675 F.2d 502 (2nd Cir. 1982), 517, Medical Arts Pharmacy of Stamford, Inc. v. Blue Cross & Blue Shield of Connecticut, Inc.

Docket Nº517, Docket 81-7671.
Citation675 F.2d 502
Party NameMEDICAL ARTS PHARMACY OF STAMFORD, INC., et al., Plaintiffs-Appellants, v. BLUE CROSS & BLUE SHIELD OF CONNECTICUT, INC., Defendant-Appellee.
Case DateApril 01, 1982
CourtUnited States Courts of Appeals, Court of Appeals for the Second Circuit

Page 502

675 F.2d 502 (2nd Cir. 1982)

MEDICAL ARTS PHARMACY OF STAMFORD, INC., et al., Plaintiffs-Appellants,



No. 517, Docket 81-7671.

United States Court of Appeals, Second Circuit

April 1, 1982

Argued Feb. 3, 1982.

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Kenneth D. Wallace, Stamford, Conn., for plaintiffs-appellants.

John C. Yavis, Jr., Hartford, Conn. (H. Kennedy Hudner, Lissa J. Paris, Murtha, Cullina, Richter & Pinney, Hartford, Conn., of counsel), for defendant-appellee.

Shereen Edelson, Hartford, Conn. (R. Cornelius Danaher, Jr., Tamara Kagan Weiner, Danaher, Lewis & Tamoney, Hartford, Conn., of counsel), for amicus curiae Connecticut Pharmaceutical Ass'n.

Before LUMBARD, OAKES and VAN GRAAFEILAND, Circuit Judges.


Plaintiff Medical Arts Pharmacy of Stamford, Inc. ("Medical Arts"), on behalf of itself and a class of approximately 650 Connecticut retail pharmacies, appeals from a judgment of the United States District Court for the District of Connecticut, Warren W. Eginton, Judge, denying its motion for summary judgment on its claim that defendant Blue Cross & Blue Shield, Inc. ("Blue Cross") violated section 1 of the Sherman Act, 15 U.S.C. § 1, and granting Blue Cross's cross-motion for summary judgment. We affirm.


The following facts of this case, which are set forth more fully in the thorough and well-reasoned opinion below, 518 F.Supp. 1100 (D.Conn.1981), are undisputed. Under Blue Cross's prescription-drug program, subscribers, representing approximately 9% of Connecticut's population, can obtain prescription drugs from licensed pharmacies at little or no cost beyond the prepayment of premiums. A contract between Blue Cross and its individual subscribers (the "subscriber contract") determines the level of benefits for each insured, and a second contract, entitled the "Prepaid Prescription Drug Agreement by and between Blue Cross & Blue Shield of Connecticut, Inc. and Participating Pharmacy" (the "pharmacy agreement"), sets forth the terms under which a participating pharmacy will provide prescription drugs to Blue Cross's subscribers.

The subscriber contract permits the insured to obtain prescription drugs from either a participating or a nonparticipating pharmacy. If the subscriber purchases the drugs from a nonparticipating pharmacy, he pays the full price charged by the pharmacy and then obtains reimbursement from Blue Cross in an amount no greater than that which Blue Cross would reimburse a participating pharmacy. 1 If, on the other hand, a subscriber selects a participating pharmacy, he generally receives the needed drug at no out-of-pocket expense. 2 Blue Cross then reimburses the pharmacy at a rate established in the pharmacy agreement.

The pharmacy agreement, which Blue Cross unilaterally instituted and offered to all Connecticut pharmacies, provides for a "maximum billable amount" method of reimbursement. Blue Cross determines the maximum it will reimburse participating pharmacies for any drug by reference either to Blue Cross's own separate price lists

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or, in the case of infrequently dispensed drugs, by reference to "Red Book" average wholesale price rates. Participating pharmacies are also paid a predetermined professional fee to provide for overhead and profit. All but two Connecticut pharmacies participate in Blue Cross's prescription drug program.

Medical Arts charged in its complaint that the pharmacy agreements are price-fixing arrangements proscribed by section 1 of the Sherman Act, 15 U.S.C. § 1. On its motion for summary judgment Medical Arts asserted that because the agreements fix prices for prescription drugs, they are per se illegal under section 1. Blue Cross asserted in its cross-motion that even under a rule of reason analysis the agreements did not violate the Sherman Act. The district court denied Medical Arts' motion, holding the per se rule of illegality inapplicable to the Blue Cross pharmacy agreements, and granted the cross-motion for summary judgment upon a finding that Medical Arts' pleadings had failed to allege the anticompetitive effect necessary to hold the pharmacy agreements impermissible under a rule of reason analysis. 3


I. Medical Arts Motion for Summary Judgment

Section 1 of the Sherman Act makes unlawful "(e)very contract, combination ..., or conspiracy, in restraint of trade or commerce among the several States...." 15 U.S.C. § 1. Per se rules of illegality under section 1 are applicable only to restrictive agreements that are "manifestly anticompetitive," Connecticut T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977); Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). See also Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 649, 100 S.Ct. 1925, 1928, 64 L.Ed.2d 580 (1980) ("when a particular concerted activity entails an obvious risk of anticompetitive impact with no apparent potentially redeeming value, the fact that a practice may turn out to be harmless in a particular set of circumstances will not prevent...

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