LIFEWATCH SERVICES, INC. v. HIGHMARK, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

LIFEWATCH SERVICES, INC., : CIVIL ACTION

: NO. 12-5146

Plaintiff, :

:

v. :

:

HIGHMARK, INC., et al., :

:

Defendants. :

M E M O R A N D U M

EDUARDO C. ROBRENO, J. December 28, 2020

I. INTRODUCTION

This is an antitrust action brought by LifeWatch Services,

Inc. (“LifeWatch”), a seller of telemetry monitors, against the

Blue Cross Blue Shield Association and five of its plan

administrators1 (collectively, “Blue Cross”). LifeWatch claims

Blue Cross violated federal antitrust laws by conspiring to deny

coverage of its telemetry monitors. LifeWatch seeks a permanent

injunction and treble damages, inter alia. Blue Cross moves to

dismiss the Third Amended Complaint, claiming immunity from

antitrust liability under the McCarran-Ferguson Act.

1 The Defendant plan administrators named in the Third Amended Complaint

(“TAC”) are: Wellpoint, Inc.; Horizon Blue Cross Blue Shield of New Jersey;

BlueCross BlueShield of South Carolina; Blue Cross and Blue Shield of

Minnesota; BlueCross BlueShield of South Carolina; and Highmark, Inc.

LifeWatch subsequently settled its case against Highmark. TAC ¶¶ 13–17, ECF

No. 90.

After almost eight years of litigation, including a stop at

the multidistrict litigation panel, litigation before this

Court, a substitution of counsel, a visit to the Third Circuit,

and a further hearing before this Court on remand, the case

comes down to one issue: Does the McCarran-Ferguson Act immunize

Blue Cross from antitrust liability under the circumstances of

this case? For the reasons set forth below, the Court concludes

that it does.2

2 In the instant case, the issue of McCarran-Ferguson immunity presents a

strict legal question. Resolution of the issue at the motion to dismiss stage

is therefore appropriate.

Resolution at this stage is also consistent with the Third Circuit’s

directive that a defendant “bears the burden of establishing its immunity

from antitrust liability” under the Act. Lifewatch Servs. Inc. v. Highmark

Inc., 902 F.3d 323, 343 (3d Cir. 2018). This is true even though the parties

have pointed to state statutes and regulations not contained in the

pleadings.

Federal Rule of Civil Procedure 12(d) provides that if, on a 12(b)(6)

motion, “matters outside the pleadings are presented to and not excluded by

the court, the motion must be treated as one for summary judgment under Rule

56.” For the purposes of conversion, “[m]emoranda of points of law and

authorities” and “matters of which the district court can take judicial

notice” are “not considered matters outside the pleadings.” 5C Charles Alan

Wright & Arthur R. Miller, Federal Practice and Procedure § 1366 (3d ed.

2020); see also Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425

(2d Cir. 2008) (explaining that dismissal under 12(b)(6) “is appropriate when

a defendant raises . . . [a statutory bar] as an affirmative defense and it

is clear from the face of the complaint, and matters of which the court may

take judicial notice, that the plaintiff’s claims are barred as a matter of

law.” (quoting Conopco, Inc. v. Roll Int’l, 231 F.3d 82, 86 (2d Cir. 2000))).

In the instant matter, the Court can take judicial notice of the state

statutes and regulations the parties bring to its attention. See O’Neill v.

United States, 411 F.2d 139, 144 (3d Cir. 1969) (“Federal courts ordinarily

will take judicial notice of State statutes.”). Therefore, the statutes and

regulations to which the parties point do not constitute “matters outside the

pleadings” for the purposes of Rule 12(d).

The Third Circuit and other district courts in this circuit have

analyzed the issue of McCarran-Ferguson immunity at the motion to dismiss

stage. See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 351 (3d Cir.

2010); McCray v. Fidelity Nat’l Title Ins. Co., No. 08-775, 2010 WL 3023164,

at *5 (D. Del. July 29, 2010), aff’d on other grounds, 682 F.3d 229 (3d Cir.

2012); In re New Jersey Title Ins. Litig., No. 08-1425, 2010 WL 2710570, at

*11 (D.N.J. July 6, 2010), aff’d on other grounds, 683 F.3d 451 (3d Cir.

2012).

II. BACKGROUND3

The parties, facts, and procedural history are set forth

fully in prior opinions of the Court and the Third Circuit. See

LifeWatch Servs. Inc. v. Highmark Inc., 248 F. Supp. 3d 641, 650

(E.D. Pa. 2017), rev’d and remanded, 902 F.3d 323 (3d Cir.

2018). The Court assumes familiarity with the history of this

action and sets forth only those facts relevant to the instant

Motion to Dismiss.

Plaintiff LifeWatch is a large seller of telemetry

monitors, one of several types of outpatient cardiac monitors

that detect changes in the heart’s normal rate or rhythm.

Defendant Blue Cross Blue Shield Association owns the rights to

Blue Cross/Blue Shield trade names and trademarks. The

Association licenses those trade names and trademarks to

approximately thirty-six insurance plans and maintains a model

medical policy recommending which medical devices to cover,

inter alia.

The parties to the instant matter agree that it is appropriate for this

Court to do so. See Pl.’s Suppl. Mem. Opp’n Defs.’ Mot. Dismiss 1, ECF No.

140 (“LifeWatch is content to allow resolution of this question on the

pleadings.”); Defs.’ Suppl. Mem. Supp. Mot. Dismiss 1, ECF No. 139 (“[T]he

parties agree that the McCarran argument before the Court is a legal question

that can be decided now.”).

Accordingly, the Court will proceed to address the issue at this stage

and finds no reason to convert the motion to dismiss to a motion for summary

judgment.

3 As required at the motion to dismiss stage, the Court accepts all well-

pled factual allegations as true. See Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007).

The model policy recommends against covering prescriptions

for telemetry monitors. For more than ten years, at least thirty

Blue Cross/Blue Shield licensed insurance plans have adopted a

policy denying telemetry coverage. The insurers reached this

decision despite multiple medical studies concluding that

telemetry monitors are effective and, in some cases, superior to

other cardiac monitoring devices. Medicare, Medicaid, and other

private insurers cover telemetry monitor prescriptions.

In the instant action, LifeWatch alleges that the Blue

Cross Blue Shield Association and five of its plan

administrators violated the Sherman Act, 15 U.S.C. § 1, by

conspiring to deny coverage of telemetry monitors. LifeWatch

refers to this allegedly collusive agreement as the “Uniformity

Rule.” TAC ¶ 56, ECF No. 90.

In May of 2016, Blue Cross moved to dismiss the Third

Amended Complaint for failure to state a claim. See Fed. R. Civ.

P. 12(b)(6). Blue Cross argued: (1) the Complaint failed to

allege either an agreement or anticompetitive effects; (2)

LifeWatch lacked antitrust standing; and (3) Blue Cross is

immune from antitrust liability under the McCarran-Ferguson Act.

Defs.’ Mot. Dismiss, ECF No. 95.

The Court granted the Motion to Dismiss for failure to

allege anticompetitive effects and did not reach the antitrust

standing or immunity arguments. LifeWatch, 248 F. Supp. 3d at

650. The Third Circuit reversed, holding that LifeWatch stated a

claim and had antitrust standing. LifeWatch, 902 F.3d at 343.

The Third Circuit remanded the issue presently before the Court:

whether Blue Cross is immune from antitrust liability under the

McCarran-Ferguson Act.

III. LEGAL STANDARD

A party may move to dismiss a complaint for failure to

state a claim. Fed. R. Civ. P. 12(b)(6). When reviewing such a

motion, the Court is “required to accept as true all allegations

in the complaint and all reasonable inferences that can be drawn

from [the allegations] after construing them in the light most

favorable to the non-movant.” Conard v. Pa. State Police, 902

F.3d 178, 182 (3d Cir. 2018) (quoting Jordan v. Fox, Rothschild,

O’Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994)). However,

“the tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal

conclusions. Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not

suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To

survive a motion to dismiss for failure to state a claim, a

complaint must “contain sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its

face.’” Id. (quoting Twombly, 550 U.S. at 570).

IV. DISCUSSION

Section 1 of the Sherman Act provides that “[e]very

contract, combination in the form of trust or otherwise, or

conspiracy, in restraint of trade or commerce among the several

States, or with foreign nations, is declared to be illegal.” 15

U.S.C. § 1. After the Supreme Court found the Sherman Act

applicable to the insurance industry, Congress passed the

McCarran-Ferguson Act to clarify that regulation of “the

business of insurance” should be preserved for the states. See

SEC v. Nat’l Sec., Inc., 393 U.S. 453, 458 (1969). Congress’

primary concern with respect to the antitrust exemption was that

“cooperative ratemaking efforts be exempt from the antitrust

laws” because of “the widespread view that it is very difficult

to underwrite risks in an informed and responsible way without

intra-industry cooperation.” Grp. Life & Health Ins. Co. v.

Royal Drug Co., 440 U.S. 205, 221 (1979).

Accordingly, McCarran-Ferguson exempts from the Sherman Act

conduct that: (1) “constitutes the business of insurance,” (2)

is “regulated by state law,” and (3) does not “amount to a

boycott, coercion, or intimidation.” Union Labor Life Ins. Co.

v. Pireno, 458 U.S. 119, 124 (1982); see also 15 U.S.C. §§

1012(b), 1013. “It is well settled that exemptions from the

antitrust laws are to be narrowly construed.” Royal Drug, 440

U.S. at 231. A defendant “bears the burden of establishing its

immunity from antitrust liability” under McCarran-Ferguson.

Lifewatch Servs. Inc. v. Highmark Inc., 902 F.3d 323, 343 (3d

Cir. 2018).

The parties concede that Blue Cross’ alleged conduct does

not amount to a boycott, coercion, or intimidation but disagree

about whether the conduct constitutes the business of insurance

and whether it is regulated by state law.

A. The Business of Insurance

Two Supreme Court opinions inform this Court’s analysis of

whether the challenged conduct constitutes the “business of

insurance” under the McCarran-Ferguson Act.

In Group Life & Health Insurance Co. v. Royal Drug Co., 440

U.S. 205 (1979), independent pharmacies alleged that Blue Shield

of Texas and several pharmacies violated the Sherman Act by

agreeing to fix the retail prices of drugs and pharmaceuticals.

If a policyholder chose to fill a prescription at a pharmacy

with which Blue Shield had such an agreement, she paid only $2

for every prescription drug, and Blue Shield paid the remaining

cost directly to the pharmacy. Id. at 209. But if she selected a

pharmacy that had not entered into such an agreement, she paid

the full price charged by the pharmacy and could subsequently

obtain reimbursement from Blue Shield for part of the difference

between that price and $2. Id.

The Court concluded that the challenged pharmacy agreements

did not constitute the “business of insurance” within the

meaning of the McCarran-Ferguson Act because they did not

underwrite or spread risk. Id. at 214. “The fallacy of the

[defendants’] position,” the Court noted, “is that they confuse

the obligations of Blue Shield under its insurance policies,

which insure against the risk that policyholders will be unable

to pay for prescription drugs during the period of coverage,”

with the pharmacy agreements, “which serve only to minimize the

costs Blue Shield incurs in fulfilling its underwriting

obligations.” Id. at 213. Such cost-savings arrangements, the

Court concluded, were not the “business of insurance.” Id. at

214.

In reaching this conclusion, the Court underscored that, in

enacting the McCarran-Ferguson Act, Congress was concerned with

“[t]he relationship between insurer and insured, the type of

policy which could be issued, its reliability, interpretation,

and enforcement—these were the core of the ‘business of

insurance.’” Id. at 215-16 (quoting SEC v. Nat’l Sec., Inc., 393

U.S. 453, 460 (1969)). Congress’ clear focus “was on the

relationship between the insurance company and the

policyholder.” Id. at 216 (quoting Nat’l Sec., Inc., 393 U.S. at

460). In contrast, the pharmacy agreements at issue in Royal

Drug were not “between insurer and insured,” but were “separate

contractual agreements between Blue Shield and pharmacies

engaged in the sale and distribution of goods and services other

than insurance.” Id. Accordingly, the challenged conduct was not

exempt from antitrust laws.

A few years later, in Union Labor Life Insurance Co. v.

Pireno, 458 U.S. 119 (1982), the Court considered a

chiropractor’s challenge to an insurance company’s use of a

“peer review committee” of chiropractors to review

policyholders’ claims. The policy limited coverage of

chiropractic treatments to “reasonable” charges for “necessary”

medical care and services. Id. at 122. After receiving

chiropractic treatments, a policyholder submitted a claim for

reimbursement, and committee members evaluated whether the

treatments were necessary and whether the fees were reasonable.

Id. at 123. The plaintiff alleged that the insurance company and

members of the peer review committee conspired to eliminate

price competition among chiropractors in violation of section

1 of the Sherman Act. Id. at 124. The defendants claimed

immunity under the McCarran-Ferguson Act, arguing their alleged

behavior constituted the “business of insurance.” Id. at 131.

The Supreme Court disagreed, determining that the insurance

company’s use of a peer review committee “play[ed] no part in

the ‘spreading and underwriting of a policyholder’s risk.’” Id.

at 130 (quoting Royal Drug, 440 U.S. at 211). The Court noted

that the arrangement between the insurer and the review

committee was “logically and temporally unconnected to the

transfer of risk accomplished by [the insurer’s] policies”

because “[t]he transfer of risk from insured to insurer is

effected by means of the contract between the parties—the

insurance policy—and that transfer is complete at the time that

the contract is entered.” Id.

In distilling the Court’s analyses, Pireno identified three

criteria relevant to determining whether a particular practice

constitutes the business of insurance for the purposes of

McCarran-Ferguson immunity: “first, whether the practice has the

effect of transferring or spreading a policyholder’s

risk; second, whether the practice is an integral part of the

policy relationship between the insurer and the insured;

and third, whether the practice is limited to entities within

the insurance industry.” Id. at 129. The Court will discuss

these criteria seriatim.

1. Transferring or spreading risk

LifeWatch points to Royal Drug and Pireno to advance its

argument that Blue Cross’ decision to deny coverage for

telemetry monitors does not transfer or spread policyholders’

risk.

In both Royal Drug and Pireno, the challenged conduct

involved post hoc administration of the benefits provided under

the contract between the insurer and the insured (coverage for

prescription drugs and chiropractic treatment, respectively) and

not the transfer or spread of risk, which had already occurred

via the contract. See Royal Drug, 440 U.S. at 213 (noting that

unlike “obligations of Blue Shield under its insurance

policies,” agreements between Blue Shield and third-party

pharmacies “serve[d] only to minimize the costs Blue Shield

incur[red] in fulfilling its underwriting obligations” and

therefore did not “involve any underwriting or spreading of

risk”); Pireno, 458 U.S. at 130 (“The transfer of risk from

insured to insurer is effected by means of the contract between

the parties—the insurance policy—and that transfer is complete

at the time that the contract is entered.”).

In the instant action, the Third Amended Complaint makes

this distinction clear. LifeWatch’s allegations demonstrate that

this case challenges the allocation of risk (no telemetry

coverage for the insured) between the insurer and the insured

via the insurance contract:

7. Blue Cross purports to reconsider its stance on

telemetry several times a year. Yet the Blue Plans

have adhered in lockstep to blanket denials of

coverage for telemetry despite plain and mounting

evidence of efficacy and superiority. Because

telemetry devices are about three times as costly as

the substituted devices, Blue Cross’s concerted

refusal to deal with respect to telemetry devices puts

millions of dollars of additional money into the hands

of the Blue Plans.

8. But for their agreement, the Blue Plans would not have

monolithically maintained that telemetry is never

“medically necessary,” or that it is “experimental” or

“investigational,” which are the positions offered by

the Blue Plans to justify their concerted refusal to

deal. . . .

56. There is a reason why, for more than a decade, almost

all Blue Plans have uniformly held, year after year,

that for all patients and all conditions, telemetry is

never “medically necessary,” despite contrary (a)

scientific evidence, summarized above; (b) decisions

of independent arbiters, just quoted; and (c) practice

of Medicare, Medicaid, and other insurers. The reason

is a horizontal anticompetitive agreement, the Blue

Cross “Uniformity Rule,” as explained in this section.

60. The Defendant Plans have repeatedly voted on the model

medical policy that requires blanket denial of

telemetry coverage. . . .

61. As noted, this policy is inconsistent with the medical

literature; the opinions of the independent experts

who specifically rejected the above-quoted position;

and the conclusions of other commercial insurers,

Medicare, and Medicaid. The position was adopted, year

after year for a decade, by 30-plus Blue Plans, not

because of an independent evaluation of the evidence,

but pursuant to their horizontal agreement to make

consistent coverage denials and refuse to deal in

disfavored products, such as telemetry. . . .

62. . . . (a) WellPoint denies coverage by claiming that

“this service is considered to be not medically

necessary.” (b) Horizon denies coverage for telemetry

by claiming that the “charges are not covered.

Treatment, services or supplies that do not meet our

guidelines are not covered under the member’s plan.”

(c) Blue Minnesota denies coverage for telemetry by

claiming that “[p]rocedures determined to be

investigational are not covered under the patient’s

coverage.”

68. The Uniformity Rule restrains trade in at least two

markets. In the market for the purchase of health-

insurance plans (i.e., where the Blue Plans are

sellers), the Uniformity Rule constitutes a horizontal

agreement not to compete based on the package of

services offered. The Uniformity Rule guarantees that

all Blue Plans will offer substantially equivalent

interpretations of substantially equivalent policies

so that, if one does not provide certain coverage,

none do.

TAC ¶¶ 7–8, 56, 60–62, 68, ECF No. 90.

According to these allegations, the challenged refusal to

cover telemetry monitors occurs “year after year” and

“for all patients and all conditions,” id. ¶ 56, even before the

insured and the insurer enter into a contract. Rather than

engaging in a case-by-case, post-issuance review process about

whether a specific policyholder’s claim involved necessary

treatment, as the board in Pireno did, the Defendants in the

instant action allegedly formed “a horizontal agreement not to

compete based on the package of services offered” in their

contracts with insureds. Id. ¶ 68; cf. Pireno, 458 U.S. at 123.

The contract between insurer and insured allocates risk

between the parties. See Royal Drug, 440 U.S. at 213; Pireno,

458 U.S. at 130; Owens v. Aetna Life & Cas. Co., 654 F.2d 218,

225 (3d Cir. 1981) (recognizing that activities pertaining to

“the contract between the insurer and the insured” constitute

“the business of insurance”); cf. In re Ins. Brokerage Antitrust

Litig., 618 F.3d 300, 357 (3d Cir. 2010) (finding that the

defendants’ alleged agreement did not transfer or spread risk

because it did not involve “who could receive insurance

coverage, or the type of coverage they could obtain”).4

In this case, the insurance contract between Blue Cross and

its subscribers, by excluding from coverage all telemetry

treatment under all circumstances, allocates the risk between

the parties.5 Accordingly, Blue Cross satisfies the first prong

of the business of insurance test.

2. Integral part of the policy relationship

LifeWatch relies on Pireno to argue that the challenged

conduct is not an integral part of the relationship between the

insurer and the insured. The Pireno Court determined that the

insurers’ use of the peer review committee was not an integral

part of the policy relationship because “the challenged

arrangement between [the insurer] and [the peer review

4 The Third Circuit also applied the teachings of Royal Drug and Pireno

in Ticor Title Ins. Co. v. FTC, 998 F.2d 1129 (3d Cir. 1993). In Ticor, the

court determined that title insurance companies’ collective establishment of

title search and examination rates did not satisfy the “business of

insurance” prong of McCarran-Ferguson. The court reasoned that, like the

processes in Pireno and Royal Drug, “title search and examination has nothing

to do with the actual performance of the title insurance contract. Instead,

the title search and examination is ‘a matter of indifference to the

policyholder, whose only concern is whether his claim is paid, not why it is

paid.’” Ticor, 998 F.2d at 1136 (quoting Pireno, 458 U.S. at 132).

Accordingly, the court determined that the challenged rate setting activities

did not constitute the business of insurance.

The instant case, unlike Royal Drug, Pireno, and Ticor, involves the

allocation of risk (denial of coverage of telemetry services) between the

insured and the insurer via the contract for coverage. See Royal Drug, 440

U.S. at 213; Pireno, 458 U.S. at 130; Ticor, 998 F.2d at 1136.

5 To the extent that LifeWatch quarrels with the medical wisdom of Blue

Cross excluding telemetry monitors from the basket of services it offers its

subscribers, redress for this alleged wrong lies, if at all, not in the

federal antitrust laws but with the insurance authorities in the respective

states where LifeWatch may find relief. See infra Section IV.B.

committee] is obviously distinct from [the insurer]’s contracts

with its policyholders.” Pireno, 458 U.S. at 131. This “separate

arrangement between the insurer and third parties not engaged in

the business of insurance” rendered the challenged conduct not

integral to the policy relationship. Id. at 132.

In contrast, the challenged conduct in the instant matter

involves the package of services offered in Blue Cross’

contracts with its subscribers. In fact, that conduct is

integral to the policy relationship. See Ins. Brokerage, 618

F.3d at 357 (recognizing “a strong argument that [an alleged

agreement between insurance brokers and insurers] would be ‘an

integral part of the policy relationship between the insurer and

the insured’ . . . insofar as it would affect the insurers from

which a prospective purchaser could obtain coverage” (quoting

Pireno, 458 U.S. at 129)). Blue Cross satisfies the second prong

of the business of insurance test.

3. Limited to entities within the insurance

industry

Finally, LifeWatch likens the Blue Cross Blue Shield

Association to the Pireno peer review committee to argue that

the challenged conduct is not confined to the insurance

industry. But the two organizations have critical differences.

Although the Association is not itself an insurer, it owns the

rights to Blue Cross and Blue Shield trademark names and

licenses those trade names and trademarks to insurance plans.

Further, the Association maintains a model medical policy making

coverage recommendations to member plans.

These activities render the Association an entity within

the insurance industry for the purposes of McCarran-Ferguson.

Cf. Pireno, 458 U.S. at 132 (“[Defendant insurance company’s]

use of [the] Peer Review Committee inevitably involves third

parties wholly outside the insurance industry——namely,

practicing chiropractors.”). The parties do not dispute that the

Defendant plan administrators whose conduct is at issue are

entities within the insurance industry. Therefore, the

challenged conduct is limited to entities within the insurance

industry. Blue Cross satisfies the third prong of the business

of insurance test.

For the foregoing reasons, the challenged conduct

constitutes the “business of insurance” within the meaning of

the McCarran-Ferguson Act. See 15 U.S.C. § 1012(b).

B. Regulated by State Law

Under the second prong of the McCarran-Ferguson analysis,

challenged conduct is exempt from federal antitrust scrutiny

only if it is “regulated by state law.” 15 U.S.C. § 1012(b).

As an initial matter, the parties disagree about which clauses

of the McCarran-Ferguson Act govern the Court’s analysis of this

prong. The Court turns first to that issue.

1. Applicable standard

The applicable provision states:

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 . . . the [antitrust

laws] . . . shall be applicable to the business of

insurance to the extent that such business is not

regulated by State Law.

Id.

LifeWatch argues the Supreme Court’s decision in Humana

Inc. v. Forsyth, 525 U.S. 299 (1999), requires the Court to

consider whether the challenged conduct “conflict[s] with or

frustrate[s] any state’s regulations or the policies they

serve.” Pl.’s Suppl. Mem. Opp’n Defs.’ Mot. Dismiss 7, ECF No.

140. In Humana, the Supreme Court considered whether a state

statute prohibiting unfair trade practices preempted the federal

Racketeer Influenced and Corrupt Organizations Act (RICO) under

McCarran-Ferguson. 525 U.S. at 302. The Court applied the first

clause of section 1012(b) and considered whether RICO’s

application would “invalidate, impair, or supersede” the state

law. Id. at 307. It determined that because RICO could be

applied “in harmony with the State’s regulation,” McCarran-

Ferguson did not preclude the RICO action. Id. at 304.

As Humana reflects, courts applying the first clause of

section 1012(b) consider whether an actual conflict exists

between the federal action and the state regulatory scheme. See

id. LifeWatch argues the Court should employ that analysis here.

However, LifeWatch points to no case in which a court has

expanded Humana to reach the second clause of section 1012(b).

To the contrary, the argument has been rejected by at least two

courts of appeals, as well as by the leading treatise on

antitrust law. See Arroyo-Melecio v. Puerto Rican Am. Ins. Co.,

398 F.3d 56, 66 n.7 (1st Cir. 2005) (“[I]f the state’s insurance

industry is ‘regulated by state law,’ then the antitrust laws

simply do not apply, notwithstanding that the application of

antitrust law in the particular case in no way ‘invalidate[s],

impair[s], or supersede[s]’ state law and may even be consistent

with it.” (quoting I Phillip E. Areeda & Herbert Hovenkamp,

Antitrust Law ¶ 219c, at 339 (2d ed. 2000))); Sanger Ins. Agency

v. HUB Int’l, Ltd., 802 F.3d 732, 745 (5th Cir. 2015) (same);

see also In re Ins. Brokerage Antitrust Litig., 618 F.3d 300,

351 (3d Cir. 2010) (“The second, proviso clause of Section 2(b)

. . . is the clause relevant to this appeal.”).6

6 In In re Ins. Brokerage, 618 F.3d at 351, the Third Circuit recognized

that a court “cannot reflexively transplant” a holding addressing the first

clause of section 2(b) to the second clause:

Defendants overlook, however, an important distinction

between Sabo and this case. Because Sabo involved a RICO rather

than an antitrust claim, it was governed by the first clause of §

2(b) of the McCarran–Ferguson Act. That clause provides that

“[n]o 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 . . . unless such Act

specifically relates to the business of insurance.” 15 U.S.C. §

As these cases indicate, courts have consistently treated

antitrust actions as governed only by the second clause of

section 1012(b). See Areeda & Hovenkamp, supra, ¶ 219c. That

clause does not direct courts to consider whether antitrust laws

conflict with state regulations. See 15 U.S.C. § 1012(b).

Accordingly, in the instant action, the Court need only

consider whether the respective states regulate the challenged

conduct, and not whether federal antitrust laws invalidate,

1012(b). This “first clause . . . impos[es] what is, in effect, a

clear-statement rule, a rule that state laws enacted ‘for the

purpose of regulating the business of insurance’ do not yield to

conflicting federal statutes unless a federal statute

specifically requires otherwise.” U.S. Dep’t of Treasury v.

Fabe, 508 U.S. 491 (1993). Both clauses incorporate the phrase

“business of insurance,” but as the Supreme Court has emphasized,

the respective protections afforded to state law under the two

clauses are of different scopes. “The first clause commits laws

‘enacted . . . for the purpose of regulating the business of

insurance’ to the States, while the second clause exempts only

‘the business of insurance’ itself from the antitrust

laws.” Id. at 504. Because “[t]he broad category of laws enacted

‘for the purpose of regulating the business of insurance’ . . .

necessarily encompasses more than just the business of

insurance,” id. at 505, judicial determinations made when

applying one clause may not be dispositive when applying the

other. As Sabo itself explained, “Fabe makes clear [that]

the Royal Drug test is only a starting point in the analysis for

non-antitrust cases.” 137 F.3d at 191 n.3; see also Jonathan R.

Macey & Geoffrey P. Miller, The McCarran–Ferguson Act of 1945:

Reconceiving the Federal Role in Insurance Regulation, 68 N.Y.U.

L. Rev. 13, 22 (1993) (“[I]t appears that the meaning of [the

‘business of insurance’] varies depending upon whether the case

involves antitrust [i.e., clause two] or other regulatory [i.e.,

clause one] matters.”). Accordingly, we cannot reflexively

transplant Sabo’s holding into our analysis under the second

clause of § 2(b).

Id. at 360 (alterations in original) (citations omitted).

impair, or supersede those state laws. The Court turns next to

that issue.

2. Applicable state regulation

In FTC v. National Casualty Co., 357 U.S. 560 (1958), the

Supreme Court considered a Federal Trade Commission (FTC) order

prohibiting the respondent insurance companies from engaging in

certain advertising practices. The order sought “to proscribe

activities within the boundaries of States that have their own

statutes prohibiting unfair and deceptive insurance practices as

well as within States that do not.” Id. at 562. The Fifth and

Sixth Circuit Courts of Appeals set aside the order, holding

that the McCarran-Ferguson Act prohibited the FTC from

regulating the challenged conduct in the states that regulated

the practices under their own laws. Id.

The FTC appealed, arguing that the regulations at issue

constituted “general prohibition[s] designed to guarantee

certain standards of conduct” and were “too ‘inchoate’ to be

‘regulation’” within the meaning of the McCarran-Ferguson Act.

Id. at 564. The Supreme Court disagreed and affirmed the lower

courts, explaining that the “regulated by state law” prong is

satisfied where “[e]ach State in question has enacted

prohibitory legislation which proscribes unfair insurance

advertising and authorizes enforcement through a scheme of

administrative supervision.” Id.

Demonstrating that a state law regulates challenged conduct

is “not a high bar for antitrust defendants to clear.” Sanger

Ins. Agency v. HUB Int’l, Ltd., 802 F.3d 732, 745 (5th Cir.

2015). “Courts have recognized that the state regulation

requirement of § 1012(b) is satisfied when ‘a state has

generally authorized or permitted certain standards of conduct’

for insurance companies.” In re New Jersey Title Ins. Litig.,

No. 08-1425, 2010 WL 2710570, at *10 (D.N.J. July 6, 2010)

(quoting Ohio AFL–CIO v. Ins. Rating Bd., 451 F.2d 1178, 1181

(6th Cir. 1971)), aff’d on other grounds, 683 F.3d 451 (3d Cir.

2012).

According to the Third Amended Complaint, the challenged

conduct in the instant case occurred in the following states:

California, Colorado, Connecticut, Georgia, Indiana, Kentucky,

Maine, Minnesota, Missouri, Nevada, New Hampshire, New Jersey,

New York, Ohio, South Carolina, Virginia, and Wisconsin. TAC ¶¶

13–16, ECF No. 90. Blue Cross bears the burden of demonstrating

that state law regulates the challenged conduct in each of these

states. See Nat’l Cas. Co., 357 U.S. at 564.

For each of the seventeen states at issue, Blue Cross

points to multiple state statutes and/or regulations governing

health insurance and unfair trade practices in the insurance

industry. See Suppl. Filing Supp. Defs.’ Mot. Dismiss, App. A,

ECF No. 147-1.7

7 Blue Cross points to the following statutes and regulations, inter

alia:

California: Cal. Ins. Code § 10403 (“General Regulation of Health Insurers”);

id. §§ 790–790.15 (“Unfair Practices”)

Colorado: Colo. Rev. Stat. §§ 10-16-101 to -1208 (“Health Care Coverage”);

id. §§ 10-3-1103 to -1104 (“Unfair methods of competition”)

Connecticut: Conn. Gen. Stat. §§ 38a-469 to -594 (regulating “Health

Insurance”); id. §§ 38a-815 to -816 (regulating “Unfair practices”)

Georgia: Ga. Code Ann. §§ 33-20-1 to -34 (“Health Care Plan Act”); id. §§ 33-

6-1 to -37 (“Unfair Trade Practices”)

Indiana: Ind. Code §§ 27-8-1-1 to -37-3 (“Life, Accident, and Health”); id.

§§ 27-4-1-1 to -19 (“Unfair Competition” and “Unfair or Deceptive Acts and

Practices”)

Kentucky: Ky. Rev. Stat. Ann. §§ 304.17a-005 to -350 (“Health Benefit

Plans”); id. §§ 304.12-010 to -275 (“Unfair Competition” and “Unfair,

Deceptive Practices”)

Maine: Me. Rev. Stat. Ann. tit. 24-a, §§ 2401–2453 (“The Insurance

Contract”); id. §§ 2151–2189 (“Trade Practices and Frauds”)

Minnesota: Minn. Stat. §§ 62a.01 to .672 (“Accident and Health Insurance”);

id. §§ 72a.01 to .52 (“Insurance Industry Trade Practices”)

Missouri: Mo. Rev. Stat. §§ 354.10 to .725 (“Health Services Corporations–

Health Maintenance Organizations–Prepaid Dental Plans”); Mo. Code Regs. Ann.

tit. 20, §§ 100-1.010 to -9.100 (“Insurer Conduct”)

Nevada: Nev. Rev. Stat. §§ 689a.010 to .755 (“Individual Health Insurance”);

id. §§ 686a.100, .110, .120 (“Trade Practices and Frauds”)

New Hampshire: N.H. Rev. Stat. Ann. §§ 420-A to -P (“Health Service

Corporations”); id. § 417 (“Unfair Insurance Trade Practices”)

New Jersey: N.J. Stat. Ann. §§ 17b:27-26 to -51.14 (“Group Health and Blanket

Insurance”); id. § 17b:30-13.1 (“Unfair Claim Settlement Practices”)

New York: N.Y. Ins. Law §§ 3201–3243 (“Insurance Contracts–Life, Accident and

Health, Annuities”); id. § 2403 (“Unfair Methods of Competition or Unfair and

Deceptive Acts or Practices Prohibited”)

Ohio: Ohio Rev. Code Ann. § 3902 (“Insurance Policies and Contracts”); id. §§

3901.19 to .21 (“Unfair and Deceptive Acts”)

South Carolina: S.C. Code Ann. § 38 (“Insurance”); id. § 38-57-30 (“Unfair

Methods and Deceptive Acts”)

LifeWatch protests that these statutes and regulations are

insufficient to satisfy the “regulated by state law” prong of

McCarran-Ferguson. It argues Blue Cross cannot satisfy the prong

because Blue Cross “fail[s] to identify a single state statute

that deals even generally with collusive agreements to deny

coverage for telemetry.” Pl.’s Suppl. Mem. Opp’n Defs.’ Mot.

Dismiss 7, ECF No. 140. But McCarran-Ferguson does not require

state laws to contain the level of specificity for which

LifeWatch advocates. Instead, “the presence of even minimal

state regulation, even on an issue unrelated to the antitrust

suit, is generally sufficient to preserve the immunity,” and

most courts are “satisfied with the existence of a state

regulatory scheme and rather superficial indicators of

supervision, without much regard for the actual intensity of

state regulation.” Phillip E. Areeda & Herbert Hovenkamp,

Antitrust Law: An Analysis of Antitrust Principles and Their

Application § 219 (4th ed. 2020).

The statutes and regulations to which Blue Cross points

“generally authorize[] or permit[] certain standards of conduct”

in the health insurance industry and are therefore sufficient to

Virginia: Va. Code Ann. §§ 38.2-4200 to -4235 (“Health Services Plans”); id.

§§ 38.2-700 to -705 (“Antitrust Provisions”)

Wisconsin: Wis. Stat. § 609 (“Defined Network Plans”); id. § 628.34 (“Unfair

Marketing Practices”)

satisfy the “regulated by state law” prong of the McCarran-

Ferguson analysis. See New Jersey Title Ins. Litig., 2010 WL

2710570, at *10 (quoting Ohio AFL–CIO, 451 F.2d at 1181).

For the foregoing reasons, the challenged conduct is

regulated by state law.

V. CONCLUSION

Blue Cross has satisfied the three prongs of the McCarran-

Ferguson analysis and is therefore entitled to antitrust

immunity under the Act. Accordingly, the Motion to Dismiss will

be granted. An order consistent with this memorandum will issue.