Hyde v. Jefferson Parish Hosp. Dist. No. 2, 81-3091

• Decision Date: 20 September 1982
• Docket Number: No. 81-3091,81-3091
• Citation: 686 F.2d 286
• Parties: 1982-2 Trade Cases 64,945 Dr. Edwin G. HYDE, Plaintiff-Appellant, v. JEFFERSON PARISH HOSPITAL DISTRICT NO. 2 and East Jefferson Hospital Board, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 286

686 F.2d 286

1982-2 Trade Cases 64,945

Dr. Edwin G. HYDE, Plaintiff-Appellant, v. JEFFERSON PARISH HOSPITAL DISTRICT NO. 2 and East Jefferson Hospital Board, Defendants-Appellees.

No. 81-3091.

United States Court of Appeals Fifth Circuit.

Sept. 20, 1982.

Phillip A. Wittmann, John M. Landis, New Orleans, La., for plaintiff-appellant.

Rickard F. Pfizenmayer, Washington, D. C., for amicus curiae American Soc. of Anesthesiologists, Inc.

Henry B. Alsobrook, Jr., Oscar L. Shoenfelt, III, Richard B. Eason, II, New Orleans, La., for amicus Louisiana State Medical Soc.

Lucas J. Giordano, Metairie, La., for defendants-appellees.

Ricardo M. Guevara, Baton Rouge, La., for amicus curiae Louisiana Hosp. Ass'n.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before GARZA, POLITZ, and WILLIAMS, Circuit Judges.

GARZA, Circuit Judge:

Doctor Edwin Hyde brought this action to challenge his exclusion from the medical staff of East Jefferson General Hospital in Metairie, Louisiana. He sought a declaratory judgment that the actions of the Hospital District and its Board of Directors violated Section 1 of the Sherman Act, 15 U.S.C. § 1; the Due Process clause of the Fourteenth Amendment; Sections 51:122 and 123 of the Louisiana antitrust law; and Section 46:1058 of the state enabling legislation under which the Hospital District was created. Hyde also prayed for the issuance of an injunction ordering defendants to appoint him to the hospital's medical staff. Following a trial on the merits, the court below dismissed the suit. In this appeal, plaintiff concentrates his attack on the Sherman Act portion of the district court judgment. Today, we reverse the court's judgment, for reasons stated herein. 513 F.Supp. 532.

Doctor Hyde is a board certified anesthesiologist who practices in Jefferson Parish, Louisiana. In July, 1977, he submitted an application for admission to the East Jefferson Hospital medical staff. New staff members are ultimately selected by the East Jefferson Hospital Board. According to the language of La.R.S. 46:1058 concerning the selection of new medical staff, "(s)uch appointments shall be made upon the recommendations of the physicians who are authorized to practice within the hospital." Appellant's application was therefore initially sent to the medical staff, which functions as a separate entity from the hospital. First, the Credentials Committee reviewed Hyde's medical qualifications and submitted a favorable recommendation to the Medical Staff Executive Committee. That committee then reviewed the application and recommended to the Hospital Board that appellant's application be approved. In spite of favorable recommendations from both medical staff committees, the Board voted to deny staff privileges to Dr. Hyde.

This action was occasioned by the fact that the hospital had an exclusive contract with Roux and Associates, a professional medical corporation, to provide anesthesia services. ¹ Under the terms of this contract, the anesthesiologist determines the fee for the services he provides based upon the complexity and length of the operation performed. Patients are billed jointly for the anesthesia services provided by the doctor and by the hospital. The hospital deducts eight percent for bad debts, charity and other write-offs from the gross receipts of the department and then remits fifty percent of the remaining sum to Roux and Associates.

The provision of anesthesia services in each of East Jefferson Hospital's thirteen operating rooms is, in large part, undertaken by nurse anesthetists. At least one hospital-employed nurse anesthetist is assigned to each room. The four anesthesiologists employed by Roux and Associates travel between the rooms as they are needed for supervision. Anesthesia is routinely administered by the nurse anesthetist. An anesthesiologist remains with a patient only for more complicated operations. Appellees aver that the system employed is in the best interest of quality patient care. The monitoring of specialized equipment and supervision of nurses can best be handled, in their estimation, by the closed group policy. This closed group policy also gives the hospital the continuous twenty-four hour a day coverage that is crucial in the event of an emergency. ² Other arguments made to justify the policy are that it facilitates the use of operating rooms since no waiting for outside anesthesiologists is necessary and that it wisely allows the responsibility for development and management of the department to be placed upon one individual with legal obligations to the hospital. Finally, the appellees assert that the closed group policy permits them to more closely monitor the professional standards employed by the department members.

After a trial on the merits, the district court ordered this suit dismissed. In the corresponding opinion, the court rejected a per se in favor of a rule of reason analysis of this case, stating in the alternative that plaintiff could not prevail on a per se analysis because he had not made the necessary demonstration that the hospital "dominated" the market for its services. The court held that relief was unavailable under a rule of reason analysis because the anticompetitive effects of the closed group policy were few and far outweighed by the many benefits to patient care. On appeal, Hyde argues that: (1) the tying arrangement involved is not immune from per se liability solely because of the professional nature of the services involved; (2) the district court erred in holding that the defendant hospital must be shown to have dominant power in the tying product market; and 3) the court incorrectly defined the relevant geographic market area for the tying product. ³

Tying Arrangement

A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product...." Northern Pacific Ry. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). The existence of a tying arrangement in this case has never been seriously disputed by appellees, since it is clear that users of the hospital's operating rooms (the tying product) are also compelled to purchase the hospital's chosen anesthesia service (the tied product). It is also clear that we are dealing with two distinct services which a buyer should be able to obtain separately. Our inquiry does not end here; tying arrangements are only proscribed by the Sherman Act when they exhibit the following four characteristics:

(1) two separate products, the tying product and the tied product;

(2) sufficient market power in the tying market to coerce purchase of the tied product;

(3) involvement of a not insubstantial amount of interstate commerce in the tied market; and

(4) anticompetitive effects in the tied market.

Bob Maxfield, Inc. v. American Motors Corp., 637 F.2d 1033, 1037 (5th Cir. 1981). The United States Supreme Court recognized many years ago that "the vice of tying arrangements lies in the use of economic power in one market to restrict competition on the merits in another, regardless of the source from which the power is derived and whether the power takes the form of a monopoly or not." Northern Pacific Ry. v. United States, 356 U.S. at 11, 78 S.Ct. at 521.

The district judge ruled against appellant on precisely this point. He found that appellant had failed to demonstrate that the hospital dominated the market for its services. However, as the following language from the United States Supreme Court's opinion in Northern Pacific Ry. v. United States, supra, demonstrates, market domination is not required:

While there is some language in the Times-Picayune opinion which speaks of "monopoly power" or "dominance" over the tying product as a necessary precondition for application of the rule of per se unreasonableness to tying arrangements, we do not construe this general language as requiring anything more than sufficient economic power to impose an appreciable restraint on free competition in the tied product (assuming all the time, of course, that a "not insubstantial" amount of interstate commerce is affected). To give it any other construction would be wholly out of accord with the opinion's cogent analysis of the nature and baneful effects of tying arrangements and their incompatibility with the policies underlying the Sherman Act. Times-Picayune, of course, must be viewed in context with International Salt and our other decisions concerning tying agreements.

Id. at 11, 78 S.Ct. at 521.

Although appellant is correct in his assessment of the economic power necessary to sustain a finding of an illegal tying arrangement, the court's imperfect definition of the relevant geographic market for the hospital's services would prevent him from succeeding on this element, even when a less stringent economic power standard is applied. The court below made the following finding about the relevant geographic market area:

A relevant geographic market is the market area in which the seller operates and to which the purchaser can practically turn for supplies. The evidence showed that 70% of the patients from the East Bank of Jefferson Parish go to hospitals in the metropolitan Orleans area other than East Jefferson. The data presented by the New Orleans Area/Bayou River Health System shows large numbers of Jefferson residents go to hospitals in the New Orleans area such as Mercy, Baptist and Touro Hospitals and Hotel Dieu. Therefore plaintiff must show that East Jefferson dominated the market which at least includes the Orleans Parish hospitals which are located on the East Bank.

Record on Appeal, vol. 2, at 246-47.

The court applied a traditional method of economic analysis in this case, recognizing that surgeons have the option of admitting their patients to other hospitals and that patients have a similar right to go to another hospital if they are at...