St. Bernard General Hosp., Inc. v. Hospital Service Ass'n of New Orleans, Inc.

• Decision Date: 22 August 1983
• Docket Number: No. 82-3055,82-3055
• Citation: 712 F.2d 978
• Parties: 1983-2 Trade Cases P 65,565 ST. BERNARD GENERAL HOSPITAL, INC., Plaintiff-Appellant, v. HOSPITAL SERVICE ASSOCIATION OF NEW ORLEANS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 978

712 F.2d 978

1983-2 Trade Cases P 65,565

ST. BERNARD GENERAL HOSPITAL, INC., Plaintiff-Appellant, v. HOSPITAL SERVICE ASSOCIATION OF NEW ORLEANS, INC., Defendant-Appellee.

No. 82-3055.

United States Court of Appeals, Fifth Circuit.

Aug. 22, 1983.

Gibson Tucker, Jr., Gilbert Andry, New Orleans, La., for plaintiff-appellant.

Charles K. Reasonover, Pamela Pryor Mehle, New Orleans, La., for amicus Chalmette, etc.

John A. Stassi, II, New Orleans, La., for amicus St. Charles General.

Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Charles W. Lane, III, New Orleans, La., for defendant-appellee.

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

Before GEE, GARZA and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge.

St. Bernard General Hospital, Inc. (St. Bernard), a small, for-profit hospital in the New Orleans area, brought this antitrust suit, claiming restraint of trade by the Hospital Service Association of New Orleans, Inc., ¹ the area Blue Cross licensee. 15 U.S.C. §§ 1, 15. The district court ordered an involuntary dismissal at the close of the plaintiff's case, Fed.R.Civ.P. 41(b). We reverse and remand for further proceedings.

Procedural History

This is the third appearance of this case before our Court. The case was filed originally in September, 1971. In March of 1974, the district court rendered summary judgment in favor of the Blue Cross licensee on the ground that there was no effect on interstate commerce shown in the case. This Circuit reversed and remanded, 510 F.2d 1121 (5th Cir.1975). On remand, the district court dismissed the suit on the basis of the "business of insurance" exception to the antitrust laws contained in the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015. This Court again reversed and remanded, 618 F.2d 1140 (5th Cir.1980), finding that the actions of Blue Cross at question in this case did not fall into the "business of insurance" exception.

While this case was pending, other New Orleans area hospitals filed similar antitrust claims against Blue Cross. These other cases were all consolidated for trial, and discovery was underway at the time of the second remand in this case. St. Bernard moved to consolidate this action with the other cases, but the district court denied the motion both before and at the start of St. Bernard's scheduled trial. Further, the district judge, whose docket included both this case and the other consolidated cases, applied a protective order to much of the discovery in the other cases, so that St. Bernard was not permitted to avail itself of the fruits of discovery in the other consolidated cases.

This case was set for trial on December 21, 1981. On November 4, 1981, the judge held a pretrial conference and found that St. Bernard had not yet completed its preparations for trial or located a key witness. It also had not yet fully informed its opponent of the theoretical underpinnings of its antitrust charges. The judge admonished St. Bernard to complete trial preparations or risk the consequences. The case went to trial as scheduled on December 21.

St. Bernard presented four witnesses at trial: Edmond Vallon, president of Hospital Service Association of New Orleans, Inc. (HSA) during the years in question; Dr. Emile Bertucci, Jr., the chief stockholder and medical director of the hospital; Emile Bertucci, III, an administrator in the hospital toward the end of the years in question; and, Harold Pittman, administrator of the hospital during previous years. These four witnesses testified as to the standard practices of St. Bernard and Blue Cross and the nature of the relationship between the two. No witness testified on the issue of damages, because the parties stipulated before trial that the amount at issue was $147,610.70.

At the end of the plaintiff's case, HSA moved for an involuntary dismissal of the case, pursuant to Rule 41(b), Fed.R.Civ.P. The district court granted the motion, making the following findings:

No showing of effect on interstate commerce;

Hospital payments in the vast majority of cases would have been the same to St. Bernard regardless of the complained-of conduct, thus negating antitrust injury;

No merit to the substance of the antitrust charges. ²

St. Bernard appeals from this dismissal. It asks, first, that we find evidence of a per se violation of section one of the Sherman Act under the evidence presented and remand for a full trial, and second, that we grant the earlier-denied motion to consolidate this case with the similar cases now preparing for trial in the same court.

Blue Cross and the New Orleans Hospital Market

We begin by examining the structure of the New Orleans hospital market and the general applicability of the antitrust laws. Blue Cross is a major health care insurer in the country. In New Orleans, the licensee for Blue Cross insures approximately 300,000 people, which is about 38% of those with health care insurance and 30% of the general population. Blue Cross came to the New Orleans area in the 1930's in the form of a private sector, nonprofit corporation founded by four area nonprofit hospitals. These four hospitals referred to themselves as the "participating hospitals." The participating hospitals agreed to run the Blue Cross program on behalf of subscribers and to underwrite any financial shortfalls from operations. Operating surpluses, evidently, were to be rechanneled into Blue Cross programs.

Blue Cross grew and prospered in the succeeding years. Only once were the participating hospitals asked to cover an operating deficit. This was in 1937, when the four participating hospitals collectively covered a $13,000 shortfall. In most years, Blue Cross has enjoyed an operating surplus.

The present suit concerns only the years 1969 through 1972. ³ During the period relevant to this lawsuit, there were nine participating hospitals, all nonprofit facilities in the New Orleans area. The Blue Cross board of directors was composed of 31 members. Each of the nine participating hospitals appointed two representatives to the board, and the remaining thirteen at-large members were elected by the eighteen hospital representatives. In this way, the participating hospitals enjoyed effective control of the Blue Cross board, both by having a simple majority on the board and by selecting all the "outside" directors. ⁴

Blue Cross sells hospitalization insurance to individuals and groups under a variety of programs. Some policies pay only basic benefits, while others provide more comprehensive coverage. The basic policies, for example, will not pay for services performed at a hospital without some form of Blue Cross affiliation. ⁵

The various Blue Cross policies do not reimburse all the area hospitals on an identical basis. Blue Cross distinguishes among three categories of hospitals for reimbursement purposes. At one extreme are the hospitals without any Blue Cross affiliation, known as the "non-affiliated hospitals." These hospitals receive less from Blue Cross under most subscriber policies than an affiliated hospital would receive for identical services. The patient typically is expected to make up the difference, making it less attractive both for the hospital and the patient for Blue Cross members to be treated in non-affiliated hospitals. Non-affiliated hospitals are not involved in the instant case.

At the opposite end of the spectrum are nine affiliated hospitals known as the "participating hospitals." These nine hospitals, which appoint representatives to the board of Blue Cross, are promised reimbursement in full for all care provided to all Blue Cross subscribers, almost without limitation. All nine are nonprofit institutions and are accredited by the Joint Commission on Accreditation of Hospitals (JCAH).

The third group is an intermediate category of affiliated hospitals called "contracting hospitals." Contracting hospitals for the most part are for-profit institutions. ⁶ Contracting hospitals need not be JCAH-approved. The contracting hospitals have entered into agreements with Blue Cross, stating that the hospital will provide all needed services to all Blue Cross subscribers desiring admission, without regard to the type of coverage or policy involved. Blue Cross, in return, promises to pay the hospital's usual, customary, and reasonable (UCR) charges. ⁷

Unlike the arrangement with the participating hospitals, however, the agreement with the contracting hospitals sets an upper limit on the reimbursable amount. Contracting hospitals are initially paid 100% of the UCR charges, the same reimbursement that Blue Cross would make to a participating hospital. At the end of each year, however, Blue Cross makes an accounting of all hospitalization payments and may demand a partial refund from the contracting hospitals. The contracting hospital may not keep more than the average amount paid to a participating hospital under a like policy for similar illness or a comparable length of stay. Contracting hospitals whose billings do not exceed the average billings of participating hospitals (after adjusting for length of stay, diagnosis, and policy type) owe no rebate to Blue Cross. However, those hospitals whose average charges exceed those of the participating hospitals, after these adjustments, must make a refund of the excess to Blue Cross. Thus, whether a contracting hospital owes a refund to Blue Cross at the end of the year depends on whether that hospital has been able to contain costs at or beneath the average charges of the participating hospitals. There is no comparable refund requirement imposed upon a participating hospital.

During the years in question, 1969-1972, St. Bernard Hospital was one of the Blue Cross contracting hospitals. It was a for-profit facility, and was not JCAH approved (although it was fully licensed by the state). It was a 39 bed hospital affiliated with a medical clinic housed in the same building. Dr....