Glen Eden Hosp., Inc. v. Blue Cross and Blue Shield of Michigan, Inc., 83-1165

• Decision Date: 16 July 1984
• Docket Number: No. 83-1165,83-1165
• Parties: 1984-2 Trade Cases 66,103 GLEN EDEN HOSPITAL, INC., A Michigan Corporation, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 423

740 F.2d 423

1984-2 Trade Cases 66,103

GLEN EDEN HOSPITAL, INC., A Michigan Corporation, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, INC., Defendant-Appellee.

No. 83-1165.

United States Court of Appeals, Sixth Circuit.

Argued April 2, 1984.

Decided July 16, 1984.

Rita A. McConnell, Robins, Zelle, Larson & Kaplan, James R. Safley (argued), Minneapolis, Minn., Jerome C. Gropman, Dennis Peppler, Gropman & Peppler, Southfield, Mich., for plaintiff-appellant.

Michael T. Zajac, Detroit, Mich., Joshua F. Greenberg (argued), Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant-appellee.

Before LIVELY, Chief Judge, CONTIE, Circuit Judge, and WEICK, Senior Circuit Judge.

LIVELY, Chief Judge.

The district court granted summary judgment in favor of the defendant, Blue Cross and Blue Shield of Michigan, Inc. (Blue Cross) in this antitrust action. The plaintiff, Glen Eden Hospital, Inc., (Glen Eden) charged Blue Cross with violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2 (1976). In granting the defendant's motion for summary judgment the district court applied the "rule of reason" rather than the per se approach to the section 1 claims and held that Glen Eden had not raised a factual issue regarding the existence of a conspiracy or concerted action. With respect to the section 2 claim, the district court held that even if it is assumed that Blue Cross possesses monopoly power, Glen Eden failed to produce any probative evidence that this power had been illegally used. See Glen Eden Hospital, Inc. v. Blue Cross and Blue Shield of Michigan, 555 F.Supp. 337 (E.D.Mich.1983).

I.

We adopt the statement of facts and statement of the case contained in the district court's opinion. 555 F.Supp. at 339-40. Briefly, Glen Eden is a private for-profit psychiatric hospital in Warren, Michigan which has provided services since 1969 to Blue Cross subscribers in return for direct reimbursement by Blue Cross. Until 1979, Glen Eden was considered a "non-participating" hospital because of state law which limited participating status to non-profit hospitals and was reimbursed for its reasonable and customary charges, not to exceed the average per diem payment to "participating" psychiatric hospitals. In When it terminated the 1969 contract, Blue Cross told Glen Eden it would reimburse Glen Eden for services only as a participating hospital under the 102% formula or, alternatively, at a "non-participating" rate of $15 per patient day. Glen Eden ultimately applied for participating hospital status, was accepted, and contracted, though under protest, for reimbursement as a participating hospital.

                February, 1979, Blue Cross notified Glen Eden it was terminating the 1969 agreement and advised Glen Eden to apply for participating hospital status, the state law having been amended to allow for-profit hospitals to become "participating."    Participating hospitals are reimbursed for their reasonable costs plus two per cent under a formula which was adopted in 1948
                

Also in 1979, Blue Cross informed Glen Eden that it would not reimburse Glen Eden on any basis for services which would be provided at a psychiatric hospital Glen Eden planned to build in Troy, Michigan. It based its refusal on a recently adopted policy which precluded reimbursement for new or expanded psychiatric hospitals when the addition of new beds exceeds a predetermined ratio of beds to the general population in the service area. This policy is referred to as "the psychiatric services policy." Glen Eden abandoned its plans for the new hospital after receiving the notice from Blue Cross.

Glen Eden alleged in its complaint that Blue Cross conspired with other participating hospitals to restrain trade in violation of section 1 of the Sherman Act. It charged that the defendant and the hospitals acted in concert to fix and maintain a non-competitive reimbursement formula and unlawfully refused to deal with it by terminating the 1969 agreement and coercing it into the participating hospital arrangement. It also alleged that a concerted refusal to deal occurred when Blue Cross refused to reimburse for services at the Troy hospital.

Glen Eden's section 2 claims are, first, that Blue Cross, if it acted alone, is a monopolist which abused its monopoly power by refusing to deal with Glen Eden under the 1969 agreement and by refusing to reimburse for services at the Troy facility. Alternatively, it charged a conspiracy to monopolize between Blue Cross and the participating hospitals.

II.

A.

The district court determined that the crux of the section 1 claim is that a conspiracy exists between Blue Cross and the participating hospitals under which the large participating hospitals have collectively established a non-competitive reimbursement system and pursuant to which Blue Cross has used coercion and threat of boycott to force Glen Eden to agree to that system. The district court described the reimbursement mechanism as follows:

The reimbursement mechanism involves the operation of a three layer structure. There is, first, a 13 member reimbursement committee which recommends any change in reimbursement policy. Five members of this committee are appointed by the Blue Cross Board of Directors from the consumer membership of its Board of Directors; five members are appointed by the Michigan Hospital Association and are hospital administrators; of the remaining three members, one is appointed by the Governor, one by the Majority Leader of the Michigan Senate, and one by the Speaker of the House of Representatives of the State of Michigan, from lists of nominees supplied by the State Bar Association, the State Association of Certified Public Accountants, the American Association of University Professors, and other similar organizations.

Any change in reimbursement policies must be recommended by an affirmative vote of 8 members of the committee.

That recommendation is then transmitted to the Blue Cross Board of Directors for approval or rejection. That Board consists of 47 members, 27 of whom are Finally, a change in the reimbursement policy must be ratified by two-thirds of the number of votes cast by the participating hospitals. The participating hospitals' votes are weighted according to the amount of reimbursement received from Blue Cross during the most recent 12 month period.

consumer representatives, 19 of whom are provider representatives, and one of whom is the President of Blue Cross.

555 F.Supp. at 341 (footnote omitted).

The district court concluded that the ability of the participating hospitals to prevent changes in the plan, without more, does not demonstrate concerted action in restraint of trade. Thus the court found that the undisputed facts concerning the reimbursement mechanism do not establish a "structural conspiracy" and that no proof of an actual conspiracy was produced by Glen Eden.

B.

Glen Eden contends on appeal that it was not given ample opportunity to discover information largely in the possession of Blue Cross and it was error to grant summary judgment on the basis of severely limited discovery. It relies on cases from the Supreme Court and this court which have held that a district court should be cautious about granting summary judgment in complex antitrust cases and that antitrust plaintiffs are to be given considerable latitude when opposing summary judgment. E.g., Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962) ("We believe that summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot."); Smith v. Northern Michigan Hospitals, Inc., 703 F.2d 942, 948 (6th Cir.1983) ("the court should treat antitrust plaintiffs leniently in examining their proofs ..."). Glen Eden argues that ample discovery would disclose the extent of concerted action by the hospitals in directing the policies of Blue Cross.

Glen Eden also maintains that the district court erred in granting summary judgment, even on the basis of the evidence produced by limited discovery. It argues that the district court should have found that it raised genuine issues of material fact with respect to its claim of section 1 violations, and that the structural control and influence of participating hospitals resulted in a reimbursement policy which was unrelated to the quality of services or the efficiency of operation of Glen Eden and other non-participating hospitals. Glen Eden contends that the district court overlooked the control inherent in the veto power possessed by the participating hospitals as well as the significance of the concerted action required for exercise of the veto power.

Blue Cross contends that Glen Eden conducted substantial discovery and was not able to produce any evidence of a conspiracy or combination between it and the participating hospitals. It argues that the participating hospital agreement is nothing more than a contract between a buyer (Blue Cross) and a seller (an individual hospital). Such a contract is not treated as a vertical restraint on trade, and in the absence of a horizontal conspiracy among the sellers does not offend the antitrust laws. It also argues that, as a matter of law, the participating hospital agreement is not an unlawful price fixing mechanism. The substantial majority of consumer representatives on the reimbursement committee and on the board of directors provides a structural guarantee that the hospitals will not be able to fix prices. The "ratification right" ("veto right" according to Glen Eden) only gives the hospitals power to reject changes, not initiate them. Blue Cross argues that Glen Eden has failed completely to present evidence of provider control over it, and without such control no restraint of trade is possible by use of the...