State of Ariz. v. Maricopa County Medical Soc.

Decision Date20 March 1980
Docket Number79-3612,Nos. 79-3427,s. 79-3427
Citation643 F.2d 553
Parties1980-1 Trade Cases 63,239, 1980-81 Trade Cases 65,573 STATE OF ARIZONA, Plaintiff-Appellant, v. MARICOPA COUNTY MEDICAL SOCIETY, an Arizona non-profit corporation; Maricopa Foundation for Medical Care, an Arizona non-profit corporation; Pima County Medical Society, an Arizona non-profit corporation; and Pima Foundation for Medical Care, an Arizona non-profit corporation, Defendants-Appellees. STATE OF ARIZONA, Plaintiff-Appellant, v. MARICOPA COUNTY MEDICAL SOCIETY, an Arizona non-profit corporation; Maricopa Foundation for Medical Care, an Arizona non-profit corporation; and Pima Foundation for Medical Care, an Arizona non-profit corporation, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Patricia A. Metzger, Phoenix, Ariz., for plaintiff-appellant.

Philip P. Berelson, Brown & Bain, Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before SNEED and KENNEDY, Circuit Judges, and LARSON, * District Judge.

SNEED, Circuit Judge:

These consolidated appeals derive from the plaintiff-appellant's injunctive suit 1 to halt alleged antitrust violations by the defendants-appellees, two foundations for medical care (FMCs), 2 and the county medical society associated with one of them. The challenged conduct is the setting by majority vote of maximum fees that physician members may claim in full payment for health services they provide to policyholders of FMC-approved insurance plans. The appellant State of Arizona appeals from the vacation of a temporary restraining order that had already been extended without a hearing beyond the usual period. It also appeals from denial of summary judgment on the issue of liability. Pursuant to 28 U.S.C. § 1292(b) the district court certified the question whether the FMC membership agreements, which contain the promise to abide by maximum fee schedules, are illegal per se under section 1 of the Sherman Act, 15 U.S.C. § 1. We have jurisdiction to answer the certified question, but do not reach the jurisdictional issue raised by the other appeal. We affirm.


Factual Background.

The FMCs in this case exemplify a type of organization that is beginning to play a significant part in the health services market. See C. Steinwald, An Introduction to Foundations for Medical Care (1971); Havighurst, Professional Restraints on Innovation In Health Care Financing, 1978 Duke L.J. 303, 315-16. The two challenged FMCs are not-for-profit corporations licensed as "insurance administrators" by the State of Arizona. Their activities include polling their members from time to time to set upper limits on fees they may charge patients covered by insurance plans the FMCs approve. This "price fixing," the FMCs claim, subserves a general purpose of setting minimum standards and performing peer review and administrative tasks for health insurance plans. Under the heading of peer review, the foundations evaluate the medical necessity and appropriateness of treatment given and, in some instances, the use of hospital services. They also serve as agents for the underwriters, drawing funds directly from insurers' bank accounts to pay doctors' bills. Participation in the foundations is open to all physicians licensed in Arizona.

The State of Arizona charges that the foundations' fee schedules have raised members' fees above the average and median fees charged by Arizona doctors. The foundations dispute the appropriateness of the statewide figures used for the comparison, but concede that eighty-five to ninety-five percent of physicians in Maricopa County bill at or above the maximum reimbursement levels set by the county FMC. 3 The foundations point out that the State's own maximum reimbursement levels for its worker's compensation insurance program and Comprehensive Medical/Dental Program for Foster Children are higher than the foundations'. Although the State primarily argues that the FMC membership agreements are contracts to fix prices, it hints that the FMCs serve a separate anticompetitive end by aiding the exchange of price information among doctors in the counties concerned. The State contends that the FMC fee schedules are not inseparable from the professional standards review of FMC-approved insurance plans, since the foundations offer peer review and administrative services for at least one health program the foster child program in which prices paid the doctors are not set by themselves but by the third party payor. Although the foundations say their purpose is to provide an alternative to "closed panel prepaid health insurance plans," which are sometimes called "health maintenance organizations" (HMOs), see Havighurst, Health Maintenance Organizations and the Market for Health Services, 35 Law & Contemp. Prob. 716 (1970), the record does not show that HMOs exist in Maricopa or Pima County or have been kept from entering the health service market in those counties by the operation of the FMCs.


The No. 79-3612 Appeal.

Our jurisdiction to consider the appeal in No. 79-3427 is based on 28 U.S.C. § 1292(b). As for the appeal in No. 79-3612, we note that the State of Arizona would be entitled to reinstatement of an originally proper preliminary injunction only if the court below, in dissolving it, had committed an abuse of discretion. The controlling standard is a sliding scale correlation of the "balance of hardships" with the likelihood that a permanent injunction will be granted. Benda v. Grand Lodge of International Association of Machinists, 584 F.2d 308, 314-15 (9th Cir. 1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065, 60 L.Ed.2d 667 (1979); William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86, 88 (9th Cir. 1975). The State argued that without preliminary relief, its citizens would suffer pecuniary loss, and prospective patients who could not afford a physician's care at supracompetitive prices would suffer physical injury and mental distress. On the other hand, a preliminary injunction threatened the very existence of the FMCs. Given this balance of hardships and the uncertainties attending proof of the antitrust violation, which we consider below, we cannot say that the district court would have erred in dissolving a preliminary injunction.


The No. 79-3427 Appeal.


We must approach this appeal mindful that the Supreme Court has made it clear that the determination whether an agreement violates the Sherman Act turns on its "impact on competitive conditions." National Society of Professional Engineers v. United States, 435 U.S. 679, 688, 98 S.Ct. 1355, 1363, 55 L.Ed.2d 637 (1978). The fact that a restraint may for one or more reasons appear reasonable is not controlling. An unreasonable restraint that contravenes the Sherman Act may be "based either (1) on the nature and character of the contracts, or (2) on surrounding circumstances giving rise to the inference or presumption that they were intended to restrain trade and enhance prices." Id. at 690, 98 S.Ct. at 1364 (footnote omitted). The key, to repeat, is the agreement's impact on competition. If competition is promoted the agreement passes muster; if it suppresses or destroys competition it does not. Some agreements so often lack redeeming virtue, so frequently suppress or destroy competition, as to warrant their classification as per se unreasonable. Broadcast Music, Inc. v. Columbia Broadcasting Co., 441 U.S. 1, 7-8, 99 S.Ct. 1551, 1554, 60 L.Ed.2d 1 (1979). Once so classified a violation of the Sherman Act is made out merely by proving that such an unworthy agreement exists. Actual proof of its competitive impact is unnecessary. It is presumed to be anticompetitive.

The State of Arizona insists that the practice of setting maximum fees by majority vote of the members of the FMC constitutes an arrangement without redeeming virtue that suppresses and destroys competition and is thus unreasonable per se. The difficulty with Arizona's position is that this record reveals nothing about the actual competitive effects of the challenged arrangement nor do the authorities, primary or secondary, afford assurance concerning its competitive impact. In truth, we know very little about the impact of this and many other arrangements within the health care industry. This alone should make us reluctant to invoke a per se rule with respect to the challenged arrangement.

There are, however, additional reasons. Foremost among them is that we are uncertain about the competitive order that should exist within the health care industry pursuant to the Sherman Act as interpreted by the courts. Only recently have the professions been brought by the Supreme Court within the reach of the Act. Goldfarb v. Virginia State Bar, 421 U.S. 773, 785-88, 95 S.Ct. 2004, 2012-13, 44 L.Ed.2d 572 (1975). The guidelines by which each is governed pursuant to the Act are being written on a case by case basis.

The health care industry, moreover, presents a particularly difficult area. The first step to understanding is to recognize that not only is access to the medical profession very time consuming and expensive both for the applicant and society generally, but also that numerous government subventions of the costs of medical care have created both a demand and supply function for medical services that is artificially high. The present supply and demand functions of medical services in no way approximate those which would exist in a purely private competitive order. An accurate description of those functions moreover is not available. Thus, we lack baselines by which could be measured the distance between the present supply and demand functions and those which would exist under ideal competitive conditions.

Perforce we must take industry as it exists, absent the challenged feature, as our baseline for measuring...

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