Llewellyn v. Crothers

• Decision Date: 08 July 1985
• Docket Number: Nos. 83-4019,83-4037,s. 83-4019
• Citation: 765 F.2d 769
• Parties: 1985-2 Trade Cases 66,685 J. Kent LLEWELLYN, D.C., P.C., dba Llewellyn Chiropractic Clinic; William J. Cash, D.C., dba AA Chiropractic Clinic; Steve A. Deshaw, D.C., dba Chiropractic Physicians Clinic; Douglas Held, D.C., dba Held Chiropractic Clinic; D.E. Beeson, D.C., dba Beeson Chiropractic Center; John Schmidt, D.C., dba Chiropractic Physicians Clinic; Lyndon McGill, D.C., dba East Salem Chiropractic Clinic; Tom Wright, D.C., dba Wright Chiropractic Clinic; Bruce Bamforth, D.C., dba Jacksonville Chiropractic Offices, Plaintiffs-Appellants, v. Morris K. CROTHERS, M.D.; Roy Green, M.D.; and State Action Insurance Fund Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 769

765 F.2d 769

1985-2 Trade Cases 66,685

J. Kent LLEWELLYN, D.C., P.C., dba Llewellyn Chiropractic

Clinic; William J. Cash, D.C., dba AA Chiropractic Clinic;

Steve A. Deshaw, D.C., dba Chiropractic Physicians Clinic;

Douglas Held, D.C., dba Held Chiropractic Clinic; D.E.

Beeson, D.C., dba Beeson Chiropractic Center; John Schmidt,

D.C., dba Chiropractic Physicians Clinic; Lyndon McGill,

D.C., dba East Salem Chiropractic Clinic; Tom Wright, D.C.,

dba Wright Chiropractic Clinic; Bruce Bamforth, D.C., dba

Jacksonville Chiropractic Offices, Plaintiffs-Appellants, v. Morris K. CROTHERS, M.D.; Roy Green, M.D.; and State

Action Insurance Fund Corporation, Defendants-Appellees.

Nos. 83-4019, 83-4037.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 1984.

Decided July 8, 1985.

Gary D. Allen, Allen & Vick, Salem, Or., and C. Jacob Ladenheim, Ladenheim & Campbell, Fincastle, Va., for plaintiffs-appellants.

William F. Nessly, Jr., Asst. Atty. Gen., Salem, Or., for Crothers and Green.

James Clark, Spears, Lubersky, Campbell & Bledsce, Portland, Or., for SAIF.

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

Before KENNEDY and FERGUSON, Circuit Judges, and WILLIAMS, ^* District Judge.

KENNEDY, Circuit Judge:

Plaintiffs, licensed chiropractors in the State of Oregon, brought this action for damages and injunctive relief based on alleged antitrust, equal protection, and due process violations in the setting of fee guidelines and maximum fee schedules for chiropractic services under the Oregon Workers' Compensation Act (the Act), Or.Rev.Stat. Secs. 656.001-656.794 (1983). The principal issue in the case concerns the immunity of the defendants for implementing policies of the state, and, consequently, their identities and governmental capacities are significant. The individual defendants are Dr. Roy L. Green and Dr. Morris K. Crothers, respectively the Director and the Medical Director of the Oregon Workers' Compensation Department (OWCD). The corporate defendant, the State Accident Insurance Fund Corporation (SAIF), is a public corporation created by the Oregon legislature to insure employers' liabilities under the Act.

The district court granted defendants' motions to dismiss the due process claim and their motions for summary judgment. With regard to the antitrust claims, the court found immunity for all defendants under the doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). The court also rejected plaintiffs' equal protection challenge, finding a rational basis for the distinctions drawn between chiropractors and other health care providers. The district court entered final judgment in favor of defendants. We affirm.

Oregon law requires almost all employers to provide medical and income protection for job-related accidents. Or.Rev.Stat. Sec. 656.023 (1983); see also Or.Rev.Stat. Sec. 656.027 (1983). The obligation may be satisfied through private insurance, state insurance, or self-insurance. State coverage is provided through SAIF. SAIF's board of directors is appointed by the governor and confirmed by the state senate. Or.Rev.Stat. Sec. 656.751(1) (1983). SAIF issues guarantee contracts to insure employers for their liability under the Act, Or.Rev.Stat. Sec. 656.419(1) (1983), administers claims, and pays benefits to injured workers employed by covered employers. Or.Rev.Stat. Secs. 656.245, 656.262(1), 656.752(2)(b) (1983). It also enforces employers' obligations to insure against their compensation liabilities. Or.Rev.Stat. Sec. 656.504, 656.566, 656.752(2)(a) (1983).

The administrative and judicial aspects of the workers' compensation program are entrusted to the OWCD, which consists of the board, the Director, and their various assistants and employees. Or.Rev.Stat. Sec. 656.708(1) (1983). The Director, Roy Green, as the administrative head of the OWCD, possesses comprehensive authority to "[m]ake and declare all rules and regulations which are reasonably required in the performance of the director's duties." Or.Rev.Stat. Sec. 656.726(3)(a) (1983). In exercising these duties, the Director is assisted by the Medical Director, Dr. Morris Crothers, who advises the Director on medical matters and prepares medical rules.

The Act specifically authorizes the Director to promulgate reasonable rates to be paid for medical services provided pursuant to the Act. Or.Rev.Stat. Sec. 656.248(1) (1983). It further empowers the Director to adopt formal "medical practice rules" on the recommendation of the Advisory Committee on Medical Care and in accordance with the Oregon Administrative Procedure Act, Or.Rev.Stat. Secs. 183.310-183.550 (1983). Or.Rev.Stat. Sec. 656.794(2)(b) (1983).

Appellants base their Sherman Act claims on three different actions taken by the defendants: (1) the implementation of a de facto fee schedule in 1979; (2) the adoption of a "90th percentile" fee limitation in 1980; and (3) the adoption of a treatment schedule limitation in 1980. We describe each of these matters and occurrences briefly.

In 1979 Crothers used empirical data to determine the normal, average fees charged for various services by health care providers. He obtained from SAIF a sampling of bills from health care providers, computed figures constituting the 90th percentile, and used the results to adjust individual bills pursuant to section 656.248(2). The parties refer to these actions as the de facto rate adoption. In 1981 an OWCD Hearings Referee found the adoption of the de facto rate schedule to be improper because it bypassed the required rulemaking procedures of the Oregon Administrative Procedure Act. The Referee held that Crothers had not exceeded his authority, but rather that he had exercised it in an arbitrary and capricious manner.

In 1980, noting that bills to carriers for medical and chiropractic office visits were excessive, Dr. Crothers prepared fee guidelines for medical doctors and for chiropractors. He computed a level of charges, equal to the fees charged by the lowest 90 percent of billing offices, which he determined was the reasonable fee for the services provided. The guidelines were updated annually for chiropractors.

In 1980, after public hearings, the OWCD adopted an administrative rule which limited both the number and the frequency of treatments available to injured workers. Or.Admin.R. Sec. 436-69-320(2) (1980) (current version at Or.Admin.R. Sec. 436-69-201(2)(a) (1983) ). The rule applies to medical doctors as well as chiropractors; however, it has a more severe impact on the latter group because of the nature of their practice.

Reciting the above actions and events, plaintiffs allege Crothers and the codefendants conspired with each other and acted in bad faith to injure the chiropractors. In Count One, plaintiffs contend the conduct violated sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 (1982). In Count Two, plaintiffs maintain the same conduct constituted a denial of due process and equal protection.

As to the individual defendants, we agree with the district court that their actions are immune from Sherman Act liability under the principle of Parker v. Brown, 317 U.S. 341, 352, 63 S.Ct. 307, 314, 87 L.Ed. 315 (1943), as actions of the State of Oregon in its sovereign capacity. See Hoover v. Ronwin, --- U.S. ----, 104 S.Ct. 1989, 1998, 80 L.Ed.2d 590 (1984); Bates v. State Bar of Arizona, 433 U.S. 350, 360, 97 S.Ct. 2691, 2697, 53 L.Ed.2d 810 (1977); Goldfarb v. Virginia State Bar, 421 U.S. 773, 790, 95 S.Ct. 2004, 2014, 44 L.Ed.2d 572 (1975). The acts challenged, though taken by the individual defendants in their administrative capacity, were direct implementations of a precise statutory policy, so the case before us does not present the question whether the executive branch of a state government may formulate and pursue a policy that is within the Parker exemption. The Supreme Court has yet to consider this precise issue. See Ronwin, 104 S.Ct. at 1995 n. 17. Our court, however, addressed that question in Deak-Perera Hawaii, Inc. v. Department of Transportation, 745 F.2d 1281 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1756, 84 L.Ed.2d 820 (1985), and concluded that Parker immunity was applicable; but we need not rely on Deak-Perera. The actions by the individual defendants here were done as a routine implementation of a legislative policy, including rulemaking and the exercise of other delegated authority.

With respect to implementation of the de facto fee schedule in 1979, section 656.248 of the Oregon Revised Statutes supports the defendants' actions. The law authorizes the directors to set rates and to adjust individual bills, and as such states an affirmative and express policy to subordinate free competition among health care providers to the need of the state to reduce costs in the area of worker's compensation health care. The fee limitation rule was adopted pursuant to the statute and was actively supervised by the OWCD. Aggrieved parties could obtain further review pursuant to the provisions of the Oregon Administrative Procedure Act. Where the restraint in question is, first, clearly articulated and affirmatively expressed as a matter of state policy, and, second, subject to the active supervision of the state itself, the Parker defense is applicable. California Retail Liquor Dealers Association v. Mid-Cal Aluminum, Inc., 445 U.S. 97, 105, 100 S.Ct. 937, 943, 63 L.Ed.2d 233 (1980) (citing City of Layfayette v. Louisiana Power & Light Co., 435 U.S. 389, 410, 98 S.Ct. 1123, 1135, 55 L.Ed.2d 364 (1978) ). The requisites are met here, and the adoption of the fee limitation is immune from the antitrust laws under Parker.

The individual defendants are also immune for use of the treatment frequency schedule, despite its lack of specific statutory authorization. The Director is empowered to make all rules which are reasonably required in the performance of his duties....