-Patman Act update: DeModena v Kaiser Foundation Health Plan. Am J Hosp Pharm. 1985;42(7):1572-1574.

Greenberg RB. The Prescription Drug Marketing Act of 1987. Am J Hosp Pharm. 1988;45:2118-2126.

Podell LB. US Supreme Court decision in Jefferson County Pharmaceutical Association vs. Abbott Laboratories et al. Am J Hosp Pharm 1983;40(9):1537-1538.

Rosoff AJ, Fink JL III. Supreme Court scrutinizes nonprofit hospital drug sales. Hosp Formulary. 1977;12(9):613-618.

Szeinbach SL, Fink JL III. Lawful uses of drugs purchased at preferential prices. Hosp Pharm. 1985;20(1):24-28.

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