986 F.2d 589 (1st Cir. 1993), 92-1270, United States Healthcare, Inc. v. Healthsource, Inc.
|Citation:||986 F.2d 589|
|Party Name:||U.S. HEALTHCARE, INC., etc., et al., Plaintiffs, Appellants, v. HEALTHSOURCE, INC., etc., et al., Defendants, Appellees.|
|Case Date:||February 26, 1993|
|Court:||United States Courts of Appeals, Court of Appeals for the First Circuit|
Heard July 7, 1992.
Franklin Poul with whom Dana B. Klinges, Mark L. Heimlich, Wolf, Block, Schorr and Solis-Cohen, Philadelphia, PA, Andrew D. Dunn, Thomas Quarles, Jr. and Devine,
Millimet & Branch, Manchester, NH, were on brief, for plaintiffs, appellants.
Thomas Campbell with whom Deborah H. Bornstein, James W. Teevans, Gardner, Carton & Douglas, Chicago, IL, William J. Donovan, Peter S. Cowan and Sheehan, Phinney, Bass & Green, Manchester, NH, were on brief, for defendants, appellees.
Before TORRUELLA, CYR and BOUDIN, Circuit Judges.
BOUDIN, Circuit Judge.
U.S. Healthcare and two related companies (collectively "U.S. Healthcare") brought this antitrust case in the district court against Healthsource, Inc., its founder and one of its subsidiaries. Both sides are engaged in providing medical services through health maintenance organizations ("HMOs") in New Hampshire. In its suit U.S. Healthcare challenged an exclusive dealing clause in the contracts between the Healthsource HMO and doctors who provide primary care for it in New Hampshire. After a trial in district court, the magistrate judge found no violation, and U.S. Healthcare appealed. We affirm.
Healthsource New Hampshire is an HMO founded in 1985 by Dr. Norman Payson and a group of doctors in Concord, N.H. Its parent company, Healthsource, Inc., is headed by Dr. Payson and it manages or has interests in HMOs in a number of states. We refer to both the parent company and its New Hampshire HMO as "Healthsource."
In simpler days, health care comprised a doctor, a patient and sometimes a hospital, but the Norman Rockwell era of medicine has given way to a new world of diverse and complex insurance and provider arrangements. One of the more successful innovations is the HMO, which acts both as a health insurer and provider, charging employers a fixed premium for each employee who subscribes. To provide medical care to subscribers, an HMO of Healthsource's type--sometimes called an individual practice association or "IPA" model HMO--contracts with independent doctors. These doctors continue to treat other patients, in contrast to a "staff" model HMO whose doctors would normally be full-time employees of the HMO.
HMOs often can provide health care at lower cost by stressing preventative care, controlling costs, and driving hard bargains with doctors or hospitals (who thereby obtain more patients in exchange for a reduced charge). Healthsource, like other HMOs, uses primary care physicians--usually internists but sometimes pediatricians or others--as "gatekeepers" who direct the patients to specialists only when necessary and who monitor hospital stays. Typically, the contracting primary care physicians do not charge by the visit but are paid "capitations" by the HMO, a fixed amount per month for each patient who selects the doctor as the patient's primary care physician. Unlike a patient with ordinary health insurance, the HMO patient is limited to the panel of doctors who have contracted with the HMO.
There are familiar alternatives to HMOs. At the "financing" end, these include traditional insurance company policies that reimburse patients for doctor or hospital bills without limiting the patient's choice of doctor, as well as Blue Cross/Blue Shield plans of various types and Medicare and Medicaid programs. At the "provider" end, there is also diversity. Doctors may now form so-called preferred provider organizations, which may include peer review and other joint activities, and contract together to provide medical services to large buyers like Blue Cross or to "network" model HMOs. There are also ordinary group medical practices. And, of course, there are still doctors engaged solely in independent practice on a fee-for-service basis.
Healthsource's HMO operations in New Hampshire were a success. At the time of suit, Healthsource was the only non-staff HMO in the state with 47,000 patients (some in nearby areas of Massachusetts), representing about 5 percent of New Hampshire's population. Stringent controls gave it low costs, including a low
hospital utilization rate; and it sought and obtained favorable rates from hospitals and specialists. Giving doctors a further stake in Healthsource's success and incentive to contain costs, Dr. Payson apparently encouraged doctors to become stockholders as well, and at least 400 did so. By 1989 Dr. Payson was proposing to make Healthsource a publicly traded company, in part to permit greater liquidity for its doctor shareholders.
U.S. Healthcare is also in the business of operating HMOs. U.S. Healthcare, Inc., the parent of the other two plaintiff companies--U.S. Healthcare, Inc. (Massachusetts) and U.S. Healthcare of New Hampshire, Inc.--may be the largest publicly held provider of HMO services in the country, serving over one million patients and having total 1990 revenues of well over a billion dollars. Prior to 1990, its Massachusetts subsidiary had done some recruiting of New Hampshire doctors to act as primary care providers for border-area residents served by its Massachusetts HMO. In 1989, U.S. Healthcare had a substantial interest in expanding into New Hampshire.
Dr. Payson was aware in the fall of 1989 that HMOs operating in other states were thinking about offering their services in New Hampshire. He was also concerned that, when Healthsource went public, many of its doctor-shareholders would sell their stock, decreasing their interest in Healthsource and their incentive to control its costs. After considering alternative incentives, Dr. Payson and the HMO's chief operating officer conceived the exclusivity clause that has prompted this litigation. Shortly after the Healthsource public offering in November 1989, Healthsource notified its panel doctors that they would receive greater compensation if they agreed not to serve any other HMO.
The new contract term, effective January 26, 1990, provided for an increase in the standard monthly capitation paid to each primary care physician, for each Healthsource HMO patient cared for by that doctor, if the doctor agreed to the following optional paragraph in the basic doctor-Healthsource agreement:
11.01 Exclusive Services of Physicians. Physician agrees during the term of this Agreement not to serve as a participating physician for any other HMO plan; this shall not, however, preclude Physician from providing professional courtesy coverage arrangements for brief periods of time or emergency services to members of other HMO plans.
A doctor who adopted the option remained free to serve non-HMO patients under ordinary indemnity insurance policies, under Blue Cross/Blue Shield plans, or under preferred provider arrangements. A doctor who accepted the option could also return to non-exclusive status by giving notice. 1
Although Healthsource capitation amounts varied, a doctor who accepted the exclusivity option generally increased his or her capitation payments by a little more than $1 per patient per month; the magistrate judge put the amount at $1.16 and said that it represented an average increase of about 14 percent as compared with non-exclusive status. The dollar benefit of exclusivity for an individual doctor obviously varies with the number of HMO patients handled by the doctor. Many of the doctors had less than 100 Healthsource patients while about 50 of them had 200 or more. About 250 doctors, or 87 percent of Healthsource's primary care physicians, opted for exclusivity.
U.S. Healthcare through its New Hampshire subsidiary applied for a New Hampshire state license in the spring of 1990, following an earlier application by its Massachusetts subsidiary. A cease and desist order was entered against it, limiting its marketing efforts, because of premature claims that it had approval to operate in the state. The cease and desist order was withdrawn on February 15, 1991, and the license issued on February 21, 1991, subject to later approval of marketing materials. The present suit was filed in district
court by U.S. Healthcare against Healthsource and Dr. Payson on March 12, 1991. By mid-1991, U.S. Healthcare had only two New Hampshire "accounts" and only about 18 primary care physicians.
In the district court, U.S. Healthcare challenged the exclusivity clause under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, and under state antitrust and tort law. The parties stipulated to trial before a magistrate judge. After discovery, two separate weeks of trial were conducted in August and September 1991. In a decision filed on January 30, 1992, the magistrate judge found for the defendants on all counts. This appeal followed.
In this court, U.S. Healthcare attacks the exclusivity clause primarily as a per se or near per se violation of section 1; accordingly we begin by examining the case through the per se or "quick look" lenses urged by U.S. Healthcare. We then consider the claim...
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