Barry v. Blue Cross of California

Citation805 F.2d 866
Decision Date04 December 1986
Docket NumberNo. 85-6448,85-6448
Parties, 1986-2 Trade Cases 67,367 Dr. Donald J. BARRY and Dr. Bert Hassler, Plaintiffs-Appellants, v. BLUE CROSS OF CALIFORNIA, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Don Erik Franzen, Beverly Hills, Cal., for plaintiffs-appellants.

James Martin, Oakland, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before WALLACE, BOOCHEVER and KOZINSKI, Circuit Judges.

WALLACE, Circuit Judge:

Barry and Hassler, two California physicians, appeal from a summary judgment entered in favor of Blue Cross of California (Blue Cross). Their complaint alleges that Blue Cross participated in price-fixing and a group boycott in violation of federal antitrust law. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291, and we affirm.

I

Blue Cross, a nonprofit corporation, offers various forms of medical insurance to residents of California. By statute, at least two-thirds of the members of the Blue Cross governing board must be duly appointed representatives of the public, so that no more than one-third of the board's members can be physicians or representatives of hospitals with which Blue Cross has service contracts. Cal.Ins.Code Sec. 11498 (West Supp.1986). In 1982, California enacted legislation authorizing private insurers to contract with hospitals and health care professionals to provide services for insureds at predetermined prices. Cal.Ins.Code Sec. 10133 (West 1972 & Supp.1986). Blue Cross decided to make such coverage available through an insurance package known as the Prudent Buyer Plan (the Plan).

Blue Cross contracted with physicians and hospitals to provide services at a fixed rate to those who subscribe to the Plan. If a subscriber receives treatment from one of these participating physicians, then Blue Cross pays for ninety percent of the cost of the service, once deductibles are satisfied. If a subscriber elects to use the services of a nonparticipating physician, Blue Cross pays only sixty to seventy percent of the physician's customary fee. Both subscribers and participating physicians are free to deal with any other patient, physician, or insurance company. A participating physician, however, cannot refer a patient insured under the Plan to a nonparticipating physician without the consent of the patient.

Hassler contracted to provide services under the Plan; Barry declined to do so. Barry and Hassler (the two doctors) filed suit in the district court claiming that the Plan resulted in price-fixing and a group boycott in violation of the Sherman Antitrust Act of 1890, 15 U.S.C. (Sherman Act), section 1, and that Blue Cross is a monopolist in violation of Sherman Act, section 2. They also asserted various state law claims. After several months of discovery, the district court granted Blue Cross's motion for summary judgment on all federal claims and dismissed the pendent state law claims.

We review de novo whether the district court properly granted summary judgment. Lojek v. Thomas, 716 F.2d 675, 677 (9th Cir.1983). Viewing the evidence in the light most favorable to the two doctors, we must determine whether a genuine issue remains as to any material fact, and whether Blue Cross is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56(c). We consider in turn each of the two doctors' three principal claims: horizontal price-fixing, unlawful vertical restraint of trade, and monopolization.

II

The two doctors allege that the Plan represents a horizontal agreement among competing physicians. If so, the Plan is per se unlawful under section 1 of the Sherman Act because the Plan fixed prices for physician's services. See Arizona v. Maricopa County Medical Society, 457 U.S. 332, 356-57, 102 S.Ct. 2466, 2479, 73 L.Ed.2d 48 (1982) (Maricopa ). To show a horizontal agreement, the two doctors rely on evidence that several thousand physicians signed identical contracts with Blue Cross and that physicians participated in creating the plan. Although their arguments are somewhat confused, we construe them to include two theories of horizontal agreement: (1) that the Plan enables its member physicians to fix prices in a manner similar to the arrangement that the Court found unlawful in Maricopa; and (2) that the Plan resulted from conscious parallelism or a tacit conspiracy of physicians.

A.

In Maricopa, physicians formed an organization to set maximum prices for physician services in Maricopa County, Arizona. 457 U.S. at 339, 341, 102 S.Ct. at 2470, 2471. Although Blue Cross is not an organization of physicians, the two doctors contend that summary judgment should be denied because they have produced sufficient evidence that physicians actually control the Plan.

First, the two doctors point to evidence that Blue Cross obtained advice on the Plan from various physician groups. The record indicates that Blue Cross wanted to test the reaction of physicians before putting the Plan into final form. Blue Cross solicited comments from several physician groups on a draft of the proposed agreement for participating physicians. The record contains two letters that Blue Cross received from the California Radiological Society expressing some complaints that radiologists had about the Plan. Blue Cross received both letters in July 1983, the same month that it began contracting with participating physicians. Thus, the letters conceivably could have influenced Blue Cross. The record also contains a letter from a physician dated December 1983, after the Plan was already in effect, expressing his opinions about the Plan. The record does not indicate that Blue Cross made any changes in the Plan as a result of this or any other information received from physicians. We conclude that this evidence does not permit an inference of physician control of Blue Cross or of the Plan. Cf. Maricopa, 457 U.S. at 353 n. 28, 102 S.Ct. at 2478 (commenting that an insurer must "canvass the doctors" to assure that the fee schedules of any new plan will be workable).

The two doctors also argue that physician control sufficient to invoke Maricopa can be inferred from the existence of a "Physicians Relations Committee" that reviewed both the plan and the fee schedules. The record contains a list of Blue Cross's "Advisory Boards, Committees, and Senior Staff" for 1984. This list indicates that the Physician Relations Committee consisted of sixteen doctors. The list includes several other advisory committees--including a consumer relations committee and a hospital relations committee--whose membership totaled sixty-one, none of whom were doctors. The list also indicates that the Blue Cross Northern California Board of Directors had nineteen members including four doctors, and that the Southern California Board had nineteen members, of whom only two were medical doctors and one was a doctor of public health. Finally, the list names the eleven senior executives for Blue Cross in 1984, none of whom was a doctor.

The record shows that Blue Cross asked the Physician Relations Committee to review the Plan and to offer "comments and suggestions" before the Plan was implemented in 1983. The record also indicates that the committee reviewed certain proposed fee increases in 1984. No evidence was presented that either review had any effect on the Plan. Furthermore, nothing in the record suggests that the committee had final authority over any aspect of the Plan. Indeed, the only direct evidence relevant to this issue, the declaration of a Blue Cross vice president, states unequivocally that all decisions regarding the Plan's terms and structure were made by Blue Cross's staff, not by physicians.

Although the physicians of California could have secretly agreed first to set prices and then to enforce them through Blue Cross's Physician Relations Committee, the two doctors have produced no evidence of such an agreement.

B.

The other claimed theory of horizontal agreement involves the doctrine of conscious parallelism. Under that doctrine, a tacit agreement is shown if

knowing that concerted action was contemplated and invited, the [physicians] gave their adherence to the scheme and participated in it. Each [physician] was advised that the others were asked to participate; [and 3] each knew that cooperation was essential to successful operation of the plan.

Interstate Circuit, Inc. v. United States, 306 U.S. 208, 226, 59 S.Ct. 467, 474, 83 L.Ed. 710 (1939). The two doctors argue that because several thousand physicians all signed identical contracts, we should infer a tacit conspiracy among those physicians under the Interstate Circuit formula.

Conspiracy cannot be inferred from this evidence, however, because the last element of the Interstate Circuit test is not present. The two doctors have not shown that the physicians were economically interdependent--that "cooperation was essential to successful operation of the plan." Id. A showing of interdependence "is a necessary condition for inferring any conspiracy from parallelism." VI P. Areeda, Antitrust Law p 1411, 71 (1986). Without interdependence, "each actor is indifferent to the others' behavior." Id. at 70.

The most precise test for economic interdependence involves an economic analysis of an industry's market structure. Economic interdependence exists only if an industry has relatively few competitors so that the actions of each has some impact on market price and thus on the conduct of competitors. Id. p 1429a, 175. The two doctors have offered no evidence to show that such an oligopolistic market structure existed among physicians. Indeed, the record indicates that more than 20,000 physicians practiced in Los Angeles county alone. With such numbers, individual physicians could not possibly have had enough market power to influence the behavior of their rivals.

Although less precise than the...

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