Abbott Laboratories v. Portland Retail Druggists Assn., Inc. – Oral Argument – December 16, 1975

Media for Abbott Laboratories v. Portland Retail Druggists Assn., Inc.

Audio Transcription for Opinion Announcement – March 24, 1976 in Abbott Laboratories v. Portland Retail Druggists Assn., Inc.

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Warren E. Burger:

We will hear arguments next in Abbott Laboratories against Portland Retail Druggist.

Mr. Clarke you may proceed whenever you are ready.

James H. Clarke:

Mr. Chief Justice and may it please the Court.

This is case is before you on our petition for certiorari to the Ninth Circuit, which reversed a judgment in favor of the petitioners, which had been entered on a motion for summary judgment by the District Court.

The action is one for trouble damages and injunctive relief for price discrimination brought by an association, a retail druggist, against drug manufacturers.

One of the classes of allegedly unlawful discriminatory sales are to non-profit hospitals.

The petitioners pleaded, as a defense, the Nonprofit Institution Act, which exempts from the Robinson-Patman Act, all purchases of supplies for their own use by non-profit hospitals and certain other non-profit institutions.

It was the respondents’ theory which has never changed and has been stated in this Court that the exemption is limited as a matter law to purchases of drugs that are physically consumed on hospital premises, and therefore cannot be competitively supplied by retailers.

The District Court disagreed.

It held it all drug users engaged in by the non-profit hospitals as shown by the record where the own use of the hospital and granted summary judgment.

On appeal, the Court of Appeals affirmed as to the non-profit status of the thirteen general service hospitals whose affairs are before you today, but limited the exemption to inpatient and emergency room use.

It agreed that all of the rejected drug uses by the non-profit hospitals serve the public and are proper hospital functions, that it held that in those cases the hospital was not the consumer and these drugs were purchased for its purchasers use instead of its own.

Warren E. Burger:

But laying aside all of the others categories that are involved, when a hospital sells to a customer who walks in off the street, are they forming a hospital function or a drugstore function?

James H. Clarke:

This would depend upon the circumstances of a particular sale Your Honor.

There is no contention by the petitioners on one hand that a hospital can setup a retail drugstore and stock it with 13C (ph) merchandise.

On the other hand, when a customer comes in who, as a matter of need, emergency, or for some other reason, finds it inconvenient or retail drugstore is unavailable, we say that the hospital is performing a hospital function, even though in those cases there is no associated hospital service of a distinct kind.

Byron R. White:

What about this refilling prescription in hospital by former patient of the hospital that has been given a prescription while in the hospital and he constantly gets it refilled at the hospital?

James H. Clarke:

The refilling of take home prescriptions is one of the three of the so-called minor categories of business that are involved in this lawsuit.

In that case, it could still be a matter of convenience or a matter of extending hospital services or hospital has the pharmacy prescription and as a matter of convenience they will on occasion come back.

Most of the hospitals according to this record do not fill or refill take home prescriptions.

There are three or four that will do it.

Potter Stewart:

Mr. Clarke, this case process down despite all the weight and breadths and lengths length of the brief to the meaning of the phrase, “for their own use,” does it not?

James H. Clarke:

I believe so sir.

Potter Stewart:

And it is read, it can be read broadly to include, I suppose, certainly the situation that the Chief Justice referred to, the hospital pharmacy selling to somebody who comes in off the street in an emergency or otherwise, because that is for the use of the hospital and the profit is for the use of the hospital.

James H. Clarke:

Well that is —

Potter Stewart:

That can be read broadly certainly and to the extent that you can read the phrase right out of the statute, can you not?

James H. Clarke:

You can.

There is an additional analysis which we think supports our position in this area.

We think that when a hospital — when a sick person gets a hospital drug and uses it, consumes it, which is all the drugs happen to do.

He is obviously using the drug.

James H. Clarke:

That is what the drug is for, it is been prescribed for him to make him well, he is using it.

It is our position that when the hospital dispenses the drug to him as part of its institutional functions, it is also using the drug because that is all hospital use drugs for.

Potter Stewart:

Well, they sell drugs to make money and they do make money.

James H. Clarke:

They dispense drug; they charge for them and they make net profits.

Potter Stewart:

And therefore the sale of the drugs is for their own use.

James H. Clarke:

They make net profits.

Potter Stewart:

The profit is for their own use.

James H. Clarke:

That is right.

Potter Stewart:

And therefore there is no limit on this. This phrase read that way would not impose any limitation at all, would it?

James H. Clarke:

That is never been the position of the petitioners.

Our position has been that the dispensing has to be associated or should be associated, in some way, with the hospital functions.

Potter Stewart:

With hospital patients?

James H. Clarke:

No, sir.

Potter Stewart:

Because a hospital can define its function, it can say we are going into the retail pharmacy business as one of our functions.

James H. Clarke:

I would not disagree with that and if this were an appropriate thing for hospitals to do at any given point in time.

I would say that this would be a very possible conclusion.

Now as the Court is aware the record shows that each hospital has a pharmacy.

It is an integrated department of the hospital.

It achieves net revenues and those net revenues are devoted to institutional purposes namely the financing of non-revenue producing departments.

The principle drug use is for dispensing to in-patients.

The record shows that some 90% or more of all of these hospital drug purchases are used that way and the dispute is over the remaining 10%.

The bulk of this 10% is used in three established distributional practices.

The first is the take home drugs that we referred to before.

These are drugs that are prescribed by the doctor in amounts that are determined by the doctor and they are regarded as a continuation of the hospitals medication.

Probably the most hotly debated area before this Court is a net of outpatient care.

Outpatients fall into two classes according to this record.

There are the traditional outpatient clinics of which there are half a dozen important associated with the hospitals as a hospital function which cater primarily to the poor.

William H. Rehnquist:

Are they all physically located within the hospitals?

James H. Clarke:

These are, I believe that a manual hospital has a sort of a campus type arrangement, so it would not necessarily be in the same building.

William H. Rehnquist:

But they are not wholly miles apart from the hospital?

James H. Clarke:

The clinics that I am now referring to are not.

One of the issues in this case in the lower courts had to do with the Kaiser Medical Care – Best Kaiser Hospital, which the hospital for an HMO.

They had —

William H. Rehnquist:

But that was diverged on another ground by the Ninth Circuit.

James H. Clarke:

That is correct sir, but they have separated clinics.

The importance of outpatient care is not however limited to the clinics that conventionally have served the poor.

As I think is apparent from the American Hospital Association brief, which I will not repeat, this is a rapidly expanding area of hospital service.

It is one which promotes the public interest by reducing hospital cost and reducing the incidents of inpatient care by emphasizing the incidents of outpatient care.

Then the third primary category that was excluded is staff sales, the pharmacy privilege which is accorded by the hospitals to those who work for them and those who practice medicine in association with them.

This is regarded by the institutions as a benefit to the institution something that promotes its operations, it is an important employee fringe benefit, it is negotiated for in some of the collective bargaining agreements that the institutions have and it is a subject of the fliers and publicity that they give their employees when they come to work.

The only difference — excuse me.

Harry A. Blackmun:

Now in under a collective bargaining agreement or as a matter of their own self imposed policy to sell drugs to their own employees and their employees families that had cost a low price they can continue to do so, however, this case is decided, can they not?

James H. Clarke:

The question is not Your Honor, whether the hospitals should be selling these drugs in these ways.

The question is whether they are performing appropriate hospital function when they do.

In the case of the pharmacy privilege, the record shows we believe that this is an integral part of the association of people and resources and materials which this hospitals — which constitutes this hospital, that aids its operation.

And it is our theory that the exemption extends to all drug uses that aid or promote the operations of a hospital and that this is the scope of this statutory exemption.

Harry A. Blackmun:

And you make the same argument with respect to a surgeon who happens to practice in the hospital with respect to his office patients?

James H. Clarke:

I think that so far as his patients who are hospitalized there is no problem as there is in any other case.

Harry A. Blackmun:

My question is not directed to that.

James H. Clarke:

But if the question is whether the surgeon should be allowed to supply his office patients with drugs purchased from the hospital pharmacy, which I — if I am correctly construing —

Harry A. Blackmun:

I thought that was one of the categories at issue here.

James H. Clarke:

This is again, one of the minor categories.

The record shows that some, not all, but some of the hospitals will sell drugs to a doctor for his office use, usually injectables or specialty items which are not available in the general retail market.

Harry A. Blackmun:

Let me take that one step further.

If Dr. Smith, who is on the staff, so to speak, of a particular hospital, gives an office prescription, is that patient, under this record, free to go to the hospital and have it filled with the hospital pharmacy?

James H. Clarke:

Not if the hospital does not sell the walk-in patients.

Harry A. Blackmun:

And if it does?

James H. Clarke:

If does, well then he would be like any other walk-in patient.

Now with respect to walk-in patients the record is very clear that there are only two of these hospitals that make any walk-in sales on a non-discourage basis.

There are two hospitals which are located in areas of particular need.

James H. Clarke:

One is next to a retirement home and the other is in an area of elderly and poor people, and the administrators of those hospitals said that they will fill walk-in business for those two categories in those two cases.

Other than that the record we think is quite clear that the hospitals do not want walk-in business, they do not regard themselves as being in that business, and the incidence of walk-in sales is negligible far less than 1% of total sales.

We think that the Court should consider in this case, in light of the statutory language, which is unlimited, it does not seek to define or limit the phrase use.

The hospitals are institutions for the treatment of the sick and the injured.

This is why they exist.

And we say that it is the institutional use of their drugs when they are dispensed for the use of the sick and the injured.

It is a functional term.

The importance of drug therapy is also developed in the briefs.

One of the keys to the expansion of outpatient services, which reduces the exorbitant cost of inpatient services has been drug therapy, which is received by hospital outpatients.

All of these outpatients are registered hospital patients and they are all receiving hospital services.

William J. Brennan, Jr.:

Mr. Clarke, so far as I get it, the only category you or the only function that you seem to exclude is for their own use is the actual operation of a retail pharmacy.

James H. Clarke:

I agree.

William J. Brennan, Jr.:

That is all?

James H. Clarke:

That is all.

William J. Brennan, Jr.:

Everything else is hospital use?

James H. Clarke:

My powers of imagination or inventiveness are perhaps limited and there might be other categories that could be suggested.

William J. Brennan, Jr.:

Besides the —

James H. Clarke:

Beside the general retail store, but that is the obvious limitation.

I do think that the Court can approach it from the other end and say that everything is hospital use which assists, or aids, or is associated with its institutional operations.

Now, that is a broad definition.

It is where we begin.

William J. Brennan, Jr.:

I do not see how that excludes the retail off to that.

James H. Clarke:

The difference, as I see, is that in the case of a straight commercial retail operation of a kind that Mr. Justice Stewart referred to.

There is no association of hospital activities as such with the sale and that is a possible ground of distinction.

But I think, I want to emphasize that there are categories of drug use in this case, which are not associated with the actual performance of other hospital services.

I am thinking particularly of supplying injectables to doctor’s offices and supplying walk-ins that come in the middle of the night and need drugs.

Byron R. White:

So you would exclude those or —

James H. Clarke:

I do not exclude those.

I say that under those circumstances the sale of the drug is itself a hospital use because it relates directly to the hospital function as a community medical resource.

Byron R. White:

Well then suppose that the hospital is on one side of the street and it has established a retail drugstore on the other side of the street, but it sells drugs to walk-in customers in both places, you would say the retail drugstore is out of bound?

James H. Clarke:

I would say well — I am not anxious to build fences around this exemption Your Honor, but I —

Byron R. White:

I understand that but you have excluded from the exemption retail drugstore.

James H. Clarke:

I have excluded that from the exemption because I think there is a distinction which I have tried to explain.

Byron R. White:

No, just a walk-in customer, who is never been in the hospital before who is not about to be again, comes in to buy some drugs.

He does not want to cross the street to retail drugstore and you sell it to him out of the drug dispensary in the hospital, and if he is not or never been a patient in the hospital, as far as you know he is not a patient of anybody on the staff of the hospital, you just sell it to him.

Now is that — what connection does that have to some institutional service of the hospital?

James H. Clarke:

Well that isolated kind of sale would have no connection.

Byron R. White:

Well that is one of the categories mentioned in the Court’s opinion below.

James H. Clarke:

That is correct and the record shows that the policies of the hospitals are to discourage walk-in business.

The record shows that the volume of this walk-in business is negligible.

Byron R. White:

You have brought the case.

Now I want to know whether you think we should agree with the court below or on item 8 in their opinion namely, “Walk-in Customers”.

James H. Clarke:

No sir for two reasons: First, the record shows that the walk-in business which does occur is associated with the hospital function, that is usually in cases of special need.

Therefore, there is an association with the hospital’s community responsibility and therefore there is a sufficient nexus with the hospital operation to justify it.

Warren E. Burger:

If the Eight Circuit opinion were narrowed to survive that emergency situation were accepted from their ban, would that satisfy your purpose?

James H. Clarke:

I think it would not — excuse me.

Byron R. White:

They already have allowed that, did they not?

James H. Clarke:

No sir.

I am afraid I did not follow your question.

Byron R. White:

I did not know they excluded from the exemption of the dispensing of drugs in emergency situation.

James H. Clarke:

No, it is in the emergency room which is a special service.

This is not that kind of — the emergency room usually have their own little supply of drugs which they dispense to somebody who is brought in and after an —

Byron R. White:

They have excluded that from the — they included in the —

James H. Clarke:

That is correct sir.

Byron R. White:

But you are talking about some other kind of an emergency.

James H. Clarke:

I am talking about — let us take the example of Emmanuel Hospital, which is located in the Black District to Portland.

Drugstore is closed early in the day, it is a rough neighborhood and somebody has to get a prescription filled, so they come to the hospital pharmacy, and yes, Emmanuel will sell that walk-in customer and they do not know whether she is a patient of the staff of not. That is correct.

The other way —

Warren E. Burger:

Now as you said that the hospitals try to discourage the 1%, apparently you use that figure, the 1% of those who come in off the street to buy.

Now, the Court of Appeals, of course, has rather firmly discouraged that kind of business.

Warren E. Burger:

If that were not so, we were to reverse the Court of Appeals on that item with that not put a premium on every hospital in effect to open on pharmacy, right within their own establishment?

James H. Clarke:

We, our position does not go that far.

Warren E. Burger:

Well, I am asking you about a tendency.

You cannot control all the hospitals, no one can.

But if there were no limitation on hospitals right to sell to walk-in customers, the same kind of customers who come in to a drugstore, the traditional drugstore, would that not encourage hospitals to expand their pharmacy operations and actually seek walk-in business?

James H. Clarke:

Obviously, it would do so if the Court put an offense all around it.

It is our position that the walk-in customer can properly be served in these cases of emergency or need.

It is also our position that there has to be a certain flexibility in this statute.

The pharmacist, when the person comes in, has to be able to exercise some kind of judgment.

Warren E. Burger:

Well what if defense were that the hospital pharmacy could not sell the walk-in patients before 9 in the morning or after 9 o’clock at night.

Another is that they — I guess I have it reversed — that they could not sell to walk-in customers from 9 a.m. to 9 p.m.

James H. Clarke:

Whether that would cover the range of circumstances in which those sales would occur I cannot speculate.

Warren E. Burger:

Would it not be —

James H. Clarke:

It would be an artificial kind of a limitation.

Warren E. Burger:

Well, what an artificial when that is approximately the business hours of the ordinary pharmacy?

James H. Clarke:

This is the point, this statute represents a congressional decision that was in the area of the statute.

This will happen.

This statute does not say one word about limiting the use of supplies in non-competitive ways, which is the net effect of the Court of Appeals.

It is the effective APHA’s Brief and the — excuse me.

Warren E. Burger:

Well, what about the language that Justice Stewart read to you, for their own use unless you give this expansive reading to the term “their use.”

James H. Clarke:

It is our position that there must be a nexus between the dispensing of the drug and the operation of the hospital.

And if there is that nexus it does not matter what the circumstances or what kind of dispensing is involved.

This is the fence you build around.

It must be related in some way to the hospital’s operations, it must assist the hospital’s function in treating the sick and the injured, but that within that admittedly broad category.

There are going to be many kinds of drug dispensing and the statute contemplates, because it is an exemption statute that from time to time there will be an impingement on somebody else’s business.

Warren E. Burger:

That would mean that they could always sell Aspirin and Bufferin to anyone who had a pain.

Then would you say that that is the function of the hospital embraced in the language “for their own use”?

James H. Clarke:

I would say if they were at the hospital for diagnosis and they are under the care of the hospital, yes.

Warren E. Burger:

I am talking about walk-in patients.

That is the subject, the frame.

Warren E. Burger:

Are you saying that under this language it is a hospital function to sell an aspirin or similar materials to any person who has a pain who walks in off the street.

James H. Clarke:

I do not think that at this stage of hospital development that it necessarily is, no.

I do think —

Warren E. Burger:

Well, then you should have no objection to a court construing that language has not including the casual walk-in customer.

James H. Clarke:

I think that it has to include not exclude, the exemption has to include the casual walk-in customer who is there for whom the hospital is providing a resource that the customer needs.

William H. Rehnquist:

Well but then by your definitions the hospital presumed by determines its own function, and if it decides that that function should be performed out on the series of retail outlets of separated from the hospital you would still say that by selling Buffering and Aspirin in those outlets it is performing a function which their customer need.

James H. Clarke:

Mr. Justice, we do not say that the hospitals have an unlimited discretion to define their own functions.

These functions are changing.

They are changed by the —

William H. Rehnquist:

I have yet to hear for you any place where you would limit it.

James H. Clarke:

The hospital’s discretion?

Yes.

James H. Clarke:

I think that there is an area within which you can say that certain kinds of activities are appropriate and certain kinds are not.

At this point I would not say that opening a retail drug stores a proper function of a non-profit hospital but 20 years from now it might be.

And under this same statute then those activities would be exempt.

James H. Clarke:

If these were appropriate and proper hospital functions, yes sir, they would be.

Any appropriate and proper as defined by hospital practice generally.

James H. Clarke:

They will — that is correct sir. I will reserve — excuse me.

Lewis F. Powell, Jr.:

You have devoted a bit of your argument to a problem that involves, as I understand and what you said, less than one percent —

James H. Clarke:

About one third of one percent.

Lewis F. Powell, Jr.:

— one third of one percent, may we come back to what seems to me to be more substantial, I have in mind at the moment, outpatient operations.

You said there were two categories of those: the traditional outpatients departments that save for the most part indigents; and secondly a newer type of outpatient department that save that probably generally primarily to relieve the threatened of inpatient service for which facilities are inadequate.

Now are they — are both of these functions performed from the same outpatient facilities, or do you have different type of facilities for the two?

James H. Clarke:

The general pattern Mr. Justice Powell is that the outpatient services are performed at the Central Institution, however, around the country the system of satellite clinics is developing an important one that has developed was the Kaiser Organization which of course is not before us.

Lewis F. Powell, Jr.:

You have satellites in two of the 12 hospitals, I thought you said —

James H. Clarke:

That could — they either are or they are being projected.

Lewis F. Powell, Jr.:

But basically the same facilities save both types of patients?

James H. Clarke:

That is my understanding sir.

Lewis F. Powell, Jr.:

Right and you said, as I understood it that outpatients are registered.

James H. Clarke:

That is correct.

Lewis F. Powell, Jr.:

What does that mean?

James H. Clarke:

That means that if they are registered on the books of the hospital as hospital patients just as of an inpatient is registered when he comes in.

Lewis F. Powell, Jr.:

And when a prescription is issued to a registered outpatient, does a prescription show on its face that the patient is a registered patient, so that the pharmacist can distinguish between the registered outpatient and the walk-in non-patient.

James H. Clarke:

I believe not.

The way this is done at Emanuel which is the outstanding example in Portland, because it is so much larger and more comprehensive than the other, is that at least at the traditional outpatient clinics they gave the patient a card and he shows that card to the pharmacy when he comes in.

Lewis F. Powell, Jr.:

Which identifies him as a registered outpatient.

James H. Clarke:

That is correct.

And the employee will have a card that identifies him.

Lewis F. Powell, Jr.:

And there is no reason why the outpatients who are registered cannot be identified.

James H. Clarke:

In that particular case.

Now I do not know how this is handled in the other institutions.

Lewis F. Powell, Jr.:

Well it is basically possible to devise means to identify a registered patient.

James H. Clarke:

That is correct.

Lewis F. Powell, Jr.:

Another question I want to ask relates to renewals of prescription for inpatients. You said that this ordinarily occurred at the time of a discharge, prescription being provided for the patient to take home with him or her.

Does the record show a percentage of renewals that occur or have occurred according to this record subsequent to discharge at the hospital, in other words repetitive renewals?

James H. Clarke:

It does not show a percentage.

There are only three or four of the hospitals which will refill take home prescriptions and I believe that one of them — in one or two of them that they did estimate the volume of it and the volume was quite low as I recall it, 25 or 30 a week or 20 a week or something of that kind in one of the larger ones, but there is no hard information about the actual volume of refill business.

As a matter of fact, if the patient does any distance from the hospital it would be more convenient to go to a retail or drugstore anyway.

This would happen only in these — tend to happen only in these cases where the hospital pharmacy is convenient.

I will reserve the rest of my time.

Thank you.

Potter Stewart:

Mr. Clarke before you sit, may I ask you this question.

On the front of your brief and on the inside cover of your brief are listed several petitioners in this case.

I think those lists are not identical.

May I ask, are there any other petitioners?

James H. Clarke:

No sir, so far as I know, the lists are identical.

If they are not, the printer’s error —

Potter Stewart:

Specifically may I ask is American (ph) company a petitioner?

James H. Clarke:

No sir.

Potter Stewart:

Thank you.

Warren E. Burger:

Mr. Tilbury, you may proceed whenever you are ready.

Roger Tilbury:

Mr. Chief Justice and may it please the Court.

First I would like to answer Judge Powell’s question that he just presented as to the ratio of refills.

There is any record evidence that in so far as Kaiser is concerned the ratio was approximately 40%.

Now the other hospitals do not assign a new number to a refill and for this reason it is difficult to know and there records are incomplete they sometimes will assign a letter after the number, but we think it is substantially larger than the defendants so far have conceded.

William H. Rehnquist:

Kaiser had a different kind of operation now than the other hospitals, and then its summary judgement was reversed on a much broader ground about the Ninth Circuit.

Roger Tilbury:

In a way Your Honor that is true.

However, the other hospitals are patterning themselves to a degree after Kaiser and we can see that if this Court should sustained the position that Mr. Clarke wishes that they are soon going to embark upon the same type of program.

It is true as you point up that the Night Circuit did send that back for a reexamination insofar as Kaiser, but the matter of developing this clinics which are considerably removed incidentally in the case of Kaiser, some of them are up to 10 and 12 miles away from the hospital, will be the way in which they are definitely trending the goal.

William H. Rehnquist:

But the lawsuit has got to be decided on the basis of the fact that they exist, I presume.

Roger Tilbury:

Well I would certainly agree, yes.

As a matter of fact Your Honor since you have mentioned that point, I would like to say that much of what Mr. Clarke has said seems to us to be irrelevant for the very reason that the issues that he assigned in his true briefs, this petition and all the way through his primary brief, do not deal with the category of walk-in, say, do not deal with refills, and they do not deal with the category of office use by doctors.

The only three things that he has assigned, as you recall, deal specifically with the employee and the staff position sales and with the take home sales to a patient on his way out and to the matter of outpatients.

These are the only things that seems to —

Byron R. White:

But the outpatients include the outpatient clinics.

Does it not or —

Roger Tilbury:

I am not so sure; I can not tell for certain exactly what he has said.

He has mentioned the factor of outpatients and he is — but I am not entirely sure as to what position he is taking about.

Byron R. White:

Well, in the outpatient clinic or the clinic where the hospital operates a clinic for the public, I take it, the doctors are hospital agents or employees, and anyway the bill the patient get from the hospital.

Roger Tilbury:

Yes sir.

Byron R. White:

So it is a — if one of those outpatients in an outpatient clinic is suddenly hospitalized and is there a week and then he is discharged but still an outpatient he will just get periodic bills from the hospital.

Roger Tilbury:

He would be billed at the hospital.

Some of the doctors, however, I think almost all of the doctors at Kaiser Clinic in Portland practice only at the clinic, and it is only in a rare situation that they would refer anyone to the primary hospitals.

They operate truly in the case of Kaiser and this is really tending to be true in other cases as well as drugstores in the true sense of the word.

As a matter of fact, there were a few blocks of many of them.

They have doctors that are there who are technically, in a real sense of the word, employees of the Kaiser Foundation although they have their own separate corporation called Permanente Services I might add, and in the sense that their connection with the hospital is rather tenuous one except that they are all technically under the Kaiser blanket.

Warren E. Burger:

Do you quarrel with the hospital filling a prescription or refilling or selling a non-prescription item after normal business hours to meet an emergency?

Roger Tilbury:

Not at all Your Honor.

We have no quarrel with the hospital.

Warren E. Burger:

It is not our business or even the Court of Appeals to undertake to prescribed forms and mechanisms but from your close association as both of you gentlemen have had with this case.

Warren E. Burger:

Would it be difficult in your view to set up a procedure and a mechanism to take care of some kind of a certification as to particular after our sales for an emergency that would define what the emergency law is.

Roger Tilbury:

No at all Your Honor.

We have never objected to any sales by the hospitals of any kinds.

As a matter off act we would not object, I do not think we can, since we also believe in free enterprise, if they wanted to conduct the retail store.

They can conduct any type of operations — excuse me.

Warren E. Burger:

That would be a different term.

Roger Tilbury:

Yes sir.

The only thing we are saying —

Warren E. Burger:

I am talking about within the framework that we have here.

You, I take it, then would not object to walk-in service, walk-in customers or emergencies after normal business hours.

Roger Tilbury:

Not at all Your Honor.

We certainly do not wanted to deprive anyone who needs medication and getting a medication.

Potter Stewart:

But when you say you would not object you can see that that would be, the purchase of those drugs would have been purchased by the hospital for their own use?

Roger Tilbury:

No sir.

There is a distinction and I hope I am making it.

Warren E. Burger:

Well I was asking a question on the framework of our entire dialogue here.

I ask, in fact, I purposed the question, do you think that is a proper hospital function?

I repeat it.

Is it a proper hospital function in this framework?

The only reason that we are all here is if sales are made to walk-in customers after regular business hours and for some declared emergency situation.

Roger Tilbury:

I am sorry if I am not making it clear Your Honor, and I will try to make it clear.

We do not object to any type of sale that the hospital wishes to make but we do say that the Congress when it passed 13C limited the exemption to their supplies for their own use and in the case mentioned —

Warren E. Burger:

(Voice Overlap).

Is it, for their own use, to sell after regular business hours to meet an emergency for outpatient?

Is it “for there own use”?

Roger Tilbury:

No sir, unless that patient happened to be a hospitalized patient and unless he uses at any emergency room on the premises in other words.

And this has always been the case, as a matter of fact —

William J. Brennan, Jr.:

Will you help me Mr. Tilbury, we will not mind stating exactly what you just say is for there own use within these eight categories, it gets (Inaudible).

Roger Tilbury:

Well we think the Court of Appeals decision is correct that it should be limited to a use on the hospital premises by a patient or somebody —

William J. Brennan, Jr.:

I see that would, one, they would dispense to the hospital’s inpatients in the course of treatment.

William J. Brennan, Jr.:

That is for there own use, is it?

Roger Tilbury:

Yes sir, we concede.

William J. Brennan, Jr.:

(Voice overlap) on the petition cert.

Now the second one is they would dispense in the course of treatment the patients at emergency clinics operated by the hospitals, is that for their own use?

Roger Tilbury:

Yes sir, we think it is.

William J. Brennan, Jr.:

They were provided to departing inpatient as take home prescription, is that for their own use?

Roger Tilbury:

No sir, just the first two Your Honor.

William J. Brennan, Jr.:

Well, only the first two, the other six are all within Robinson-Patman Act.

Roger Tilbury:

That is correct for the reason Your Honor –[Laughter]

William J. Brennan, Jr.:

(Inaudible) is positional.

Roger Tilbury:

For the reason that it is not used on the premises, it is not use under the hospital supervision, the individuals has no connection with the hospital once he leaves the hospital, and the reports indicated despite what Mr. Clarke has said that this was not intended to encompass the whirl, that Congress did intend to restrict it to a situation where it was intended to be used on the premises and for that particular function.

Warren E. Burger:

But does that not overlook the modern trend, when I say modern it is pertaining 30 or 40 years ago to keep people out of hospital if they can and be — to get them out of the hospital as quickly as possible after surgery or other treatment?

Roger Tilbury:

We will all agree that that is a desire, yes.

Warren E. Burger:

They just are not enough hospital, are they?

Roger Tilbury:

Certainly that is true.

And I do not think they are not enough drugstores either your honors at the present time.

Warren E. Burger:

As a result there, after the delivery of the baby they are having the mother and child go home sometimes in 24 hours, after surgery that is formerly was two or three weeks.

They now send them home in two or three days or even less.

Now are you going to cut the hospitals or are you going to have the trend that is going to lengthen in the hospital stay here?

Roger Tilbury:

In a way they may — as I again repeat Your Honor.

We do not object anything that can do to alleviate the plight of the patient whatever that maybe and if they wish to sell in any way emergency times or whatever that is fine.

But we think the Congress meant what is said when the exemption was not at unlimited one.

If they had meant strictly that it applies to all non-profit institutions they could have set it that way, but they did not.

They specifically said purchases of their supplies for their own use.

Now as you well know the words are construed with regards to their normal usage.

The Congress is not presumed to use superfluous words.

Those words have a meaning and the word “use” has always meant consumption by the individual using it.

It does not mean a resale.

As a matter of fact, rather strangely, Mr. Clarke seems to be a cross purposes with its own client Lilly, because for Mr. Debose (ph) for example, told the Congress during the extensive hearing which agree with our interpretation by Congress in 1967 and 68 extending over a thousand pages that that was what it meant.

It meant a use within the institution itself and Mr. Debose (ph) who used to be in charge, manager of the Portland office for Lilly told Congress that in general I think we can say that the furnishing of drugs to outpatients or to patients off the street probably results in a competitive inequity to the retailer.

Roger Tilbury:

And for years Lilly has required all of the hospitals that buy from it before they can acquire their goods at a preferential price to sign an agreement that the particular institution will “use the products only for its own use within the institution and not for resale.”

Now at some —

Byron R. White:

How about an instance, how about a (Inaudible) where the hospital sells in the hospital or in the clinic.

Roger Tilbury:

Well I would again say since it defines it in terms of —

Byron R. White:

(Inaudible)

Roger Tilbury:

Yes sir, I would interpret Lilly’s agreement to mean that it has to be used at the hospital.

If it is used as the hospital —

Byron R. White:

Well, if the hospital in their premises?

Roger Tilbury:

Alright, then I would say it is a proper hospital use.

Byron R. White:

Unless if (Inaudible).

Roger Tilbury:

I can hardly speak for them but I would think so.

Byron R. White:

But you disagree with that?

Roger Tilbury:

No sir, no I do not disagree with.

If it is used — excuse me.

Warren E. Burger:

The comes under two.

Byron R. White:

That comes under two, it is not a an emergency clinic; it is not an emergency clinic.

Roger Tilbury:

Regardless Your Honor of whether they call it.

Whatever they call it, if it is used at the hospital, under hospital doctors, on the premises, for consumption their, then this is a sort of thing that Congress intended.

Byron R. White:

Do you agree to that is within the exemption?

Roger Tilbury:

Yes sir, if it is used at the hospital.

Byron R. White:

It seems to me not broader than one or two.

Well that is what I assumed.

Roger Tilbury:

My own position —

Harry A. Blackmun:

You have just said for consumption there.

Roger Tilbury:

Yes sir.

Harry A. Blackmun:

Suppose the prescription given to an inpatient for 100 tablets whatever it is and when he is discharged tomorrow he has 90 of them left and takes them home, still alright under the Robinson-Patman act?

Roger Tilbury:

No sir, I do not think so, because the point of consumption is no longer at the hospital.

Harry A. Blackmun:

So the hospital then, on your theory, would have to purge that between the 10 that were consumed while an inpatient and the 90 that he took home?

Roger Tilbury:

Yes Mr. Justice Blackmun and incidently that is not a difficult thing, because once he leaves the hospital, the hospital rules and the Oregon statutes and the statutes in every state that I am aware of requires that he would be given a prescription number.

They actually will repackage it in those situations or there are supposed to under the state law and they do I think, and assigned a number at the point he leaves the hospital, because it is no longer under the hospital control or supervision, and when they came to Congress and asked for this they talked in terms of the need and extending the care to the needy patient.

Roger Tilbury:

This was the thing that was stressed.

Now the hospital is not providing care when the individual is no longer at the hospital.

By definition he cannot be extended the care of the hospital if he is not at the hospital and this is our position and I think this is what Congress —

Harry A. Blackmun:

Well going back to the clinic case an outpatient of the hospital clinic is operated on the hospital premises and comes in regularly for shots —

Roger Tilbury:

Yes sir.

Harry A. Blackmun:

— at the hospital.

Now you say apparently that that is within the exemption.

Roger Tilbury:

I think it is; I think it is.

Harry A. Blackmun:

Well that is certainly broader than number two just an emergency.

Roger Tilbury:

Well Your Honor my difficulty is this —

Harry A. Blackmun:

Well, it is though, is it not?

Roger Tilbury:

Well I do not visualize it as such perhaps Your Honor may disagree with me, but the fact is that what is an inpatient and an outpatient is a matter of definition and there is considerable disagreement among hospital administrators as to what that term means.

But I think when Congress spoke in terms of care and supervision and for their own use, they were speaking in terms of the hospital, because they not only said the word “their” once, they used the word twice and of course, they use the terms supplies for their own use.

And, use has always, as far as I know, since Wycliffe in 1388 said that that means consumption; it does not mean that you resell it to somebody else for their use.

We are talking about two entirely distinct things at that point.

And at the point that the hospital has no more control over it in the case that Justice Blackmun mentioned where the drugs are taken home for consumption at the point it leaves the hospital.

There is no more supervision at that point.

Warren E. Burger:

Let me put this in a practical, so that it makes a better question.

30 years ago or more, an appendectomy or herniotomy meant two weeks at least in the hospital.

Roger Tilbury:

Yes, sir.

Going that assumption, it is the fact.

Today, it is two days or three days, but with the patient, may usually does go some sedation and pain killer and that sort of thing.

Do you say that that is not part of the hospital care as long to furnish that kind of material, when the patient leaves the patient leaves the hospital and go home and do at home just what formerly was done for the patient in the hospital?

Roger Tilbury:

At the point he leaves the hospital, the hospital is no longer using it, the former patient is using it. And I think there is a distinction there.

Warren E. Burger:

But is he using it, if they give it to him before he leaves?

Roger Tilbury:

Yes, they give it to him before he leaves for consumption at the hospital, yes.

Warren E. Burger:

No, before he leaves for consumption at home, for consumption whenever he needs it, under instructions?

Roger Tilbury:

It is not the used by the hospital and I think we have to use the language that Congress itself used, and the Congressional Committee said that at the point it leaves the hospital, that it is no longer the hospital is using it, it is the private individual, because there is no control over that at the point it leaves the hospital.

William H. Rehnquist:

But you are reading, use by the hospital than use in the hospital.

I mean, there is no use by the hospital in the sense that the hospital as an institution does not itself take any drug, it is patient that take drug.

Roger Tilbury:

Well, of course, that is true in the sense that the hospital, a corporation, does not imbibe and use the drugs, no.

But, at the point that the hospital ceases to have any control or what happens to those drugs, and we have had many cases where we found that they have not only given them a medication for a couple of days, but they have given a medication for six months, and longer.

And at that point, incidently, we have also in the record cases where they have actually pour sales on people who did not want the drugs at the time they left the hospital, but found it on their bills, and when they protested, they were not able to have it removed in certain cases.

And incidentally, the quantum of the use is not the one percent or the one-third of one percent.

We have evidence in the records showing that in the case of Kaiser, it is well over 400,000 prescriptions.

William H. Rehnquist:

But Kaiser is not here in any capacity.

Roger Tilbury:

All right, in the case of Saint Vincent’s and other one 231,000 over the space at about five and a half years.

In the case of Good Samaritan, it is roughly, 54 a day, these are not minimal things.

He is trying apparently to argue de minimis again, although at various times, he disavows a de minimis a defense here.

William H. Rehnquist:

Does the record show what the economic impact of hospital sales is on the drugs — to the hospital pharmacies under sale the drugstores.

Roger Tilbury:

Yes, they do, quite often, and another problem is that they charge a differential price to their in-patient as against people that are coming off the street.

They do not pass along the savings and cost, we have found many times the in-patient, he is charged, sometimes, considerably more even than an individual that went to the corner drugstore to buy.

But then, having that leverage, plus not being taxed, which they are not, then they are able to slash the market considerably, at the other hand, by selling the drop in type people, people having no connection with the hospital.

Now, was this the intent of Congress to literally destroy the corner drugstore, because they make no mistake about it.

I do not exaggerate, that is precisely what has occurred in Portland and will occur nationwide and does occur.

This sort of thing is a real source of danger.

I do not think that there was the intent by Congress to upset the traditional patterns of distribution which had evolved over so many years.

We say this, sure the hospital perform a function and a very good function.

Fine, let us preserve them, but at the same time do not destroy the alternative which all of us have had up until now.

Warren E. Burger:

You do not want them to perform your client’s function, that is the essence of it, is it not?

Roger Tilbury:

No, Your Honor, I do not say that; I say, they can not.

Warren E. Burger:

Is that not the cases is about?

Roger Tilbury:

I say this that if they decided to add like corner drugstore, they should pay the same price.

Warren E. Burger:

No.

Roger Tilbury:

Only that.

That is your clients question, if that was a question, have in mind.

Roger Tilbury:

Well, 13C give them an exemption as you know, for certain purposes.

Now, at the point, it is no longer for their use then we say the Robinson-Patman Act applies, and that they should freak with equality, the drugstores and the hospitals.

If the hospital conducts its operation in precisely the same way as a corner drugstore, and they are.

They are indistinguishable in many cases, and it is not limited strictly to Kaiser.

Roger Tilbury:

Anyone can come in and incidentally the amount of these, we have found we have triple affidavits in the file saying and showing that it is very easy to purchase at some of these hospitals, even though their administrators later have disavowed it.

But we have investigators that have been able to buy them with complete impunity, and not have it questioned at all.

And this sort of this sort of thing is going to happen and will occur with greater frequency, unless in some way, this Court says that that law means what it says.

And it was —

Lewis F. Powell, Jr.:

Mr. Tilbury.

Roger Tilbury:

Yes, Your Honor.

Lewis F. Powell, Jr.:

You draw the line that whether or not the drugs were consumed on the premises of the hospital.

Suppose there were no Section 13C at all, would there be any competition with respect to drugs consumed on the premises of the hospital?

Roger Tilbury:

I do not feel that that is a competitive impact, if it is consumed on the hospital premises by an inpatient.

Lewis F. Powell, Jr.:

Alright.

So that, with respect to the drugs, would you think —

Roger Tilbury:

May I — excuse me, may I qualify that.

I do not say that there would be a competitive effect insofar as our clients are concerned.

There would be an impact, insofar, as a profit hospital that might be two blocks away.

So in this regard, the law was changed.

Lewis F. Powell, Jr.:

This case involves only your clients.

Roger Tilbury:

Yes, sir, that is true, but I did want to point out that that change did take place because of 13C, because now, even though competition is affected, they may discriminate in price, in favor of a nonprofit hospital, even though it may have rather devastating effects to a profit hospital.

Lewis F. Powell, Jr.:

In terms of the interest, you represent your clients.

Roger Tilbury:

Yes, sir.

Lewis F. Powell, Jr.:

What purpose that Section13C said in light of your view of the Act?

Roger Tilbury:

It clarified the law, it permitted them to make sales within the hospital because Congress felt in 1938 that that was illegal.

Both the Senate and the House Committees and also the letter which is quoted in both of those reports from the men who then headed the hospital bureau supplies and who was the more or less, the (Inaudible) of this particular bit of legislation.

Lewis F. Powell, Jr.:

If it says no adverse effect on competition resulting from drugs consumed within the hospitals, you never get to 13C, do you?

Roger Tilbury:

If in light of the present case law that is true.

In light of the case laws, it was in 1938 Congress felt that that was an illegal operation.

Now I am willing to concede —

Harry A. Blackmun:

What about the secondary line that there will still be a question of competition for clients —

Roger Tilbury:

That could be a primary line, yes sir

Harry A. Blackmun:

— between manufacturers.

Roger Tilbury:

That is true.

Roger Tilbury:

I would concede it.

Harry A. Blackmun:

And 13c would serve in that respect in any event.

Roger Tilbury:

Yes, Your Honor, it is certainly correct that that effect also took place, yes.

But Congress certainly felt it was serving a function in passing 13c.

Well, Congress felt it was illegal at that point, and the Senate Committee said so, and so did the, as manufacture said it had now made it illegal.

So, this change was brought about by 13c, and it clarified the situation of the in hospital use as well.

So that there is — I concede it, and in light of the case law now I would concede that probably, even then, perhaps, it was unnecessary if the case law had developed to the point that it now had, but that was something that Congress was not in the position to forecast accurately.

Now, again, why I return to the words of the stature which I think, basically, is what we are talking about.

The word “supplies” also means something other than resale.

A supply wagon in the days of old vestment supplies went through a particular fort or a particular city or something of that kind.

It did not mean the things that were going to be sold in a vendor’s cart from door to door.

These are not supplies, and “use” means — and certainly under all of the use taxes in every sate I can think of, that at the point something is resold and of course, this is the Astro (ph) case, which this court decided in 1882, when you talked about a resale, that is no longer a “use”, it is simply supplying something to be used by somebody else.

And when Congress stressed the word “their” twice, their supplies, and I noticed this seems to be dropped occasionally, from the petitioner’s brief, “their supplies for their own use”, that word “their” used twice, certainly, meant the hospital.

It did not mean the private consumption of somebody off the premises having no connection with the hospital.

And particularly, when they went to Congress and said, “We needed to take care of the needy sick”, with any institution.

William H. Rehnquist:

Would it be more precise, that has to mean for the use of the hospital’s own patients.

Roger Tilbury:

Well, I suppose that is an interesting thought.

William H. Rehnquist:

Well, because if you are talking about the use of the hospital, the hospital does not use the drug.

Roger Tilbury:

Well, they can do it for experimental purposes.

I could conceive of that, but that is about the only exception.

William H. Rehnquist:

That is not what you are arguing here.

Potter Stewart:

You do not insist on that limitation.

Roger Tilbury:

No.

Potter Stewart:

That literally, as my brother Rehnquist says, then all it would be — then the only supplies actually used by hospital would be things like furniture and so on, but in the area of drugs, would just be for their own experiment corporate use.

Roger Tilbury:

Well, I do not interpret it that way.

Potter Stewart:

For corporate consumption.

Roger Tilbury:

No, I would not so limit it.

I think in the case of that by the patients in the hospital, that is certainly a permissible thing.

No question about it.

Now, I might say, also, that at the very least, and of course I do not need to argue extensively the point that this was decided on a summary judgment.

Roger Tilbury:

It was decided at the early stage I have ever seen a case resolved in the sense that we had no meaningful discovery, we were not permitted to ask any interrogatories, no motion to produce what is permitted to us, we were not permitted to ask the depositions or take the depositions of a single one of any of the petitioner’s employees.

The only thing we were permitted to ask was to pose a few of the hospital people, and we were greatly limited there.

Thurgood Marshall:

Did you not win?

Roger Tilbury:

Pardon me.

Thurgood Marshall:

Did you not win?

Roger Tilbury:

Did I win?

Thurgood Marshall:

Yes.

Roger Tilbury:

Well —

Thurgood Marshall:

You won in the Court of Appeals.[Laughter]

Roger Tilbury:

Yes, that is true, but in the lower court — yeah, sure.

In the lower court, we had to go with a very handicapped situation, and we still think that the quantum of this discrimination, he is now insisting, it is like one-third of one percent.

We think, it is more like 40%, if the truth emerges, and we certainly hope that it does.

But I can never recall a case in my own experience where it is been resolved with so little discovery.

Warren E. Burger:

Do I correctly translate your obligation means that this Court should not reverse the Court of Appeals on this record, that we might affirm them on this record but not reverse them

Roger Tilbury:

Yes.

Is that what you are saying?

Roger Tilbury:

Yes, sir, I would be pleased about that.

Yes, sir.

William H. Rehnquist:

Well, you have to cross petition to bring before us any problem as to the adequacy of the summary judgment hearing in the District Court, I would think.

Roger Tilbury:

That is true, and I did not, yet that is very true.

Now, I might say this, our target is not the entire drug industry.

As a matter of fact, you will notice, we have only sued 12 defendants which is probably enough to keep me talking but nevertheless, only 11 of these actually, because one is a holding company.

There are many drug companies in this field including, I thought Lilly, because Lilly has this agreement which do not make this dichotomy at all.

They do recognize the law and do have a unitary price insofar, as you have a competitive situation.

Now, this case, this Court has said in the Standard Oil case and many others, in the Robinson-Patman case that competitors where you get a competitive impact should start from the same plane, and that is all we ask.

We asked that if they want to act like drugstores, then give us the same break.

Please let us acquire the same drugs and then let the consumer make the choice.

If he prefers a hospital to us, fine, that is his privilege, but I do not think that if you are going to have a race, and that is what competition, I guess, fundamentally is, that one competitor should start off 10 yards behind the rest of the competitor.

And that is what where we are.

Some of the degree of competition here is astounding.

Roger Tilbury:

I believe it was far in excess of anything I would have ever imagined.

Sometimes, we are being charged five times what the hospital is.

Now, if the drugstore, and I say this quite literally, is to survive then they must be given a chance to compete on fair and equal terms.

They are not being given that chance now, and they have challenged me on the numbers.

The fact is, they are not 211 as he stated in his required brief, in Portland, at the present time, there are 152.

And if you want to go strictly at the city, in Portland itself, there are only 64 within the city limits, for a city of 450,000.

They are used to be as a 123 more within the tri-county area as our map in the back of our exhibit shows.

These are real dangers, we thank the drugstores as part of the American scene too, but it will no longer be that.

Harry A. Blackmun:

How many Portland drugstores, you are talking about, have changed.

Roger Tilbury:

At the present time, within the City of Portland, if you exclude the change, Your Honor, there are 64.

Harry A. Blackmun:

Well, and if we add the change?

Roger Tilbury:

The change would add, within the city limit itself, I think a number 17 or so, something like that.

Potter Stewart:

That is individual retail outlets?

Roger Tilbury:

Yes, sir and not — that is kind of each individual retail outlet, even though it maybe part of a chain, but this is a problem, and it is really as I mentioned, just in passing that 23 new ones have opened.

Well, those 23 are not all community pharmacies and in this sense, 1971, only seven of those are what we normally described as drugstores.

The others are clinics, there are nursing homes, there are things of this kind, which — my time is up.

Thank you.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.