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Supreme Court allows major antitrust decision to stand

From the April 1996 ACP Observer, copyright © 1996 by the American College of Physicians.

By Michael J. Werner, JD

The U.S. Supreme Court last month let stand a highly publicized lower-court ruling that opens the door for physician-run health plans and networks to compete with traditional insurers. The U.S. Court of Appeals for the Seventh Circuit had found in the case of Blue Cross and Blue Shield of Wisconsin and CompCare Health Services Insurance Corp. vs. Marshfield Clinic and Security Health Plan of Wisconsin that the physician-owned clinic and its subsidiary HMO did not violate the antitrust laws simply because they had a large market share.

This ruling also indicates that groups of physicians in sparsely populated rural areas can from network even if most of the area doctors are members of those networks. This interpretation is consistent with ACP's reading of antitrust laws application to rural networks.

Blue Cross and Blue Shield had contended that it was shut out of the market in north central Wisconsin because Marshfield and its HMO dominated the 14-county area by having affiliation agreements with about 900 physicians. Blue Cross charged that since Marshfield had so many physicians under contract, there were not enough doctors left to start a competing HMO.

The court was not sympathetic to this argument, finding instead that since nothing precluded physicians from contracting with Blue Cross or any other health plan, there were no unlawful barriers to another HMO entering the market. The court reasoned that although the doctors employed by the Marshfield Clinic did retain a large share of the market for physician services, they did not derive substantial revenues from their contracts with Marshfield. In addition, their arrangements with Marshfield were not exclusive.

Although many interpret the ruling as positive for physician organizations, physicians should note that the court's rationale can also be applied in favor of traditional insurers. For example, if a large insurer had non-exclusive contracts with most physicians in a community, that would not, by itself, provide a competing physician network with a valid claim.

Moreover, the court ruled, in sparsely populated rural areas, a single physician network could legally include most or all of the doctors in the area. In fact, given the amount of technology and specialization in medical services today, the court said it can be desirable that the physicians in these communities work for the same firm.

"If an entire county has only 12 physicians," the court explained, "one can hardly expect or want them to set up in competition with each other." Such a small number of physicians competing in a county "would be competing to provide horse-and-buggy medicine. Only as part of a large and sophisticated medical enterprise, such as the Marshfield Clinic, can they practice modern medicine in rural Wisconsin."

The court's decision did not address a main issue of concern to physicians--how to form a network without running afoul of the antitrust prohibitions on price fixing. This is the subject of an ACP information paper approved by the Board of Regents last month and recent congressional activity. The paper has been accepted for publication in Annals of Internal Medicine and will appear later this year.

Physician antitrust issues are also being debated in Congress. By a vote of 20-4, the House Judiciary Committee recently passed a bill sponsored by Rep. Henry J. Hyde (R-Ill.) that would ease the antitrust review of certain physician networks--those whose members do not share financial risk. However, since there is no antitrust legislation pending in the Senate it is unlikely that the Hyde bill will be enacted this year.

Michael J. Werner is Senior Associate for Government Relations in ACP's Washington, D.C., office.

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