State of N.C. ex rel. Edmisten v. P.I.A. Asheville, Inc.

• Decision Date: 16 July 1984
• Docket Number: No. 82-1058,82-1058
• Citation: 740 F.2d 274
• Parties: 1984-2 Trade Cases 66,105 STATE OF NORTH CAROLINA ex rel. Rufus L. EDMISTEN, Attorney General, Appellant, v. P.I.A. ASHEVILLE, INC.; First Washington Group, Inc.; Consolidated Health Systems, Inc.; Psychiatric Institutes of America, Inc., Appellees, United States of America, /A Amicus Curiae. . On Petition for Rehearing
• Court: U.S. Court of Appeals — Fourth Circuit

Page 274

740 F.2d 274

1984-2 Trade Cases 66,105

STATE OF NORTH CAROLINA ex rel. Rufus L. EDMISTEN, Attorney General, Appellant, v. P.I.A. ASHEVILLE, INC.; First Washington Group, Inc.;

Consolidated Health Systems, Inc.; Psychiatric

Institutes of America, Inc., Appellees,

United States of America, /A Amicus Curiae.

No. 82-1058.

United States Court of Appeals, Fourth Circuit.

On Petition for Rehearing.

Argued April 3, 1984.

Decided July 16, 1984.

H.A. Cole, Jr., Sp. Deputy Atty. Gen., Raleigh, N.C. (John R. Corne, Associate Atty. Gen., Raleigh, N.C., on brief), for appellant.

Andrea Limmer, Dept. of Justice, Washington, D.C. (William F. Baxter, Asst. Atty. Gen., John H. Carley, Gen. Counsel, David M. Narrow, Peter M. Kazon, Bureau of Competition, F.T.C., Barry Grossman, Dept. of Justice, Washington, D.C., on brief), for amicus curiae.

Joel I. Klein, Washington, D.C. (Robert D. Luskin, Onek, Klein & Farr, Washington, D.C., John S. Stevens, Redmond, Stevens, Loftin & Currie, Asheville, N.C., Martin J. Gaynes, Bonner, Thompson, O'Connell, Gaynes & Middlekauff, Washington, D.C., on brief), for appellees.

Before WINTER, Chief Judge, and RUSSELL, WIDENER, HALL, PHILLIPS, MURNAGHAN, SPROUSE, ERVIN and CHAPMAN, Circuit Judges, sitting en banc.

DONALD RUSSELL, Circuit Judge:

A panel of this court initially considered this case in July 1982. The facts were fully stated in the panel opinion, State of North Carolina ex rel. Edmisten v. P.I.A. Asheville, Inc., et al., 722 F.2d 59 (4th Cir.1983). Given the opportunity to reconsider this case en banc, we now reverse the judgment of the district court.

At issue here is the acquisition by Psychiatric Institutes of America (hereafter P.I.A.), the largest national private operator of acute psychiatric hospitals in America, of 50% ¹ of the stock of Highland Hospital, a psychiatric facility formerly a division of Duke University Medical Center. P.I.A. also owns and operates the only other private psychiatric hospital in the Western North Carolina Health Systems Agency (hereafter WNCHSA). ² The National Health Planning and Resources Development Act of 1974 (NHPRDA), 42 U.S.C. Sec. 300k et seq., required states to pass certificate of need legislation or risk losing federal funds, Sec. 300m-2(a)(4)(B). Under the statute passed by North Carolina, N.C.Gen.Stat. Sec. 131-178(a), P.I.A. had to obtain a certificate of need for the acquisition of Highland, although under the federal statute, a purchase not entailing a change in bed capacity required no certificate. ³ Before the certificate of need was granted, the Attorney General of North Carolina brought this suit challenging the acquisition under federal and state antitrust laws, the Sherman Act, 15 U.S.C. Sec. 1 et seq.; the Clayton Act, 15 U.S.C. Sec. 12 et seq.; and North Carolina General Statutes Secs. 75-1 and 75-2. P.I.A. here contends that since it obtained a certificate of need for the acquisition, and underwent the stringent certificate of need review process mandated by the North Carolina Health Planning Resources Development Act of 1978, N.C.Gen.Stat. Sec. 131-175 et seq., the acquisition may not now be challenged on antitrust grounds. In the alternative, P.I.A. argues that state action immunity bars the Attorney General's suit. We find that neither the statutes nor state action immunity bars this suit.

I.

We first consider the question of state action immunity, which the panel did not reach. We hold that this doctrine, explained by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), cannot prevent the acquisition of Highland Hospital from being called into question under the antitrust laws.

The court in Parker held that a state agriculture marketing plan which might otherwise have run afoul of federal antitrust laws was immune from antitrust challenge. The court reasoned that the Sherman Act was not intended to apply to action undertaken by the state in its official capacity. Until recently, it was questionable whether private parties like P.I.A. could claim state action immunity, see, e.g., Trucking Unlimited v. California Motor Transport Co., 432 F.2d 755, 760 n. 7 (9th Cir.1970); aff'd. 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972); Cantor v. Detroit Edison Co., 428 U.S. 579, 590-92, 96 S.Ct. 3110, 3117-18, 49 L.Ed.2d 1141 (1976). Of late, the doctrine, still somewhat illogically called state action immunity, see, Hecht v. Pro Football, Inc., 444 F.2d 931, 935 (D.C.Cir.1971), has been successfully invoked by private parties. Since the Supreme Court's decisions in Bates v. State Bar of Arizona, 433 U.S. 350, 362, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977), and California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), the right of a private entity to claim Parker immunity is clear. Under Hoover v. Ronwin, --- U.S. ----, 104 S.Ct. 1989, 80 L.Ed.2d 590 (1984), a private party has that right even when the state does not compel, but only "authorizes" or "approves" the activity, as North Carolina did here. But under the standard established by those cases, P.I.A. cannot prevail on the merits.

To qualify for state action immunity, a claimant must show two things. One is that there be a "clearly articulated state policy." The second part of the state action immunity two-part test, as set forth in Midcal, is that the statutory scheme, here the certificate of need review provision, be subject to ongoing state supervision.

The certificate of need requirements represent a "clearly articulated state policy," by the state of North Carolina to regulate even acquisitions of existing health care facilities which result in no change in services or bed capacity. We question whether a clearly articulated policy by the federal government can be found here, see note 3, supra, but the state action immunity doctrine, by definition, is restricted to conduct undertaken under the aegis of a state rather than the federal government. Here, since the second part of the test for state action immunity is clearly not met, the first part's being met cannot legitimize P.I.A.'s activity.

The legislative histories of both the NHPRDA of 1974 and of the 1979 amendments thereto, and North Carolina's certificate of need legislation, N.C.Gen.Stat. Sec. 131-175 et seq., do show that Congress and the North Carolina legislature were concerned about the unrelenting rise in the cost of health care, and about wasteful, duplicative major acquisitions by health care providers. The Findings of Fact incorporated in the North Carolina statute at Sec. 131-175 include the statements that:

(1) .... the forces of free market competition are largely absent and government regulation is therefore necessary to control the cost, utilization, and distribution of health services. (2) ... the continuously increasing cost of health care services threatens the health and welfare of the citizens of this state ... (4) ... [there has been] costly duplication and underuse of facilities ...

See, State of North Carolina ex rel. Morrow v. Califano, 445 F.Supp. 532, 534 (E.D.N.C.1977); aff'd., 435 U.S. 962, 98 S.Ct. 1597, 56 L.Ed.2d 54 (1978); see also, S.Rep. No. 93-1285, 93d Cong., 1st Sess. (Nov. 12, 1974), reprinted in, 1974 U.S.Code Cong. & Admin.News, at 7842, 7878; see also, 42 U.S.C. Sec. 300k-2(b)(1): "... there is duplication and excess supply of certain health services and facilities, particularly in the case of inpatient health services."

To control these burgeoning costs, Congress required each state to pass legislation making certificates of need mandatory for major expenditures for health care services, equipment, or facilities. When the Act was amended in 1979, the Senate Report said:

The legislation recognized State certificate of need programs to be the basic component in an overall effort to control the unnecessary capital expenditures which contribute so greatly to the total national health bill.

The development of new health resources was tied directly to approved state medical facilities plans. Health systems agencies were to be given special funds to encourage development of needed health resources and services in their respective areas.

S.Rep. 96-96, 96th Cong., 1st Sess. (April 26, 1979) at 5, reprinted in 1979 U.S.Code Cong. & Admin.News, vol. 2 at 1310.

North Carolina acted promptly to show its support for the NHPRDA's goals of making better health care more widely available, and of containing costs. In 1978, the North Carolina HPRDA, N.C.Gen.Stat Sec. 131-175 et seq., was passed. ⁴ That act required that a certificate of need application be reviewed by the health systems agency of the health service area where the proposed expenditure would be made, Sec. 131-182(a)(1). Thirteen criteria were to be used in deciding whether to grant a certificate of need, Sec. 131-181. ⁵ These criteria were to be balanced against the relationship of the proposed expenditure to the state's overall health care goals. Certificates of need could be revoked for failure to satisfy the conditions on which they were granted. North Carolina, then, was sufficiently interested in the regulation of health care provision to legislate extensively in the area. North Carolina's certificate of need program is, we note, even stronger than was mandated by the federal NHPRDA. Compare, N.C.Gen.Stat. Secs. 131-176(17)(b), 131-176(17)(c), and Sec. 131-178, to 42 U.S.C. Sec. 300m-6(d)(1). ⁶ Under the circumstances, we acknowledge that there is a strong argument for, and assume, but without deciding that there was a clearly articulated and affirmatively expressed state policy to regulate health care providers' expenditures. However, even if North Carolina has regulated such activity as P.I.A.'s, that requirement's being met cannot overcome any failure of the certificate of need requirements to meet the other half of the test--the requirement of continuing state scrutiny.

An examination of...