Capital Imaging Assoc. v. Mohawk Valley Med. Assoc., 88-CV-1291.

• Decision Date: 28 November 1989
• Docket Number: No. 88-CV-1291.,88-CV-1291.
• Citation: 725 F. Supp. 669
• Parties: CAPITAL IMAGING ASSOCIATES, P.C., Plaintiff, v. MOHAWK VALLEY MEDICAL ASSOCIATES, INC., and Mohawk Valley Physicians' Health Plan, Inc., Defendants.
• Court: U.S. District Court — Northern District of New York

725 F. Supp. 669

CAPITAL IMAGING ASSOCIATES, P.C., Plaintiff, v. MOHAWK VALLEY MEDICAL ASSOCIATES, INC., and Mohawk Valley Physicians' Health Plan, Inc., Defendants.

No. 88-CV-1291.

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

November 28, 1989.

COPYRIGHT MATERIAL OMITTED

Cooper Erving Savage Nolan & Heller, Albany, N.Y. (Mark E. Watkins, of counsel), for plaintiff.

Epstein Becker & Green, New York City (Linda V. Tiano, of counsel), Clifford E. Barnes, Washington, D.C., for defendants.

MEMORANDUM-DECISION AND ORDER

McCURN, Chief Judge.

I. Background

A. Parties

Plaintiff, Capital Imaging Associates, P.C. ("Capital"), is one of only two private radiology practices offering a full range of diagnostic imaging services in an extensive region around Albany, New York, including parts of southern Vermont and western Massachusetts. It is a major regional health care facility with annual gross receipts of $3,800,000, approximately 14% of which are reimbursed by Medicare. Plaintiff's only competitor is Two Rivers Radiology, a private radiology practice with offices located across the street from plaintiff in Latham, a community in northern Albany County, New York. Although Two Rivers is not a party to this case, it is under contract with the defendants' health insurance plan to provide a specialized radiological procedure known as Magnetic Resonance Imaging ("MRI"). It is this relationship between Two Rivers and defendants which is the foundation for plaintiff's allegations.

Defendant, Mohawk Valley Medical Associates ("Associates") is an independent practice association ("IPA") of member physicians organized to provide medical care to enrollees of defendant Mohawk Valley Physicians Health Plan, Inc. ("MVP"). The defendants together constitute an example of an IPA-model health maintenance organization ("HMO") in which an HMO (MVP) contracts with an organization of physicians (Associates) to provide physician services to the HMO members in the individual physician member offices.

B. Complaint

Plaintiff invokes the jurisdiction of this court under the provisions of Sections 4 and 16 of the Clayton Act, 15 U.S.C. Sections 15 and 26¹, to recover treble damages for and obtain injunctive relief from defendants' violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2², and the costs of this suit including reasonable attorney's fees.

Plaintiff's complaint contains three counts. The first involves violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2. Plaintiff contends that at a date at least as early as September 16, 1986, and continuing to the present time, the defendants, Two Rivers and other unnamed co-conspirators engaged in an unlawful combination or conspiracy in unreasonable restraint of interstate commerce in violation of Section 1. This alleged combination or conspiracy consists of a continuing agreement, understanding, and concert of action among the defendants and co-conspirators to exclude plaintiff from membership in Associates and thereby unlawfully restricting plaintiff's access to the market for radiological services controlled by defendants. Plaintiff claims that in formulating and effecting the conspiracy, the defendants and co-conspirators did those things which they conspired to do, including, inter alia:

a. Held meetings at various times at which meetings defendants and co-conspirators agreed to refuse plaintiff's application for membership in Associates in violation of the Membership Procedure as provided by the By-Laws of Associates and to give plaintiff false and misleading reasons for such refusal b. Rejected the plaintiff's application for membership in Associates in accordance with the agreement reached;

c. Telephoned and otherwise contacted one another between meetings concerning such agreement.

Complaint, par 11.

In addition, plaintiff contends that defendants have engaged in unlawful conduct with the intent to monopolize and to attempt to monopolize trade and commerce in violation of Section 2. Plaintiff contends that in pursuing their attempt to monopolize the relevant market, defendants, for the purpose of injuring, destroying and eliminating plaintiff as a viable business and competitor in the market and with the economic power to exclude plaintiff and with full knowledge that such acts and conduct, if successful, would have an adverse impact on plaintiff and destroy or injure it as a viable competitor, undertook the following acts:

a. MVP has wrongfully induced Associates to exclude plaintiff from membership in Associates;

b. MVP and Associates have wrongfully rejected plaintiff's application for membership in Associates.

Complaint, par. 12.

The other two counts of the complaint are pendent state claims alleging the same activities as violations of Section 340 of the New York State General Business Law and the New York State common law against unfair competition.

C. Health Maintenance Organizations ("HMOs")

In order to put this case in context, it is necessary to understand how an HMO functions. An HMO is one form of a managed care delivery system. It has been described as "any arrangement for health care delivery or financing that operates on a basis other than the traditional fee-for-service system which is designed to control health care costs by increasing price competition between providers and encouraging providers to reduce utilization." Walsh & Feller, Provider Sponsored ADS: Reducing Antitrust Liability After Maricopa, Specialty Law Digest — Health Care 5 (Apr.1985). The growth of HMOs has been dramatic. In 1970 there were approximately 30 HMOs in the country serving three million enrollees. Today, 643 HMOs serve more than 31 million people. InterStudy, The InterStudy Edge 1 (June 1988). MVP currently has approximately 78,000 enrollees.

Health maintenance organizations have been widely viewed as pro-competitive entities with the capacity to substantially reduce health care costs.³ One of the essential features of an HMO is that it selects preferred physicians and excludes others thereby creating competition among the providers of health care services. Antitrust enforcement agencies consider exclusions of physicians from HMOs and other managed care delivery systems as procompetitive.⁴

In order for an entity to operate as an HMO, it must apply to the New York State Department of Health ("Department") for a certificate of authority. N.Y.Pub.Health Law section 4402.1 (Consol.1976). As part of the certification process, the Department approves the service area within which an HMO can provide its approved benefits package. N.Y.Comp.Codes R. & Regs. tit. 10, section 98.7. In addition, to expand its service area, an HMO must apply for and receive an amended certificate of authority. N.Y.Comp.Code R. & Regs. tit. 10, section 98.7(b). Pursuant to a certificate of authority issued by New York State, MVP has been certified to provide comprehensive health services in the counties of Schenectady, Saratoga, Montgomery, Fulton, Herkimer, Oneida, Madison, Dutchess, Clinton, Essex, Franklin, St. Lawrence, and Otsego. However, MVP has not been certified to provide its services in Albany County.

The Department also regulates the operation of Associates. In accordance with New York State law, an IPA is organized to contract with physicians and other providers of medical or medically-related services in order to contract with a single HMO to make such provider services available to that HMO and its enrollees. N.Y. Comp.Codes R. & Regs. tit. 10, section 98.4(b)(6)(iv). That same law prohibits an IPA from establishing or providing a comprehensive health services plan, a health maintenance organization, or hospital or health related services. Thus, in effect, an IPA exists solely to service HMO enrollees.

Associates has contracted with MVP to provide physician services in a specified service area. In accordance with state statute, Associates and MVP have entered into an agreement whereby Associates has agreed, inter alia, to (1) arrange for the provision of physician and other health professional services at such times and in such locations as MVP may require to satisfy the needs of its members; (2) establish credentialling requirements for membership in Associates; (3) maintain contracts with a sufficient number of physicians to guarantee its ability to deliver health services; and (4) arrange for member accessibility to all health services in the service area. N.Y.Comp.Codes R. & Regs. tit. 10, section 98.2(aa). Pursuant to this agreement, Associates' service area includes the counties of Schenectady, Fulton, Montgomery and Saratoga.

To fulfill the requirements of its Agreement with MVP, Associates has adopted a Membership Procedure which incorporates the credentialling requirements stipulated in the Agreement. The Associates Membership Procedure requires that in order to be admitted to membership in Associates, a physician, among other requirements, must: (1) have admitting privileges at a participating hospital; and (2) have an office in the MVP service area. However, there are limited exceptions to both of these requirements. For example, an applicant without privileges at a participating hospital may nevertheless qualify if he/she submits to Associates a supplementary application along with a letter from a participating physician confirming an arrangement to provide inpatient care at a participating hospital. Similarly, if an applicant does not have an office in the certified service area, as a matter of policy, Associates will accept such physicians when the following three conditions exist: (1) there is a deficiency of providers located within the service area; (2) the out-of-service-area provider has privileges at a participating hospital; and (3) the provider agrees to refer patients to participating providers. In order to meet its obligations to assure adequate physician services in the service area, Associates has...