Klamath-Lake Pharmaceutical Ass'n v. Klamath Medical Service Bureau

• Decision Date: 01 April 1983
• Docket Number: KLAMATH-LAKE,No. 81-3608,81-3608
• Citation: 701 F.2d 1276
• Parties: 1983-1 Trade Cases 65,254 PHARMACEUTICAL ASSOCIATION, an Oregon non-profit corporation, on behalf of its assignors, Plaintiff-Appellant, v. KLAMATH MEDICAL SERVICE BUREAU, an Oregon non-profit corporation, and Klamath Bureau Pharmacy, Inc., a now dissolved Oregon profit corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1276

701 F.2d 1276

1983-1 Trade Cases 65,254

KLAMATH-LAKE PHARMACEUTICAL ASSOCIATION, an Oregon non-profit corporation, on behalf of its assignors, Plaintiff-Appellant, v. KLAMATH MEDICAL SERVICE BUREAU, an Oregon non-profit corporation, and Klamath Bureau Pharmacy, Inc., a now dissolved Oregon profit corporation Defendants-Appellees.

No. 81-3608.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 4, 1982.

Decided March 4, 1983.

As Amended April 1, 1983.

Henry Kane, Beaverton, Or., for plaintiff-appellant.

Thomas M. Triplett, Souther, Spaulding, Kinsey, Williamson & Schwab, Portland, Or., for defendants-appellees.

Appeal from the United States District Court for the District of Oregon.

Before KILKENNY, SNEED, and SKOPIL, Circuit Judges.

SNEED, Circuit Judge:

This appeal was filed by Klamath-Lake Pharmaceutical Association (Association), the assignee of the antitrust claims of a group of pharmacies that service the Klamath Falls, Oregon area. Association's assignors have been losing business to a local nonprofit health care provider, Klamath Medical Service Bureau (Provider), ever since it began to offer prescription drugs in kind under its group health insurance policies. Association in 1978 sued Provider and Klamath Bureau Pharmacy, Inc. (Pharmacy), a local for profit pharmacy Provider once used to distribute prescription drugs under its pharmacy benefit. The district court, after allowing Association to conduct extensive discovery, could not find any wrongdoing and dismissed the lawsuit in a series of partial summary judgments. For the reasons stated below, we affirm.

I. STATEMENT OF FACTS

At the time Association brought this suit, Provider offered two different group policies. ¹ Both had major medical coverage and a package of basic benefits, but only one included a pharmacy benefit. This supplemental benefit, available for a higher Until July 1, 1976, Provider supplied pharmacy benefits exclusively through Pharmacy. Provider at one point considered expanding its distribution network. Its board of directors voted at their August 1974 meeting to invite local pharmacies to participate if they would accept reimbursement for each prescription at pharmacy cost plus ten percent, minus a copay amount of one dollar. The pharmacies' response, outlined in a letter from pharmacist Robert Gion, was to insist on receiving average wholesale cost plus $2.50 per prescription, minus the copay amount. This rate, which was modeled after Blue Cross' reimbursement policies, would have increased Provider's direct cost for most prescriptions. An expanded program would also have been more expensive to operate. Ted Dicken, Provider's executive director, estimated to the board of directors that increasing the number of participating pharmacies would result in a three-percent increase in administrative costs. The board referred the question to its consumer advisory committee, which recommended that the program not be expanded on these terms. The board agreed, deciding, in Dicken's words, that "at this time it would not be feasible to open the K.M.S.B. Prescriptive drug benefit to other prescription outlets." The increase in premiums and in administrative complexity outweighed the benefit of any added convenience to subscribers.

policy premium, entitled insureds to purchase prescription drugs for a small processing fee. The nominal "copay" amount was set at one or two dollars per prescription. Provider's success in marketing its pharmacy benefit led to this lawsuit.

In 1976 Provider decided to distribute drugs directly. It bought out Pharmacy, dissolved it, and set up a pharmacy on its own premises. Thus, as of July 1, 1976, insureds with few exceptions had to get their prescriptions filled by Provider if they used the pharmacy benefit.

Competing pharmacies were not entirely cut off from business with the insureds of Provider. Groups without the pharmacy benefit had no incentive to shop at Pharmacy while it supplied drugs for Provider because it charged them full market rates. Furthermore, once Provider began to fill prescriptions, it limited sales to insureds using the pharmacy benefit. This restriction forced other policyholders, and all uninsured customers, to use the community pharmacies. The 10,000 policyholders without the pharmacy benefit were still entitled to reimbursement under their major medical provision for 80% of their medical expenses, including prescription drugs, subject to a fifty or hundred dollar deductible. Their purchases constituted a substantial amount of business of the pharmacies. Even policyholders with the pharmacy benefit were free to patronize other pharmacies after hours or during holidays. Although these purchases were made at full cost, reimbursement of 100% of this cost less the copay amount was provided under the terms of the pharmacy benefit. This privilege was important because Provider's pharmacy was only open until 6:00 P.M. on weekdays and 3:00 P.M. on Saturday. Policyholders traveling outside of the Klamath Falls area, and those living in outlying communities, could also use local pharmacies and be repaid under the terms of the pharmacy benefit.

Nonetheless, Provider's prescription drug program cut substantially into the business of local pharmacies. Provider's prescriptions more than doubled between 1974 and 1978, from 33,440 to 77,541; several local pharmacies went out of business and the sales of others dropped rapidly. In response seven pharmacies assigned their antitrust claims to Association, which then brought this lawsuit.

II. THE ISSUES ON APPEAL

Association alleged three causes of action in its complaint. First, it accused Pharmacy and Provider of receiving prescription drugs on terms unavailable to its members, in violation of the Robinson-Patman Act, 15 U.S.C. Sec. 13(f). Second, it claimed that Pharmacy and Provider conspired with affiliated Provider and Pharmacy answered with the affirmative defense of exemption from the antitrust laws under the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015. Association sought summary judgment on this issue in March, 1979. The district court agreed to strike the defense as it affected the agreement between Provider and Pharmacy. ²

physicians, public and private signatories of the group contracts, and labor unions in an attempt to monopolize and restrain trade by compelling insureds to boycott Association's members, in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1-2. Third, it alleged that the insurance contracts tied the health care policy to the prescription drug benefit, in violation of section 3 of the Clayton Act, 15 U.S.C. Sec. 14.

In October 1979 Provider filed for partial summary judgment asserting that the McCarran-Ferguson Act shielded it from both the charges of tying and those parts of the boycott claim that rested on the health insurance contract between Provider and its insureds. The court agreed.

This left for resolution only the Robinson-Patman charge and the boycott claim as it applied to Provider's agreement with Pharmacy. Provider and Pharmacy moved for summary judgment on these remaining claims in August 1981. They sought, in the alternative, dismissal of the action under Fed.R.Civ.P. 17(a) because Association was not a real party in interest. They also argued that the assignments did not convey all of the assignors' claims. The district court granted the motion to dismiss. Because of the likelihood of appeal, it went on to reach the merits of the remaining issues. It held for the defendants on these as well. The Robinson-Patman claim fell because Association had turned up only one minor price variation in the thousands of invoices it reviewed during discovery. The court then summarily denied the residual boycott and tying claims. ³ Association appealed.

The issues that must be considered by this court are as follows. First is the validity of the assignments. If Association cannot act as assignee, this appeal must be dismissed. Next are the major substantive problems: the merits of the Robinson-Patman claim, the affirmative defense based on the McCarran-Ferguson Act to the tying and boycott claims, and the merits of these two claims. Last is Association's argument that the district court should have allowed it to amend or supplement its claim. After considering briefly the use of summary judgment in antitrust cases, we will address these issues in order.

III.

SUMMARY JUDGMENT AS APPLIED TO ANTITRUST CASES

Summary judgment, dependent as it is on the absence of a "genuine issue as to any material fact," requires an assessment of evidence regarding issues of material fact in the light most favorable to the party opposing the motion to grant such judgment. ILGW v. Sureck, 681 F.2d 624, 628-29 (9th Cir.1982); Heiniger v. City of Phoenix, 625 F.2d 842, 843 (9th Cir.1980). Summary judgment traditionally has been used sparingly in antitrust litigation because of the factual intricacy of many antitrust issues. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). At the same time, however, antitrust litigation, if made immune from summary judgment, could become an anticompetitive activity itself. For example, a losing competitor could employ an antitrust suit to harass its victorious

                opponents.  So employed the antitrust laws would impose unwarranted economic costs on the marketplace.  Thus, to keep these costs in check we should use summary dispositions to dispose of antitrust complaints that lack any significant supporting evidence.   See, e.g., First National Bank v. Cities Service Co., 391 U.S. 253, 289-90, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968);  Betaseed, Inc. v. U & I, Inc., 681 F.2d 1203, 1207-08 (9th Cir.1982).  Our analysis in this case is guided by these principles.
                

IV. THE VALIDITY OF THE ASSIGNMENT TO ASSOCIATION

The district court found that Association was not a real party in...