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Published online by Cambridge University Press: 24 February 2021
In the past, Health Maintenance Organizations (HMOs) were victims of anticompetitive practices, but the growth of HMOs casts them as potential antitrust violators. Such contentions should be halted since they frustrate growth encouraged by both the federal and state governments.
This Note discusses a solution to the potential antitrust problems. HMOs can be exempt partially from antitrust regulation by the McCarran-Ferguson Act. To secure immunity under McCarran-Ferguson, the entity must function in the business of insurance, be regulated by the state, but not be engaged in acts of boycott, coercion, or intimidation.
This Note sets forth potential antitrust violations by HMOs, examining the possible application of the McCarran-Ferguson exemption to them. Each of the elements required to satisfy McCarran is discussed in general and applied to HMOs. This Note concludes that the exemption can be applied to HMOs so long as their conduct fulfills the requirements of the McCarran Act.
1 Kissam, , State HMO Laws and the Theory of Limited Reformongering, 25 KAN. L. REV. 21 (1976)Google Scholar.
2 COLEMAN &, J. F. KAMINSKY, AMBULATORY CARE SYSTEMS 4–9 (1977)Google Scholar; The Center for Information on America, Prepaid Group Health Care Programs 11-12 (1976) [hereinafter cited as Center for Information on America].
3 Services commonly provided by the HMO include: physician care, laboratory diagnosis, radiology therapy and diagnosis, inpatient and outpatient care, home health care, referral and treatment for alcohol and drug abuse, and preventive services such as family planning, preventive dental care for children, and eye examinations. Center for Information on America, supra note 2, at 14.
4 Supplemental services include vision care, and dispensing prescription drugs. Id. See also 42 U.S.C. § 300e-l(2) (Supp. IV 1980). sponsored by local, county, or state medical societies,
5 See 42 U.S.C. § 300e(b)(3) (Supp. IV 1980); 42 U.S.C. § 300e-l(4) (Supp. IV 1980).
6 See 42 U.S.C. § 300e(b) (Supp. IV 1980).
7 See 42 U.S.C. § 300e-l(8) (Supp. IV 1980). Federally qualified HMOs are required to premiums through community rating. This method establishes the total costs of the premiums by dividing cost among all members regardless of the risks of the group involved, spreading the cost of illness evenly over all subscribers. However, some differentials allowed with community rating; these differences are in marketing and administrative for categories of members to accommodate group purchasing and in contracts pursuant to government programs. 42 U.S.C. § 300e-l(8) (Supp. IV 1980). Experience rating, the method used by insurance companies, charges premium rates based on variables such as group's past performance, age, sex, or health. Both methods spread the risk; the base factors differentiate the methods.
8 See generally GOLDBERG L. & GREENBERG W., FEDERAL TRADE COMMISSION STAFF REPORT ON THE HMO AND ITS EFFECTS ON COMPETITION (July 1977) [hereinafter cited as FTC REPORT].
9 Id. at 5; see COLEMAN J. & KAMINSKY F., supra note 2, at 6–7.
10 For example, Ross-Loos in Los Angeles. FTC REPORT, supra note 8, at 4. Ross-Loos organized in 1929 by a group of physicians who had contracted to provide medical for Los Angeles Water Department employees. Today the clinic has over 320,000 members. Unger>, , Have HMOs Finally Come of Age?, 21 FOUND. NEWS 23, 24 (1980),+,+Have+HMOs+Finally+Come+of+Age?,+21+FOUND.+NEWS+23,+24+(1980)>Google Scholar.
11 For example, Genesee Valley Group Health Association in Rochester, New York. REPORT, supra note 8, at 4. This plan enrolls 30,000 members, about three percent the area population. The plan began in 1973 to improve the effectiveness and control costs of health care. Blue Cross’ and Blue Shield's size and'membership were thought make these companies uniquely able to establish and operate an HMO. Id. at 54-55.
12 For example, Georgetown University Plan in Washington, D.C. Id. at 4. Georgetown's HMO was initiated by a government grant. As of 1977, 24,000 members were enrolled in the plan. The HMO uses less expensive community hospitals, rather than the Georgetown hospital. Georgetown does not have its own specialists, so patients requiring services are referred to community-based specialists. Id. at 67-70.
13 For example, Michael Reese in Chicago. Id. at 4. This HMO, begun in 1972, now enrolls about 11,000 subscribers. The HMO is affiliated with the Michael Reese teaching hospital in Chicago and one of the two health centers adjacent to the hospital. Members required to use the Michael Reese Hospital in any non-emergency situation. Id. at 49-50.
14 Id. at 4.
15 Id. at 5. One IPA is the Capital Area Health Plan in Washington, D.C. As of 1977, the plan contracted with sixty physicians and dentists. Blue Cross does the IPA's marketing and pays for the hospitalization. The plan is offered by Blue Cross as an option and members are treated as Blue Cross subscribers for hospital coverage. Id. at 71.
16 42 U.S.C. § 300e-(b)(3)(A) (Supp. IV 1980).
17 42 U.S.C. § 300e-l(5)(A) (Supp. IV 1980). This is usually less than the usual and customary rate.
18 FTC REPORT, supra note 8, at 5. While the IPA provider can insure against the risk of extended provision of hospital care, the IPA provider must continue to provide outpatient services under the contract. If, in determining the physician's fee, the estimate of amount of services that would be necessary was less than the amount actually required, the physicians must continue to provide services regardless of the loss they may incur.
19 Id.
20 Id. at 6. The central office of the HMO is analogous to the billing department of a large company; the services, however, are rendered at various locations.
21 See 42 U.S.C. § 300e (Supp. IV 1980). One example of this federal support of HMOs is the “dual option” provision of the Federal HMO Act. Every employer subject to Section 6 of the Fair Labor Standards Act of 1938 must offer enrollment in a qualified HMO (if one exists) to its employees. 42 U.S.C. § 300e-9 (Supp. IV 1980). See also infra notes 231-32.
22 Health Maintenance Organizations Act of 1973, 42 U.S.C. § 300e (1973). This act enabled the Department of Health, Education and Welfare [HEW] to spend up to $375 million for grants and loans to support the planning, development, and initial operation of 300-500 new HMOs throughout the United States. 42 U.S.C. § 300e-8 (Supp. IV 1980). See COLEMAN J. & KAMINSKY F., supra note 2, at 4-9.
23 42 U.S.C. § 300e(c)(l) (Supp. IV 1980). Some of the requirements are: maintenance of a fiscally sound operation and adequate risk against insolvency satisfactory to the Secretary of Department of Health and Human Services [HHS], 42 U.S.C. § 300e(c)(l) (Supp. IV 1980); assumption of full financial risk on a prospective basis for the provision of health services, 42 U.S.C. § 300e(c)(2) (Supp. IV 1980); open enrollment requirements, 42 U.S.C. § 300e(c)(4) (Supp. IV 1980); other organizational standards, 42 U.S.C. § 300e(c)(6-8, 11) (Supp. IV 1980); and provision of medical services, 42 U.S.C. § 300e(c)(9) (Supp. IV 1980).
24 COLEMAN J. & KAMINSKY F., supra note 2, at 3; Unger, supra note 10, at 23-24, 42. See 42 U.S.C. § 300e(a)(l) (Supp. IV 1980) (scope and definition of HMOs).
25 HMO Fact Sheet (Sept. 1980) (published by HEW, Public Health Service, Office of Health Maintenance Organizations) [hereinafter cited as HMO Fact Sheet],
26 See infra notes 114-15 and accompanying text.
27 15 U.S.C. §§ 1011-15 (1976).
28 HMO Fact Sheet, supra note 25.
29 See infra notes 83-85 and accompanying text.
30 See infra notes 86-94 and accompanying text.
31 See infra notes 67-76 and accompanying text.
32 See infra notes 33-115 and accompanying text.
33 Doctors and medical societies have used anticompetitive tactics to suppress the emergence of HMOs in the health care market. See Kissam, HMOs and the Role of Antitrust Law, 1978 DUKE L.J. 487. Common techniques are denial of hospital privileges, expulsion from medical societies, and publicizing the “unethical nature” of HMO participation. In the early history of HMOs, opposition arose from the medical societies and physicians in the form of policy statements against HMOs, formation of alternative prepaid plans sponsored by the county medical societies, and expulsion of physicians who participated in HMOs. FTC REPORT, supra note 8, at 7. HMOs were characterized as destroying competition among medical groups, providing inferior medical care, and demoralizing the profession. In an antitrust suit brought by the Justice Department, American Med. Ass'n v. United States, 317 U.S. 519 (1943), the AMA was found guilty of conspiring to deny hospital privileges to physicians who joined Group Health Association in Washington, D.C.
34 In W. KOPIT, RESTRICTIONS ON COMPETITION BY GOVERNMENT AND ASSOCIATION REGULATION, ANTITRUST PRIMER, 67-75 (1970), the author noted that as HMOs grow into positions of market dominance, they will have to be more concerned with allegations of antitrust violations. See infra notes 35-37 and accompanying text.
35 See Unger, supra note 10, at 23; supra note 33.
36 Unger, supra note 10, at 24.
37 Id.
38 42 U.S.C. § 300e (Supp. IV 1980).
39 42 U.S.C. §§ 201 note, 300e, 300e-l, 300e-3, 300e-4, 300e-4a, 300e-5, 300e-7, 300e-8, 300e-9, 300e-ll, 300e-13, 300e-16, 300e-17, 1320a-l, 1396a, 1396b (Supp. IV 1980).
40 Health Maintenance Organization Act of 1973, 42 U.S.C. § 300e (1973).
41 See 1974 U.S. CODE CONG. & AD. NEWS 4313-14; 1978 U.S. CODE CONG. & AD. NEWS, 4936; FTC REPORT, supra note 8, at 11.
42 Staver, Big Changes In Store as HMO Industry Enters ‘Adolescence', Am. Med. News, Oct. 3, 1980, at 15, col. 1.
43 id: at 15, col. 2.
44 15 U.S.C. §§ 1-7 (Supp. IV 1981). ‘
45 15 U.S.C. §§ 29, 44, 52 (Supp. IV 1981).
46 HMOs offer comprehensive services, attempt to maximize economies of scale, and often enroll a significant percentage of the population in an area. An economy of scale is an economic concept based on efficiency. The average cost of producing a good, or providing a service, may be lower for the producer with a larger operation or output. Since average costs generally decline with output, the price can be lowered. If, for example, the minimum efficient firm size in an industry is twice the size of two existing firms now producing separately, a merger will achieve an economy of scale. The HMO contains the possibility of economies of scale and integration in providing physician, laboratory, and X-ray services. Such integration enables the HMO to retain funds which the fee-for-service patient would spend at a separate facility.
47 SULLIVAN, L., HANDBOOK OF THE LAW OF ANTITRUST § 64 (1977)Google Scholar.
48 See United States v. Grinnell Corp., 384 U.S. 563 (1966). What is prohibited is not just having a monopoly, but the willful acquisition and maintenance of a monopoly position. Therefore, arrangements directed toward some other purpose will not fail because of an incidental and inconsequential restraint on trade. See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert, denied, 440 U.S. 1093 (1980).
49 See infra notes 57-62 and accompanying text.
50 No set market share is required to trigger antitrust liability. However, with increasing membership, the ability to manipulate market, competition and conditions is increased. Again, this factor alone probably would not trigger a finding of an antitrust violation. See infra notes 57-62, 65, 66 and accompanying text.
51 The number and types of providers included indicate the degree of control the HMO may have over a particular market. If a city has several X-ray technicians, involvement of three of them with an HMO would not be anticompetitive. However, if an area had five technicians, and three contract exclusively with the HMO, the market impact is different. See infra notes 57-62, 65, 66 and accompanying text.
52 staver, supra note 42, at 15, col. 1. Kaiser-Permanente enrolls 3.8 million members. In 1979, its revenues were just under $1.5 billion, and its assets were just under $1 billion. Unger, supra note 10, at 24; supra note 37 and accompanying text.
53 staver, supra note 42. Staver suggests that private companies are beginning to operate and expand existing HMOs, increasing HMOs’ market position. Staver also suggests that amendments to the Federal HMO Act that reduce federal requirements on benefit packages or enrollment would encourage HMO expansion. Government support of HMOs will be the most significant factor determining HMO growth in the future. See also 1978 U.S. CODE CONG. & AD. NEWS 4942 (recognizing the importance of government support).
54 Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).
55 See United States v. National Ass'n of Real Estate Bds., 339.U.S. 385 (1950) (adherence to a price schedule was not mandatory and no penalties were imposed on deviation therefrom); United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) (purpose'was to stop ruinous competition or eliminate instability of prices affecting both consumers and producers); United States v. Trenton Potteries Co., 273 U.S. 392 (1927).
56 see infra notes 77-78, 80, 87-91 and accompanying text.
57 246 U.S. 231 (1918).
58 Id. at 238. See also United States v. Columbia Steel Co., 334 U.S. 495, 527-28 (1948) (Court focused on market position, purpose of the restraint, industry development, remaining market competition and consumer demands). ∼
59 National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 690 (1978).
60 Id, at 692.
61 See POSNER, R., ANTITRUST CASES, ECONOMIC NOTES, AND OTHER MATERIALS 261 (1980)Google Scholar. Posner stales lower courts tend to require proof of market share of the relevant market.
62 The discussion of potential antitrust violations which follows cannot, therefore, be definitive, but will point out factors courts may find relevant.
63 See infra notes 68-69, 83-85, 92-94 and accompanying text.
64 15 U.S.C. § 1 (Supp.TV 1980) prohibits every contract, combination, or conspiracy in restraint of trade or commerce among the states. ‘
65 No particular share of the market is required. The court evaluates all of the circumstances surrounding the allegation. See, e.g., United States v. Aluminum Co. of Am., 377 U.S. 271 (1964) (the Court found that the addition of only 1.3% of Alcoa's control of the aluminum conductor market substantially lessened market competition).
66 Thus, if overall supply of physicians is limited, the combination of some physicians to form an HMO would have a greater impact on the overall choice to consumers and upon physicians who choose not to join the HMO.
67 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); Blue Cross v. Virginia, 211 Va. 180, 176 S.E.2d 439 (1970). Establishing minimum or maximum prices, Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (minimum); Kiefer-Steward Co. v. Joseph E. Seagram fc Sons, 340 U.S. 211 (1951) (maximum resale prices); stabilizing prices, United States v. Container Corp. of Am., 393 U.S. 333 (1969); and establishing a uniform term of sale, Vandervelde v. Put & Call Brokers & Dealers Ass'n, 344 F. Supp. 118, 136 (S.D.N.Y. 1972), without any economic justification are prohibited.
68 441 U.S. 1 (1979).
69 Id. at 23.
70 Id. at 20.
71 See supra note 67.
72 The situation is best explained through an illustration. A person who goes to the HMO can receive a checkup, X-ray, and eye examination. That same person can go to a fee-for-service provider for each service, and would receive three bills. The HMO would cost less than the total of the other three individual bills. The HMO justifies the result because of an economy of scale. See supra note 46. Yet, the fee-for-service provider is not really competing with an economy of scale in one type of provider. Rather, the individual provider is competing with the HMO service, reduced in cost because of the combination of different types of services within the HMO. For example, the ophthalmologist is not competing with the HMO affiliated ophthalmologist, but with the entire HMO entity, which includes the primary care physician and the X-ray personnel and facilities. The HMO ‘ price for the ophthalmologist charge is lower because of the combination with other service providers, and is not just an efficiency due to the size of the HMO ophthalmologist practice.
73 An IPA affiliation may give the provider a competitive advantage over other fee-for-service providers. For example, the IPA providers, receiving more patients, could increase his profits. Those profits could be reinvested in better equipment, making the IPA provider more attractive to non-IPA patients, or could be used to lower per person costs over all of the patients.
74 See generally R. POSNER, ANTITRUST LAW, AN ECONOMIC PERSPECTIVE 8-18 (1976).
75 A peer review board oversees charges by members of its health specialty. The function of the process is to insure the services provided are medically necessary, are of an acceptable quality, and are justified as such by the providing professional. See Federal Professional Standard Review Act, 42 U.S.C. § 1320c-9 (Supp. IV 1980).
76 See supra note 7. The premium price is an estimate of the cost of the services to be provided. The HMO's cost may be either higher or lower for a particular service, or for the overall benefit package, than a market determination of the competitive price.
77 United States v. Topco Assoc's., 405 U.S. 596 (1972).
78 Id.; see supra notes 54-56 and accompanying text.
79 See St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531 (1978)..
80 Id.
81 L. SULLIVAN, supra note 47, § 90.
82 See supra notes 57-62 and accompanying text.
83 15 U.S.C. § 2 (Supp. IV 1980) prohibits every person from monopolizing, attempting to monopolize, or conspiring to monopolize any trade or commerce among the states. Vertical restraints also involve § 1 of the Sherman Act and § 3 of the Clayton Act.
84 Continental T.V. v. G.T.E. Sylvania, 433 U.S. 36, 58-59 (1977). The Court did not exclude particular vertical restraints from per se treatment, but did overrule United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967) (Court enunciated a general rule of per se analysis in favor of the application of the rule of reason).
85 See Havighurst, , Health Maintenance Organizations and the Market for Health Services, 35 LAW & CONTEMP. PROBS., 716, 760–61 (1970)Google Scholar.
86 15 U.S.C. § 14 (Supp. IV 1980). Section 3 prohibits sales or leases of goods on the condition that the buyer not deal with competitors of the seller where the effect may be to lessen competition or tend to create a monopoly in any line of commerce.
87 Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958); R. POSNER, supra note 74, at 171.
88 Northern Pac. Ry. Co., 356 U.S. at 6-7.
89 Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 (1969); Times-Picayune Publ. Co. v. United States, 345 U.S. 594, 613 (1953).
90 United States v. Loew's Inc., 371 U.S. 38, 49 (1962) ($60,800); International Salt Co. v. United States, 332 U.S. 392 (1947) ($500,000).
91 In the recently decided case of Portland Retail Druggists Ass'n v. Kaiser Foundation Health Plan, 662 F.2d 641 (9th Cir. 1981), the court considered this issue but remanded it to the district court. See infra notes 214-23 and accompanying text.
92 15 U.S.C. § 1 (Supp. IV 1980).
93 See United States v. Bausch & Lomb Optical Co., 45 F. Supp. 387 (S.D.N.Y. 1942), aff'd, 321 U.S. 707 (1944).
94 See Kallstrom, Health Care Cost Control By Third Party Payors: Fee Schedules and the Sherman Act, 1978 DUKE L.J. 645, 654-55, n.35.
95 Sullivan & Wiley, Recent Antitrust Developments: Defining the Scope of Exemptions, Expanding Coverage, and Refining the Rule of Reason, 26 U.C.L.A. L. REV. 265 (1980).
96 See infra notes 99-103 and accompanying text.
97 See infra notes 104-11 and accompanying text.
98 See infra notes 112-15 and accompanying text.
99 See Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975) (this case was argued against the exception, but professional status still was a consideration).
100 Id. at 788 n.17. One may argue that an HMO is a business, not a professional service. However, this exception should be analyzed because the HMO is composed of professionals primarily rendering professional services.
101 Id. at 786-88.
102 435 U.S. 679 (1978). In this case, involving competitive bidding, the learned professions exemption was raised as an affirmative defense. While conceding the defense is appropriate in some situations, in this case the practice challenged and the anticompetitive effect were found to be too attenuated from ethical constraints imposed by the profession. Id. at 696.
103 Id.
104 United States v. Oregon Med. Soc'y., 343 U.S. 326, 338-39 (1952).
105 Hospital Bldg. Co. v. Rex Hosp. Trustees, 425 U.S. 738, 745 (1976).
106 Id. See City of Fairfax v. Fairfax Hosp. Ass'n., 562 F.2d 280, 283 (4th Cir. 1977); but see Hahn v. Oregon Phy. Serv., 508 F. Supp. 970, 977 (D. Or. 1981) (no interstate commerce was involved because fewer than 2% of podiatrists’ patients traveled across state lines and the largest sum any one podiatrist received from an out-of-state insurer was less than one half of 1% of his gross income); Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1210 (E.D. Mich. 1973) (the sale of hospital services was limited to one physician's patients in a single county; thus the court concluded that the sale of hospital services was personal and local in nature).
107 Hospital Bldg. Co., supra note 105, at 744.
108 Id. at 745.
109 Because HMO's provide hospital services either directly or indirectly, they have the same potential nexus with interstate commerce.
110 Social Security Act, Tit. XVIII, 42 U.S.C. § 1395 (1974); 42 U.S.C. § 300(c)(3)(n) (Supp. 1976) includes coverage under the Social Security Act, Tit. XIX, 42 U.S.C. § 1396 (1974).
111 HMO Fact Sheet, supra note 25.
112 Parker v. Brown, 317 U.S. 341 (1943).
113 California Retail Liquor Dealers v. Midcal Aluminum. Co., 445 U.S. 97 (1980); Cantor v. Detroit Edison Co., 428 U.S. 579 (1976).
114 See 42 U.S.C. § 300e (Supp. 1980); cf. Broadcast Music, Inc. v. Columbia Broadcasting Sys., 441 U.S. 1 (1979), on remand, 620 F.2d 930 (2nd Cir. 1980) (the court considered both the Justice Department's monitoring and consent decrees involving blanket licensing practices, as well as the Congressional approval of the practice).
115 Lynch v. Household Fin. Corp., 405 U.S. 538, 549 (1972) (citing Jones v. Mayer Co., 392 U.S. 409, 437 (1968); Posadas v. National City Bank, 296 U.S. 497, 503 (1936)).
116 15 U.S.C. §§ 1011-15 (1976).,
117 322 U.S. 533 (1944). See S. REP. NO. 20, 79th Cong., 1st Sess. 2 (1945); H. R. REP. No. 143, 79th Cong., 1st Sess. 2-3, reprinted in 1945 U.S. CODE CONG. & AD. NEWS 670.
118 322 U.S. 533 (1944).
119 Group Life and Health.Ins. Co. v. Royal Drug Co., 440 U.S. 205, 217-18 (1979) (the activity specifically focused upon was the ability of insurance companies to engage in rate setting).
120 Id. at 217-18 n.18.
121 Id. at 219, nn. 20-21 (citing 78th Cong., 2d Sess., 90 CONG. REC. 6559, 6565 (1944); 79th Cong., 1st Sess., 91 CONG. REC. 1087 (1945) (Remarks of Rep. Hancock)).
122 15 U.S.C. §§ 1011-15 (1976).
123 R. KEETON, BASIC TEXT ON INSURANCE LAW § 1.2(c) (1971).
124 Id. at 548 (discussing Jordon v. Group Health Ass'n, 107 F.2d 239 (D.C. Cir. 1939)); see infra notes 192-95 and accompanying text.
125 R. KEETON, supra note 123, § 1.6. Keeton defines insurance as “an arrangement by one party (insurer) to do something that is of value to another (insured) upon the occurrence of a specified harmful contingency.” Id. at § 1.2(a).
126 15 U.S.C. §§1011-15 (1976).
127 Securities and Exch. Comm'n v. Variable Annuity Life Ins; Co., 359 U.S. 65, 69 (1959); Manasen v. California Dental Serv., 424 F. Supp. 657, 663 (N.D. Cal. 1976).
128 393 U.S. 453 (1969).
129 Id. at 460.
130 Id.
131 Traveler's Ins. Co. v. Blue Cross of Western Pa., 481 F.2d 80 (3rd Cir.), cert, denied, 414 U.S. 1093 (1973). Blue Cross successfully invoked the McCarran Act protection when challenged by a private insurer who alleged that Blue Cross’ fee contracts with hospitals violated antitrust laws. Blue Cross, which insured 51% of the population, paid 14-15% less than other insurers for hospital rates and could reduce its premiums proportionally. In addition to reducing the insureds’ costs, this system implicitly helped control health care costs. The same implicit result applies to the HMO and its cost containing effect.
132 Anderson v. Medical Serv. of D.C., 1976-1 Trade Cas. (CCH) ¶66,855; see generally Borsody, , The Antitrust Laws & the Health Industry, 12 AKRON L. REV. 417, 442 (1979)Google Scholar.
133 Federal Trade Comm'n v. National Casualty Co., 357 U.S. 560 (1958). Application of the McCarran Act withdrew the FTC's authority to regulate an insurance company's advertising practices in those states that regulated such advertising practices under their laws.
134 Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1211 (E.D. Mich. 1973).
135 440 U.S. 205 (1979).
136 Id. at 214.
137 Id. at 210-11. The Court recognized, however, that some type of provider agreement is necessary for a service benefit plan to exist. Id. at 213 n.9. Cf. Cochran v. Paco, Inc., 606 F.2d 460 (5th Cir. 1979) (not all insurance company activities constitute the business of insurance; lending activities of an independent premium finance company did not constitute the business of insurance, and the McCarran Act did not preclude application of the Truth-in-Lending disclosure requirements); Perry v. Fidelity Union Life Ins. Co., 606 F.2d 468 (5th Cir. 1979), reh. denied, 608 F.2d 1373, cert, denied, 446 U.S. 987 (1980) (purchasing insurance is an act within the business of insurance, but credit activities of the same companies are not). To draw two distinct roles, as this court did, creates analytical and practical problems for future cases where the distinction may not be quite as sharp. However, even when drawing this distinction, the court focused on the nature of the activity, not that the activity was being performed by an insurance company; this reasoning would support the contention of this Note.
138 440 U.S. at 215.
139 Id. at 211.
140 Id. at 215-16, citing Securities and Exch. Comm'n v. National Sec, Inc., 393 U.S. 453, 460 (1960).
141 440 U.S. at 214; supra note 137.
142 440 U.S. at 214.
143 612 F.2d 812 (4th Cir. 1979).
144 Id. at 817.
145 Id.
146 Id. at 817-18. The dissent argued that by allowing a broad exemption under the McCarran Act, illegal conspiracy and price-fixing would be immunized from antitrust regulation. Id. at 818-19 (Hall, J., dissenting). This position would be correct if price-fixing or such a conspiracy would be considered to be the business of insurance. The approach of the court in National Soc'y of Prof. Eng'rs v. United States, 435 U.S. 679 (1978), supra note 102 and accompanying text, is illustrative. While some courts have accepted the learned professions defense, the defense cannot shield otherwise unlawful conduct. Thus, the possibility of sanctioning unlawful conduct is unlikely.
147 508 F. Supp. 970 (D. Or. 1981).
148 Id. at 974.
149 Id. But see Pireno v. New York Chiropractic Ass'n, 650 F.2d 387 (2d Cir. 1981) (reversing the lower court's finding that the Association's peer review practice used by insurance companies was within the business of insurance). Therefore, the “business of insurance” has not been clearly and consistently defined and followed since Royal Drug.
150 The decision in Royal Drug was 5-4, and seemed to be contrary to the preceeding decisions defining the business of insurance. See supra notes 128-34 and accompanying text.
151 See infra notes 157-95 and accompanying text.
152 See infra notes 205-13 and accompanying text.
153 See infra notes 171-82 and accompanying text. But see infra notes 192-95 and accompanying text.
154 See Group Health Ass'n v. Moor, 24 F. Supp. 445 (D.D.C. 1938); infra notes 189-91 and accompanying text.
155 See Jordon v. Group Health Ass'n, 107 F.2d 239 (D.D.C. 1939); infra notes 192-95 and accompanying text.
156 See infra notes 157-87 and accompanying text.
157 45 N.E.2d 157 (1942), aff'd, 142 Ohio St. 51, 49 N.E.2d 929 (1943).
158 Id. This case was an action brought under the tax laws.
159 Id. at 160.
160 Id. at 159.
161 Id. The decision did not mention that only specific diseases or causes for certification would trigger coverage.
162 Id. The hospital did not extend credit to the subscriber and the subscriber was not primarily liable. Thus, the Service Association was not an indemnifier.
163 Id.
164 Id.
165 193 N.W.2d 244 (1971).
166 Id. The case arose as an action by the executor of an estate for benefits due under the NPBA plan.
167 Id. at 248.
168 Id.
169 Id.
170 Unger, supra note 10, at 23-24.
171 26 Wash. 2d 660, 683-85, 175 P.2d 653, 666 (1946).
172 Id.
173 Id.
174 Id. at 683, 175 P.2d at 665.
175 Id.
176 Id.
177 119 Cal. App. 2d 319, 259 P.2d 503 (1953). This case arose under insolvency claims brought under the Insurance Code.
178 Id. at 321, 259 P.2d at 504.
179 id. at 325-26, 259 P.2d at 506-07.
180 Id. at 325, 259 P.2d at 506. The corporation agreed to pay the bills of a member who required services. Payment was not dependent upon the amount of dues that might be collected from members within any period. The risk was not undertaken by the doctors or the hospitals.
181 119 Cal. App. 2d at 362, 259 P.2d at 507.
182 424 F. Supp. 657 (N.D. Cal. 1976). This case dealt specifically with the McCarran Act issues.
183 Id. at 665.
184 Id. at 661. Participating dentists agreed to be reimbursed on a preapproved fee schedule of usual and customary charges.
185 Id. at 665.
186 Id. at 666. The court rejected a narrower definition of the business of insurance which would not have allowed it to recognize California Dental Services as being in the business of insurance because it is not licensed and regulated as an insurance company under California law. Id. at 662-63.
187 Id. at 666; Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 217 (1979). See Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1211 (E.D. Mich. 1973) (the basic function of Blue Cross in providing prepaid hospital care is the business of insurance); Anderson v. Medical Serv. of D.C. 1976-1 Trade Cas. (CCH) ¶60,884 (interrelationship between hospital payments and subscriber's costs was such that under the Blue Cross prepaid medical-surgical contracts, the arrangements with hospitals should be considered to be part of the business of insurance).
188 Often these cases arise under state insurance codes, not the antitrust statutes.
189 24 F. Supp. 445 (D.D.C. 1935). This case is cited in Royal Drug in the discussion of what constitutes the business of insurance. The issue was whether the plaintiff was violating Healing Arts Practice Act. That statute provided that every corporation collecting dues from its members and providing for payment of indemnity on account of sickness, known as “health, accident, and life insurance companies,” would be covered under the Healing Arts Practice Act.
190 Id. at 447.
191 Id.
192 107 F.2d 239 (D.D.C. 1939). The case, which.arose under the Insurance Code, sought to prohibit Group Health from transacting business unless it possessed certain assets as a capital or guarantee fund and provided for licensing and examination by the Superintendent of Insurance.
193 Id. at 246. The court tested the nature of the member's recourse against Group Health, concluding that recourse would only be allowed if proof that best efforts to secure services was not made. Group Health did not, and could not, regulate the physician; the-physician was free to exercise his own judgment regardless of the treatment or diagnosis. Id. at 243. Group Health's obligation was to make provider contracts. However, these contracts were for services by independent contractors, and Group Health did not guarantee that these services would be provided. Id.at 243-44.
194 Id. at 247. The court concluded that this was the only distinctive factor of an insurance contract.
195 Id. The care of minor colds, routine illness, and temporary bodily discomforts were not risks of medical care. But see Bloom v. Northern Pac. Beneficial Ass'n, 193 N.W.2d 244 (1971); supra notes 165-69 and accompanying text.
196 440 U.S. 205, 211 (1979).
197 Id. at 215.
198 Id. at 214.
199 Id. at 213.
200 Id. at 214.
201 Id.
202 Id.
203 42 U.S.C. § 300e(b) (Supp. 1980).
204 440 U.S. 205 (1979).
205 Cf. Arizona v. Maricopa County Med. Soc'y, 643 F.2d 553 (9th Cir. 1980) Cert, granted 49 U.S.L.W. 3663 (U.S. Mar. 9, 1981) (physician's associations that approved and administered insurance plans underwritten by private insurers to offer an alternative to an HMO, did not underwrite or spread risk peculiar to the business of insurance, that is, that the policyholders could not afford the services of a physician when needed). The HMO does insure against this possibility.
206 42 U.S.C. § 300e(c)(2) (Supp. IV 1980).
207 See Schneider, Model Consumer HMO Act and Commentary, 6 RUT-CAM. L. REV. 266, 303 (1974).
208 Id.
209 See supra notes 9-14 and accompanying text.
210 See supra notes 15-19 and accompanying text.
211 See supra note 20 and accompanying text. 212 42 U.S.C. § 300e (Supp. IV 1980). See supra note 22 and accompanying text.
213 See supra notes 157-87 and accompanying text.
214 662 F.2d 641 (9th Cir. 1981). This decision was handed down on November 30, 1981.
215 The complaint charged Kaiser with violating three distinct antitrust provisions: 1) Section 2(f) of the Robinson-Patman Anti-Price Discrimination Act, 15 U.S.C. § 13(f) (1976), by knowingly inducing or receiving discriminatorily low prices from pharmaceutical suppliers; 2) Section 2 of the Sherman Act, 15 U.S.C. § 2 (1976), by attempting to monopolize the retail drug market; 3) Section 1 of the Sherman Act, by unlawfully tying health products and services for sale. 662 F.2d at 643.
216 Id.
217 Id. at 645.
218 Id. at 647.
219 Id. at 643, 647.
220 Id. at 647.
221 Id.
222 Only the HMO's agreement with the pharmaceutical companies was determined not to be the business of insurance. Id. Although the court inferred that the drug plan and the health plan appeared to be separate products, Id. at 648, it did not state the grounds upon which it distinguished the two prooducts, nor did it give any guidelines for determining what services would be included as part of the “product” of, the health plan.
223 see supra notes 143-50 and accompanying text.
224 Cantor v. Detroit Edison Co., 428 U.S. 579 (1976) (dicta).
225 Borsody, supra note 132, at 417.
226 proctor v. State Farm Mut. Auto Ins. Co., 406 F. Supp. 26, 30 (D.D.C. 1975), aff'd, 561 F.2d 262 (D.C. Cir. 1977), vacated on other grounds, 440 U.S. 942 (1979).
227 Hahn v. Oregon Physician Serv., 508 F. Supp. 970 (D. Or. 1981). In contrast, courts in recent decisions under another judicially recognized defense, the state action exemption, have required more specific state regulation. For example, in Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), the court limited the scope of this exemption to private action that was coercively commanded or strictly regulated by the state. If the regulation does not affect the particular activity which is challenged, the exemption will not apply. Id. at 583. While the decisions are not controlling on the question of whether state regulation for McCarran Act purposes’ must also be more stringent, the decisions are relevant in recognizing a trend towards increased scrutiny when a federal court is applying an antitrust exemption.
228 42 U.S.C. § 300e-10 (Supp. IV 1980).
229 See Kissam, supra note 1.
230 COLO. REV. STAT. § 10-17 (1973); S.C. CODE ANN. § 38-25-10 (Law. Co-op. 1976).
231 Through the health division: HAWAII REV. STAT. § 323D:41(5) (Supp. 1979); MICH. COMP. LAWS ANN. §§ 333.21001, 333.21013, 333.21023 (1980); MINN. STAT. ANN. § 62D.01 (West Supp. 1981); NEB. REV. STAT. §§ 44-3202 to 44-3232 (1978); N.J. STAT. ANN. § 26:2J (West Supp. 1981). Through the insurance division: ARK. STAT. ANN. §§ 66-5201 to 66-5228 (1980); IDAHO CODE § 41-3906 (Cum. Supp. 1981); KAN. STAT. ANN. § 40-320 to 40-3226 (Supp. 1980); KY. REV. STAT. § 304.38-010 to 304.38-200 (1981); ME. REV. STAT. ANN. tit. 56, 24-A § 4202 (Supp. 1980); WASH. REV. CODE ANN. § 48-46 (Supp. 1981).
232 OKI.A. STAT. ANN. tit. 63, § 2501-10 (West Supp. 1980); TEX. REV. CIV. STAT. ANN. art. 20A.01 (Vernon Cum. Supp. 1975); see Kissam, supra note 1. ‘
233 Even though the state statute is not comprehensive or detailed, this does not mean that the HMO is not regulated by administrative or other rules or regulations. See MICH. COMP. LAWS ANN. § 333.21001 (1980).
234 COLO. REV. STAT. § 10-17-103 (1973).
235 COLO. REV. STAT. § 10-17-118 (1973).
236 COLO. REV. STAT. § 10-17-109 (1973).
237 COLO. REV. STAT. § 10-17-110 (1973).
238 COLO. REV. STAT. § 10-17-111 (1973).
239 COLO. REV. STAT. § 10-17-114 (1973).
240 COLO. REV. STAT. § 10-17-112 (1973).
241 COLO. REV. STAT. § 10-17-108 (1973).
242 COLO. REV. STAT. § 10-17-106 (1973).
243 For example, COLO. REV. STAT. § 10-17-125 (1973); IDAHO CODE § 41-3921(1) (Cum. Supp. 1981); IND. CODE ANN. § 27-8-7-17 (West 1980); Mr. REV. STAT. ANN. tit. 56, 24-A § 4222 (Supp. 1980); MINN. STAT. § 62D.01 (Cum. Supp. 1981); N.J. STAT. ANN. 26:2J-25 (West Supp. 1981).Google Scholar
244 For example, ARK. STAT. ANN. §§ 66–5215(2), 66-3000 (1980); KY. REV. STAT. § 304.38-200 (1981); MASS. GEN. LAWS ANN. ch. 1776G, § 9 (1977).Google Scholar
245 ARK. STAT. ANN. §§ 66-3001 to 66-3005 (1980).
246 For example, S.D. COMP. LAWS ANN. § 58-41-26 (Supp. 1981).
247 For example, licensing and malpractice statutes, MASS. GEN. LAWS ANN. ch. 1776G, § 12 (West 1978).
248 See supra notes 95-113 and accompanying text.
249 See supra note 227.
250 15 U.S.C. § 1013(b) (1976).
251 SULLIVAN, L., supra note 47, §§ 231, 331.Google Scholar
252 Id.at 261.
253 See United States Parke, v.., Davis & Co., 362 U.S. 29 (1960).Google Scholar
254 438 U.S. 531 (1978).
255 Id. at 550.
250 Id.; See 42 U.S.C. § 300e (Supp. 1980).
257 See 42 U.S.C. § 300e (Supp. 1980).
258 See generally SULLIVAN, L. supra note 47, §§ 163, 471 (1977).CrossRefGoogle Scholar
259 Id. at 471.
260 Id.