Reazin v. Blue Cross & Blue Shield of Kansas, Inc.

• Citation: 663 F. Supp. 1360
• Decision Date: 22 May 1987
• Docket Number: No. 85-6027-K.,85-6027-K.
• Parties: Walter L. REAZIN, M.D.; HCA Health Services of Kansas, Inc., d/b/a Wesley Medical Center; Health Care Plus, Inc.; and New Century Life Insurance Co., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF KANSAS, INC., Defendant and Counterclaim Plaintiff. and HMO KANSAS, INC., Additional Counterclaim Plaintiff, v. HOSPITAL CORPORATION OF AMERICA, Additional Counterclaim Defendant.
• Court: United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas

663 F. Supp. 1360

Walter L. REAZIN, M.D.; HCA Health Services of Kansas, Inc., d/b/a Wesley Medical Center; Health Care Plus, Inc.; and New Century Life Insurance Co., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF KANSAS, INC., Defendant and Counterclaim Plaintiff. and HMO KANSAS, INC., Additional Counterclaim Plaintiff, v. HOSPITAL CORPORATION OF AMERICA, Additional Counterclaim Defendant.

No. 85-6027-K.

United States District Court, D. Kansas.

May 22, 1987.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert H. Rawson, Jr., Joe Sims, & Joseph Winterscheid, of Jones, Day, Reavis & Pogue, Cleveland, Ohio, Robert M. Duncan, of Jones, Day, Reavis & Pogue, Columbus, Ohio, Donald R. Newkirk, of Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., for plaintiffs and counterclaim defendants.

Joseph M. Alioto, San Francisco, Cal., Dan R. Shulman & Penny Tibke, Minneapolis, Minn., Gary D. McCallister, of Davis, Wright, Unrein, Hummer & McCallister, Topeka, Kan., for defendant and counterclaim plaintiffs.

PATRICK F. KELLY, District Judge.

MEMORANDUM AND ORDER

On August 30, 1985, defendant Blue Cross and Blue Shield of Kansas, Inc. announced its intention to terminate its contracting provider agreement with Wesley Medical Center, effective January 1, 1986. Plaintiffs brought this action seeking damages and other relief under the federal antitrust laws,¹ and the laws of the State of Kansas. Blue Cross and Blue Shield answered and, with its subsidiary HMO Kansas, Inc., filed a counterclaim challenging certain business conduct and activities of the plaintiffs and Hospital Corporation of America. The court granted plaintiffs' motion for separate trials of their complaint and the counterclaim. Following a lengthy trial of plaintiffs' claims during the summer of 1986, and a significant period of deliberation, the jury returned a verdict in Wesley's favor finding Blue Cross and Blue Shield liable for anticompetitive conspiratorial restraint of trade violating Section 1 of the Sherman Act, monopolization of the relevant market violating Section 2 of the Act, and tortious interference with Wesley's present and prospective business relations violating Kansas law.

The months following the verdict were consumed with a host of motions. First, Blue Cross and Blue Shield moves under Fed.R.Civ.P. 12(b) to set aside the verdict and dismiss the case for lack of jurisdiction. Second, defendant alternatively moves for judgment notwithstanding the verdict or a new trial, under Fed.R.Civ.P. 50(b) and 59 respectively. Third, plaintiffs move for injunctive relief against Blue Cross and Blue Shield under Section 16 of the Clayton Act, 15 U.S.C. § 26. Fourth, plaintiffs move for an award of costs and attorneys' fees against defendant pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15. Finally, plaintiffs and Hospital Corporation of America move for summary judgment on the counterclaim, under Fed. R.Civ.P. 56. On January 16, 1987, the court heard oral argument on these motions. This memorandum and order will address each.

Before analyzing these issues, however, some discussion of the parties and the history of their disputes is necessary. Perhaps more so than any federal antitrust litigation to date, this case results from the unprecedented economic pressures and turmoil within the health care services and financing industries from the beginning of this decade. Although the suit focuses on participants and events in Sedgwick County, Kansas, it embraces difficult health care issues facing many areas throughout the country. All the principal players are present: hospitals and physicians as health care providers, struggling to cut costs while maintaining quality of care, adequate capital and a sufficient patient base; emerging alternative delivery systems, such as health maintenance organizations and preferred provider organizations, radically altering traditional notions about delivering and financing health care by merging those components into unified systems; a large nonprofit health care indemnity insurance plan, seeking both the lowest price for the benefit of its subscribers, and to maintain or increase its position in an ever changing market; and a large publicly held, for profit company owning and managing hospitals throughout the country, searching for the best ways to deliver low cost, quality health care to its patients, while maintaining or increasing its market position. Each of these players competes for the loyalty, and thus the dollars, of public consumers of health insurance products and health care services. All the players vigorously assert they have acted throughout in the best interests of those consumers.

This case is the consequence of the parties' perceptions and misperceptions of the public interest. The consuming public is the quintessential beneficiary of the federal antitrust laws. In its interests this case proceeded; through its interests are judged the legality of the parties' actions, and reactions, in the marketplace.

Wesley Medical Center ("Wesley") is a 760-bed tertiary care hospital located in Wichita, Kansas. Wesley provides sophisticated health care services to residents of Wichita, Sedgwick County, the State of Kansas, and out-of-state patients. (Dkt. 76, Pretrial Conf. Order, p. 4, Stip. d; hereafter "Stip. ___".) It is a major teaching hospital, operating a number of graduate medical education residency programs in affiliation with the Wichita branch of the University of Kansas School of Medicine. Wesley additionally provides clinical services; medical research; and outreach care programs for Kansans. Six hundred and forty physicians are currently staff members at the hospital. Within the City of Wichita, Wesley competes against St. Francis Regional Medical Center, St. Joseph's Medical Center, and Riverside Hospital. A.B. Jack Davis, Chairman and Chief Executive Officer of Wesley, views the hospital's primary strength as the ability to provide quality care at reasonable cost. Wesley garners approximately 10% of all patient admissions throughout the State of Kansas. (Dkt. 212, Tran. of Jury Trial, Vol. 1,² pp. 13-19.)

Blue Cross and Blue Shield of Kansas, Inc. ("BCBSK") was formed in 1983 by combining Blue Cross of Kansas, Inc. and Blue Shield of Kansas, Inc. pursuant to special enabling legislation. (Stip. m.) BCBSK is engaged in the business of providing private health care financing to businesses and individuals in Kansas, including Sedgwick County and the City of Wichita. (Stip. h.) Under its enabling legislation BCBSK is required to pursue health care cost containment as the primary goal in conducting its business. (Stip. o.) G. Wayne Johnston, the company's president, defines its business as making available to Kansans "a mechanism whereby we can provide good quality health care at very reasonable prices, as reasonable as we can possibly make it." (Tran. 3, p. 479; Tran. 4, p. 536.) BCBSK offered three principal health care financing products in 1985: conventional indemnity health insurance; a preferred provider organization called "Choice Care"; and a health maintenance organization through the company's wholly-owned subsidiary, HMO Kansas, Inc. ("HMOK"). (Tran. 3, p. 481.) BCBSK is the largest private health care financing organization in Kansas, and its service area includes the entire state except for Johnson and Wyandotte Counties in the northeast. In 1985, all hospitals and approximately 90% of all physicians in this service area were under contract with BCBSK as providers of medical services to the company's subscribers. (Stip. j.) No other health insurance company has contracts with all of the hospitals in BCBSK's service area. (Tra. 3, p. 499.) BCBSK is also the federal Medicare intermediary in Kansas, administering the Medicare program throughout the company's service area; as well, it is one of the larger third-party administrators of self-insured programs in the state. (Tran. 3, pp. 495, 499; Tran. 4, p. 519.)

Conventional or "all provider" indemnity insurance, the mainstay of BCBSK's business and historical success in Kansas, is a third-party insurance contract paying, based on certain benefit levels, a predetermined portion of the actual charges for health care services the subscriber may receive from any hospital or any doctor of his choice. (Tran. 1, p. 24; Tran. 3, p. 487.) Hospitals and doctors, as contracting providers, are reimbursed by the insurance carrier for health care services rendered its subscribers on an "as needed" basis. There is no incentive to economize, using the most cost effective methods of practicing medicine, and conventional indemnity arrangements are perceived as contributing to the overuse and spiraling costs of medical services. Alternative delivery systems, such as health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs"), emerged as a consequence of this and other trends in the health industries:

"In recent years increased emphasis has been placed on alternatives to conventional insurance with respect to both financing and delivery. The primary reason for this is a belief that conventional insurance is neither an efficient nor an effective method to finance and deliver health care. The recent recession caused business and government to focus more attention than ever on the necessity to control and reduce the cost of medical care. The result of this increased interest has been restructuring of the delivery system to include widespread availability of HMOs and PPOs. Containment efforts have also been incorporated in the traditional programs."

(Tran. 4, p. 593, quoting Pltfs.' Ex. 64, p. 4). In contrast to conventional indemnity arrangements, alternative delivery systems operate on selected contracting under which the...