Summit Health, Ltd v. Pinhas

• Court: U.S. Supreme Court
• Writing for the Court: STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, MARSHALL, and BLACKMUN, JJ., joined. SCALIA
• Citation: Summit Health, Ltd v. Pinhas, 500 U.S. 322, 111 S.Ct. 1842, 114 L.Ed.2d 366 (1991)
• Decision Date: 28 May 1991
• Docket Number: No. 89-1679,89-1679
• Parties: SUMMIT HEALTH, LTD., et al., Petitioners v. Simon J. PINHAS

500 U.S. 322

111 S.Ct. 1842

114 L.Ed.2d 366

SUMMIT HEALTH, LTD., et al., Petitioners

v Simon J. PINHAS.

No. 89-1679.

Argued Nov. 26, 1990.

Decided May 28, 1991.

Syllabus

Respondent Pinhas, an ophthalmologist on the staff of petitioner Midway Hospital Medical Center, filed a suit in the District Court, asserting a violation, inter alia, of § 1 of the Sherman Act by Midway and other petitioners, including several doctors. The amended complaint alleged, among other things, that petitioners conspired to exclude Pinhas from the Los Angeles ophthalmological services market when he refused to follow an unnecessarily costly surgical procedure used at Midway; that petitioners initiated peer-review proceedings against him which did not conform to congressional requirements and which resulted in the termination of his Midway staff privileges; that at the time he filed suit, petitioners were preparing to distribute an adverse report about him based on the peer-review proceedings; that the provision of ophthalmological services affects interstate commerce because both physicians and hospitals serve nonresident patients and receive reimbursement from Medicare; and that reports from peer-review proceedings are routinely distributed across state lines and affect doctors' employment opportunities throughout the Nation. The District Court dismissed the amended complaint, but the Court of Appeals reversed, rejecting petitioners' argument that the Act's jurisdictional requirements were not met because there was no allegation that interstate commerce would be affected by Pinhas' removal from Midway's staff. Rather, the court found that Midway's peer-review proceedings obviously affected the hospital's interstate commerce because they affected its entire staff, and that Pinhas need not make a particularized showing of the effect on interstate commerce caused by the alleged conspiracy.

Held: Pinhas' allegations satisfy the Act's jurisdictional requirements. To be successful, Pinhas need not allege an actual effect on interstate commerce. Because the essence of any § 1 violation is the illegal agreement itself, the proper analysis focuses upon the potential harm that would ensue if the conspiracy were successful, not upon actual consequences. And if the conspiracy alleged in the complaint is successful, as a matter of practical economics there will be a reduction in the provision of ophthalmological services in the Los Angeles market. Thus, petitioners erroneously contend that a boycott of a single surgeon, unlike a conspiracy to destroy a hospital department or a hospital, has no effect on interstate commerce because there remains an adequate supply of others to perform services for his patients. This case involves an alleged restraint on the practice of ophthalmological services accomplished by an alleged misuse of a congressionally regulated peer-review process, which has been characterized as the gateway controlling access to the market for Pinhas' services. When the competitive significance of respondent's exclusion from the market is measured, not by a particularized evaluation of his practice, but by a general evaluation of the restraint's impact on other participants and potential participants in that market, the restraint is covered by the Act. Pp. 328-333.

894 F.2d 1024 (CA 9 1989), affirmed.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, MARSHALL, and BLACKMUN, JJ., joined. SCALIA, J., filed a dissenting opinion, in which O'CONNOR, KENNEDY, and SOUTER, JJ., joined.

J. Mark Waxman, Los Angeles, Cal., for petitioners.

Lawrence Silver, Los Angeles, Cal., for respondent.

Lawrence G. Wallace, Washington, D.C., for the U.S. as amicus curiae, in support of respondent, by special leave of Court.

Justice STEVENS delivered the opinion of the Court.

The question presented is whether the interstate commerce requirement of antitrust jurisdiction is satisfied by allegations that petitioners conspired to exclude respondent, a duly licensed and practicing physician and surgeon, from the market for ophthalmological services in Los Angeles because he refused to follow an unnecessarily costly surgical procedure.

In 1987, respondent Dr. Simon J. Pinhas filed a complaint in District Court alleging that petitioners Summit Health, Ltd. (Summit), Midway Hospital Medical Center (Midway), its medical staff, and others, had entered into a conspiracy to drive him out of business "so that other ophthalmologists and eye physicians [including four of the petitioners] will have a greater share of the eye care and ophthalmic surgery in Los Angeles." App. 39. Among his allegations was a claim that the conspiracy violated § 1 of the Sherman Act.¹ The District Court granted defendants' (now petitioners') motion to dismiss the First Amended Complaint (complaint) without leave to amend, App. 315, but the United States Court of Appeals for the Ninth Circuit reinstated the antitrust claim. 894 F.2d 1024 (1989).² We granted certiorari, 496 U.S. ----, 110 S.Ct. 3212, 110 L.Ed.2d 660 (1990), to consider petitioners' contention that the complaint fails to satisfy the jurisdictional requirements of the Sherman Act, as interpreted in McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 100 ,S.Ct. 502, 62 L.Ed.2d 441 (1980), because it does not describe a factual nexus between the alleged boycott and interstate commerce.

I

Because this case comes before us from the granting of a motion to dismiss on the pleadings, we must assume the truth of the material facts as alleged in the complaint. Respondent, a diplomat of the American Board of Ophthalmology, has earned a national and international reputation as a specialist in corneal eye problems. App. 7. Since October 1981, he has been a member of the staff of Midway in Los Angeles, and because of his special skills, has performed more eye surgical procedures, including cornea transplants and cataract removals, than any other surgeon at the hospital. Ibid. ³

Prior to 1986, most eye surgeries in Los Angeles were performed by a primary surgeon with the assistance of a second surgeon. Id., at 8. This practice significantly increased the cost of eye surgery. In February of that year, the administrators of the Medicare program announced that they would no longer reimburse physicians for the services of assistants, and most hospitals in southern California abolished the assistant surgeon requirement. Respondent, and certain other ophthalmologists, asked Midway to abandon the requirement, but the medical staff refused to do so. Ibid. Respondent explained that because Medicare reimbursement was no longer available, the requirement would cost him about $60,000 per year in payments to competing surgeons for assistance that he did not need. Id., at 9. Although respondent expressed a desire to maintain the preponderance of his practice at Midway, he nevertheless advised the hospital that he would leave if the assistant surgeon requirement were not eliminated. Ibid.

Petitioners responded to respondent's request to forgo an assistant in two ways. First, Midway and its corporate parent offered respondent a "sham" contract that provided for payments of $36,000 per year (later increased by oral offer to $60,000) for services that he would not be asked to perform. Ibid. Second, when respondent refused to sign or return the "sham" contract, petitioners initiated peer-review proceedings against him and summarily suspended, and subsequently terminated, his medical staff privileges.⁴ Id., at 10. The proceedings were conducted in an unfair manner by biased decisionmakers, and ultimately resulted in an order upholding one of seven charges against respondent, and imposing severe restrictions on his practice.⁵ When this action was commenced, petitioners were preparing to distribute an adverse report ⁶ about respondent that would "preclude him from continued competition in the market place, not only at defendant Midway Hospital [but also] . . . in California, if not the United States." Id., at 40. The defendants allegedly planned to disseminate the report "to all hospitals which Dr. Pinhas is a member, and to all hospitals to which he may apply so as to secure similar actions by those hospitals, thus effectuating a boycott of Dr. Pinhas." Ibid.

The complaint alleges that petitioner Summit owns and operates 19 hospitals, including Midway, and 49 other health care facilities in California, six other States, and Saudia Arabia. Id., at 3. Summit, Midway, and each of the four ophthalmic surgeons named as individual defendants, as well as respondent, are all allegedly engaged in interstate commerce. The provision of ophthalmological services affects interstate commerce because both physicians and hospitals serve nonresident patients and receive reimbursement through Medicare payments. Reports concerning peer-review proceedings are routinely distributed across state lines and affect doctors' employment opportunities throughout the Nation.

In the Court of Appeals, petitioners defended the District Court's dismissal of the complaint on the ground that there was no allegation that interstate commerce would be affected by respondent's removal from the Midway medical staff. The Court of Appeals rejected this argument because " 'as a matter of practical economics' " the hospital's "peer review process in general" obviously affected interstate commerce. 894 F.2d, at 1032 (citation omitted). The court added:

"Pinhas need not, as appellees apparently believe, make the more particularized showing of the effect on interstate commerce caused by the alleged conspiracy to keep him from working. [McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S., 232] at 242-243 [100 S.Ct. 502, 509, 62 L.Ed.2d 441 (1980) ]. He need only prove that peer-review proceedings have an effect on interstate commerce, a fact that can hardly be disputed. The proceedings affect the entire staff at Midway and thus affect...