The opinion of the court was delivered by: CALDWELL
DECISION BY COURT. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that Summary Judgment be and hereby is entered in favor of the third-party counterclaim defendants, York County Dental Society, Fifth District Dental Society, Dennis W. King, D.D.S., Charles M. Ludwig, D.D.S., Theodore R. Paladino, D.D.S., Thomas L. Perkins, D.M.S., and Kay F. Thompson, D.D.S. and against the third-party counterclaim plaintiff, Medical Service Association of Pennsylvania, d/b/a Pennsylvania Blue Shield.
William W. Caldwell, United States District Judge
Before the Court and ripe for decision is the motion of the third-party counterclaim defendants
(referred to hereinafter as "the dentists") for summary judgment with respect to the third-party counterclaim of the third-party plaintiffs
(referred to hereinafter as "Blue Shield"). This Opinion addresses that motion.
The Commonwealth of Pennsylvania initiated this civil action on October 20, 1981, by filing a complaint against the Pennsylvania Dental Association (PDA) and a number of other dental associations, contending that these associations were violating antitrust laws, principally by encouraging dentists to terminate Blue Shield participating dentist agreements. The Association filed answers to the complaint on or about November 9, 1981.
On November 17, 1981, the PDA filed the third-party complaint at issue here naming, inter alia, Pennsylvania Blue Shield and Donald S. Mayes, D.D.S. as third-party defendants.
On March 11, 1982, after a motion to dismiss had been denied, Blue Shield filed its answer to the third-party complaint and its counterclaim against the dentists. The dentists moved to dismiss Blue Shield's counterclaim, which motion was denied by order of July 30, 1982. On September 20, 1982, the dentists filed a responsive pleading to Blue Shield's counterclaim, which included a class action counterclaim against Blue Shield and Dr. Mayes brought by PDA and three other dental associations.
On September 15, 1982, Blue Shield filed a motion for a preliminary injunction. On November 17, 1982, PDA filed a motion for a preliminary injunction. On December 30, 1982, both the motions of Blue Shield and of PDA for preliminary injunctions were denied.
On November 22, 1982, the Court granted a joint motion of the Commonwealth and the Dental Associations dismissing the initial complaint on the basis of a settlement agreement.
On January 25, 1983, the class plaintiffs filed a motion for class certification. On April 6, 1983, that motion was denied in part and granted in part, the Court denying class certification completely to one subclass and certifying another subclass for injunctive relief only. That order was appealed to the Third Circuit Court of Appeals on April 13, 1983. On April 26, 1983, Blue Shield and Dr. Mayes filed a motion to dismiss the appeal and on May 24, 1983, the appeal was dismissed.
On October 28, 1983, the Court addressed the dentists' third-party complaint and class action counterclaim against Blue Shield in this case, deciding that Blue Shield was entitled to summary judgment as to those claims. Pa. Dental Ass'n. v. Med. Serv. Ass'n. of Pa., 574 F.Supp. 457 (M.D.Pa. 1983), aff'd., 745 F.2d 248 (3d Cir. 1984), cert. denied, 471 U.S. 1016, 105 S. Ct. 2021, 85 L. Ed. 2d 303 (1985). We now address the dentists' motion for summary judgment as to Blue Shield's claims that the dentists and their associations have violated the antitrust laws.
Extensive discovery has been completed and extensive documentation is submitted to the Court in connection with the dentists' motion for summary judgment.
The dentists have based their summary judgment motion upon the contention that there is no evidence of actionable antitrust injury. By Order of February 7, 1986, we ordered the parties to file supplemental briefs addressing as well the broader question whether the third-party counterclaim defendants' conduct violated the antitrust laws. We have now carefully considered all of the parties' evidence and arguments. We find that there are no material facts in dispute and that, crediting Blue Shield's viewpoint as to the inferences that can be drawn from all of the evidence to the extent that those inferences are reasonable, the dentists are entitled to summary judgment for the reasons which follow.
In Blue Shield's brief in opposition to the dentists' motion for summary judgment, Blue Shield has set forth a very lengthy statement of the facts which it believes that it could prove at a trial of this case and which it contends would entitle it to relief under the antitrust laws.
Blue Shield Brief, November 27, 1985, Doc. 972, pp. 6-74. These facts may fairly be stated in a less lengthy fashion as follows:
The Medical Service Association of Pennsylvania does business under the registered fictitious name of Pennsylvania Blue Shield. Blue Shield is a non-profit corporation operating as a professional health service corporation under the laws of Pennsylvania providing for prepaid medical, osteopathic, psychological, optometric, podiatric, dental services, and certain other professional health services. Blue Shield was created in the late 1930s by representatives of the Pennsylvania Medical Society. The Pennsylvania Insurance and Health Departments regulate Blue Shield pursuant to the Professional Health Service Corporation Act, 40 Pa.C.S. § 6301 et seq., as amended (the Blue Shield Regulatory Act).
Initially Blue Shield programs were structured as fee schedule programs. Blue Shield provided benefits (called service benefits) to its subscribers through a participating doctor system whereby the vast majority of licensed doctors of various health-related disciplines agreed, inter alia, to be paid directly by Blue Shield in accordance with certain specified fee schedules for specified services. Doctors in Pennsylvania could participate with Blue Shield by signing a Participating Doctor's Agreement, whereby the doctors agreed to be bound, inter alia, by the Blue Shield Regulations for Participating Doctors. Subscribers were always free to use the services of non-participating doctors; however, in that case Blue Shield reimbursed the subscriber and not the doctor. Blue Shield programs were marketed only after approval by the Insurance Department in accordance with the Blue Shield Regulatory Act.
Under Blue Shield medical/surgical coverage, there was very limited coverage for dental services. The only dental services covered were oral surgical services (e.g. accident/trauma cases, impacted wisdom teeth extractions). An important segment of Blue Shield's business historically was group accounts, usually through employers, labor unions and/or government organizations. In the 1960s these groups began to demand a medical/surgical reimbursement system which could respond to the pressures of inflation yet maintain some reasonable controls over excessive professional charges. This led to Blue Shield's development of a concept of reimbursement of participating dentists by Blue Shield according to a formula which takes account of independently established charges or fees of competing practitioners with a cap at a percentile of usual charges of all practitioners in a similar geographic area and in a similar specialty. This mode of reimbursement is referred to as the UCR, denoting a reimbursement formula which Blue Shield has devised to result in a reimbursement to dentists that is usual, customary and reasonable. Generally, no distinction has been made between over-income or under-income subscribers in Blue Shield's UCR programs, although Pennsylvania law would have permitted such a distinction.
By the late 1960s, after obtaining Insurance Department approvals, Blue Shield widely marketed its medical/surgical UCR product together with Blue Cross hospitalization and Blue Cross/Blue Shield major medical coverage. Under Blue Shield's UCR programs, if a Blue Shield subscriber used the services of a participating physician, the physician by his Participating Doctor's Agreement (as implemented by Blue Shield's Regulations for Participating Doctors) was not contractually permitted to balance bill, i.e. charge the subscriber the difference, if any, between the Blue Shield allowance for a covered service and the physician's charge. In addition, as authorized by the Blue Shield Regulatory Act, subscribers to Blue Shield's UCR programs were not permitted to assign their benefits.
In offering its medical/surgical and other programs, Blue Shield has competed in the marketplace with programs offered by commercial insurance companies. Blue Shield has also been in competition with employers which sponsor self-insured or direct pay programs.
The overwhelming majority of Pennsylvania's physicians are Blue Shield participating doctors. Blue Shield believes that a sufficient number of participating doctors is essential to the operation of effective service benefit programs for Blue Shield subscribers.
Employees in Pennsylvania with group medical/surgical, hospitalization and major medical coverage as employee fringe benefits began seeking other health benefits in negotiations with their employers. The health insurance industry viewed prepaid dental services as the next frontier to explore for employee benefit coverage. Blue Shield determined to meet this marketplace demand in Pennsylvania. In order for Blue Shield to meet these market demands and be able to offer prepaid dental programs on a service benefit basis, Blue Shield had to rely upon strong participation and cooperation by the individual practitioners who comprised the dental profession.
In 1949, the Blue Shield Regulatory Act was amended to permit dentists to become participating doctors. At that time, the business aspects of the practice of dentistry were quite different than they are today. The average dentist had no one to answer to except the patient. There were no dental utilization review committees and other committees and processes like those with which physicians were confronted in the hospital setting. Dentists were unused to dealing with insurance companies, the forms and the red tape. Physicians had grown up with the practice since the 1940s.
In the 1960s through the early 1970s, dentistry was still a cottage industry or profession; the profession was one of the last bastions of rugged individualism. Dentists had frequently engaged in sole practice with an office assistant or two and a hygienist. Dentists have placed a great value on the dentist-patient relationship and the traditional private practice, fee-for-service method of delivery of dental services. Traditionally, a direct financial relationship existed between the patient and the dentist. Because there was little or no dental insurance prior to the 1970s, natural market forces tended to influence dentists to charge what patients could afford and to perform only those services patients could afford.
In the late 1960s, the vast majority of Pennsylvania's dentists were members of the Pennsylvania Dental Association (PDA). Counterclaim defendant PDA is the Pennsylvania statewide affiliate of the American Dental Association. It is comprised of ten component districts. Counterclaim defendant Odontological Society of Western Pennsylvania (also known as the Dental Society of Western Pennsylvania) is the Tenth District component of the PDA. Counterclaim defendant Fifth District Dental Society is also a component of the PDA. The ten districts are in turn subdivided into a number of local societies. Counterclaim defendants Harrisburg Area Dental Society and York County Dental Society are local societies within the counterclaim defendant Fifth District Dental Society's geographic territory. Counterclaim defendant Erie County Dental Association, Inc. is a local society within the Ninth District of the PDA. Counterclaim defendants Luzerne County Dental Society and Scranton District Dental Society are local societies within the Third District of the PDA. Counterclaim defendant Montgomery-Bucks Dental Society is a local society within the Second District of the PDA. Counterclaim defendant Delaware Valley Dental Society is not directly affiliated with the PDA. The leadership of the PDA debated upon the role it wished the PDA to play with the advent of dental prepayment. PDA created the Pennsylvania Dental Service Corporation, which does business under the name Delta Dental. Delta Dental was incorporated under the same regulatory act as Blue Shield.
In the late 1960s and the early 1970s, Blue Shield formulated plans for designing and marketing a prepaid dental program. Blue Shield believed that it needed the input of dentists to make its dental program feasible and successful. Blue Shield wanted to market its prepaid dental program on the basis of a participating dentist system. Blue Shield hired a practicing dentist to assist in the design, development and implementation of its prepaid dental program.
Blue Shield, the PDA and Delta Dental consulted with each other and for a time discussed implementing a joint program. This did not materialize and Blue Shield went its separate way. The PDA funded Delta Dental by a loan and Delta Dental has been in competition with Blue Shield ever since.
In 1969, the PDA's House of Delegates adopted a resolution known as H.D. 69-6, which states:
"that any not for profit corporation when contemplating a dental program follow the Association's [PDA's] direction and advice in designing and implementing such a program . . . that in the absence of such cooperation the Association [PDA] will vigorously inform its members of such lack of cooperation, pointing out to them the intrinsic dangers that are likely to ensue by participating in such programs. The [PDA] will exert all efforts to prevent the approval by the Insurance Department of such service benefit contracts."
That resolution was rescinded in May or June of 1978.
As of June, 1970, Blue Shield perceived everything to be coming up roses. Joint discussions between Blue Shield, the PDA and Delta Dental were still taking place. Blue Shield had not yet sold any groups, but Blue Shield service representatives were signing up participating dentists. Dentists were signing the participating doctor's agreement, agreeing to treat Blue Shield subscribers and to be bound by Blue Shield's regulations for participating doctors. Among the specific matters that dentists agreed to upon participation were (1) to refrain from balance billing, (2) to permit Blue Shield to examine their patient records (audit), and (3) not to charge Blue Shield subscribers more than their usual charges. The Blue Shield prepaid dental program also prohibited assignment of a subscriber's right of payment.
Blue Shield believed that in order to have an effective marketing effort, it should sign up about 70% (or more) of the state's dentists, as participating dentists, which Blue Shield accomplished by mid-1974. Blue Shield sold its first group dental program in January, 1972. Meanwhile, Delta Dental and the commercial insurance companies were also marketing prepayment programs in competition with Blue Shield.
The advent of prepayment coverage changed the way dentists were being paid for their services. Before there was a dentist-patient relationship only. Third-party payment caused some dentists to provide a broad range of services to people who never before had extensive dental services. Some dentists were tempted, because patients had insurance, to charge more, to prescribe a broader range of treatment and to provide more costly services when less expensive services would have sufficed.
Prepaid dental programs are not really insurance. Dental disease is practically universal and the use of services by individuals occurs at a rate in excess of 50% of the individuals in a prepaid dental group per year. The average claim amount is usually less than several hundred dollars. Much dental care can be postponed almost indefinitely, and since there is a wide range of treatment choices available to the dentist and the insured, the choice of treatment alternatives creates an uncertainty in benefit amount (e.g., the choice of gold versus amalgam fillings or extractions and bridges versus root canal and crowns). Claim expenses are high at the inception of coverage, because there is usually a backlog of unmet needs that result from neglect and disease before the effective date of insurance. Prepaid dentistry is more like a pooled budgeting mechanism than true catastrophic indemnity insurance. A viable dental program must combine common medical insurance concepts with some new mechanisms. Some of these mechanisms are, in addition to the participating doctor arrangements, direct payments to participating doctors, no balance billing, medical necessity and a prohibition against assignment of benefits. New mechanisms introduced by the dental program included the concept of predetermination, the less costly but adequate treatment alternative and a provision for excepted dentists (i.e., a group of dentists excepted from Blue Shield's auditing requirements).
Blue Shield believes that for a UCR system to operate effectively, it must be based upon a uniform usual charge submitted by a practitioner for reimbursement. A two-tiered charge structure whereby a practitioner charges his uninsured patients a lower fee for a service than his insured patients makes the UCR reimbursement system less economical, less workable and less marketable for Blue Shield. Blue Shield asserts that many dentists in Pennsylvania have been charging their insured patients more than their non-insured patients.
A confrontation ensued between the dentist-traditionalists and third-party carriers seeking to implement sufficient but reasonable cost containment mechanisms. Blue Shield and other insurance companies viewed themselves as more than mere financial intermediaries. Blue Shield considered itself to represent subscribers as bargainers of quality and cost of treatment. Blue Shield's marketing to employer groups is premised on this concept. Blue Shield perceived itself as a substitute agent in an economic sense for its subscribers. Some dentist-traditionalists viewed this role as an unwarranted intrusion into the traditional dentist-patient relationship.
On September 9, 1974, the Executive Board of the Erie County Dental Association, Inc. (ECDA), a counterclaim defendant, recommended that the ECDA membership drop participating doctor relationships. On September 12, 1974, the ECDA adopted a resolution opposing the concept of participating dentists and recommended that its members withdraw from any list of participating dentists and render services only as non-participating dentists.
Counterclaim defendant Charles Ludwig, D.D.S. holds himself out as an expert in dental prepayment, and has published on the topic of self-insurance. Dr. Ludwig is a member of the Harrisburg Area Dental Society (HADS) and was trustee of the Fifth District Dental Society to the Pennsylvania Dental Association for a number of years. Dr. Ludwig is the PDA's President-elect. In October of 1974, counterclaim defendant Harrisburg Area Dental Society published a document called its Dental Insurance Manual, which was disseminated to dentists and others statewide and beyond. Dr. Charles Ludwig was an author of the manual. Dr. Ludwig also extensively lectured on the topic of prepayment. He and the HADS Dental Insurance Manual have persistently advocated non-participation with third-party payers, have advocated a uniform and unified position of organized dentistry with respect to third-party payment, and have opposed submitting any diagnostic aids such as x-rays or study models to any third-party payers to substantiate claims for payment.