Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia

• Decision Date: 16 June 1980
• Docket Number: No. 79-1345,79-1345
• Citation: 624 F.2d 476
• Parties: 1980-2 Trade Cases 63,395 VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS, and Robert J. Resnick, Ph.D., Appellants, v. BLUE SHIELD OF VIRGINIA, Blue Shield of Southwestern Virginia, and Neuropsychiatric Society of Virginia, Inc., Appellees, American Psychological Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 476

624 F.2d 476

1980-2 Trade Cases 63,395

VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS, and Robert J Resnick, Ph.D., Appellants, v. BLUE SHIELD OF VIRGINIA, Blue Shield of Southwestern Virginia, and Neuropsychiatric Society of Virginia, Inc., Appellees American Psychological Association, Amicus Curiae.

No. 79-1345.

United States Court of Appeals Fourth Circuit.

Argued Feb. 5, 1980.

Decided June 16, 1980.

Warwick R. Furr, II, Vienna, Va. (Thomas M. Brownell, Lewis, Mitchell & Moore, Timothy J. Bloomfield, Alan J. Kriegel, Dunnells, Duvall, Bennett & Porter, Washington, D.C., on brief), for appellants.

Joel I. Klein, Washington, D.C. (Eugene Comey, H. Bartow Farr, III, Rogovin, Stern & Huge, Washington, D.C., R. Gordon Smith, Gilbert E. Schill, Jr., James H. Walsh, McGuire, Woods & Battle, Richmond, Va., Ronald M. Ayers, Heman A. Marshall, III, Woods, Rogers, Muse, Walker

& Thornton, Roanoke, Va., Francis J. Prior, Jr., Siciliano, Ellis, Sheridan & Dyer, Arlington, Va., on brief), for appellees.

Before HALL and PHILLIPS, Circuit Judges, and HOWARD ^*, District Judge.

K. K. HALL, Circuit Judge:

This controversy arises over the refusal by defendants Blue Shield of Virginia and Blue Shield of Southwestern Virginia to pay for services rendered by clinical psychologists unless such services are billed through a physician. Plaintiffs Virginia Academy of Clinical Psychologists and Dr. Robert J. Resnick, a practicing clinical psychologist, claim that this policy violates Section 1 of the Sherman Act. 15 U.S.C. § 1. The district court found no violation. Virginia Academy of Clinical Psychologists v. Blue Shield of Virginia, 469 F.Supp. 552 (E.D.Va.1979). We affirm in part and reverse in part.

Since 1962, Blue Shield of Virginia (BSV or the Richmond Plan) and Blue Shield of Southwestern Virginia (BSSV or the Roanoke Plan) have included outpatient coverage for mental and nervous disorders and for psychotherapy as a method of treating those disorders. Between 1962 and 1972, Richmond Plan coverage included direct payment to psychologists for psychotherapy rendered to subscribers. In 1972, this policy was revised to allow payment only when the services were billed through a physician.

The revised policy of the Richmond Plan was announced after consultation with various provider groups, including the American Psychological Association and the defendant Neuropsychiatric Society of Virginia (NSV). Contact between the Richmond Plan and NSV, however, was particularly close.

Beginning in 1971, Dr. Levi Hulley, M.D., the head of the Plan's professional relations committee, met several times with NSV's president, Dr. Terrell Wingfield, M.D., over the question of payment for psychotherapy. Cooperation between the two groups followed: NSV, at the Plan's request, conducted a survey of Virginia psychiatrists on various aspects of psychiatric practice and later passed a resolution recommending, inter alia, that the Richmond Plan terminate direct payment to clinical psychologists. Immediately prior to adopting its policy, Richmond Plan officials met with a special NSV committee to discuss the scope of mental health coverage. The Plan adopted some of NSV's recommendations, including that of refusing to cover services rendered by psychologists unless billed by a physician.

Following implementation of the non-payment policy, the Virginia legislature, in 1973, added another dimension to the problem by passing a "Freedom of Choice Statute," Va.Code § 32-195.10:1 (now amended and codified at § 38.1-824), which requires Blue Shield plans to pay directly for services rendered by licensed psychologists. ¹

The passage of this legislation provoked discussion between the Roanoke Plan and the Richmond Plan, resulting in collaboration between the two Plans to continue denying direct payment to psychologists in violation of the statute and to pursue litigation to test the statute. A test case was filed in state court by a subscriber and her psychologist against the Richmond Plan, but was later voluntarily nonsuited. In 1976, the State Corporation Commission brought an action against the Richmond Plan to compel compliance with the statute. Commonwealth of Virginia ex rel. State Corporation Comm'n v. Blue Cross of Virginia, Case No. 19829.

The Roanoke Plan was not a party to either State proceeding, but maintained an official policy of denying payment, despite the statute, until November 1976. By the time this case was tried, however, most Roanoke Plan contracts allowed direct payment to psychologists.

This action was filed on July 14, 1978. Following the voluntary dismissal of defendant Medical Service of District of Columbia, Inc., a Blue Shield Plan operating in Northern Virginia, the case was tried to the court in January 1979. On April 9, 1979, the district court issued a Memorandum Opinion and Order, holding: (1) Plaintiffs had failed to prove any contract, combination or conspiracy cognizable under Section 1 of the Sherman Act; (2) even if there was such an arrangement, it was not in restraint of trade; and (3) the defendants' conduct was exempt from the antitrust laws under the McCarran-Ferguson Act. 15 U.S.C. § 1012(b).

I

The district court held that the plaintiffs had failed to prove a "contract, combination . . . , or conspiracy" within the reach of Section 1 of the Sherman Act. First, it found that agreement between the two Blue Shield Plans was exempt from the Sherman Act. It held that the Plans' decision to challenge the Virginia "Freedom of Choice" legislation was protected activity under the First Amendment, and the joint administration of "national accounts" restricting payment to psychologists was within the "state action" exemption of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). 469 F.Supp. at 557.

Second, the court found no agreement between the Plans and NSV. The court noted that "NSV cooperated closely with BSV by urging BSV to adopt the policies in question and by advising BSV on their implementation," but found that this was part of a program of consultation with many provider groups, including the American Psychological Association. The district court concluded:

Though prior inquiry, consultation, and negotiation clearly took place, no contract was entered into, no combination formed, and no conspiracy existed. Section 1 of the Sherman Act does not prohibit a business entity which needs information and advice from obtaining information and advice from other knowledgeable business entities. The operation of a medical insurance plan would be, for all practical purposes, impossible of consultation and cooperation with provider groups were barred.

469 F.Supp. at 559.

a. Blue Shield

The district court treated the Plans as separate, independent entities. This characterization is only partly accurate. Noticeably absent from the district court's discussion is any mention of the plaintiff's principal theory on appeal: that the Blue Shield Plans are combinations of physicians, operating under the direction and control of their physician members. ²

Blue Shield Plans are not insurance companies, though they are, to a degree, insurers. Rather, they are generally characterized as prepaid health care plans, quantity purchasers of health care services. See Group Life and Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 225-232, 99 S.Ct. 1067, 1080-1083, 59 L.Ed.2d 261, 277-80 (1979). A plan may be viewed as an agent of its subscribers, a buyers cooperative. See Jordan v. Group Health Association, 71 App.D.C. 38, 107 F.2d 239 (1939). But see Blue Cross v. Commonwealth, 211 Va. 180, 176 S.E.2d 439, 443 (1970). But in a real and legal sense, the Blue Shield Plans are agents of their member physicians. ³

The Virginia Statute authorizing the creation of Blue Shield Plans states:

Medical and Surgical Plans. A group of physicians may conduct directly or through an agent, who may be either an individual or nonstock corporation, a plan or plans for furnishing prepaid medical or surgical or similar or related services or both.

Va.Code § 38.1-811 (formerly codified at § 32-195.2). The Plans in this case, organized under the above provision, are made up of "participating physicians" who as "members" of the plan contract to provide services to subscribers, and are reimbursed by the Plan.

State law requires that the majority of the board of directors of such a plan be "health care providers," Va.Code § 38.1-817. The by-laws of the Richmond Plan, however, until very recently, provided for a physician majority:

The board shall have fifteen members. Not less than eight of such members shall be Doctors of Medicine or Osteopathy who are engaged in active practice and who are members of the plan.

The Medical Society of Virginia is identified as "sponsor" of the Richmond program, and its by-laws indicate that five of the physician members of its board "shall be elected from among those designated by the Medical Society of Virginia."

The Supreme Court of Virginia emphasized collective nature of a similar type of plan in Blue Cross v. Commonwealth, 211 Va. 180, 176 S.E.2d 439 (1970). There the court held that certain Pharmacy Agreements entered into between Blue Cross and participating Pharmacists violated the Sherman Act. Among the several combinations found in that case was that of the participating hospitals which constitute Blue Cross, in the same fashion as participating physicians constitute Blue Shield. Compare Va.Code § 38.1-810 with § 38.1-811. The court characterized the arrangement as follows:

The Blue Cross participating hospitals determined to inaugurate a plan for the furnishing of drugs to the subscriber-public. To implement the plan, they chose to act in concert through Blue Cross as their agent in setting the price at which they would deal with the sellers of drugs (the cooperating pharmacists). The Commission found that sellers of drugs knew they would lose business if they agreed to...