Addino v. Genesee Valley Medical Care, Inc.

• Decision Date: 31 August 1984
• Docket Number: No. CIV 82-45T.,CIV 82-45T.
• Citation: 593 F. Supp. 892
• Parties: John G. ADDINO, D.P.M., Edward J. Bonavilla, D.P.M., David Chazin, D.P.M., Charles F. Coyle, D.P.M., and Louis J. Giordano, D.P.M., Individually and on behalf of all other doctors of Podiatric Medicine having Participant contracts with Genesee Valley Medical Care (A Blue Shield Plan), Plaintiffs, v. GENESEE VALLEY MEDICAL CARE, INC., a New York non-profit corporation and Blue Shield Plan, Defendant.
• Court: U.S. District Court — Western District of New York

593 F. Supp. 892

John G. ADDINO, D.P.M., Edward J. Bonavilla, D.P.M., David Chazin, D.P.M., Charles F. Coyle, D.P.M., and Louis J. Giordano, D.P.M., Individually and on behalf of all other doctors of Podiatric Medicine having Participant contracts with Genesee Valley Medical Care (A Blue Shield Plan), Plaintiffs, v. GENESEE VALLEY MEDICAL CARE, INC., a New York non-profit corporation and Blue Shield Plan, Defendant.

No. CIV 82-45T.

United States District Court, W.D. New York.

August 31, 1984.

A. Vincent Buzard, Rochester, N.Y., Mark E. Schlussel, Douglas E. Busbey, Schlussel, Lifton, Simon, Rands, Daufman, Lesinski & Jackier, Southfield, Mich., for plaintiffs.

Paul R. Braunsdorf, and Kevin J. Arquit, Harris, Beach, Wilcox, Rubin & Levey, Rochester, N.Y., for defendant.

MEMORANDUM DECISION AND ORDER

TELESCA, District Judge.

INTRODUCTION AND PROCEDURAL HISTORY

Plaintiffs, five podiatrists, bring this action against Defendant, a Blue Shield plan, alleging violations of Sections 1 and 2 of the Sherman Act, (15 U.S.C. Sections 1 and 2), in addition to a pendent state law claim. Plaintiffs' original complaint was dismissed by decision and order of this court dated November 3, 1983, on the ground that it failed to sufficiently allege an impact upon interstate commerce caused by defendant's alleged unlawful activities. Plaintiffs filed an amended complaint on November 29, 1983, and now move for partial summary judgment on the issue of defendant's liability under the Section 1 Sherman Act count of the amended complaint. Defendant cross-moved for summary judgment seeking dismissal of the entire complaint. Both motions are now before this Court for determination.

FACTS¹

Plaintiffs are licensed podiatrists practicing in the Rochester, New York area. Defendant, Genesee Valley Medical Care, Inc. ("GVMC") is a not-for-profit New York Corporation which operates a Blue Shield Plan in a five-county area surrounding the City of Rochester, New York. The plan has approximately 740,000 subscribers which accounts for approximately 74% of the commercial health care delivery market in that area.² As of April 1, 1982, GMVC had contracts with 1,333 participating physicians, i.e., doctors of medicine ("M.D.s") who, under the corporation's bylaws, are considered "Members".³ Podiatrists and dentists are also permitted to contract with GVMC but unless they are elected to the board, they are merely considered "Participants"⁴ and not "Members".

A participant in the plan, (an M.D., Dentist or Podiatrist), who signs a contract with GVMC, agrees to accept the maximum fee set by GVMC for a given procedure for treatment provided to one of the plan's subscribers. Under this arrangement, a participant is directly reimbursed by GVMC for services rendered.

An individual subscriber is free to seek treatment from a non-participating provider with several significant consequences. First, the subscriber must make payment to the provider and then seek reimbursement from GVMC. Additionally, if the provider charges more than GMVC's maximum rate for a given procedure, the subscriber will not be reimbursed for this additional amount. With this in mind, it is not difficult to accept plaintiffs' premise that most subscribers, if they have the choice, will seek out only participating providers.

GVMC uses a two-tiered approach for setting the maximum reimbursement rate for a given procedure. The Medical Advisory Committee ("MAC") is the first body to review suggested rate changes. The MAC is made up of eleven M.D.'s and three non-health care providers (referred to as laypersons). The content of the MAC according to the by-laws, is left to the discretion of the board. (See GVMC By-laws Article VII, Section 1)

Prior to the commencement of this action and up until some point afterwards, a Schedule Review Committee was also involved in rate setting. This committee was entirely composed of MD's and performed a reviewing function of the proposals already approved by the MAC. At present, the functions of the Schedule Review Committee are also performed by the MAC, and the former has been eliminated.

Under either system, all proposed rates must be approved by GVMC's board of directors. The present number of directors on the board is 24, being composed of 12 MD's and 12 laypersons. However, the by-laws simply provide that the board may contain no less than 6 nor more than 24 directors, one-half of which must be participants. (See GVMC's By-Laws Article VI, Section 1). Although Podiatrists and Dentists are permitted to serve as board members, no Podiatrist or Dentist has ever been chosen or served in that capacity.

The board is elected as follows. The old board determines how many vacancies (both layperson and participant) which need to be filled in a given year. The board then appoints a nominating committee of five persons, at least two of which must be layperson board members. According to plaintiffs, the other three have always been MD's.

After a slate of participant candidates has been presented by the nominating committee, the 1,333 MD members of the corporation (and presumably the 12 layperson board members) elect the participant board members. Thereafter, there is some dispute as to how the 12 layperson members are selected. The plaintiff contends that the doctor members of the board will control both the selection and appointment of the lay members which is indicative of the measure control enjoyed by the MD's.⁵

The gravamen of plaintiffs' complaint is that GVMC constitutes a structural price fixing conspiracy controlled by MD's. Plaintiffs allege that this conspiracy resulted in the simultaneous reduction of the maximum reimbursement rates for seven podiatric procedures and increases in rates for procedures performed exclusively by MD's. They further allege that this case presents a per se violation of Section 1 of the Sherman Act.

DISCUSSION

I. SECTION 1, SHERMAN ACT CLAIM

Section 1 of the Sherman Act provides that "every contract, combination ... or conspiracy, in restraint of trade or commerce among the several states ... is declared to be illegal ...". 15 U.S.C. 1. Long ago, however, the Supreme Court recognized that Congress could not have intended the word "every" to be taken literally, and most alleged restraints have been judged under what is called the "rule of reason." United States v. Joint Traffic Assn., 171 U.S. 505, 19 S.Ct. 25, 43 L.Ed. 259 (1898), Standard Oil of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). The "rule of reason" requires that the fact finder determine, under all of the circumstances, whether the restrictive practice imposes an unreasonable restraint upon competition.

Plaintiffs urge, however, that the rule of reason is inapplicable in this case and that the current state of the law is found in Arizona v. Maricopa Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982). That case held that where doctors established the maximum fees to be paid in full payment for health services provided to patients who were members of a health insurance plan, such an arrangement constituted per se illegal price fixing under Section 1 of the Sherman Act. Plaintiff urges that where a price fixing agreement is involved, there is no need for this Court decide whether under all the circumstances the restrictive practice imposes an unreasonable restraint on competition. It is the per se rule against price fixing applied in Maricopa which plaintiffs assert should also be applied in this case. Plaintiffs argue vigorously that the by-laws of GVMC provide the MD's with the power to control the corporation and therefore to make decisions concerning the pricing of their services rendered to approximately 74% of the community. This argument, they claim, is a logical extension of the Maricopa decision.

A. APPLICATION OF THE ANTI-TRUST LAWS

Before resolving the merits of plaintiff's motion, defendant has alleged in its cross motion that it is exempt from the anti-trust laws under the "state action" doctrine. Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Defendant alleges that it is pervasively regulated by the New York State Insurance Department and is therefore exempt from anti-trust analysis.⁶

The decisions since Parker v. Brown establish a two-pronged test for anti-trust law immunity under the state action doctrine: (1) The challenged restraint must be "one clearly articulated and affirmatively expressed as state policy"; and, (2) the policy must be "actively supervised by the state itself." City of Lafayette v. Louisiana Power and Light Co., 435 U.S. 389, 410, 98 S.Ct. 1123, 1135, 55 L.Ed.2d 364 (1978); California Liquor Dealers v. Midcal Aluminum, 445 U.S. 97, 105, 100 S.Ct. 937, 943, 63 L.Ed.2d 233 (1980). As the court noted in Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), in order to qualify for the state action exemption, it is not enough that anti-competitive conduct is "prompted by state action, rather, anti-competitive activities must be compelled by direction of the state acting as a sovereign." Id. at 791 (emphasis added).

In the present case, none of the alleged activities of defendant or its member physicians satisfy the test set forth in Lafayette. It cannot be seriously argued that the State of New York compels defendants to set rates utilizing this particular method. See Ratino v. Medical Service of District of Columbia, 718 F.2d 1260, 1268 (4th Cir.1983). Nor can it be argued that New York State law does anything more than permit the present makeup of the GVMC board. Accordingly, the Parker v. Brown "state action" exemption is inapplicable to the case before this court.

B. APPLICATION OF THE PER SE RULE TO THIS CASE

Turning to plaintiffs' principal claim, it is alleged that the corporate structure of GVMC and the method it uses to set reimbursement rates presents a "structural conspiracy" among physicians to fix...