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DOCTORS, INC. v. BLUE CROSS OF GREATER PHILADELPHI

August 13, 1975

DOCTORS, INC. a/k/a Doctors Hospital
v.
BLUE CROSS OF GREATER PHILADELPHIA, a/k/a Associated Hospital Service of Philadelphia and Hospital Survey Committee, Inc.



The opinion of the court was delivered by: GORBEY

 GORBEY, District Judge.

 This is an antitrust action brought by Doctors, Inc., a/k/a Doctors Hospital (hereinafter "Doctors"), a non-profit hospital located in Philadelphia, against Blue Cross of Greater Philadelphia, a/k/a Associated Hospital Service of Philadelphia (hereinafter "Blue Cross") and Hospital Survey Committee, Inc. (hereinafter "HSC"), a private non-profit corporation, which serves as an advisory planning agency with respect to the coordination and planning of hospital and health services in Greater Philadelphia.

 The complaint alleges: (1) monopolization by Blue Cross of the third-party hospital services payer market in the greater Philadelphia area and the use of that power by Blue Cross and HSC to determine which hospital services will be provided in the greater Philadelphia area and who will provide them; (2) an illegal contract, combination and conspiracy by Blue Cross, HSC and others to eliminate competition in the hospital services market throughout the greater Philadelphia area; (3) an illegal refusal by Blue Cross with the cooperation of HSC to deal with Doctors; and (4) an illegal boycott of Doctors induced by Blue Cross and HSC.

 Basically, Doctors' claim is that pursuant to the Hospital Agreement of 1971 between Blue Cross and Philadelphia area hospitals, including Doctors, Blue Cross, on the advice of HSC, determined that hospital services being performed in Philadelphia by Doctors were unnecessary and therefore Blue Cross refused to continue reimbursements to Doctors for hospital care rendered to Blue Cross subscribers and Blue Cross refused to renew the hospital agreement with Doctors for reimbursement. The direct result of Blue Cross' refusals was that Doctors was compelled to go out of business. Doctors further claims that defendants induced a group boycott by Doctors' patients (before Doctors closed) by Blue Cross' publicly advertising that reimbursement for services received at Doctors would thereafter be on a non-member basis.

 The complaint was initially dismissed on the grounds that plaintiff was not in interstate commerce, but the district court's decision was overruled by the Third Circuit Court of Appeals on December 28, 1973. Since that time HSC has filed a motion for summary judgment on the grounds that it was not a co-conspirator. Blue Cross has filed a motion for summary judgment claiming that the conduct complained of is exempted from the antitrust laws by the provisions of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 to 1015, and that the conduct complained of constitutes state action which is immune from the antitrust laws under the doctrine of Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943). Since a favorable decision on Blue Cross' motion would render it unnecessary to discuss at length HSC's motion, I will first discuss the Blue Cross motion.

 The McCarran-Ferguson Act provides in part:

 
"§ 1012. Regulation by State law; Federal law relating specifically to insurance applicability of certain Federal laws after June 30, 1948.
 
(a) The business of insurance, and every person engaged therein shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
 
(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law."
 
15 U.S.C. § 1012.

 The Supreme Court decision in Parker v. Brown, supra, established the doctrine that there is no violation of the Sherman Act "where a restraint upon trade or monopolization is the result of valid governmental action, as opposed to private action". Eastern Rail. Pres. Conf. v. Noerr Motor Frgt., Inc., 365 U.S. 127, 81 S. Ct. 523, 5 L. Ed. 2d 464. To meet the "State action" exemption to the antitrust laws provided by Parker v. Brown, supra and the McCarran-Ferguson Act, Blue Cross must affirmatively show that the Insurance Department has the legislative power and authority to regulate or sanction the action taken by Blue Cross pursuant to Section 24 of the 1971 Hospital Agreement. Section 24.5 of this agreement provides:

 
"The provider shall permit HSC to evaluate once every three years . . . the need for existing facilities of and services supplied by provider. The evaluation shall cover facilities which do not conform to the then current requirements for new construction in respects which render them unsafe for patients. If the report of HSC as submitted to Blue Cross and the provider recommends that a facility or a service of provider is no longer ...

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