Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc.
| Decision Date | 07 April 1986 |
| Docket Number | No. 85-1481,85-1481 |
| Citation | 784 F.2d 1325 |
| Parties | , 1986-1 Trade Cases 66,974 BALL MEMORIAL HOSPITAL, INC., et al., Plaintiffs-Appellants, v. MUTUAL HOSPITAL INSURANCE, INC., doing business as Blue Cross of Indiana, and Mutual Medical Insurance, Inc., doing business as Blue Shield of Indiana, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Douglas B. McFadden, McFadden, Borsari, Evans & Sill, Washington, D.C., for plaintiffs-appellants.
James W. Rankin, Kirkland & Ellis, Chicago, Ill., for defendants-appellees.
Before FLAUM and EASTERBROOK, Circuit Judges, and WILL, Senior District Judge. *
The provision of health care financing services has become increasingly competitive. Hospitals and physicians (the providers of service) have begun to offer financing packages, much as automobile manufacturers sometimes finance their own products. In health care, where the need for service often depends on events beyond anyone's control, financing often is combined with insurance to spread the risks.
Sometimes the financing and insurance package is part of a new method of supplying the service; the health maintenance organization (HMO) is both a method of joining physicians in a firm and a method of financing their service by selling memberships for stated monthly prices. The physicians at HMOs are paid salaries rather than fees for each service they render. Sometimes the financing is independent of the method of supplying the service. Several hospitals in Indiana that use traditional organization (most physicians are independent contractors rather than employees), and pay each provider per service, also have begun to offer financing to patients.
One package is the preferred provider organization (PPO). In exchange for a stated monthly payment, the hospital promises to pay the costs of patients who use particular providers. Patients who use providers other than the "preferred" ones must pay part or all of the fees themselves. These copayments are meant to induce patients to stick with the preferred providers--perhaps more often to request their physicians to stick with the preferred providers. 1 This may send extra business to these providers, who in exchange may agree to take less for each case. The assembler of the PPO plan may pass the savings along to the purchasers of the coverage. A PPO plan specifies in advance the fee it will pay a provider for any given medical service.
The purchasers of the service are not necessarily the patients. Employers often supply health care coverage for employees, and they are intensely interested in reducing the price of any given level of care. These employers may shop among different plans assembled by different HMOs and hospitals. They also consider traditional insurance packages. Blue Cross and Blue Shield of Indiana (the Blues) offer a service benefit plan that has attracted a substantial following from both employers and individual purchasers of insurance. Providers sign up as members of the Blues' plan, and they promise to accept as payment the "usual, customary, and reasonable" fee for a service as the Blues determine that fee to be, case by case. Other sellers of insurance agree to pay stated amounts per type of service rendered or to pay a stated percentage of the provider's bill. These plans have attracted fewer subscribers. Some large employers simply hire insurance companies to administer the employers' own plans; the administrator receives the bills, the employer determines what it will pay, and the administrator sends the money on to the providers. Administered self-insurance has been growing at the expense of other plans.
Patients and employers must choose among these plans. Once they have chosen a plan, they may have little control over their care. Choosing a PPO plan or HMO may lock a person into a particular provider. On the other hand, the choice among plans is relatively free in advance, and patients may shop among plans that are compatible with their needs and with their physicians' limitations (each physician will have privileges at a subset of local hospitals). This case is about the choice among financing packages.
The plaintiffs in this case are 80 acute-care hospitals (the Hospitals). All 80 provide care on a fee for service basis, and all 80 receive payments from many insurance plans and administered self-insurance plans as well as from patients. Some of the 80 also offer PPO plans; others are preparing to do so. Forty of the 80 plaintiffs have appealed.
The Blues have been losing market share in Indiana for some years. In 1980 the Blues insured almost two million of Indiana's 5.5 million population. By 1984 they insured only about 1.45 million people. This is still a large share; at some of the Hospitals more than 80% of all patients are covered by the Blues, and throughout Indiana about 50% of all hospitals' revenues come from payments made by the Blues. This may be a misleading figure because it includes payments the Blues made as administrators of self-insurance plans and of Indiana's Medicare plan. The Blues say that they are much smaller--they insure only about 27% of all patients in Indiana and distributed in 1982 only about $450 million in Indiana on behalf of privately-insured patients, while Indiana's hospitals received some $2.2 billion from all sources. By all accounts the Blues are large in relation to the next-largest private supplier of health insurance in Indiana, which underwrites about 3% of all private insurance in the state. Just how "large" the Blues are turns out not to matter, so we do not pursue the question.
All agree that however large the Blues may be, they are losing business. Concerned about this, the Blues decided to offer a PPO of their own, in addition to their traditional service benefit plans. The Blues also decided to merge, eliminating the longstanding practice of one plan's underwriting hospitals' services and another's underwriting physicians' services. The Blues asked for bids from all acute-care hospitals in Indiana and invited each to bid a percentage discount from its regular fees. That PPO plan and merger precipitated this case. The hospitals that offer PPO plans saw the Blues' decision as a threat to their success. All hospitals saw a PPO plan as a threat to revenues--those who participated in the plan might collect less per service rendered, and those outside the plan might lose volume.
Ninety-one of Indiana's 115 acute-care hospitals submitted bids, and the Blues signed up 61 of the 91. Forty-two of the 80 plaintiffs are among the 61. Eleven plaintiffs did not bid, and 27 bid but were not selected. All 80 remain eligible to participate in the regular service benefit plan offered by the Blues, which is the Blues' most popular product. All hospitals in Indiana also may provide services to patients covered by the Blues' PPO, but the Blues will reimburse only 75% of the hospitals' fees; the patients must pay the rest. The Blues will reimburse 100% of the agreed charges when insureds use hospitals within the PPO.
The Blues wanted to put their PPO into effect early in 1985. The Hospitals began this suit on November 14, 1984, seeking injunctive relief against the Blues' proposed PPO under sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2, and provisions of Indiana law.
The district court set the case for a hearing on the Hospitals' request for a preliminary injunction. The court told the Hospitals they could present as much evidence as they wanted, and the hearing lasted 11 days in February 1985. More than 30 witnesses testified; more than 400 exhibits were introduced. On March 1, 1985, the district court denied the request for a preliminary injunction. The Blues' PPO immediately went into effect. The court later entered a partial final judgment disposing of the Hospitals' claims under state law, while reserving their antitrust claims; it issued a certificate under Fed.R.Civ.P. 54(b) permitting immediate appeal of the state law issues. We therefore have before us the denial of preliminary relief under the Sherman Act and the final judgment under state law.
The district court made extensive findings of fact. 603 F.Supp. 1077 (S.D.Ind.1985). The most important of these concern the Hospitals' claim that the Blues have (and abused) "market power," the ability to raise price significantly higher than the competitive level by restricting output. See NCAA v. University of Oklahoma, 468 U.S. 85, 104 S.Ct. 2948, 2965-67 & n. 38, 82 L.Ed.2d 70 (1984); United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956); William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 Harv.L.Rev. 937 (1981). The court found that the Blues do not have the power to restrict output in the market or to raise price because they furnish a fungible product that other people can and do supply easily.
The court treated the product as "health care financing." The Blues, other insurance companies, hospitals offering PPOs, HMOs, and self-insuring employers all offer methods of financing health care. Employers and individual prospective patients easily may switch from one financing package to another; nothing binds an employer or patient to one plan. To put it differently, even though everyone wants medical insurance, and the demand for this service as a whole may be inelastic (meaning that purchases fall less than 1% in response to a 1% increase in price, which makes the increase profitable), when customers are not tied to particular sellers each seller may perceive the demand as highly elastic (meaning that customers will quickly switch if any one supplier raises price, which makes the increase unprofitable). The court concluded: ...
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