Kartell v. Blue Shield of Massachusetts, Inc.

• Decision Date: 22 March 1984
• Docket Number: Civ. A. No. 78-594-C.
• Citation: 582 F. Supp. 734
• Parties: James P. KARTELL, M.D., et al, Plaintiffs, v. BLUE SHIELD OF MASSACHUSETTS, INC., et al, Defendants.
• Court: U.S. District Court — District of Massachusetts

582 F. Supp. 734

James P. KARTELL, M.D., et al, Plaintiffs, v. BLUE SHIELD OF MASSACHUSETTS, INC., et al, Defendants.

Civ. A. No. 78-594-C.

United States District Court, D. Massachusetts.

March 19, 1984.

As Amended March 22, 1984.

Stanley V. Ragalevsky, Warner & Stackpole, Boston, Mass., Daniel Stark, David I. Shapiro, Dickstein, Shapiro & Morin, Washington, D.C., for plaintiffs.

Thayer Fremont-Smith, Kenneth Laurence, Lee T. Gesmer, Choate, Hall & Stewart, Boston, Mass., for intervening plaintiffs.

Reginald Howe, Daniel Mahoney, Palmer & Dodge, Boston, Mass., for defendants Blue Shield of Mass.

H. Reed Witherby, Asst. Atty. Gen., Boston, Mass., for intervening defendant Com'r of Ins.

OPINION

CAFFREY, Chief Judge.

This is a private civil antitrust action which was originally filed against Blue Shield of Massachusetts, Inc. (Blue Shield) and Blue Cross of Massachusetts, Inc. (Blue Cross) in March of 1978 by four Massachusetts physicians. They request injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26, for alleged violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. The Massachusetts Commissioner of Insurance (the Commissioner) intervened as a party defendant in August 1979, and, in January 1982, by order of another judge of this Court, the Massachusetts Medical Society (the Society), Grant V. Rodkey, M.D. and Henry Brown, M.D. (collectively, "intervenor-plaintiffs") were permitted to intervene "as parties in the existing complaint."

The route from initial filing of the complaint six years ago to the 37-day non-jury trial of the case before this Court has been circuitous and tortuously slow, replete with procedural skirmishes and internecine disputes among plaintiffs who are represented by three different law firms. The case has been assigned to five different judges of this Court, the first four of whom recused themselves. In one form or another, the matter has already been before the Supreme Judicial Court of Massachusetts on certified questions of Massachusetts law, and it has been before the Court of Appeals for the First Circuit on two occasions on appeals from rulings made by other members of this Court. See 592 F.2d 1191 and 687 F.2d 543.

The original complaint was filed on March 10, 1978, and amended shortly thereafter. In the amended complaint, plaintiffs, now joined by intervenor-plaintiffs, allege that Blue Shield, in concert with Blue Cross, has restrained trade illegally in Massachusetts in both the market for physicians' services and the market for health insurance, in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. Specifically, plaintiffs allege¹ that Blue Shield engaged in unlawful price setting and restraint of trade in two ways: first, by requiring in most cases that physicians who have signed Participating Physicians' Agreements accept Blue Shield's reimbursement as payment in full; second, by refusing to reimburse doctors who have not signed Participating Physicians' Agreements with Blue Shield for services rendered by them to Blue Shield subscribers, except for services rendered in emergencies or rendered outside of Massachusetts.²

On August 3, 1978, the Honorable Walter J. Skinner dismissed the amended complaint on the grounds that the challenged practices are compelled by state law, and are thus immune from antitrust attack under the "state action" doctrine enunciated by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). The Court of Appeals for the First Circuit vacated that judgment in Kartell v. Blue Shield of Massachusetts, Inc., 592 F.2d 1191 (1st Cir.1979), ruling that the district court should have abstained from deciding the state law question — whether defendants' allegedly illegal practices were required by state statute. The Court of Appeals directed Judge Skinner to await the outcome of a case then pending before the Supreme Judicial Court of Massachusetts, Nelson v. Blue Shield of Massachusetts, Inc., 377 Mass. 746, 387 N.E.2d 589 (1979), in which that issue was likely to be decided. The Court of Appeals added that, if the decision in the Nelson case did not provide sufficient guidance, Judge Skinner should consider certifying the relevant questions of state law to the Supreme Judicial Court for its consideration. Id. 592 F.2d at 1195.

After determining that the Supreme Judicial Court's decision in Nelson did not speak to the statutory issues central to this case,³ Judge Skinner certified two questions to the Supreme Judicial Court in January 1981. The questions were:

1. Is Blue Shield of Massachusetts, Inc. compelled by M.G.L. c. 176B, § 7 or any other Massachusetts statute or required by any clearly articulated and affirmatively expressed State policy (a) to limit fees of participating physicians as described in the annexed Stipulation and (b) to refuse to make payment for non-emergency services provided in Massachusetts by physicians who decline to accept the terms imposed by Blue Shield in their participation agreement, including such limitation of fees?

2. Is Blue Cross of Massachusetts, Inc. permitted generally under the Massachusetts statutes to make payments to subscribers or physicians for medical services provided by physicians to Blue Cross-Blue Shield subscribers, as it does under its contract insuring employees of the Commonwealth?

The Supreme Judicial Court answered the certified questions on August 20, 1981, in Kartell v. Blue Shield of Massachusetts, Inc., 384 Mass. 409, 425 N.E.2d 313 (1981). The Supreme Judicial Court's ruling enabled this Court to entertain cross-motions for summary judgment in April 1982.⁴ In its memorandum and order of June 30, 1982, this Court held that the state action doctrine of Parker v. Brown, supra, immunizes most of the challenged conduct from antitrust attack. Kartell v. Blue Shield of Massachusetts, Inc., 542 F.Supp. 782 (D.Mass.1982). This Court ruled, however, that, to the extent that plaintiffs' complaint challenged Blue Shield's ban on balance billing, described infra, it is not barred by either the state action doctrine or the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq., which exempts from the federal antitrust laws "the business of insurance ... regulated by State law." Id. § 1012(b). This Court ruled, moreover, that it should not apply a "per se" price-fixing analysis to the ban on balance billing, but rather that it should apply a "rule of reason" analysis. Thus four years of legal sifting have yielded one central issue for this Court to resolve at trial: whether, as judged under the rule of reason, Blue Shield's ban on balance billing by participating physicians imposes an unreasonable restraint on competition.

The case was tried non-jury to this Court for 37 trial days, beginning on April 19 and continuing until June 23, 1983. Plaintiffs and intervenor-plaintiffs called 24 witnesses for their case in chief and four rebuttal witnesses, resting their case on June 2, 1983. Defendants Blue Cross and Blue Shield called 12 witnesses between June 6 and June 22, and two witnesses in surrebuttal. Plaintiffs offered 176 exhibits which were accepted into evidence by the Court; defendants offered, and the Court accepted, 105 exhibits. These exhibits run to hundreds of pages containing thousands of numbers. This over-production has given the Court the near-impossible task of deciding the credibility of two competing, undigestible piles of paper.⁵ The Commissioner of Insurance called no witnesses and offered no exhibits.

This opinion will constitute the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).

I. Parties

A. Plaintiffs

1. Plaintiffs James P. Kartell, M.D. and Herbert W. Horne, M.D. and the intervenor-plaintiff Henry Brown, M.D. are physicians who reside in and are licensed to practice medicine in Massachusetts. They do not participate in Blue Shield's medical service plan and are not parties to any written agreement with Blue Shield with respect to the performance of medical or surgical services.

2. Plaintiff Harry D. Wilson, M.D. and intervenor-plaintiff Grant V. Rodkey, M.D. are physicians who reside in and are licensed to practice medicine in Massachusetts. They participate in the medical service plan administered by Blue Shield and each has executed a Participating Physicians' Agreement.

3. The intervenor-plaintiff Massachusetts Medical Society is a non-profit, special act corporation organized and existing under the laws of the Commonwealth of Massachusetts. Its 11,000-12,000 members include both participating and non-participating physicians.

B. Defendants

1. The defendant Blue Shield of Massachusetts, Inc., is a private, non-profit medical service corporation organized and existing under the laws of Massachusetts, with a principal place of business at 100 Summer Street, Boston, Massachusetts. Blue Shield is the only medical service corporation organized under Chapter 176B of the Massachusetts General Laws.

2. The defendant Blue Cross of Massachusetts, Inc., is a private, non-profit hospital service corporation organized and existing under the laws of Massachusetts, with a principal place of business also at 100 Summer Street, Boston, Massachusetts. Blue Cross is the only hospital service corporation organized under Chapter 176A of the Massachusetts General Laws.

3. The intervenor-defendant Commissioner of Insurance for the Commonwealth of Massachusetts is responsible under Chapter 176B of the Massachusetts General Laws to oversee and approve the structure and practices of Blue Shield.⁶

II. The Facts

Although this case has been pending for six years, the material facts have not changed since the original filing, nor, generally, are they disputed.⁷

Blue Shield is a medical service corporation, and Blue Cross is a hospital service corporation. They are organized under state law to provide "for the preservation of the public health by furnishing medical services at low cost...