Kartell v. Blue Shield of Massachusetts
| Decision Date | 07 July 1982 |
| Docket Number | 82-0317-C.,Civ. A. No. 78-0594-C |
| Parties | James P. KARTELL, Plaintiff, v. BLUE SHIELD OF MASSACHUSETTS, Defendant. Grant RODKEY, Plaintiff, v. BLUE CROSS OF MASSACHUSETTS, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Stanley V. Ragalevsky, Warner & Stackpole, Boston, Mass., David I. Shapiro, Dickstein, Shapiro & Morin, Washington, D. C., for plaintiffs.
Thayer Fremont-Smith, Choate, Hall & Stewart, Boston, Mass., for intervenor-plaintiffs.
Reginald H. Howe, Daniel Mahoney, Palmer & Dodge, Boston, Mass., for Blue Cross and Blue Shield of Mass.
This is a private civil antitrust action which was originally filed in March of 1978 by four Massachusetts physicians who 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, by Blue Shield of Massachusetts, Inc. (Blue Shield) and Blue Cross of Massachusetts, Inc. (Blue Cross). The Massachusetts Commissioner of Insurance (the Commissioner) intervened as a party defendant, and by order of this Court entered on January 29, 1982, the Massachusetts Medical Society (the Society), Grant V. Rodkey and Henry Brown were permitted to intervene "as parties plaintiff in the existing complaint."
In accordance with the suggestion of the Court of Appeals for this Circuit (Kartell v. Blue Shield of Massachusetts, 592 F.2d 1191, 1195 (1st Cir. 1979)), in January 1981 the Honorable Walter Jay Skinner of this Court certified certain questions of state law to the Supreme Judicial Court of Massachusetts on a record consisting principally of a Stipulation of Facts and related Exhibits. At that time, Judge Skinner, to whom this case was then assigned, stated that upon his receiving answers to the certified questions, the defendants' pending motion to dismiss would then be treated as a motion for summary judgment to be heard and determined on the same record as the certified questions. In an opinion filed on August 20, 1981, the Supreme Judicial Court answered the certified questions, Kartell v. Blue Shield of Massachusetts, Inc., ___ Mass. ___, Mass.Adv.Sh. (1981) 1980, 425 N.E.2d 313, thus rendering the defendants' motion ripe for hearing and decision as a motion for summary judgment. Plaintiffs Kartell, Wilson and Howe filed a motion for partial summary judgment on March 8, 1982. On April 8, 1982, this Court heard oral arguments on both summary judgment motions.
After considering these arguments, as well as the briefs submitted by all parties, I rule that plaintiffs' complaint against Blue Cross and Blue Shield is barred in part by the state action doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). To the extent that plaintiffs' complaint challenges Blue Shield's "ban on balance-billing," discussed infra, the complaint 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). I further rule that the "per se" standard of antitrust analysis should not be applied to the so-called ban on balance-billing, and that the traditional "rule of reason" standard should be employed.
As a result of these rulings, it follows that defendants' motion for summary judgment should be granted in part and denied in part, and the plaintiffs' complaint should be dismissed in part with prejudice with respect to all defendants, in accordance with the rulings below. It also follows that plaintiffs' motion for partial summary judgment should be denied.
Although this case has been pending for more than four years, and has been assigned to five different judges of the Court — four of whom have recused themselves — the material facts have not changed since the filing of the complaint or its transfer to the undersigned on March 8, 1982.
Blue Shield and Blue Cross, respectively, are nonprofit, tax-exempt medical service and hospital service corporations, organized to provide "for the preservation of the public health by furnishing medical services at low cost to members of the public who have become subscribers." 1941 Mass.Acts c. 306, preamble. Mass.G.L. c. 176B (Blue Shield); c. 176A (Blue Cross). They are the only corporations of their kind created under their respective enabling statutes.
Blue Shield directly compensates in scheduled amounts those physicians who "participate" in its medical services plan for services rendered to about 96% of Blue Shield's premium-paying subscribers. Participating physicians, in turn, agree to accept Blue Shield's payments in full satisfaction for their services, and not to "balance-bill," i.e., not to seek to recover from Blue Shield subscribers whom they treat any amount in excess of that which Blue Shield has agreed to pay the physician for the service. Except in a few cases not of concern here, Blue Shield does not directly remunerate subscribers in any manner, and does not remunerate non-participating physicians for services rendered to subscribers, unless such services are rendered in an emergency, or outside the Commonwealth.
Blue Cross, on the other hand, is authorized by statute to provide coverage to its subscribers for hospital care and related procedures. Blue Cross does not remunerate any physician for services rendered to Blue Cross subscribers except those physicians who are salaried members of the staffs of institutions, like hospitals, which have entered into agreements with Blue Cross, and those physicians who treat Massachusetts state employees who are subscribers of a Blue Cross plan available only to employees of the Commonwealth.
As permitted by Mass.G.L. c. 176B, § 3, Blue Shield has joined with Blue Cross for the joint administration of their affairs and the issuance of joint subscriber contracts for both medical and hospital services. At this time, defendants' subscribers constitute about 60% of the population of Massachusetts, and about 99% of the Commonwealth's physicians are participating physicians in Blue Shield's medical service plan.
The doctors who are the individual plaintiffs here are all licensed to practice medicine in Massachusetts. All but two are participants in Blue Shield's medical service plan, and all claim to have been materially harmed by certain practices of Blue Cross and Blue Shield.
Specifically, plaintiffs claim that Blue Shield is engaged in illegal price fixing 1) by generally refusing to reimburse physicians who have not signed participating Physicians' Agreements with Blue Shield for services rendered to Blue Shield subscribers, and 2) by requiring that participating physicians (a) accept Blue Shield's reimbursement as payment in full in most cases, and (b) refrain from billing Blue Shield subscribers for any amount in excess of the amount which Blue Shield has agreed to pay participating physicians. Plaintiffs claim that were it not for Blue Shield's so-called ban on balance-billing, participating physicians would be able in many cases to charge and receive higher fees for their services to subscribers. They also claim that Blue Shield's refusal in most cases to compensate either subscribers or non-participating physicians for services rendered by non-participating physicians wrongfully deprives those physicians of potential patients who, but for Blue Shield's policy of excluding non-participating physicians, would turn to non-participating physicians for treatment.
Plaintiffs further allege that Blue Cross has agreed with Blue Shield to refuse to provide benefits to Blue Cross subscribers for services rendered by physicians other than those rendered by the salaried staff of institutional providers, such as hospitals, and those rendered under Blue Cross' contract covering Massachusetts State employees. Plaintiffs claim that this agreement has had the effect of perpetuating Blue Shield's alleged dominance in the market of providing insurance against the costs of physicians' services.
Plaintiffs further allege that Blue Shield directs its subscribers not to use non-participating physicians, and directs participating physicians not to refer patients to non-participating physicians. Blue Cross, according to plaintiffs, directs its participating hospitals not to employ physicians who do not participate in the Blue Shield plan.
Judge Skinner initially dismissed the complaint in April 1978 on the ground that the challenged practices are immune from federal antitrust attack under the exemption recognized in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).1 Recognizing that application of the state action doctrine to the facts of this case called for the "resolution of ... complex questions of state law," the United States Court of Appeals for the First Circuit reversed the ruling dismissing the complaint and instructed Judge Skinner to seek state court guidance in determining the answers to these questions, first, by awaiting a forthcoming decision in a related case then pending before the Massachusetts Supreme Judicial Court,2 and second, if that decision did not present sufficient guidance, to consider "certifying" the relevant questions of state law to the Supreme Judicial Court for that court's consideration. As noted above, questions of state law were eventually certified by Judge Skinner to the Commonwealth's highest court, and were answered by that court in an opinion announced on August 20, 1981. The answers to these questions now enable this Court to determine whether the challenged practices of Blue Shield and Blue Cross constitute "state action," and thus are immune from attack under the federal antitrust laws.
As all parties have noted in their arguments, the state action defense originally announced in Parker has been reviewed and restated in two...
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