Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins.

• Citation: 603 F. Supp. 1077
• Decision Date: 01 March 1985
• Docket Number: No. IP 84-1536-C.,IP 84-1536-C.
• Parties: BALL MEMORIAL HOSPITAL, INC., et al., Plaintiffs, v. MUTUAL HOSPITAL INSURANCE, INC., d/b/a Blue Cross of Indiana, and Mutual Medical Insurance, Inc., d/b/a Blue Shield of Indiana, Defendants.
• Court: U.S. District Court — Southern District of Indiana

603 F. Supp. 1077

BALL MEMORIAL HOSPITAL, INC., et al., Plaintiffs, v. MUTUAL HOSPITAL INSURANCE, INC., d/b/a Blue Cross of Indiana, and Mutual Medical Insurance, Inc., d/b/a Blue Shield of Indiana, Defendants.

No. IP 84-1536-C.

United States District Court, S.D. Indiana, Indianapolis Division.

March 1, 1985.

Dutton, Kappes & Overman by Douglas B. McFadden, Indianapolis, Ind., for plaintiffs.

Kirkland & Ellis, by James W. Rankin, Chicago, Ill., Donald C. Trigg, Associate Gen. Counsel, Blue Cross/Blue Shield of Indiana, Indianapolis, Ind., for defendants.

ORDER

STECKLER, District Judge.

Eighty acute-care hospitals brought this action under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and 28 U.S.C. § 1337 to recover three-fold the damages sustained by Plaintiffs by reason of Defendants' alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and to obtain injunctive relief against threatened loss and damage by reason of such violations. The action was also instituted under Sections 1, 2, and 7 of the Indiana Monopoly Act, I.C. § 24-1-2-1, I.C. § 24-1-2-2 and I.C. § 24-1-2-7. By their complaint Plaintiffs also seek declaratory relief pursuant to Rule 57 of the Federal Rules of Civil Procedure on Defendants' alleged violations of I.C. § 16-12.1-3-11, I.C. § 16-12.1-1-1, et seq., I.C. § 16-10-1-6.5, I.C. § 16-12.1-5-1, I.C. § 34-4-12.6-1(b), I.C. § 34-4-12.6-2, and I.C. § 27-8-11-3 and -4.

The matter is now before the Court on Plaintiffs' motion for preliminary injunction pendente lite seeking to enjoin Blue Cross/Blue Shield from implementing its Preferred Provider Organization in Indiana, to enjoin Defendants from advertising the Preferred Provider Organization and to enjoin Defendants' merger planned for March 1, 1985.

Defendants have developed and intend to implement, on March 1, 1985, a Preferred Provider Organization ("PPO") in the State of Indiana. The concept of PPO is to provide subscribers with incentives to use those providers of health care services who hold potential for reducing the rate of increase in health care benefit costs. Two key characteristics in combination differentiate PPO's from other forms of health care coverage: (1) subscribers are given incentives to use a limited panel of providers, but retain freedom of choice to use other qualified providers, and (2) preferred providers are defined by specific health care cost containment characteristics, such as competitive charges and participation in utilization control programs.

A hearing on Plaintiffs' motion for preliminary injunction commenced on February 7, 1985, and extended over a period of eleven days during which the Court heard testimony and argument regarding identification of the relevant product market, identification of the relevant geographic market, market power and market share, price shifting, patient steering, "discounts," and coercion. The record generated by the hearing contains hundreds of exhibits, affidavits, and depositions, and the transcript encompasses eleven volumes.

Plaintiffs contend that Defendants' purpose in offering the PPO is to exclude others seeking to offer a PPO from entering the market, to discourage major companies from self-insuring, to extract through coercion unreasonable discounts from health care providers, and to extend Defendants' market position. Plaintiffs' asserted purpose in initiating the action is to maintain the status quo, to continue the parties' longstanding relationship, and to preserve competition. Defendants on the other hand state that the PPO is being offered in response to consumer demands and represents another option for the consumer that should be made available in the market place. Defendants point out that participation in the PPO program is voluntary, but for those who choose the PPO option, defendants have established a network of hospitals which includes over 50% of the acute care hospitals in the state to provide participants with access to health care. Defendants claim PPO will enhance competition in the provision of health care financing and health care hospital services, and that what Plaintiffs are seeking is an anti-competitive injunction. It is Defendants' position that they are offering the PPO option to preserve, not extend, their market position.

While not singling out a particular facet of the evidence, in passing the Court would note the bargaining leverage Defendants are alleged to be able to employ by virtue of Defendants' advantageous position as the Medicare Intermediary and Rate Review Administrator in Indiana. Notwithstanding Plaintiffs' charges, the Court finds that Plaintiffs have failed to establish that Defendants have monopoly power or the ability to exclude others from the relevant market. For this reason and other reasons as set out in the Court's findings and conclusions the Court concludes that it must find for the Defendants and against the Plaintiffs on Plaintiffs' motions for injunctive relief.

Having considered the evidence, the briefs of the parties, together with the oral arguments, and being fully informed, the Court makes the following findings of fact and conclusions of law.

Findings of Fact

1. Defendants Mutual Hospital Insurance, Inc., d/b/a Blue Cross of Indiana, and Mutual Medical Insurance, Inc., d/b/a Blue Shield of Indiana ("Blue Cross/Blue Shield") are nonprofit Indiana corporations engaged in the business of offering health care insurance to Indiana residents. Blue Cross offers hospital care insurance; Blue Shield offers medical and surgical insurance.

2. Though technically separate, Blue Cross and Blue Shield have for more than thirty years acted as one company to offer health care in Indiana. Blue Cross/Blue Shield offers health insurance both to groups, such as employers who purchase on behalf of their employees, and to individuals who purchase for themselves. Blue Cross/Blue Shield also offers administrative services to companies in Indiana which have their own self-insurance programs.

3. Blue Cross and Blue Shield are nonprofit corporations. All of the revenue is used to pay claims and expenses. Any excess revenue is put in a statutorily required reserve to pay future claims, or returned to subscribers through refunds or reduced premiums.

4. Plaintiffs are eighty Indiana hospitals offering general acute-care hospital services. Many of the Plaintiffs are competitors in the market for hospital services.

5. On November 14, 1984 Plaintiffs filed their complaint asking for emergency relief to prevent the implementation of the Blue Cross/Blue Shield Preferred Provider Organization ("PPO"). Plaintiffs allege that, through its PPO, Blue Cross/Blue Shield is monopolizing or attempting to monopolize the market for health care financing and hospital services in violation of Section 2 of the Sherman Act. They also complain that the Blue Cross/Blue Shield Preferred Care Hospital Agreements are unreasonable restraints of trade in violation of Section 1 of the Sherman Act.

6. Plaintiffs' state antitrust claims are identical to their federal claims. In addition, Plaintiffs allege the PPO violates the Indiana County Hospital Statute, I.C. § 16-12.1-3-11, by requiring county hospitals to charge Blue Cross/Blue Shield a different price than they charge other patients. Plaintiffs further allege that the PPO requires them to divulge rate review information protected by I.C. § 34-4-12.6-2. Plaintiffs seek monetary damages, declaratory judgment, and the extraordinary relief of a preliminary injunction.

7. On December 5, 1984, Defendants counterclaimed against Plaintiff-counterdefendant Methodist Memorial Hospital, alleging that Methodist, the Indiana Hospital Association, other hospitals and individuals acting on their behalf, have violated Sections 1 and 2 of the Sherman Act, and the Indiana Monopoly Act by their concerted actions in opposition to the Blue Cross/Blue Shield PPO. Defendants also allege that Methodist tortiously interferred with Blue Cross/Blue Shield's business relationships and prospective economic advantage. At this preliminary injunction hearing the allegations of the counterclaim are not properly before the Court for decision.

8. The relevant market in which Blue Cross/Blue Shield competes is the market for health care financing for consumers. Health care financing is a way for consumers to pay for their hospital and health care needs.

There is a high cross-elasticity of demand between the various products in the health care financing market, and there are no submarkets. Consumers are extremely price sensitive and will readily switch on the basis of price from one company or form of financing to another. Consequently, no competitor, including Blue Cross/Blue Shield, in the health care financing market has the power to control prices or exclude competitors. If Blue Cross/Blue Shield raised its premiums above competitive levels, customers would quickly abandon Blue Cross/Blue Shield in favor of alternative sources of health care financing. Competitors in this market can succeed only by offering quality and innovative products and services at attractive prices.

9. The relevant geographic health care financing market is regional, if not national. Indiana consumers are not confined by the states' boundaries in their purchases of health care financing. International and national insurance companies, regional insurance companies, and local companies all offer plans to Indiana residents. In addition, multi-state employers can shop for insurance programs nationally. Accordingly, there are no grounds for restricting the health insurance market to the boundaries of Indiana, and there are no submarkets.

10. There is vigorous competition in the health care financing market, and there are many competitors offering a wide variety of financing options to consumers. Consequently, Blue Cross/Blue Shield, as a seller of health insurance and administrative service, faces...