Kartell v. Blue Shield of Massachusetts, Inc.

• Decision Date: 02 February 1979
• Docket Number: No. 78-1349,78-1349
• Citation: 592 F.2d 1191
• Parties: 1979-1 Trade Cases 62,481 James P. KARTELL, M.D., et al., Plaintiffs, Appellants, v. BLUE SHIELD OF MASSACHUSETTS, INC., and Blue Cross of Massachusetts, Inc., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1191

592 F.2d 1191

1979-1 Trade Cases 62,481

James P. KARTELL, M.D., et al., Plaintiffs, Appellants, v. BLUE SHIELD OF MASSACHUSETTS, INC., and Blue Cross of

Massachusetts, Inc., Defendants, Appellees.

No. 78-1349.

United States Court of Appeals,

First Circuit.

Argued Nov. 9, 1978.

Decided Feb. 2, 1979.

David I. Shapiro, Washington, D.C., with whom James van R. Springer, Dickstein, Shapiro & Morin, Washington, D.C., John F. Sherman, III, and Warner & Stackpole, Boston, Mass., were on brief, for appellants.

Daniel O. Mahoney, Boston, Mass., with whom Reginald H. Howe, and Palmer & Dodge, Boston, Mass., were on brief, for appellees.

Before COFFIN, Chief Judge, ALDRICH and BOWNES, Circuit Judges.

ALDRICH, Senior Circuit Judge.

Defendant Blue Shield of Massachusetts, Inc. and Blue Cross of Massachusetts, Inc. 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 become subscribers. . . . " 1941 Mass.Acts c. 306, preamble. Mass.G.L. c. 176B (Blue Shield); c. 176A (Blue Cross). Defendant Blue Shield pays physicians who participate in its plan directly for services rendered to premium-paying subscribers in scheduled amounts, while Blue Cross provides coverage for hospital care and procedures. Participating physicians, in turn, agree to accept Blue Shield's payments in full satisfaction for their services. Blue Shield pays nothing, however, on account of the services of nonparticipating physicians, unless rendered in an emergency, or outside of the Commonwealth.

At the present time defendants' subscribers constitute some 60% Of the population of Massachusetts, and 99% Of Massachusetts licensed physicians participate. Plaintiffs are four licensed physicians. Two do not participate in the Blue Shield plan; the other two presently do participate, but have given notice of their intent to resign. All are dissatisfied with Blue Shield participation because it requires physicians to limit themselves to the amounts of the Blue Shield schedules, and forbids what is termed balance billing of the patient. Hence physicians who wish to charge more than Blue Shield's schedules are cut off from a substantial number of possible patients who, because they would lose their Blue Shield benefits, must pay personally not merely a balance, but the entire bill. Claiming a conspiracy to monopolize, and unlawful boycott and coercion, in violation of the Sherman Act, 15 U.S.C. §§ 1 and 2 (1976), plaintiffs bring this suit under 15 U.S.C. § 26 (1976), seeking injunctive relief.

The district court, on motion, dismissed the complaint. Before the district court and on this appeal, defendants contend, Inter alia, that their challenged practices are immunized from federal antitrust attack under the state action doctrine of Parker v. Brown, 1943, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, and its progeny, or, alternatively, under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 Et seq. (1976), as "the business of insurance . . . regulated by State law." Id., § 1012(b). Finally, defendants ask us to abstain if we find the underlying issues of state law insufficiently clear. Since we conclude we should abstain, our opinion will be restricted to considerations relevant thereto.

We start with the fact that not only was Blue Shield established by special act of the state legislature for the public purpose previously stated, but its contracts with participating doctors, and its methods for compensating them, are subject to regulation, Viz., the written approval of the Massachusetts Commissioner of Insurance. So are the fee schedules, and the provision against balance billing. Also subject to such approval are its subscriber contracts, level of benefits, and premium rates. Defendants point to the fact that the statute, in terms, provides for payments "upon receiving medical service from any participating physician or, in the discretion of (Blue Shield), upon receiving medical service from any non-participating physician in an emergency or when outside the commonwealth," c. 176B § 7, and contend that this affirmative provision expressly negatives any broader scope.

Plaintiffs reject this statutory construction. In addition, they show that Blue Cross has made a separate contract with state employees to include nonparticipating physicians without limit. This agreement troubled the district court, but we do not pursue it, except to note that it presents a serious statutory question as to the extent that Blue Cross is permitted to invade the traditional province of Blue Shield by providing benefits for physicians' services.

Continuing, by G.L. c. 176B, § 3, Blue Shield is permitted to join with Blue Cross for the joint administration of their affairs and the issuance of joint subscriber contracts for both medical and hospital services. Under this overall statutory scheme, defendants, together, have become a pervasive and powerful force in the Massachusetts health insurance industry. At the same time, they are prohibited from engaging in acts of boycott, coercion or intimidation and it appears the legislature did not intend Blue Cross and Blue Shield to monopolize, or eliminate competition in, the private health insurance industry. See G.L. c. 176D, § 3; c. 176B, § 16. Just what this means, in view of the seemingly inevitable consequences of defendants' success, is a serious state question. ¹

Plaintiffs say that defendants, at a minimum, have accomplished what they were forbidden to do, and that their agreements with their subscribers prohibiting the payment of benefits to nonparticipating doctors, and the steps they take to publicize and enforce them, and the ban against balance billing, constitute a concerted refusal to deal intended to coerce adherence to a maximum fee schedule, and as such are unlawful, per se, under the Sherman Act. ² As to defendants' asserted exemption under Parker v. Brown, ante, plaintiffs, agreeing with the district court, maintain that the threshold inquiry for determining whether anticompetitive conduct by private parties, such as defendants, enjoys immunity under the state action doctrine, is whether under state law defendants are compelled to engage in the challenged conduct. Plaintiffs assert, further, however, that even assuming state compulsion, a federal court must also find that state law compelling the conduct is necessary to effectuate state policy, and is not fundamentally inconsistent with federal antitrust policy, before immunity can be granted, thereby raising the question of the extent of the state policy. See Lafayette v. Louisiana Power & Light Co., 1978, 435 U.S. 389, 417-18, 98 S.Ct. 1123, 55 L.Ed.2d 364 (Marshall, J., concurring); Id., at 425-26, 98 S.Ct. 1123 (Burger, C. J., concurring); Cantor v. Detroit Edison Co., 1976, 428 U.S. 579, 595-98, 96 S.Ct. 3110, 49 L.Ed.2d 1141; Id., at 605-11, 96 S.Ct. 3110, (Blackmun, J., concurring); L. Sullivan, Antitrust, § 238, at 736-37 (1977).

Without explicitly analyzing the compatibility of state and federal policy, the district court held that G.L. c. 176B, § 7 requires Blue Shield's refusal to deal with nonparticipating physicians. Additionally implicit was its view that proscribing balance billing is an integral part of the Blue Shield system, working in tandem with the participating requirement to promote the statutory purpose of low cost medical care. Accordingly, the court dismissed the action under Parker v. Brown. ³ In so holding, the court rejected several arguments based upon statutory construction, and failed to consider the implication, vis-a-vis the existence of state compulsion, of the conceded fact that for many years Blue Shield had allowed balance billing to high income subscribers, Cf. Massachusetts Med. Serv. v. Commissioner, 1962, 344 Mass. 335, 338, 182 N.E.2d 298, and that the change was self-generated.

Resolution of these complex questions of state law presents serious difficulties. This is not to say, particularly where the ultimate issue is a federal one, that we should not do so. See Propper v. Clark, 1949, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480. On the other hand, even here our obligation is not absolute. See, e. g., Colorado River Water Cons. Dist. v. United States, 1976, 424 U.S. 800, 813-17, 96 S.Ct. 1236, 47 L.Ed.2d 483. We are informed that there are presently pending before the Massachusetts Supreme Judicial Court consolidated class actions seeking to raise several aspects of Blue Shield's relationship with participating physicians, including the ban on balance billing. Nelson v. Blue Shield of Mass., Inc. and Massachusetts Fed'n of Physicians & Dentists, Inc. v. Blue Shield of Mass., Inc., No. 1497. Since an opinion in these cases may substantially, perhaps even fully, answer certain questions of state law in a way that will permit easy answers, relatively speaking, to the federal ones, this has great appeal. ⁴ Especially if by any chance the proper interpretation of state law is such that a comprehensive health scheme affecting a majority of the public must be faulted, it would be better that the state court be the one to make it, or, conversely, to reject it.

In this circumstance we could take advantage of the Supreme Judicial Court's Rule 3:21, and certify questions, including, in that court's discretion, very general ones. See, e. g., Baird v. Attorney General, 1977 Mass.Adv.Sh. 96, 360 N.E.2d 288. However, in view of the cases that are already pending before it, in the interest of saving time and procedures in the long run, we prefer to consider simple abstention at this time.

In Colorado River Water Cons. Dist. v. United States, ante, the Court defined three limited categories of cases where "important countervailing interests" of federalism make abstention proper. First, abstention is appropriate "in cases presenting a federal constitutional...