PEER REVIEW AND HOSPITAL STAFF PRIVILEGES
Howard Feller
McGuireWoods LLP
Richmond, Virginia
American Bar Association
Health Law Section
Section of Antitrust Law
American Health Lawyers Association
“Antitrust in Healthcare Conference”
May 15-16, 2003
Washington, D.C.
PEER REVIEW AND HOSPITAL STAFF PRIVILEGES
Howard Feller
I.
INTRODUCTION.
Dramatic changes in the health care field in recent years have placed tremendous pressure
on the economic well-being of hospitals. On the regulatory front, the advent of DRGs and
RBRVSs and the cost-cutting measures introduced in the federal government’s Medicare and
Medicaid systems compelled hospitals to reduce their costs and accept maximum payment levels
for their services regardless of the length of stay or complexity of the case. At the same time,
insurance companies and managed care plans, such as health maintenance organizations and
preferred provider organizations, have used their purchasing leverage to force hospitals to grant
larger discounts from their standard charges and implement stricter utilization controls. Many
hospitals also have engaged in aggressive marketing and advertising programs to attract patients,
and have actively recruited physicians who will admit patients to fill their beds.
In addition, competition for hospital services has intensified with the development of
such free-standing facilities as emergency or urgent care clinics, one-day surgery centers and
birthing centers. Physicians now have access to an increasing range of medical equipment and
facilities at independent outpatient centers that previously were available only in a hospital
setting.
Moreover, because of substantial changes in medical technology, a growing number of
procedures can be provided on an outpatient basis that in the past could have been done only on
an inpatient basis. Thus, free-standing facilities and physicians now compete with hospitals for
services, and many hospitals have lost business to these competing providers.
The result of these market changes has been fewer inpatient admissions and shorter
lengths of stay for many hospitals. In an effort to reverse these adverse economic trends, some
hospitals are focusing on the utilization practices, efficiency and productivity of physicians in
making staff privileges decisions. Other hospitals place emphasis on the admitting and referral
practices of their staff physicians because they are critical to the hospitals’ financial success and
viability. Furthermore, some hospitals have considered proposals to deny staff privileges to
physicians who are affiliated with competing hospitals or non-hospital facilities.
When economic or business determinations by hospitals result in the termination of
privileges for certain existing members of the medical staff or the denial of privileges to certain
new applicants, it is commonly referred to as “economic credentialing.” A hospital’s termination
or denial of medical staff privileges to a physician, whether based on economic credentialing or
other considerations, raises several antitrust issues. This paper discusses the following principal

The author gratefully acknowledges the assistance of Bryan A. Fratkin, Nathan A. Kottkamp
and Scott A. Simmons in the preparation of this paper.
1
antitrust issues that arise in a staff privileges case: (1) group boycott or concerted refusal to deal
claims, (2) exclusive dealing arrangement claims, and (3) monopolization claims. Section 1 of
the Sherman Act1 applies to the group boycott and exclusive dealing claims, while Section 2 of
the Sherman Act2 applies to the monopolization claims. The paper also addresses the scope and
impact of the Health Care Quality Improvement Act.3
II.
PROVING THE EXISTENCE OF A CONSPIRACY UNDER SECTION 1.
There are two basic requirements for any claim under Section 1 of the Sherman Act. The
plaintiff must prove (1) the existence of a “contract, combination . . ., or conspiracy” that (2)
imposes an unreasonable restraint on trade.4 Based upon the first requirement, unilateral conduct
cannot, on its own, amount to a violation of Section 1 because the statute only prohibits
concerted action.5 Therefore, a necessary element of any Section 1 claim is the existence of a
conspiracy between two or more separate entities.
A frequently-raised defense to a Section 1 conspiracy claim is the intra-corporate or intraenterprise conspiracy doctrine. This doctrine is founded on two principal considerations. First,
an agreement between a parent company and a wholly or majority-owned subsidiary generally
cannot amount to a Section 1 conspiracy because the parent and subsidiary are viewed as
essentially a single enterprise with common corporate interests.6 Second, an agreement between
officers of the same corporation or between officers and the corporation itself cannot amount to a
conspiracy for Section 1 purposes because there is either a unity of interest between the officers
of a single firm or a unity of interest between the corporation and its internal agents.7
1
15 U.S.C. § 1.
2
15 U.S.C. § 2.
3
There are a number of other defenses or immunities that are potentially available in
hospital staff privileges cases, such as state action, interstate commerce and implied repeal.
However, these defenses are outside the scope of this paper and will not be addressed herein.
4
Oksanen v. Page Mem’l Hosp., 945 F.2d 696, 702 (4th Cir. 1991).
5
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768-69 (1984). Unilateral
actions that unreasonably restrain trade are covered by Section 2’s provisions on monopolies. Id.
at 767.
6
Id. at 771.
7
Id. at 769.
2
A.
Capacity Of A Hospital And Its Medical Staff To Conspire.
In the context of hospital staff privileges cases, a physician who has had his privileges
terminated or who has been denied privileges by a hospital must show a conspiracy either
between the hospital and its medical staff or between individual members of the medical staff in
order to proceed under Section 1. In defense, the intra-corporate conspiracy doctrine is often
asserted by the defendants and, thus, a threshold question becomes whether the hospital and the
members of the medical staff have the legal capacity to conspire under Section 1.
Unfortunately, the authorities are sharply divided over the question whether a hospital is
legally capable of conspiring with the members of its medical staff on privileges matters. The
Third, Fourth, Sixth, and Seventh Circuits have applied the intra-corporate conspiracy doctrine to
hold that a hospital cannot conspire with its own staff.8 In contrast, the Ninth and Eleventh
Circuits have found the intra-corporate conspiracy doctrine to be inapplicable to peer review
cases and have held that a hospital is legally capable of conspiring with its medical staff.9 The
D.C. Circuit, in dicta, has “assum[ed] that a hospital and its staff may in some circumstances
conspire under the Sherman Act.”10 The Eighth and Tenth Circuits have explicitly declined to
rule on the question.11 The Second and Fifth Circuits have yet to address the issue at the Court
of Appeals level.12 The different grounds for these decisions are described below.
Nanavati v. Burdette Tomlin Mem’l Hosp., 857 F.2d 96, 118 (3d Cir. 1988); Weiss v.
York Hosp., 745 F.2d 786, 817 (3rd Cir. 1984); Oksanen v. Page Mem’l Hosp., 945 F.2d 696,
704 (4th Cir. 1991); Muzquiz v. W.A. Foote Mem’l Hosp., Inc., 70 F.3d 422, 429-30 (6th Cir.
1995); Nurse Midwifery Assocs. v. Hibbett, 918 F.2d 605, 614 (6th Cir. 1990); Pudlo v.
Adamski, 2 F.3d 1153 (7th Cir. 1993) (unpublished disposition).
8
Pinhas v. Summit Health, Ltd., 894 F.2d 1024 (9th Cir. 1989), aff’d on other grounds,
500 U.S. 322 (1991); Oltz v. St. Peter’s Cmty. Hosp., 861 F.2d 1440, 1450 (9th Cir. 1988);
Crosby v. Hosp. Auth., 93 F.3d 1515 (11th Cir. 1996); Bolt v. Halifax Hosp. Med. Ctr., 891 F.2d
810. 819 (11th Cir. 1990).
9
10
Okusami v. Psychiatric Inst. of Wash., Inc., 959 F.2d 1062, 1065 (D.C. Cir. 1992).
11
Willman v. Heartland Hosp. E., 34 F.3d 605, 610 (8th Cir. 1994); Flegel v. Christian
Hosp. Northeast-Northwest, 4 F.3d 682, 685 n.3 (8th Cir. 1993); Islami v. Covenant Med. Ctr.,
Inc., 822 F. Supp. 1361, 1382 (N.D. Iowa 1992); Tarabishi v. McAlester Reg’l Hosp., 951 F.2d
1558, 1571 (10th Cir. 1991).
12
Maric v. St. Agnes Hosp. Corp., 65 F.3d 310, 313 (2d Cir. 1995); but see Balaklaw v.
Lovell, 822 F. Supp. 892, 901 (N.D.N.Y. 1993), aff’d on other grounds, 14 F.3d 793, 802 (2nd
Cir. 1994) (suggesting a functional analysis of “the structure and conduct” of a hospital and its
medical staff “in order to determine whether they could have conspired to act in an anticompetitive fashion”). The Second Circuit affirmed the decision on other grounds without
taking a position on the issue of the legal capacity of a hospital to conspire with its own staff.
3
The Third Circuit first articulated the view that as a matter of law, a hospital cannot
conspire with its own medical staff in violation of Section 1. In Weiss v. York Hospital, the court
found that a medical staff empowered to make staff privilege decisions on behalf of its hospital
was analogous to an officer acting on behalf of his or her corporation and had no separate entity
interest in competition with its hospital.13 While the court in Weiss conceded that individual
members of a medical staff may have separate economic interests that could be combined in an
unlawful conspiracy in restraint of trade,14 “there could not be a conspiracy between the hospital
and the medical staff.”15
In Oksanen v. Page Memorial Hospital, the Fourth Circuit also applied the intracorporate conspiracy doctrine to hold that a medical staff could not conspire with its hospital in
restraint of trade.16 The court reasoned that the medical staff acted as the agent of the hospital
during peer review and as such was “indistinct from the hospital.”17 Because of the “unity of
interest” between a hospital and its medical staff during peer review, the decision to deny or
terminate a doctor’s staff privileges “does not represent the sudden joining of independent
economic forces that Section 1 is designed to deter and penalize.”18
While Oksanen stands strongly for the proposition that a hospital generally lacks the legal
capacity to conspire with members of its own staff, it nevertheless suggested a possible
exception to this rule where a member of the staff has an “independent personal stake” in the
outcome of the concerted action.19 The independent personal stake exception normally will
override the general rule that a corporation cannot engage in a conspiracy with its own agent
when, at the time of the concerted action, the agent is acting “for his own benefit.”20 In Oksanen,
the Fourth Circuit recognized the availability of the personal stake exception, but found that it
did not apply to the particular peer review case at issue.21
13
Weiss v. York Hosp., 745 F.2d 786, 817 (3rd Cir. 1984).
14
Id. at 817 n.51.
15
Id. at 817; see also Farr v. Healtheast Inc., 1993-1 Trade Cas. (CCH) ¶ 70,294 (E.D. Pa.
1993) (citing Weiss for the proposition that “a hospital cannot conspire with itself, i.e., with its
medical staff”).
16
Oksanen v. Page Mem’l Hosp., 945 F.2d 696, 703 (4th Cir. 1991).
17
Id.
18
Id.
19
Id. at 705.
20
Victorian House, Inc. v. Fisher Camuto Corp., 769 F.2d 466, 467 (8th Cir. 1985); Islami
v. Covenant Med. Ctr., Inc., 822 F. Supp. 1361, 1382-83 (N.D. Iowa 1992).
21
Oksanen v. Page Mem’l Hosp., 945 F.2d 696, 705 (4th Cir. 1991).
4
The Sixth Circuit, in Nurse Midwifery Associates v. Hibbett, firmly held that where a
medical staff acts purely as the agent of the hospital during peer review, the intra-corporate
conspiracy doctrine precludes any finding of a Section 1 conspiracy. 22 However, the court also
indicated that it may not apply the intra-corporate conspiracy doctrine to protect hospitals and
medical staffs from Section 1 conspiracy claims when physicians make peer review
recommendations concerning their own direct competitors.23
Most recently, the Seventh Circuit, in Pudlo v. Adamski, announced its agreement with
the position taken by the Third, Fourth, and Sixth Circuits that the intra-corporate conspiracy
doctrine makes a hospital “legally incapable of conspiring with its medical staff during the peer
review process” when the medical staff acts with delegated authority as if it were the agent of the
hospital.24
On the other hand, in Oltz v. St. Peter’s Community Hospital, the Ninth Circuit took a
very different view of the Supreme Court’s Copperweld decision and the applicability of its
intra-corporate conspiracy doctrine to staff privileges cases.25 The Ninth Circuit found the
analogies to parent-subsidiary and corporation-agent relationships inapposite to the reality of the
relationship between a hospital and its medical staff.26 In Oltz, the court found the hospital and
its medical staff to be “legally separate entities” whose “interests were sufficiently independent”
to create a “capacity to conspire.”27
The Eleventh Circuit also has rejected the notion that the joint action of a hospital and its
medical staff in denying a physician privileges constitutes unilateral conduct outside of the scope
of Section 1. In Bolt v. Halifax Hospital Medical Center, the court found the intra-corporate
conspiracy doctrine inapplicable to staff privileges cases and held that a hospital and the
members of its medical staff were separate legal entities “capable of conspiring with one
another.” 28
22
Nurse Midwifery Assocs. v. Hibbett, 918 F.2d 605, 614-15 (6th Cir. 1990).
23
Id.
24
Pudlo v. Adamski, 2 F.3d 1153 (7th Cir. 1993) (unpublished disposition). But see N.
Shore Med. Ctr. v. Evanston Hosp. Corp., 1993-1 Trade Cas. (CCH) ¶ 70,267 (N.D. Ill. 1993)
(lower court decision prior to Pudlo stating that “there does not appear to be a reasoned basis for
holding that a hospital is legally incapable of conspiring with the members of its medical staff”).
25
Oltz v. St. Peter’s Cmty. Hosp., 861 F.2d 1440, 1450 (9th Cir. 1988).
26
Id.
27
Id.
28
Bolt v. Halifax Hosp. Med. Ctr., 891 F.2d 810, 819 (11th Cir. 1990); see also Todorov v.
DCH Healthcare Auth., 921 F.2d 1438, 1455-56 (11th Cir. 1991); Boczar v. Manatee Hosps. &
Health Sys., Inc., 993 F.2d 1514, 1517 (11th Cir. 1993).
5
B.
Capacity Of Members Of A Medical Staff To Conspire.
Unlike the law on the ability of hospitals and medical staff members to conspire, it is well
settled that members of a hospital’s medical staff have the legal capacity to conspire among
themselves in violation of Section 1.29 Since medical staffs are composed of individual
physicians who have separate practices and, in many cases, are actual competitors, the intracorporate conspiracy doctrine does not apply. As one court explained, “hospital staff physicians
have independent and competing economic interests . . . [and] [w]hen such is the case. . . the
doctors are not a single entity . . . and have the ability ‘to conspire as a matter of law.’”30
C.
Proof Requirements For A Conspiracy Claim.
Even if the legal capacity to conspire in violation of Section 1 can be established, it does
not mean that the action taken by the hospital and the medical staff constitutes a conspiracy
under Section 1. Rather, the plaintiff also must prove that the parties actually did conspire.
To prove a conspiracy among two or more persons, the plaintiff must show that the
defendants have “a unity of purpose or a common design and understanding, or a meeting of
minds in an unlawful arrangement.”31 In most cases, the existence of a Section 1 conspiracy
cannot be proven through direct evidence of an express agreement. As a result, conspiracy cases
typically are based on circumstantial evidence of the conduct and statements of the alleged
conspirators. However, antitrust law limits the range of permissible inferences that can be drawn
from circumstantial evidence.32
The U.S. Supreme Court has explained that conduct which may be viewed as consistent
with either permissible competition or with an illegal conspiracy does not, standing alone,
support an inference of an antitrust conspiracy.33 Thus, the plaintiff must present evidence that
“tends to exclude the possibility that the alleged conspirators acted independently.”34 Moreover,
Muzquiz v. W.A. Foote Mem’l Hosp., Inc., 70 F.3d 422, 429 (6th Cir. 1995); Willman v.
Heartland Hosp., 34 F.3d 605, 612 (8th Cir. 1994); Weiss v. York Hosp., 745 F.2d 786, 817 n.51
(3rd Cir. 1984); Bolt v. Fairfax Hosp. Med. Ctr., 891 F.2d 810, 819 (11th Cir. 1990); Oksanen v.
Page Mem’l Hosp., 945 F.2d 696, 706 (4th Cir. 1991); Todorov v. DCH Healthcare Auth., 921
F.2d 1438, 1455 & n.29 (11th Cir. 1991).
29
30
Capital Imaging Assocs. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 544 (2d
Cir. 1993).
31
Am. Tobacco Co. v. United States, 328 U.S. 781, 810 (1946).
32
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
33
Id.; Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984).
34
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
6
the plaintiff’s direct or circumstantial evidence must prove a conscious commitment to a
common scheme designed to achieve an unlawful objective.35
From a practical standpoint, these proof requirements mean that courts will be reluctant
to infer the existence of a conspiracy in a staff privileges case where the hospital presents a
plausible, procompetitive explanation for its actions. When such evidence is presented, the
courts usually require additional evidence to prove that a Section 1 conspiracy existed.36
III.
THE APPROPRIATE ANALYSIS OF A SECTION 1 PRIVILEGES
CASE: PER SE V. RULE OF REASON.
A.
Background.
An antitrust claim under Section 1 of the Sherman Act requires more than mere proof of a
conspiracy. The challenged conduct also must constitute an “unreasonable” restraint of trade.37
There are two standards for determining the legality of conduct challenged under the antitrust
laws. Because of the general complexity of antitrust cases, the United States Supreme Court has
adopted the “rule of reason” as the “prevailing standard of analysis” for determining whether
business practices violate the Sherman Act.38 The rule of reason standard requires an elaborate
inquiry into the reasonableness of a challenged business practice with a special emphasis on the
purpose of the restraint and its effect on competition in the market as a whole.39
However, certain restraints, such as price fixing and horizontal market divisions, are
conclusively presumed unreasonable and therefore “per se” illegal because of their pernicious
effect on competition and lack of any redeeming virtue.40
35
Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984). For example, the
Second Circuit has held that “[w]ithout further evidence of action on the part of defendants that
suggests ‘commitment to a common end’ other than their professed goal of maintaining the
standards of medical care at the hospital, the sole fact that some of the defendants may in the
future have faced some competition from [plaintiff] is insufficient to create a genuine issue of
material fact as to the existence of a conspiracy to restrain trade.” Maric v. St. Agnes Hosp.
Corp., 65 F.3d 310, 313 (2d Cir. 1995); see also County of Tuolumne v. Sonora Cmty. Hosp.,
236 F.3d 1148, 1156-57 (9th Cir. 2001).
36
Todorov v. DCH Healthcare Auth., 921 F.2d 1438, 1456 (11th Cir. 1991); Ginzburg v.
Mem’l Healthcare Sys., 993 F. Supp. 998, 1023 (S.D. Tex. 1997).
37
Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911).
38
Cont’l T.V., Inc. v. GTE Sylvania, Inc. 433 U.S. 36, 49 (1977).
39
Chi. Bd. of Trade v. United States, 246 U.S. 231, 238 (1918).
40
N. Pac. Ry. v. United States, 356 U.S. 1, 5 (1958).
7
B.
Basic Standard.
The more flexible “rule of reason,” not the “per se” rule, is the prevailing standard of
analysis in the typical privileges case involving the denial or termination of medical staff
privileges. The leading case on this issue, while outside the health care field, is Northwest
Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.,41 which involved the expulsion
of the plaintiff from a marketing cooperative. There, the Supreme Court held that per se
treatment of such group boycotts should be limited to those situations in which the plaintiff
proves that the boycotting group “possesses market power or exclusive access to an element
essential to effective competition. . . . [Otherwise,] the conclusion that expulsion is virtually
always likely to have anticompetitive effects is not warranted.”42
Thus, the rule of reason has been applied to the vast majority of cases involving the
termination or revocation of staff privileges.43 The rule of reason also has been applied to
situations in which physicians have been denied privileges and excluded from practicing at a
hospital.44
41
472 U.S. 284 (1985).
Id. at 296; see also Cogan v. Harford Mem’l Hosp., 843 F. Supp. 1013 (D. Md. 1994);
Anesthesia Advantage, Inc. v. Metz Group, 759 F. Supp. 638, 647 (D. Colo. 1991).
42
E.g., BCB Anesthesia Care v. Passavant Mem’l Area Hosp. Ass’n, 36 F.3d 664, 667-68
(7th Cir. 1994); Coffey v. Healthtrust, Inc., 955 F.2d 1388 (10th Cir. 1992) (exclusive radiology
contract not per se illegal group boycott because relationship between hospital and medical staff
is vertical); Oksanen v. Page Mem’l Hosp., 945 F.2d 696, 708-09 (4th Cir. 1991); Miller v.
Indiana Hosp., 843 F.2d 139, 144 (3d Cir.) (executive committee recommended revocation of
privileges after patient death); Goss v. Mem’l Hosp. Sys., 789 F.2d 353 (5th Cir. 1986) (one
hospital’s Board of Trustees revoked privileges following complaint and another hospital
revoked following peer review); Cogan v. Harford Mem’l Hosp., 843 F. Supp. 1013 (D. Md.
1994) (per se rule does not apply to radiologist’s group boycott claim); Balaklaw v. Lovell, 822
F. Supp. 892, 904 (N.D.N.Y. 1993), aff’d, 14 F.3d 793 (2d Cir. 1994) (termination of
anesthesiologist); Ahram v. Roxborough Mem’l Hosp., 1991-2 Trade Cas. (CCH) ¶ 69,528 (E.D.
Pa. 1991), aff’d in part, vacated in part, 952 F.2d 1391 (3d Cir. 1991) (OB/GYN’s privileges
were terminated); Boczar v. Manatee Hosps. & Health Sys., Inc., 731 F. Supp. 1042 (M.D. Fla.
1990) (summary suspension following peer review); Loiterman v. Antani, 1990 WL 91062 (N.D.
Ill., June 28, 1990) (surgeon’s privileges were terminated); Marin v. Citizens Mem’l Hosp., 700
F. Supp. 354, 360 (S.D. Tex. 1988) (surgical and obstetrical privileges were removed);
Vuciecevic v. MacNeal Mem’l Hosp., 572 F. Supp. 1424 (N.D. Ill. 1983) (denial of privileges to
orthopaedic surgeon); see also Moss v. Case Grande Cmty. Hosp., Inc., 892 F.2d 1046 (9th Cir.
1990) (unpublished decision).
43
44
E.g., Morales-Villalobos v. Garcia-Llorens, 2003 WL 105360 (1st Cir. Jan. 14, 2003)
(rule of reason is proper approach); Angelico v. Lehigh Valley Hosp., Inc., 184 F.3d 268, 276 n.3
(3d Cir. 1999) (adopting rule of reason approach); Flegel v. Christian Hosp. NortheastNorthwest, 4 F.3d 682 (8th Cir. 1993) (rule of reason applied to denial of privileges to
8
In addition, the courts have declined to apply the per se rule to claims that staff privileges
denials constitute illegal tying arrangements. In Jefferson Parish Hospital District No. 2 v.
Hyde,45 the plaintiff characterized a hospital’s exclusive contract with an anesthesiology group as
a tying arrangement. The Supreme Court held that a tying arrangement is per se illegal only
where the defendant has market power over the tying product. 46 In that case, the Court found
that there was no evidence of the defendant hospital’s market power in the tying product market
for hospital services sufficient to force consumers to change their purchasing choice in the tied
product market for anesthesia services.47 Thus, the rule of reason was applied. Similarly, in
Scara v. Bradley Memorial Hospital,48 the court rejected a claim that an exclusive contract
between a private anesthesiology group and the hospital was a per se illegal tying arrangement
where the hospital had no economic interest in the tied product (anesthesiology services), and did
not have sufficient economic power in the tying product (surgical services) to appreciably
restrain competition.49 More recently, in County of Tuolumne v. Sonora Community Hospital,50
the Ninth Circuit rejected a claim that a hospital’s decision to allow only obstetricians to perform
C-sections was a per se illegal tying arrangement where the hospital had no economic interest in
urologists); Oltz v. St. Peter’s Cmty. Hosp., 861 F.2d 1440 (9th Cir. 1988) (nurse anesthetist
challenged exclusive contract with another group); Dos Santos v. Columbus-Cuneo-Cabrini
Med. Ctr., 684 F.2d 1346 (7th Cir. 1982) (anesthesiologist challenged hospital’s exclusive
dealing contract); Farr v. Healtheast, Inc., 1993-1 Trade Cas. (CCH) ¶ 70,294 (E.D. Pa. 1993);
Shah v. Mem’l Hosp., 1988-2 Trade Cas. (CCH) ¶ 68,199 (W.D. Va. 1988); Collins v.
Associated Pathologists, Ltd., 676 F. Supp. 1388 (C.D. Ill. 1987), aff’d, 844 F.2d 473 (7th Cir.
1988) (pathologist challenged exclusive contract with pathology firm); Kaczanowski v. Med.
Ctr. Hosp. of Vt., 612 F. Supp. 688, 693 (D. Vt. 1985) (denial of application for privileges);
Marrese v. Am. Acad. of Orthopaedic Surgeons, 1991-1 Trade Cas. (CCH) ¶ 69,398 (N.D. Ill.
1991), aff’d, 977 F.2d 585 (7th Cir. 1992); (denial of membership in Academy not per se illegal,
analyzed under rule of reason); Hassan v. Indep. Practice Assocs., P.C., 698 F. Supp. 679 (E.D.
Mich. 1988) (exclusion from HMO analyzed under rule of reason); Wilk v. Am. Med. Ass’n, 719
F.2d 207 (7th Cir. 1983) (exclusion of chiropractors from Association evaluated under rule of
reason); see also Betkerur v. Aultman Hosp. Ass’n, 78 F.3d 1079, 1088-93 & n.9 (6th Cir. 1996)
(finding that “rule of reason applies to practices based on medical considerations”).
45
466 U.S. 2 (1984).
46
Id. at 37-38.
47
Id. at 43-44.
48
1993-2 Trade Cas. (CCH) ¶ 70,353 (E.D. Tenn. 1993).
49
See also Sundar v. Mercy Health Sys.-W. Oh., 142 F. Supp. 2d 859, 880-84 (S.D. Oh.
2000) (rejecting tying claim where hospital received no direct economic benefit in the sale of the
tied product).
50
236 F.3d 1148, 1158 (9th Cir. 2001).
9
the tied product (C-section services). The Ninth Circuit also held that the plaintiffs failed to
meet their burden of proof to satisfy an illegal tying agreement under a rule of reason analysis. 51
However, at least one circuit has held (pre-Northwest Stationers) that the denial of staff
privileges is a group boycott amounting to a per se violation. In Weiss v. York Hospital,52 the
Third Circuit found that a group of physicians had used their existing relationship with the
hospital to keep osteopaths off the hospital staff. On the other hand, the court qualified its
holding by stating that a hospital’s termination or denial of privileges for professional
competence or unprofessional conduct reasons must be analyzed by rule of reason. 53 Thus,
Weiss has been largely limited to its facts.54
Lastly, the essential facilities doctrine has been applied to both Section 1 and Section 2
claims. Under this doctrine, a firm may not discriminatorily deny access to a facility under its
control which cannot be easily reproduced and which competitors must use in order to compete.
The denial of access to an essential facility is a per se violation of Section 1.56
55
However, the essential facilities doctrine has not been a successful theory for physicians
in staff privileges cases. In McKenzie v. Mercy Hospital,57 an obstetrician who lost his staff
privileges brought a Section 2 claim against the hospital, arguing that the obstetrical facilities
were essential to his practice. However, he also alleged that he still competed with the hospital
by delivering babies in his office. The court held that if the facilities actually were essential, he
would not be able to compete, and found for the hospital on this issue.
51
Id. 1158-60.
52
745 F.2d 786 (3d Cir. 1984).
53
745 F.2d at 821.
See, e.g., Marin v. Citizens Mem’l Hosp., 700 F. Supp. 354, 361 (S.D. Tex. 1988); Posner
v. Lankenau Hosp., 1988 .WL 51941 (E.D. Pa.), aff’d, 865 F.2d 252 (3d Cir. 1988); Friedman v.
Delaware County Mem’l Hosp., 672 F. Supp. 171, 190 (E.D. Pa. 1987), aff’d, 849 F.2d 600 (3d
Cir. 1988).
54
55
Hecht v. Pro-Football, Inc., 570 F.2d 982, 992 (D.C. Cir. 1977); MCI Communications
Corp. v. AT&T Co., 708 F.2d 1081, 1132-33 (7th Cir. 1983).
56
Hecht, 570 F.2d at 993 n.45.
57
854 F.2d 365, 369 (10th Cir. 1988).
10
Similarly, in Goss v. Memorial Hospital System,58 the plaintiff argued that termination of
his staff privileges following peer review was a per se violation. However, the court found that
since the hospital had less than 7% of the market for beds and patient admissions, it did not
possess sufficient market control to justify per se treatment.59
Likewise, in Robinson v. Magovern,60 the plaintiff, an open-heart surgeon, attempted to
bring his Section 1 claim under the per se rule by arguing that his denial of staff privileges at the
only non-university hospital in the country with open-heart surgery facilities denied his access to
an essential facility. The court found, however, that the relevant geographic market
encompassed 16 counties and 5 hospitals with similar operating room facilities. Thus, the loss of
privileges at one hospital did not deprive him access to an essential facility.61
IV.
PROVING ANTICOMPETITIVE EFFECT UNDER THE RULE OF REASON.
A.
General Considerations.
In evaluating a Section 1 claim under the rule of reason, the fact finder is required “to
decide whether under all the circumstances of the case the restrictive practice imposes an
unreasonable restraint on competition.”62 As the United States Supreme Court has instructed, the
primary focus of the rule of reason analysis is on the competitive effect of the challenged conduct and “[u]nder the Sherman Act the criterion to be used in judging the validity of a
restraint on trade is its impact on competition.”63
58
789 F.2d 353, 395 (5th Cir. 1986); accord Jackson v. Radcliffe, 795 F. Supp. 197 (S.D.
Tex. 1992) (termination of radiologist evaluated under rule of reason because no evidence that
hospital possessed market power or exclusive access to essential facility).
Goss, 789 F.2d at 395; see also Minn. Ass’n of Nurse Anesthetists v. Unity Hosp., 5 F.
Supp. 2d 694, 711 (D. Minn. 1998) (“Because Plaintiffs have failed to demonstrate that
Defendants possess monopoly power in any relevant market, Plaintiffs cannot avoid summary
judgment on this claim as well.”).
59
60
521 F. Supp. 842, 886 (W.D. Pa. 1981), aff’d, 688 F.2d 824 (3d Cir. 1982).
61
See also Marrese v. Am. Acad. of Orthopaedic Surgeons, 1991-1 Trade Cas. (CCH) ¶
69,398 (N.D. Ill. 1991), aff’d, 977 F.2d 585 (7th Cir. 1992) (since physician failed to argue that
academy was “bottleneck organization,” boycott was not per se illegal and rule of reason
applies); Konik v. Champlain Valley Physicians Hosp., 561 F. Supp. 700, 719 (N.D.N.Y. 1983),
aff’d, 733 F.2d 1007 (2d Cir. 1984); Pontius v. Children’s Hosp., 552 F. Supp. 1352, 1370 (W.D.
Pa. 1982) (holding that essential facility doctrine should not apply to termination of medical
privileges since, as a matter of policy, hospitals must be allowed to control the composition of
their staffs).
62
Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332, 343 (1982).
63
Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 104
11
Thus, in addition to establishing a conspiracy, a successful plaintiff must also show: (1)
that the conspiracy produced adverse, anticompetitive effects within the relevant product and
geographic market; (2) that the objects of and conduct pursuant to the conspiracy were illegal;
and (3) that the plaintiff was injured as a proximate result of the conspiracy. 64 In Kaplan v.
Burroughs Corp.,65 the Ninth Circuit explained that “[p]roof that the defendant’s activities had
an impact upon competition in a relevant market is an absolutely essential element of the rule of
reason case . . . . Failure to produce substantial evidence proving a relevant market and an injury
to competition within that market entitles a defendant in a rule of reason to a judgment n.o.v.”
B.
Plaintiff Has Burden of Proof On Definition of Relevant Market.
The only way to measure the effect of the challenged conduct on competition is first to
identify the relevant geographic and product/service markets in which the challenged activity
occurred. As one court declared, “[w]e must first define the relevant market because the concept
of competition has no meaning outside its own arena . . . . The plaintiff in an antitrust case bears
the burden of proof on the issue of the relevant product and geographic market.66 Thus, in order
to sustain its Sherman Act claim, the plaintiff is “required by a preponderance of the evidence to
prove the relevant market claimed to be effected.”67
(1984); Nat’l Soc. of Prof’l Eng’rs v. United States, 435 U.S. 679, 692 (1978).
Terry’s Floor Fashions, Inc. v. Burlington Indus. Inc., 763 F.2d 604, 610 n.10 (4th Cir.
1985); Oltz v. St. Peter’s Cmty. Hosp., 861 F.2d 1440, 1445 (9th Cir. 1988).
64
611 F.2d 286, 291 (9th Cir. 1979); Tarabishi v. McAlester Reg’l Hosp., 951 F.2d 1558
(10th Cir. 1991) (physician failed to prove requisite impact on competition); Coffey v.
Healthtrust, Inc., 955 F.2d 1388 (10th Cir. 1992) (exclusive radiology contract was only a
“reshuffling” of competitors and had no detrimental effect on competition); Hood v. Tenneco
Tex. Life Ins. Co., 739 F.2d 1012, 1018 (5th Cir. 1984) (“To recover under this rule, the plaintiff
must show that the defendant’s actions adversely affected competition in the appropriate product
and geographic markets.”); Phil Tolkan Datsun Inc. v. Greater Milwaukee Datsun Dealers’
Adver. Ass’n, Inc., 672 F.2d 1280 (7th Cir. 1982) (“Under the rule of reason, a showing of
anticompetitive effect in the relevant market is an essential predicate of antitrust liability.”).
65
66
Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994); Satellite Television &
Associated Res., Inc. v. Cont’l Cablevision of Va., Inc., 714 F.2d 351, 355 (4th Cir. 1983);
Cogan v. Harford Mem’l Hosp., 843 F. Supp. 1013 (D. Md. 1994); Huhta v. Children’s Hosp. of
Phila., 1994-1 Trade Cas. (CCH) ¶ 70,619 (E.D. Pa. 1994).
67
Omni Outdoor Adver., Inc. v. Columbia Outdoor Adver., Inc., 891 F.2d 1127, 1139 (4th
Cir. 1989), rev’d on other grounds, 499 U.S. 365 (1991); Oltz v. St. Peter’s Cmty. Hosp., 861
F.2d 1440, 1446 (9th Cir. 1988); Miller v. Ind. Hosp., 814 F. Supp. 1254 (W.D. Pa. 1992), aff’d,
975 F.2d 1550 (3d Cir. 1992) (hospital granted summary judgment because physician failed to
prove relevant market).
12
C.
Defining The Relevant Product Market.
The relevant product market generally includes the pool of goods or services that are
reasonably interchangeable for the same purposes. The Supreme Court has instructed that “the
outer boundaries of a product market are determined by the reasonable interchangeability of use
or the cross-elasticity of demand between the product itself and substitutes for it.”68
1.
Cross-elasticity of Demand.
The market for any specific product must include similar substitute products which fulfill
the same consumer need. If the price of that specific product increases and consumers will
quickly turn to another product, there is a high cross-elasticity of demand between the products.69
2.
Sub-markets.
Smaller sub-markets can be found to exist where there is industry or public recognition of
the sub-market as a separate economic entity, the service’s peculiar characteristics or issues,
unique production facilities, distinct customers, distinct prices, sensitivity to price changes and
specialized vendors.70
A number of cases have analyzed relevant product market issues in the hospital staff
privileges context.71 For example, in Oltz v. St. Peter’s Community Hospital,72 anesthesia
68
Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962); United States v. E.I. du Pont
de Nemours & Co., 351 U.S. 377, 394-95 (1956); see also Morgan, Strand, Wheeler & Biggs v.
Radiology, Ltd., 924 F.2d 1484 (9th Cir. 1991).
69
United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394-95 (1956).
70
Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962); Flegel v. Christian Hosp.
Northeast-Northwest, 804 F. Supp. 1165 (E.D. Mo. 1992), aff’d, 4 F.3d 682 (8th Cir. 1993)
(relevant market was general market for urology services, not submarket of urology referrals).
71
Boczar v. Manatee Hosp. & Health Sys., Inc., 731 F. Supp. 1042, 1047 (M.D. Fla. 1990)
(An obstetrician whose privileges were terminated brought suit against the hospital and peer
review committee alleging violations of Sections 1 and 2. The court dismissed the Section 1
claim for failure to plead injury to competition in the relevant market, which was alleged to be
the market for obstetrical services.); Weiss v. York Hosp., 548 F. Supp. 1048, 1052 (M.D. Pa.
1982), aff’d in part, rev’d in part, 745 F.2d 786 (3d Cir. 1984) (1985) (The relevant product
market in which an osteopath competed was “inpatient hospital health care services supplied by
hospitals and their medical staffs.” There could be no smaller sub-market definition, as
consumers of medical services made only one market decision, that being where to be
hospitalized.); Feldman v. Jackson Mem’l Hosp., 571 F. Supp. 1000, 1010 (S.D. Fla. 1983),
aff’d, 752 F.2d 647 (11th Cir. 1985) (The relevant product market for a podiatrist’s services does
not include all surgical procedures. A podiatrist is licensed to operate only below the knee and
he can only supply such services.); Pontius v. Children’s Hosp., 552 F. Supp. 1352, 1366 (W.D.
13
services were defined as the relevant product market. There was no evidence of alternate sources
and no other services were reasonable substitutes in terms of use and cross-elasticity of demand.
On the other hand, in Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd.,73 the plaintiff failed
to prove that the relevant product market consisted of referrals to radiologists. The court held
that a physician can perform radiology services or refer his patients to a radiologist, and therefore
there is cross-elasticity between these services.
From a practical standpoint, the product market definition in a staff privileges case
requires an analysis of all competing or alternative services, including clinics, outpatient
facilities and centers, other physicians who provide the same or similar services, and nonphysician providers.
D.
Defining The Relevant Geographic Market.
The relevant geographic market is generally defined as the area of effective competition
where the sellers operate and where the buyers will turn for alternative sources of supply.74 In
staff privileges cases, excluded physicians often try to define the relevant geographic market as
Pa. 1982) (Pediatric thoracic and cardiovascular surgery was defined as the relevant market,
separate from adult heart surgery.); Robinson v. Magovern, 521 Supp. 842, 878 (W.D. Pa. 1981),
aff’d, 688 F.2d 824 (3d Cir. 1982) (Adult open heart surgery is a separate market since there are
no effective substitutes and no cross-elasticity of demand with other services.); McElhinney v.
Med. Protective Co., 549 F. Supp. 121, 134 (E.D. Ky. 1982), acq. in result, 738 F.2d 439 (6th
Cir. 1984) (Case involved termination of surgeon’s privileges. With little economic analysis, the
court defined the product market as the “furnishing of medical services and supplies by the
hospital and individual doctors as a joint venture.”); White v. Rockingham Radiologists, Ltd.,
820 F.2d 98 (4th Cir. 1987) (Section 2 case - product market was the interpretation of CT head
scans); United States v. Carilion Health Sys., 707 F. Supp. 840, 848 (W.D. Va.), aff’d, 892 F.2d
1042 (4th Cir. 1989) (merger case - certain inpatient and outpatient services are essentially the
same and are a single product market); Collins v. Associated Pathologists Ltd., 676 F. Supp.
1388 (C.D. Ill. 1987), aff’d, 844 F.2d 473 (7th Cir. 1988) (A pathologist could not show that
there was a separate market for pathology services independent from the market for inpatient
hospital services.); Drs. Steuer & Latham, P.A. v. Nat’l Med. Enters., Inc., 672 F. Supp. 1489
(D.S.C. 1987), aff’d, 846 F.2d 70 (4th Cir. 1988) (Professional pathology services do not
constitute a separate product market from inpatient hospital services.).
72
861 F.2d 1440 (9th Cir.1988).
73
924 F.2d 1484 (9th Cir. 1991).
United States v. Phila. Nat’l Bank, 374 U.S. 321, 359-61 (1963); Cogan v. Harford
Mem’l Hosp., 843 F. Supp. 1013 (D. Md. 1994); Drs. Steuer & Latham, P.A. v. National Med.
Enters., Inc., 672 F. Supp. 1489, 1510 (D.S.C. 1987), aff’d, 846 F.2d 70 (4th Cir. 1988); Miller v.
Indiana Hosp., 814 F. Supp. 1254, 1262 (W.D. Pa.), aff’d, 975 F.2d 1550 (3d Cir. 1992).
74
14
the hospital at which they have lost their right to practice.75
However, the relevant geographic market usually is found to be larger than the single
hospital denying or terminating privileges. As a general matter, the relevant geographic market
is found to be the territory within which a physician can sell medical services and patients can
practicably find alternative sources.76
Brader v. Allegheny Gen. Hosp. 64 F.3d 869, 877 (3d Cir. 1995) (“every court that has
addressed this issue held or suggested that, absent an allegation that the hospital is the only one
serving a particular area or offers a unique set of services, a physician may not limit the relevant
geographic market to a single hospital”); Bever v. Lakeview Cmty. Hosp., 187 F.3d 634 (6th Cir.
1999) (unpublished disposition); Flegel v. Christian Hosp. Northeast-Northwest, 4 F.3d 682 (8th
Cir. 1993); Seidenstein v. Nat’l Med. Enters., Inc., 769 F.2d 1100 (5th Cir. 1985) (Section 2
claim holding as a matter of law, a single hospital is an unreasonable definition of geographic
market); Dos Santos v. Columbus, 684 F.2d 1346, 1354 (7th Cir. 1982) (radiologists); Villalobos
v. Llorens, 137 F. Supp. 2d 44, 47 (D.P.R. 2001) (“Confining the relevant market to a single
hospital will generally be too narrow a definition.”); Vakharia v. Swedish Covenant Hosp., 824
F. Supp. 769 (N.D. Ill. 1993) (single hospital market rejected); Friedman v. Del. County Mem’l
Hosp., 672 F. Supp. 171, 195 (E.D. Pa. 1987), aff’d, 849 F.2d 600 (3d Cir. 1988); Drs. Steuer &
Latham, P.A. v. Natl Med. Enters., Inc., 672 F. Supp. 1489 (D.S.C. 1987), aff’d, 846 F.2d 70 (4th
Cir. 1988); Kuck v. Benson, 647 F. Supp. 743, 746, judg. amended, 649 F. Supp. 68 (D. Me.
1986); Rockland Physician Assocs., P.C. v. Grodin, 616 F. Supp. 945, 955-56 (S.D.N.Y. 1985).
But see Smith v. Underwood Mem’l Hosp., 1987-1 Trade Cas. (CCH) ¶ 67,538 (D.N.J. 1987)
(The court noted that market definition is extremely fact specific, and despite precedents such as
Seidenstein, the plaintiff had alleged facts, sufficient to survive a motion to dismiss, that one
hospital was a sub-market in the broader geographic market.).
75
76
Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994) (geographic market for
cardiac surgery services consisted of, at a minimum, Lincoln and Omaha, Nebraska, which were
only 58 miles apart); Friedman v. Del. County Mem’l Hosp., 672 F. Supp. 171, 189 (E.D. Pa.
1987), aff’d, 849 F.2d 600 (3d Cir. 1988); Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd.,
924 F.2d 1484 (9th Cir. 1991) (conclusory statements by physicians as to where they practice are
not sufficient to prove the geographic market); Oltz v. St. Peter’s Cmty. Hosp., 861 F.2d 1440,
1446 (9th Cir. 1988) (defining geographic market as the small city of Helena, Montana);
Balaklaw v. Lovell, 822 F. Supp. 892, 905 (N.D.N.Y. 1993), aff’d, 14 F.3d 793 (2d Cir. 1994)
(relevant geographic market for anesthesia service positions and anesthesia administered in
connection with operating room services is nationwide); Marrese v. Am. Acad. of Orthopaedic
Surgeons, 1991-1 Trade Cas. (CCH) ¶ 69,398 (N.D. Ill. 1991) (physician’s statement in
deposition that he performed surgery on patients from parts of Indiana, Illinois, and Kentucky
supported the conclusion that this area was the geographic market, contradicting his argument
that the geographic market was limited to Evansville, Indiana); Boczar v. Manatee Hosps. &
Health Sys., Inc., 731 F. Supp. 1042, 1047 (M.D. Fla. 1990) (plaintiff failed to allege a
geographic market, but court noted that since plaintiff took patients to the neighboring county for
hospital admission, the neighboring county was part of the relevant geographic market); Pontius
v. Children’s Hosp., 552 F. Supp. 1352, 1365 (W.D. Pa. 1982) (court accepted parties’
stipulation that relevant geographic market for pediatric thoracic and cardiovascular surgery was
15
A geographic sub-market also may exist if it is sufficiently insulated from the larger
market so that supply and demand are inelastic with the larger market.77 In addition, different
types of medical services provided at the same hospital might have different geographic
markets.78
As a practical matter, the geographic market definition largely depends on an evaluation
of patient flow data, physician admitting practices, medical staff lists at various hospitals, thirdparty payor practices, and marketing activities of physicians and hospitals in the area. This data
has to be reviewed for inpatient and outpatient services as well as for the types of inpatient
services utilized by the patients who cross geographic lines (i.e., general inpatient or unique,
specialized services).79 If a broad geographic area with numerous acute-care hospitals is
established as the relevant market, the challenged hospital’s market share may not be sufficient
to support a Section 1 claim. On the other hand, if the relevant market is defined narrowly, there
is a possibility that the hospital’s market share may be sufficient to justify a Section 1 challenge.
This market share analysis is likely to be of greater concern in rural areas where there are only a
few hospitals, rather than in urban areas where there usually are a large number and variety of
competing providers.
E.
Proof of Market Power.
Market power normally is defined as the power to control prices or to exclude
competition.80 The majority of the courts have now held that the possession of market power is
tri-state area of western Pennsylvania, West Virginia and eastern Ohio in light of the scattered
location of other major children’s hospitals in the country); Robinson v. Magovern, 521 F. Supp.
842, 886 (W.D. Pa. 1981), aff’d, 688 F.2d 824 (3d Cir. 1982) (Evidence showed that a high
percentage of adults in the 16 county area having open heart surgery had the surgery performed
at one of 6 hospitals in Pittsburgh, which was at the center of this area. The sixteen county area
around Pittsburgh was therefore the geographic market area. The plaintiff had argued that the
market consisted of 2 counties while the defendant contended that there was a nationwide market
for adult open heart surgery.); see also Morrisey, Sloan & Valvona, Defining Geographic
Markets for Hospital Care, 51 LAW & CONTEMP. PROBS. 165 (Spring 1988).
77
Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd., 924 F.2d 1484 (9th Cir. 1991);
Smith v. Underwood Mem’l Hosp., 1987-1 Trade Cas. (CCH) ¶ 67,538 (D.N.J. 1987).
United States v. Carilion Health Sys., 707 F. Supp. 840, 848 (W.D. Va.), aff’d, 892 F.2d
1042 (4th Cir. 1989) (market for tertiary care broader geographically than market for primary
care).
78
Huhta v. Children’s Hosp. of Phila., 1994-1 Trade Cas. (CCH) ¶ 70,619 (E.D. Pa. 1994)
(patient inflow and outflow data is crucial in determining geographic market and must be
analyzed within context of the particular product market).
79
80
United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).
16
an essential element of a Section 1 case.81 Thus, the plaintiff is required to show that the
defendant has market power in the relevant market. Without market power, the challenged
restraint cannot have an anticompetitive effect.82
1.
Evidence of Market Power.
Indicators of market power are market share, the existence of barriers to entry,
elasticity of supply and demand, the numbers of competitors in the market and market trends.
While market share evidence is important and may give rise to presumptions, 83 it is not always
81
E.g., Oksanen v. Page Memorial Hosp., 945 F.2d 696, 709 (4th Cir. 1991); Ball
Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1334 (7th Cir. 1986); Reazin v.
Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951 (10th Cir. 1990); Pilch v. French Hosp.,
No. CV 98-9470, 2000 WL 332223382 at *7 (C.D. Cal, Apr. 28, 2000); Cogan v. Harford
Memorial Hosp., 843 F. Supp. 1013 (D. Md. 1994).
Minnesota Ass’n of Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 661-62 (8th Cir.
2000) (terminated nurse anesthetists failed to show defendants possessed market power and
adversely affected competition); Lie v. St. Joseph’s Hosp., 964 F.2d 567 (6th Cir. 1992) (hospital
awarded summary judgment where physician failed to allege that hospital had market power);
Marrese V. American Academy of Orthopaedic Surgeons, 1991(N.D. Ill. 1991), aff’d, 977 F.2d 585 (7th Cir. 1992) (summary judgment granted in group
boycott case because plaintiff failed to prove that the Academy had market power in the market
for spinal orthopaedic surgery); Hassan V. Independent Practice Assocs., P.C., 698 F. Supp. 679
(E.D. Mich. 1988) (“significant market power” required to show anticompetitive market effect;
defendant did not possess market power where market share was 20%, there were other larger
competitors and there were no significant barriers to entry); Collins v. Associated Pathologists,
Ltd., 676 F. Supp. 1388 (C.D. Ill. 1987), aff’d, 844 F.2d 473, 479-80 (7th Cir. 1988) (plaintiff
challenging hospital’s exclusive pathology contract must allege that defendant has market power
to state a Sherman Act claim); see also, e.g., Schachar v. American Academy of Ophthalmology,
Inc., 870 F.2d 397 (7th Cir. 1989); Murrow Furniture Galleries, Inc. v. Thomasville Furniture
Indus., Inc., 889 F.2d 524 (4th Cir. 1989); R.C. Dick Geothermal Corp. v. Thermogenics, Inc.,
1987-1 Trade Cas. (CC
Lines, Inc., 792 F.2d 210, 221 (D.C. Cir. 1986); Assam Drug Co. v. Miller Brewing Co., 798
F.2d 311, 316 (8th Cir. 1986); Hand v. Central Transp., Inc., 779 F.2d 8, 11 (6th Cir. 1985).
82
83
Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26 (1984) (hospital did not have
market power when it attracted only 30% of the area residents); Shafi v. St. Francis Hospital, 937
F.2d 603 (4th Cir. 1991) (hospital with 11% market share does not have sufficient market power
to restrain trade); Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951 (10th Cir.
1990); Goss v. Memorial Hosp. Sys., 789 F.2d 353, 355 (5th Cir. 1986) (two hospitals out of
sixty-three in county, which combined had only 5.6% of beds in market, lacked market power);
Pilch v. French Hosp., No. CV 98-9470, 2000 WL 332223382 at *7 (C.D. Cal, Apr. 28, 2000)
(33.2% market share insufficient as a matter of law to confer market power); Loiterman v.
Antani, 1990 WL 91062 (N.D. Ill. 1990) (court dismissed complaint for failure to allege that
defendants had substantial market power, but suggested that a 30% market share for pacemaker
17
conclusive proof of the existence or absence of market power.84 The analysis of entry barriers
also is significant because market power is lessened by the entry into the market of new service
providers. On the contrary, high barriers to entry into the market mean greater market power for
the dominant market participants.85 Thus, in order to establish market power, the plaintiff must
show a barrier to entry that prevents competition.86
F.
Cases Analyzing Anticompetitive Effect.
It is axiomatic that “The antitrust laws . . . were enacted ‘for the protection of
competition, not competitors.’”87 Accordingly, the plaintiff must prove that the conduct had an
insertions at the defendant hospital may be enough to survive a motion to dismiss); Bhan v.
NME Hosp., Inc., 669 F. Supp. 998, 1020 (E.D. Cal. 1987), aff’d, 929 F.2d 1404 (9th Cir. 1991)
(less than 10% market share did not amount to market power when there was no indication of
uniqueness of services provided); Kuck v. Benson, 647 F. Supp. 743, 746, judg. amended, 649 F.
Supp. 68 (D. Me. 1986) (termination of emergency room privileges at hospital with only 37%
share of market for emergency services did not amount to unreasonable restraint).
84
See United States v. General Dynamics Corp., 415 U.S. 486, 498 (1974) (statistical data
are not “conclusive indicators of anticompetitive effects” and further analysis of market is
required).
See Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335, reh’g
denied, 788 F.2d 1223 (7th Cir. 1986).
85
86
Will v. Comprehensive Accounting Corp., 776 F.2d 665, 672 (7th Cir. 1985); Morgan,
Strand, Wheeler & Biggs v. Radiology, Ltd., 924 F.2d 1484 (9th Cir. 1990) (practitioner’s costs
incurred in opening an office and setting up a practice was not high enough to present a barrier to
entry into the market); see also Nelson v. Monroe Reg’l Medical Center, 925 F.2d 1555, (7th
Cir. 1991) (Pell, J. concurring and dissenting) (fact that local hospital granted staff privileges to
any qualified physician suggested that new physicians could open competing practices in the
area and, therefore, existing physicians had no market or monopoly power); Bloom v. Hennepin
County, 783 F. Supp. 418 (D. Minn. 1992) (since there were no barriers to entry, there was no
injury to competition from denial of privileges); Robinson v. Magovern, 521 F. Supp. 842, 878
(W.D. Pa. 1981), aff’d, 688 F.2d 824 (3d Cir. 1982) (open heart surgery is highly specialized and
requires a great deal of training, creating high barriers to entry.); cf. Nurse Midwifery Assocs. v.
Hibbett, 689 F. Supp. 799 (M.D. Tenn. 1988), aff’d in part, rev’d in part, 918 F.2d 605 (6th Cir.
1990), opinion modified on reh’g, 927 F.2d 904, (6th Cir. 1991) (Plaintiff attempted to
demonstrate that defendant hospitals had market power in the market for obstetrical services due
to the uniqueness of the services which they offered. The court found that “family-centered”
maternity services were not so expensive or difficult for competitors to duplicate that such
services were unique. The hospitals therefore lacked the market power necessary to tie
physicians services to in-hospital maternity services.).
87
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (emphasis in
original).
18
adverse impact on competition in the market as a whole, not just on any individual competitor or
on the plaintiff’s business.88 In essence, the plaintiff must demonstrate that there was an adverse
effect on competition in the market or on prices or output.89
Minnesota Ass’n of Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 661-62 (8th Cir.
2000) (because plaintiffs worked for other facilities after termination, their claim at most reflects
harm to individual competitors and not to competition); Oksanen v. Page Memorial Hospital,
945 F.2d 696, 708-9 (4th Cir. 1991); Westman Com’n Co. v. Hobart Int’l, Inc., 796 F.2d 1216,
1220 (10th Cir. 1986); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 394 (7th Cir.
1984) (“the exclusion of competitors is cause for antitrust concern only if it impairs the health of
the competitive process”); Kaplan v. Burroughs Corp., 611 F.2d 286, 291 (9th Cir. 1979) (“ . . .
the elimination of a single competitor, standing alone, does not prove anticompetitive effect . . . .
Impact upon the market must be proven by reference to definitions of both the relevant
geographic market and the relevant product market.”); Cogan v. Harford Memorial Hosp., 843 F.
Supp. 1013 (D. Md. 1994) (radiologist only alleged inability to continue working at hospital);
Huhta v. Children’s Hosp. of Philadelphia, 1994(complaint defective because physician only alleged harm to himself, not to competition within
the marketplace); Purgess v. Sharrock, 1993-2 Trade Cas. (CCH) 70,349 (S.D.N.Y. 1992)
(anesthesiologist only alleged injury to himself and failed to prove injury to competition in a
relevant market); Anesthesia Advantage, Inc. v. Metz Group, 759 F. Supp. 638, 647 (D. Colo.
1991); see also, Todorov v. DCH Healthcare Auth., 921 F.2d 1438 (11th Cir. 1991) (analyzing
standing and antitrust injury requirements).
88
89
Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 31 n.52 (1984) (effects on price
and quality of service are significant factors in determining adverse effect on competition for
providing medical services); Minnesota Ass’n of Nurse Anesthetists v. Unity Hosp., 208 F.3d
655, 662 (8th Cir. 2000) (plaintiffs failed to show adverse effects on competition, increased prices
or a decline in the quality or quantity of services available to patients); Marrese v. American
Academy of Orthopaedic Surgeons, 1991-1 Trade Cas. (CCH) 69,398 (N.D. Ill. 1991), aff’d, 977
F.2d 585 (7th Cir. 1992) (Defendant’s evidence that plaintiff had not suffered any loss of income
proved that there was no effect on competitors or competition.); Hassan v. Indep. Practice
Assocs., P.C., 698 F. Supp. 679 (E.D. Mich. 1988) (“The test under the rule of reason is whether
competition in the overall market has been harmed. . . .” Exclusion of allergist from HMO did
not harm competition because there were a sufficient number of allergists and primary care
physicians in the market who provided allergy services.); Bhan v. NME Hosp., Inc., 669 F. Supp.
998 (E.D. Cal. 1987), aff’d, 929 F.2d 1404 (9th Cir. 1991) (court found no anticompetitive effect
from exclusion of nurse-anesthetist because services available at other area hospitals); Drs.
Steuer & Latham, P.A. v. National Medical Enters., Inc., 672 F. Supp. 1489 (D.S.C. 1987), aff’d,
846 F.2d 70 (4th Cir. 1988) (Even if a plaintiff proves a restraint on competition, the restraint
also must be shown to be “substantially adverse.” Practices that produce only an insignificant,
de minimis or insubstantial restriction of competition are not unlawful.); Kaczanowski v.
Medical Center Hosp. of Vermont, 612 F. Supp. 688, 696 (D. Vt. 1985) (bare fact that plaintiffs
had been excluded from the hospital staff failed to show anticompetitive impact on the market as
a whole); Feldman v. Jackson Memorial Hosp., 571 F. Supp. 1000, 1007 (S.D. Fla. 1983), aff’d,
752 F.2d 647 (11th Cir. 1985) (exclusion of podiatrist had no effect on competition);
McElhinney v. Medical Protective Co., 549 F. Supp. 121, 134 (E.D. Ky. 1982), cause remanded
19
In Pinhas v. Summit Health, Ltd.,90 the Ninth Circuit stated that the plaintiff could prove
injury to competition from the revocation of his privileges by showing that total competition in
the market was reduced or that his exclusion could allow other physicians to charge higher
prices. Similarly, in Oltz v. St. Peter’s Hosp.,91 the proof that a nurse anesthetist had charged
less than M.D. anesthesiologists for similar services and that subsequent to the nurse’s
termination the MDs experienced increased profits and prices for their services, showed that
there was anticompetitive impact from the termination. There also was proof that there were few
available alternatives to plaintiff’s services and that patients and surgeons who preferred the
plaintiff were hindered in obtaining his services.
In staff privileges cases, the hospital or peer review committee can attempt to justify and
defend denying or terminating privileges of physicians as enhancing quality of care, the efficient
operation of the hospital and/or competition overall. If a physician alleges anticompetitive
effects, the defendants can rebut this allegation by demonstrating that their actions were
reasonable and necessary to achieve significant procompetitive effects.92
by, 738 F.2d 439 (1984) (The hospital’s removing plaintiff from rotation lists, while still
allowing him staff privileges, did not produce effects on the overall market. Plaintiff failed to
show that the defendants’ actions had more than a de minimis effect on competition in the
market.).
90
894 F.2d 1024, 1032 (9th Cir. 1989), cert. granted in part, 496 U.S. 935, cert. denied,
498 U.S. 817 (1990), aff’d, 500 U.S. 322 (1991).
91
861 F.2d 1440, 1448 (9th Cir. 1988); see also Scara v. Bradley Memorial Hosp., 1993-2
Trade Ca
injury, but not harm to competition, since prices of anesthesiologist group awarded exclusive
contract were competitive and there was no decrease in number of physicians serving the
relevant market); Balaklaw v. Lovell, 822 F. Supp. 892 (N.D.N.Y. 1993), aff’d, 14 F.3d 793 (2d
Cir. 1994) (challenge to exclusive anesthesiology contract was only claim of personal injury to a
disappointed competitor).
92
County of Tuolumne v. Sonora Community Hosp., 236 F.3d 1148, 1159 (9th Cir. 2001)
(minimum standards for doctors who performed C-sections, which excluded general practitioner,
were reasonable and legitimate); Willman v. Heartland Hosp., 34 F.3d 605, 610-11 (8th Cir.
1994) (revocation of staff privileges of surgeon did not violate antitrust laws where peer
reviewers had legitimate reasons to believe surgeon provided substandard care); Weiss v. York
Hosp., 745 F.2d 786, 820-21 n.60 (3d Cir. 1984) (excluding doctors on grounds of competence is
form of permissible industry self-regulation); Marin v. Citizens Memorial Hosp., 700 F. Supp.
354, 361 (S.D. Tex. 1988) (hospital’s concern for quality of care and restriction of privileges to
physicians who maintain a basic level of medical ability is within the hospital’s public service
function and is not anticompetitive); Posner v. Lankenau Hosp., 1988 WL 51941 (E.D. Pa.),
aff’d, 865 F.2d 252 (3d Cir. 1988) (terminating a disruptive physician’s privileges advanced the
efficient operation of the hospital and was pro-competitive); Friedman v. Delaware County
Memorial Hosp., 672 F. Supp. 171, 190 (E.D. Pa. 1987), aff’d, 849 F.2d 600 (3d Cir. 1988)
(physician’s failure to follow procedures regarding unusual medical techniques justified
20
V.
PROVING INJURY TO COMPETITION UNDER THE RULE OF REASON BY
SHOWING ACTUAL DETRIMENTAL IMPACT -- THE “QUICK LOOK”.
Because the rule of reason requires a detailed showing of the unreasonableness of the
restraint, the courts sometimes use “shortcuts” to avoid the extensive market analysis which has
typified rule of reason cases. In F.T.C. v. Indiana Federation of Dentists,93 the Supreme Court
upheld an FTC order finding a violation of the Sherman Act under the rule of reason, even
though the FTC had not proven the market, market power, and effects in that market. The
dentists had engaged in a group boycott by jointly refusing to submit x-ray copies to insurance
carriers as proof of their claims. Where the plaintiff can demonstrate a “naked restraint” on
competition or actual detrimental effects, such as higher prices or decreased output, with no
procompetitive justification, definition of the market and proof of market power is unnecessary.94
Based on the Indiana Federation of Dentists decision, other courts have held that an
elaborate market analysis is not necessary where there is evidence of a naked restriction on price
or output or of actual detrimental effects such as a reduction of output.95
The “quick look” approach was utilized in a staff privileges case in Oltz v. St. Peter’s
Hospital.96 In that case, the Ninth Circuit did not engage in an extensive market analysis where a
plaintiff anesthesiologist showed that after his exclusion from practice at the hospital, his
competitors experienced an increase in income and the price of anesthesia services increased.
This was actual detriment to competition in a localized market.
suspension where hospital had interest in closely monitoring such techniques, which, because of
malpractice risk, was ultimately pro-competitive); McMorris v. Williamsport Hosp., 597 F.
Supp. 899, 914-5 (M.D. Pa. 1984); McElhinney v. Medical Protective Co., 549 F. Supp. 121, 135
(E.D. Ky. 1982), acq. in result, 738 F.2d 439 (6th Cir. 1984) (hospital suspended doctor’s
privileges because he was a “troublemaker,” and it did not have anticompetitive purpose);
Robinson v. Magovern, 521 F. Supp. 842 (W.D. Pa. 1981), aff’d, 688 F.2d 824 (3d Cir. 1982) (A
hospital may terminate a physicians’ staff privileges in pursuit of a marketing strategy to
improve its competitive position. The marketing strategy involved an integrated approach to
delivery of health care by teams of specialists, and the terminated physician neither participated
in nor fit into this plan.).
93
476 U.S. 447 (1986).
94
Id. at 460. Accord National Collegiate Athletic Assn. v. Board of Regents, 468 U.S. 85,
109 (1984).
95
Morgan, Strand, Wheeler & Biggs, v. Radiology, Ltd., 924 F.2d 1484 (9th Cir. 1991);
Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951, 968 n.24 (10th Cir. 1990);
Anesthesia Advantage, Inc. v. Metz Group, 759 F. Supp. 638, 648 (D. Colo. 1991).
96
861 F.2d 1440, 1448 (9th Cir. 1988).
21
VI.
EXCLUSIVE DEALING ARRANGEMENTS.
The denial or termination of privileges also may result in a charge of an unlawful
exclusive dealing arrangement under Section 1 of the Sherman Act if the hospital enters into an
exclusive contract with another physician or physician group. As a general proposition, an
exclusive dealing arrangement is unlawful if it results in a substantial foreclosure of competition
in the relevant market. In Tampa Electric Co. v. Nashville Coal Co.,97 the United States
Supreme Court stated that it would consider not only the percentage of the market foreclosed by
the arrangement, but also would “weigh the probable effect of the contract on the relevant area of
effective competition . . . and the probable immediate and future effects which pre-emption of
that share of the market might have on competition therein”, taking into account any
procompetitive effects that justify the arrangement and the strength of the remaining
competitors.98 This was a departure from earlier cases, which relied on a percentage-of-themarket standard and held exclusive dealing arrangements unlawful if the volume of business
affected was not insignificant.99
The Tampa Electric qualitative substantiality test, requiring a detailed market analysis
and consideration of the purposes for employing an exclusive dealing arrangement, has been
generally adopted by the lower courts. Under this approach, most courts engage in an analysis of
the relevant market and require proof of a significant adverse effect on competition in that
market before finding an exclusive dealing arrangement unlawful. 100 For example, in Satellite
Television & Associated Resources, Inc., the Fourth Circuit summarized the legal standard as
whether the exclusivity provision substantially lessens competition now or in the future.101
Thus, while the early exclusive dealing decisions tended to analyze these arrangements
strictly, placing principal emphasis on the market share foreclosed to competition, recent
decisions in the courts and FTC have been more hospitable to exclusive dealing by engaging in a
detailed and realistic analysis of the market and competitive effects. The recent cases have given
less weight to the percentage when other evidence demonstrates that the level of competition has
not been significantly affected.
Nevertheless, market share figures remain an important part of the analysis of whether an
exclusive dealing arrangement substantially lessens competition by foreclosing competitors from
97
365 U.S. 320 (1961).
98
Id. at 329.
99
Standard Oil Co. v. United States, 337 U.S. 293 (1949).
100
E.g., Satellite Television & Associated Resources, Inc. v. Continental Cablevision of
Virginia, Inc., 714 F.2d 351 (4th Cir. 1983); Twin City Sportservice, Inc. v. Charles O. Finley &
Co., 676 F.2d 1291 (9th Cir. 1982).
101
714 F.2d at 355.
22
a significant percentage of the relevant market. Although it is impossible to provide clear market
share benchmarks, exclusive dealing arrangements foreclosing less than 15% of the relevant
market generally have been found not to substantially lessen competition.102 On the other hand,
exclusive dealing arrangements which foreclose approximately 30-40% of the market are in
more of a borderline area and have or have not been found to substantially lessen competition,
depending upon other factors demonstrating whether the market share accurately signifies the
degree of foreclosure.103
As a general matter, the higher the market share foreclosed by the exclusive arrangement,
the more suspect the arrangement is under the antitrust laws. However, larger market shares may
not necessarily result in a finding of illegality if other evidence demonstrates that the market
share figures overstate the significance of the foreclosure of competition or that the actual effect
on competition is not substantial. For example, in Bowen v. New York News, Inc.,104 an
exclusive dealing arrangement by the News with all of its New York metropolitan area
distributors was upheld where there was “no showing that inter-brand competition had been
significantly limited” or entry “foreclosed” because the News’ competitors had ready access to a
significant number of outlets to permit effective marketing of their products.
Furthermore, the Supreme Court’s analysis of market power in Jefferson Parish Hospital
District No. 2 v. Hyde,105 reflects a relaxation of the market share standards that historically have
been applied in exclusive dealing cases. In Hyde, an anesthesiologist alleged that an exclusive
contract between a hospital and an anesthesiology group was an unlawful tying arrangement
under Section 1 of the Sherman Act. The plaintiff alleged that the contract was unlawful because
every patient who underwent surgery in the hospital had to use the services of one of the
102
E.g., Belltone Elecs. Corp., [1979-1983 Transfer Binder] Trade Reg. Rep. (CCH) 21,934
(FTC 1982) (foreclosure of 7-8% of dealers, accounting for 16% of sales did not unreasonably
restrict competition); American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230 (3rd Cir.
1975) (foreclosure of 14.7% of the market not necessarily unlawful, depending upon the
significance of such foreclosure in the context of total competition).
103
See Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922) (foreclosure of
40% of outlets unlawful); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d
1291 (9th Cir. 1982) (foreclosure of 24% of market through long-term exclusive dealing
contracts violated Section 1); Mytinger & Casselberry, Inc. v. FTC, 301 F.2d 534 (D.C. Cir.
1962) (foreclosure of 61.5% and 34.6% of sales in two separate markets unlawful); United States
v. Dairymen, Inc., 1983-2 Trade Cas. (CCH) 65,651 (W.D. Ky. 1983), aff’d, 758 F.2d 654 (6th
Cir. (1985) (foreclosure of more than 50% of market unlawful); with Ezpeleta v. Sisters of
Mercy Health Corp., 621 F. Supp. 1262 (N.D. Ind. 1985), aff’d, 800 F.2d 119 (7th Cir. 1986)
(foreclosure of 30% of market not unlawful).
104
366 F. Supp. 651, 679-80 (S.D.N.Y. 1973), aff’d in relevant part, 522 F.2d 1242 (2d Cir.
1975).
105
466 U.S. 2 (1984).
23
anesthesiologists from the contracting group. The plaintiff also alleged that the contract illegally
restrained competition among anesthesiologists. The facts revealed that 30% of patients residing
in the Jefferson Parish area used the hospital. The Supreme Court refused to hold that the
hospital’s exclusive contract with the anesthesiologist group was a per se illegal tying
arrangement under Section 1.106 The Court also sustained the exclusive arrangement under a
rule-of-reason analysis.
In holding that the exclusive contract did not constitute a per se illegal tying arrangement,
the Supreme Court essentially held that the 30% market share standing alone did not confer
sufficient economic power to justify invoking the per se rule against tying arrangements.107
Under the rule of reason analysis, the Supreme Court gave little credence to the plaintiff’s
contention that the exclusive contract unreasonably restrained competition, stating that the record
did not “provide a basis for finding that the Roux contract, as it actually operates in the market,
has unreasonably restrained competition.”108 The Court held that the practice “does not have the
obviously unreasonable impact on purchasers that has characterized the tying arrangements that
this Court has branded unlawful.”109
The four concurring Justices in Hyde further analyzed the contract as an exclusive
dealing arrangement and stated that it must be sustained under the rule of reason. The
concurring Justices stated that
In determining whether an exclusive-dealing contract is
unreasonable, the proper focus is on the structure of the market for
the products or services in question -- the number of sellers and
buyers in the market, the volume of their business, and the ease
with which buyers and sellers can redirect their purchases or sales
to others. Exclusive dealing is an unreasonable restraint on trade
only when a significant fraction of buyers or sellers are frozen out
of a market by the exclusive deal . . . When the sellers of services
are numerous and mobile, and the number of buyers is large,
exclusive dealing arrangements of narrow scope pose no threat of
adverse economic consequences. To the contrary, they may be
substantially procompetitive by ensuring stable markets and
encouraging long term, mutually advantageous business
relationships.110
106
Id. at 26-29.
107
Id. at 26-27; cf. McMorris v. Williamsport Hosp., 597 F. Supp. 899, 913 (M.D. Pa. 1984)
(55-60% market share may confer sufficient economic power).
108
Hyde, 466 U.S. at 29-30.
109
Id. at 31.
110
Id. at 45.
24
Finding no evidence that anyone was frozen out, the concurring opinion concluded that the
exclusive dealing arrangement involving a 30% market share did not unreasonably restrain
competition. The concurring Justices declared that the exclusive dealing arrangement was not an
unreasonable restraint because it foreclosed “only a small fraction of the markets in which
anesthesiologists may sell their services.”111
A number of courts have applied the Hyde market power analysis to exclusive contractual
arrangements entered into within the hospital setting. As an example, in Gonzales v.
Insignares,112 the court upheld a county hospital’s right to enter into an exclusive contract for the
provision of anesthesiology services. The court held that the hospital did not possess sufficient
market power even though the evidence indicated that 40% of the county residents used that
hospital. The hospital did not have a dominant market position to enable it to restrain trade since
60% of the residents used other hospitals.
In order to more accurately judge the extent of a hospital’s antitrust liability and
probability of success in litigation, it will be necessary to consider the hospitals’ market share
figures in each area where exclusive contracts will be utilized. The risk will be small in areas
where the hospital accounts for a low percentage of the total hospital services market, such as
15% or lower, and will be higher where the hospital’s market share approaches 30-40%.
However, the hospital’s market share figures will not be dispositive. After market share
information is obtained, the next step is to carefully examine the market to determine the actual
competitive impact or effect of the arrangement.
There are several factors which should be considered in determining actual competitive
effect and may serve to reduce antitrust risk in the higher market share areas. First, defining the
relevant product and geographic markets in which the hospital competes will be extremely
important because the impact of the exclusive arrangement on competition will be diminished as
the relevant market is broadened.
Second, and perhaps more importantly, the level of risk incurred in the larger market
share areas still may be acceptable if the hospital can demonstrate that actual competition
between the physicians in those areas will not be decreased substantially. The other physicians
may continue to have access to a considerable number of hospitals in the area. If these options
are available to the other physicians and provide them with sufficient competitive opportunities,
it may be possible that the exclusive dealing arrangement will not have a substantial adverse
111
Id. at 46-47.
1985-2 Trade Cas. (CCH) 66,701 (N.D. Ga. 1985); see also Minnesota Ass’n of Nurse
Anesthetists v. Unity Hosp., 208 F.3d 655, 660-62 (8th Cir. 2000) (applying Hyde; hospital’s
claimed market share was similar to that in Hyde (30%) and plaintiffs failed to show that market
share approached that in Oltz (84%)); Mays v. Hospital Auth. of Henry County, 596 F. Supp.
120 (N.D. Ga. 1984) (applying Hyde).
112
25
effect on competition.113 Furthermore, if the exclusive contract is for a short duration, is not
automatically renewable and prohibits the contracting physicians from practicing at other
hospitals, the excluded physicians may have ample opportunities to compete.
The hospital also can attempt to reduce its antitrust risk by establishing and documenting
the sound business justifications for the exclusive dealing arrangement. The existence of
legitimate business reasons for the arrangement normally is considered by the courts and the
government enforcement agencies in their analyses.114
On the other hand, an exclusive contract could create an antitrust problem if the
hospital’s market share is too high or it offers important services which are not available at other
hospitals in the market. In that event, the exclusivity arrangement could have an anticompetitive
effect by precluding other physicians from entering the market or by undermining the ability of
existing physicians to survive and compete on an effective basis.115
VII.
MONOPOLIZATION CLAIMS.
A.
Attempt to Monopolize.
Another claim that a terminated or excluded physician could possibly bring is that the
hospital is attempting to monopolize the market in violation of Section 2 of the Sherman Act.
See Minnesota Ass’n of Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 661 (8th Cir.
2000) (excluded nurse anesthetists could seek employment elsewhere and continued to work at
defendant hospitals through employment by anesthesiologists); U.S. Healthcare, Inc. v.
Healthsource, Inc., 1992-1 Trade Cas. (CCH) 69,697 (D.N.H. 1992), aff’d, 986 F.2d 589 (1st Cir.
1993); Konik v. Champlain Valley Physicians Hosp., 733 F.2d 1007 (2d Cir. 1984); Shafi v. St.
Francis Hosp., 1991-1 Trade Cas. (CCH) 69,500 at 66,135 (4th Cir. 1991) (“Replacement of one
exclusive contractor with another is not a violation of the antitrust laws.”); Gonzalez v.
Insignares, 1985-2 Trade Cas. (CCH) 66,701 (N.D. Ga. 1985) (excluded anesthesiologist had
privileges at other hospitals in the area and had never been denied privileges at any other
hospital); Rockland Physician Assocs., P.C. v. Grodin, 616 F. Supp. 945, 956-7 (S.D.N.Y. 1985).
113
Oltz v. St. Peter’s Community Hosp., 861 F.2d 1440 (9th Cir. 1988) (An exclusive
contract with an anesthesiology group violated Section 1 because there was separate evidence of
a conspiracy to eliminate a nurse anesthetist as a direct competitor of the anesthesiologists.).
114
115
FTC Staff Advisory Opinion Letter to David A. Gates, Nevada Commissioner of
Insurance (Nov. 5, 1986); FTC Staff Advisory Opinion Letter to M. L. Denger (Sept. 24, 1985);
Department of Justice Press Release regarding Stanislaus Preferred Provider Organization, Inc.
(October 12, 1984) (Department of Justice challenged the formation of a provider-sponsored
PPO where over 50% of local physicians joined the PPO and agreed not to participate in any
competing plans).
26
The attempt to monopolize offense requires proof of (1) a specific intent to obtain
monopoly power or destroy competition, (2) predatory or anticompetitive conduct by the
defendant, and (3) a dangerous probability of success in achieving it. 116 The specific intent
element requires more than general intent to commit the act. The plaintiff must prove that the
defendant possesses specific intent to commit the particular acts in question and to thereby
acquire monopoly power.117 As one court explained, a specific intent to destroy competition or
build a monopoly is essential to a finding of attempted monopolization,
A mere intent to prevail over rivals or to improve market position
is insufficient. Even an intent to perform acts which can be
objectively viewed as tending toward the acquisition of monopoly
power is insufficient, unless it appears that the acts were not
“predominantly motivated by legitimate business aims.” Times
Picayune, supra at 627.118
Additionally, an attempt to monopolize claim requires a detailed analysis of the structure
of the relevant market to prove that the defendant possesses sufficient market power to come
dangerously close to achieving monopolization. Under this analysis, the relevant product and
geographic markets must be defined and the defendant’s market share in the relevant market
must be determined.
The defendant’s market share need not have reached monopoly proportions yet, but
unfortunately there is little consensus among the courts as to how large it must be in order to
constitute a dangerous probability of success.119 However, even a large market share will not
116
E.g., Advanced Health-Care Serv., Inc. v. Radford Community Hosp., 910 F.2d 139, 147
(4th Cir. 1990).
117
Times Picayune Publishing Co. v. United States, 345 U.S. 594, 626 (1953); United States
v. Aluminum Co. of America, 148 F.2d 416, 431-2 (2d Cir. 1945).
118
Human Resource Inst. of Norfolk, Inc. v. Blue Cross of Virginia, 498 F. Supp. 63, 67
(E.D. Va. 1980).
119
The following cases offer examples of market shares which were held insufficient to
support an attempted monopolization claim: Pilch v. French Hosp., No. CV 98-9470, 2000 WL
332223382 at *7 (C.D. Cal, Apr. 28, 2000) (33.2% market share insufficient); Richter Concrete
Corp. v. Hilltop Concrete Corp., 691 F.2d 818 (6th Cir. 1982) (declining market shares from
40% to 30% insufficient); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 271 (7th Cir. 1981)
(declining 30% share insufficient); United States v. Empire Gas Corp., 537 F.2d 296, 306 (8th
Cir. 1976) (50% market share insufficient); Yoder Bros. Inc. v. California-Florida Plant Corp.,
537 F.2d 1347, 1369 (5th Cir. 1976) (20% insufficient); Hiland Dairy, Inc. v. Kroger Co., 402
F.2d 968 (8th Cir. 1968) (market share of less than 50% might support finding of attempted
monopoly in some circumstances but 20% insufficient as a matter of law); Kuck v. Bensen, 647
F. Supp. 743 (D. Me. 1986) (hospital’s market share of 37% insufficient); Stifel, Nicolaus & Co.
v. Dain, Kalman & Quail, Inc., 430 F. Supp. 1234, 1242 (N.D. Iowa 1977), aff’d, 578 F.2d 1256
27
establish dangerous probability of success when the highly competitive nature of the market
virtually precludes the attainment of monopoly power.120
The definition of the relevant market is, therefore, the critical consideration in
determining whether there is a dangerous probability that a hospital will obtain monopoly power.
If the relevant market encompasses an entire metropolitan area, a single hospital’s share of the
hospital services business may be too low to satisfy this test. The competitive activities of the
existing providers in a large, urban market should provide a restraining effect on the ability of
one hospital to achieve monopoly power.
On the other hand, the hospital’s market share may be sufficient to support a finding of
dangerous probability if the market is defined narrowly or is limited to a rural area. Furthermore,
there may be significant barriers to entry in the states that require a certificate of public need for
the opening of new facilities or purchase of expensive equipment.
Aggrieved physicians or competing facilities also could allege under Section 2 that the
hospital has engaged in unlawful monopolization. There are three possible theories that could be
raised in this situation: abuse of monopoly power, monopoly leveraging and denial of an
essential facility.
B.
Unlawful Monopolization.
1.
Abuse of Monopoly Power.
Section 2 condemns not only the unlawful acquisition of monopoly power, but
also the abuse of monopoly power by a monopolist that achieved its market power lawfully. A
monopolization claim under Section 2 requires proof of two essential elements: possession of
monopoly power in the relevant market and willful acquisition or maintenance of that power
through exclusionary, abusive or predatory practices.121
(8th Cir. 1978) (30% insufficient). In contrast, the following market shares were sufficient to
establish a dangerous probability of achieving a monopoly: Twin City Sportservice, Inc. v.
Charles O. Finley & Co., 676 F.2d 1291, 1309 (9th Cir. 1982) (24% market share plus
anticompetitive conduct supported finding of attempted monopolization); McDonald v. Johnson
& Johnson, 537 F. Supp. 1282 (D. Minn. 1982), aff’d in part, vacated in part, 722 F.2d 1370
(8th Cir. 1983) (37% sufficient); Outboard Marine Corp. v. Pezetel, 461 F. Supp. 384, 404-6 (D.
Del. 1978) (35% sufficient); Structure Probe Inc. v. Franklin Inst., 450 F. Supp. 1272, 1285
(E.D. Pa. 1978), aff’d mem., 595 F.2d 1214 (3d Cir. 1979) (average 42% share sufficient).
See General Communications Eng’g, Inc. v. Motorola Communications & Elecs., Inc.,
421 F. Supp. 274, 291-3 (N.D. Cal. 1976) (64% market share insufficient).
120
121
United States v. Grinnell Corp., 384 U.S. 563, 570 (1966); Konik v. Champlain Valley
Physicians Hosp., 733 F.2d 1007, 1018 (2d Cir. 1984); Morgenstern v. Wilson, 1994-1 Trade
Cas. (CCH) 70,645 at 72,516 (8th Cir. 1994).
28
As in the other Section 2 claims, a plaintiff must first prove that the defendant had an
unlawful intent to monopolize.122 Then the plaintiff must show the existence of monopoly power
in the relevant market. Monopoly power is defined as “the power to control prices or exclude
competition” and essentially connotes that the defendant has the capacity to monopolize.123 This
capacity may be inferred from the possession of a dominant share of the market.124
In United States v. Aluminum Co. of America,125 the Second Circuit created the widely
accepted rule of thumb that while a 90 percent market share is enough to constitute
monopolization, “it is doubtful whether [60] or [64] percent would be enough; and certainly [33]
percent is not.” In general, absent special circumstances, a defendant must have a market share
of at least 60 percent before it can be guilty of monopolization.126
While market share is the primary indicator of the existence of monopoly power,
monopoly power cannot exist in the absence of barriers to entry into the market. 127 The ease of
entry into a market prevents a firm from exercising monopoly power because new firms will
enter the market in response to artificially high profits.
Castelli v. Meadville Medical Center, 702 F. Supp. 1201 (W.D. Pa. 1988), aff’d, 872 F.2d
411 (3d Cir. 1989).
122
123
United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).
124
United States v. Grinnell Corp., 384 U.S. 563, 571 (1966); Domed Stadium Hotel Inc. v.
Holiday Inns, Inc. 732 F.2d 480, 487 & 489 (5th Cir. 1984).
125
148 F.2d 416, 424 (2d Cir. 1945).
126
Morgenstern v. Wilson, 1994-1 Trade Cas. (CCH) 70,645 at 72,516 n.3 (8th Cir. 1994)
(80% share sufficient but 30% insufficient); Fineman v. Armstrong World Indus., Inc., 980 F.2d
171, 201 (3d Cir. 1992) (55% insufficient to constitute monopoly power); Domed Stadium Hotel,
Inc. v. Holiday Inns, Inc., 732 F.2d 480, 489 (5th Cir. 1984) (90% is enough, 60% is not likely to
suffice, and 33% is insufficient); Weiss v. York Hosp., 745 F.2d 786 (3d Cir. 1984) (monopoly
existed with 80% share where only two hospitals in the area provided inpatient services);
Associated Radio Serv. Co. v. Page Airways Inc., 624 F.2d 1342 (5th Cir. 1980) (about 50%
sufficient, coupled with evidence of few competitors and high barriers to market entry); Reazin
v. Blue Cross and Blue Shield of Kansas Inc., 663 F. Supp. 1360 (D. Kan. 1987), aff’d and
remanded, 899 F.2d 951 (10th Cir. 1990) (60% sufficient where defendant’s share was 15 times
larger than next largest competitor and there were significant barriers to entry).
127
See Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins. Inc., 784 F.2d 1325, 1336-7 (7th Cir.
1986) (80% market share insufficient to establish market power where no barriers to entry);
Weber v. Wynne, 431 F. Supp. 1048, 1056 (D.N.J. 1977) (77% share insufficient because of
extremely low barriers to entry into the market).
29
Monopolization claims have been brought in several recent cases in which hospital staff
privileges were denied to physicians affiliated with competing facilities. In Potters Medical
Center v. City Hospital Association,128 the defendant hospital had a clear monopoly share of the
inpatient services market with a 275-bed capacity compared to its only local competitor’s 39
beds.
The competing hospital alleged that the defendant had unlawfully monopolized the
inpatient services market in two ways: first, by refusing to grant staff privileges to physicians
who had privileges at the plaintiff’s hospital; and second, by conducting a physician recruitment
program in which the recruited physicians - in exchange for certain salary and bonus guarantees - were required to agree to admit patients only in the defendant hospital.
The plaintiff also alleged that the defendant monopolized the out-patient pathology
services and radiology services markets by coercing physicians not to direct patients to the
plaintiff, offering improper incentives for referrals to the defendant and refusing physicians
affiliated with the plaintiff hospital access to staff privileges at the defendant hospital.
The Sixth Circuit overturned the lower court’s award of summary judgment for the
defendant City Hospital and remanded the case for a factual determination as to whether the
defendant had an anticompetitive intent and engaged in unlawful monopolization in these
different markets. The court explained that there was evidence that the defendant hospital’s
efforts to restrict staff privileges could constitute an unlawful use of monopoly power to
foreclose competition or gain a competitive advantage.
As the court noted, “It is conceivable that City Hospital sought to restrict physicians’
staff privileges in order to foreclose competition from Potters in the hospital inpatient services
market.”129
Significantly, Potters was cited in another case that presented a similar factual situation.
Miller v. Indiana Hospital130 involved the termination of a urologist’s staff privileges by the
defendant hospital. The physician had built a medical office building near the hospital that
housed a comprehensive family-oriented medical center, including pediatricians, family
practitioners and medical and surgical specialists. The building also included on-site laboratory
and radiology services that the medical center provided at a lower cost than the hospital.
The hospital claimed that the physicians’ privileges were revoked because of his
professional incompetence and unprofessional conduct, but the physician alleged that he was
terminated because the hospital viewed his center as a threat to the hospital and wanted to stifle
his competition. The court declared that a Section 2 claim could be supported by these
128
800 F.2d 568 (6th Cir. 1986).
129
Id. at 575.
130
843 F.2d 139 (3d Cir. 1988).
30
circumstances.131
In view of these cases, a hospital which bases privileges decisions on economic or
competitive considerations could be charged with using its monopoly power in the inpatient
services market to foreclose competition or to gain an unfair competitive advantage. While the
factual background and reasons for the hospital’s actions are important in the evaluation of its
intent, the crucial issue in a monopolization case still is whether the hospital possesses the
required element of “monopoly power.” This determination is again dependent on the definition
of the relevant market.132
If the geographic market is defined as an entire urban area that encompasses a large
number of competing facilities, the hospital’s share of the market may be below the levels
needed to demonstrate the existence of monopoly power as a matter of law. To the contrary, the
hospital’s market share may be sufficient to support a claim of abuse of monopoly power if the
relevant market consists of a small, local area as in the Potters and Miller cases.
2.
Monopoly Leveraging.
Another possible claim that could be brought against a hospital in this situation is
that it has engaged in “monopoly leveraging” -- that is, the use of monopoly power in one market
to obtain a competitive advantage in a second market. The Supreme Court has broadly stated
that “the use of monopoly power, however lawfully acquired, to foreclose competition, to gain
competitive advantage, or to destroy a competitor, is unlawful.”133 As is evident, the monopolyleveraging theory is quite similar to the abuse-of-monopoly-power theory discussed above.
Here, a plaintiff must show that the hospital has monopoly power in one market (i.e.,
inpatient services) and that it exercised that power to gain an advantage in another market (i.e.,
outpatient services). Even if there is no real threat that the hospital would thereby monopolize
the second market, it still could be liable for using its power in one market as leverage against
competition in the other.
3.
Essential Facilities Doctrine.
Finally, a potential plaintiff could claim that the hospital’s refusal to deal with
physicians violates Section 2 under the “essential facilities” doctrine.134 Under this doctrine,
131
Id. at 145 n.8.
132
Morgenstern v. Wilson, 1994-2 Trade Cas. (CCH) 70,645 at 72,516 & 72,517 (8th Cir.
1994); Brown v. Our Lady of Lourdes Medical Ctr., 767 F. Supp. 618, 631 (D.N.J. 1991), aff’d,
961 F.2d 207 (3d Cir. 1992).
133
United States v. Griffith, 334 U.S. 100, 107 (1948).
134
See United States v. Terminal R.R. Assoc. of St. Louis, 224 U.S. 383 (1912).
31
courts declare that where it is economically infeasible for a monopolist’s potential competitors to
duplicate a facility controlled by the monopolist and needed to provide a product or service, the
monopolist must make the facility available to the competitors on a non-discriminatory basis.135
To establish liability under this doctrine, a physician denied privileges at a hospital must
show: that the hospital controls inpatient facilities that are essential to competition in the
relevant market; his or her own inability to duplicate, practically or economically, the inpatient
facilities that the hospital controls; a denial by the hospital of the use of its inpatient facilities;
and the feasibility of the hospital sharing its inpatient facilities without impairing its own ability
to care for patients adequately.136
Like the other Section 2 theories, this claim will mainly rise or fall on the definition of
the relevant market. A hospital most likely would not constitute an essential facility in a large
urban area, whereas access to a hospital’s inpatient services may be essential for a physician in a
rural area. Furthermore, the legal risk under this theory may be reduced to the extent that
physicians affected by this restriction already have obtained or will obtain staff privileges at
other hospitals in the area.137
Presumably, the affected physicians will increase their utilization of other hospitals or
seek privileges at other hospitals in order to maintain the level of their practices. Evidence of
such shifts by physicians in their hospital affiliations would indicate that the hospital’s facilities
are not essential to competition and that physicians can reasonably duplicate these facilities.
In sum, hospital staff privileges decisions have been fertile ground for antitrust litigation.
If a hospital decides to terminate or deny staff privileges to physicians, it should recognize that
litigation is likely because of the adverse economic consequences not only for the subject
physicians but also for competing facilities.
135
Otter Tail Power Co. v. United States, 410 U.S. 366 (1973); McKenzie v. Mercy Hosp. of
Independence, Kansas, 854 F.2d 365, 369 (10th Cir. 1988).
136
See Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless, PLC, 148 F.3d 1080 (D.C.
Cir. 1998) (setting forth elements); MCI Communications Corp. v. AT&T Co., 708 F.2d 1081,
1132-3 (7th Cir. 1983) (same); Pfenninger v. Exempla, Inc., 116 F. Supp.2d 1184 (D. Colo.
2000) (essential facilities claim rejected because no evidence supported claim that privileges at
defendant hospitals were necessary to compete in the west side of Denver); Tarabishi v.
McAlester Reg’l Hosp., 951 F.2d 1558 (10th Cir. 1991) (essential facility claim rejected because
no evidence of hospital’s power to control prices); but see Castelli V. Meadville Medical Ctr.,
702 F. Supp. 1201 (W.D. Pa. 1988), aff’d, 872 F.2d 411 (3d Cir. 1989) (“the essential facilities
doctrine is not appropriate for a hospital’s decisions about professional services”).
137
See, e.g., Pfenninger v. Exempla, Inc., 116 F. Supp.2d 1184, 1193 (D. Colo. 2000)
(terminated physician remained free to practice at other area hospitals).
32
Because these decisions will have an effect on the ability of other providers to compete,
Section 2 claims are likely to be raised and thus will present an additional area of potential
liability for hospitals.138 In view of this increased exposure, hospitals should carefully evaluate
the Section 2 issues and pitfalls.
VIII. HEALTH CARE QUALITY IMPROVEMENT ACT OF 1986.
A.
Origins and Purpose.
In 1986, the U.S. Congress enacted the Health Care Quality Improvement Act
(“HCQIA”).139 HCQIA was designed to facilitate and encourage good faith, effective
professional peer review and to restrict the ability of incompetent physicians to move from
hospital to hospital without the disclosure or discovery of their prior practice history. 140 The Act
aims to achieve this objective by providing immunity from antitrust liability to peer review
participants who act in good faith and meet certain due process and reporting requirements in
their professional review activities.141 HCQIA also endeavors to promote peer review by
authorizing the award of costs and attorneys’ fees to peer review defendants who have met the
Act’s good faith and due process criteria and prevailed in litigation against a frivolous or bad
faith claim.142
B.
HCQIA’s Effect On Peer Review Litigation.
HCQIA’s effect on peer review litigation appears to be growing. Indeed, the various
courts hearing HCQIA cases have overwhelmingly decided in favor of the defendants. Thus,
HCQIA has become an effective shield against peer review claims.
However, HCQIA’s immunity protection is limited in a number of ways. First, while
HCQIA offers the potential of immunity from antitrust liability, it does not offer immunity from
suit.143 Second, immunity under the Act is conditioned upon a host of administrative
138
139
See also West Allis Memorial Hosp. Inc. v. Bowen, 852 F.2d 251 (7th Cir. 1988).
-11152.
140
141
-34 (reporting requirements). In order to facilitate the
granting of summary judgment for defendants early on in peer review litigation, HCQIA creates
a presumption that the Act’s good faith, due process, and reporting prerequisites to immunity
protection have been satisfied. HCQIA immunity protects a proper defendant unless the plaintiff
142
143
Imperial v. Suburban Hosp. Ass’n, 37 F.3d 1026, 1028 (4th Cir. 1994); Manion v. Evans,
33
prerequisites.144 HCQIA only provides immunity if the peer review decision is taken: (1) in the
reasonable belief that the action was in the furtherance of quality health care; (2) after a
reasonable effort to obtain the facts of the matter; (3) after adequate notice and hearing
procedures are afforded to the physician involved or after such other procedures as are fair to the
physician under the circumstances; and (4) in the reasonable belief that the action was warranted
by the facts known after such reasonable effort to obtain facts and after meeting the requirements
of (3) above.145 Fortunately for defendants, with respect to the notice and hearing procedures,
HCQIA provides, “[a] professional review body’s failure to meet the [specific] conditions in
[the] subsection shall not, in itself, constitute failure to meet the standard of [§ 11112(a)(3)].”
The courts have held, therefore, that the standard for measuring compliance with HCQIA is
objective reasonableness after considering the “totality of circumstances.”146
Although the Act creates a presumption that defendants have met these necessary
standards for immunity protection, the presumption is rebuttable and to survive summary
judgment a plaintiff need only produce sufficient evidence to permit a jury to find that he or she
has overcome the presumption.147 In addition, since the courts have held that the Act provides
immunity from liability only, and not immunity from suit, motions to dismiss based on HCQIA
immunity are unlikely to prevail.148 For those defendants who do prevail, particularly at the
dismissal or summary judgment stage, HCQIA compels the courts to award attorney’s fees and
costs to defendants when: the defendants satisfy the standards of 42 U.S.C. § 11112(a), the
986 F.2d 1036, 1042 (6th Cir. 1993); Decker v. I.H.C. Hospitals, Inc., 982 F.2d 433, 436 (9th
Cir. 1992) (HCQIA provides immunity from liability for antitrust damages, but not from antitrust
litigation).
144
See
145
See also Austin v. McNamara, 979 F.2d 728, 733 (9th Cir. 1992)
(When a peer review committee complies with the provisions of Section 11112 (a), the
committee is immune from antitrust liability under HCQIA).
146
Imperial, 37 F.3d at 1030; see also Mathews v. Lancaster Gen. Hosp., 87 F.3d 624, 635
(3rd Cir. 1996); Smith v. Ricks, 31 F.3d 1478, 1485 (9th Cir. 1994).
147
Austin v. McNamara, 979 F.2d 728, 734 (9th Cir. 1992); Smith, 31 F.3d at 1486.
Nevertheless, the plaintiff has a double burden: producing evidence and persuading the court
that a triable issue of fact exists. See Singh v. Blue Cross/Blue Shield of Mass., 2002 U.S.App.
LEXIS 17717, *5 (1st Cir. 2002).
148
Manion, 986 F.2d at 1036; Decker, 982 F.2d 433; but see Freilich v. Upper Chesapeake
Health, Inc., 2002 U.S. App. LEXIS 25534, *2 (4th Cir. 2002) (affirming the District Court’s
dismissal of the plaintiff’s claims). Indeed, almost all of the cases cited in the annotated United
States Code were decided on a motion for summary judgment. The author is aware, however, of
one recent case that is not yet reported in which the court granted the defendants’ motion to
dismiss.
34
defendants “substantially prevail,” and the claim, or claimant’s conduct during litigation, was
“frivolous, unreasonable, without foundation, or in bad faith.”149
Although there remains relatively little HCQIA case law, it appears that the Act is
becoming more and more established.150 Indeed, a recent decision rejected a claim that HCQIA
is unconstitutional.151 Other courts have held that HCQIA does not create a private right of
action for plaintiffs.152
For defendants hoping to gain HCQIA immunity for economic credentialing actions, the
most significant limitation on HCQIA immunity may turn out to be the Act's requirement that the
peer review decision be based on "the reasonable belief that. . . [it was taken]. . . in furtherance
of quality health care".153 This "quality health care" criterion possibly could preclude HCQIA
immunity for economic credentialing decisions based exclusively on business concerns such as
efficiency, productivity, and facility utilization because it could be argued that such decisions are
not made with the intent of furthering health care quality. Some commentators have argued,
however, that certain “hybrid credentialing” decisions may enjoy immunity.154 Although at least
one commentator has urged that the courts treat economic credentialing criteria as factors
legitimately related to physician competence and professional conduct,155 it is still undetermined
whether peer review decisions based on economic reasons will be found to satisfy the "quality
health care" requirement for HCQIA immunity. It is important to point out, however, that at
least one court has clarified an aspect of HCQIA that is designed to minimize the effect of
economics on health care decisions: HCQIA’s fair hearing requirement specifies that the
149
42 U.S.C. § 11113.
150
As of this writing, there are only approximately 30 reported HCQIA cases in the LEXIS
annotated United States Code Service.
151
Freilich, 2002 U.S. App. LEXIS 25534, *6-16 (4th Cir.) (rejecting alleged violations of
the Fifth, Tenth, and Fourteenth Amendments, and the claim that the “objective reasonableness
standard” is unconstitutionally vague).
152
See e.g., Hancock v. Blue Cross-Blue Shield, 21 F.3d 373, (10th Cir. 1994); Duard v.
Mutual Assurance, 917 F. Supp. 778, 780 (M.D. Ala. 1996).
153
154
Jane C. Taber and Janna P. King, Caught in the Crossfire: Economic Credentialing in the
Health Care War, 1994 Det. C.L. Rev. 1179, 1206 (1994) (noting that, “economic factors that
may be incorporated into a hybrid credentialing process are malpractice rate exposure, number
and type of hospital admissions, the number of patient intensive care unit days, patient length of
stay, outpatient services utilization, resource utilization, use of ancillary services and laboratory
tests, DRG profiles, utilization review factors, and the physician’s payor profile”).
155
John D. Blum, Economic Credentialing, 12 J. Legal Med. 427, 456 (1991).
35
individuals on a hearing panel many not be in “direct economic competition with the physician
involved.”156 According to the Third Circuit, HCQIA distinguishes between “professional
review action” and “professional review activities,” the former being where a decision results
from a review of facts, the latter being merely an investigation.157 The Third Circuit concluded
that the investigation stages do not implicate the fairness and procedural standards of 42 U.S.C. §
11112; thus, participation of economic competitors in peer review investigations does not “run
afoul” of HCQIA.158
In sum, HCQIA offers a mixed degree of protection. While it may eliminate liability and
even reimburse legal fees, HCQIA does not protect against suits themselves. However, the
relative scarcity of case law may indicate that HCQIA is serving as a true deterrent to peer
review litigation.
156
42 U.S.C. § 11112(b)(3)(A).
157
Mathews, 87 F.3d at 636.
158
Mathews, 87 F.3d at 634.
36