Untitled Texas Attorney General Opinion

OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

JOHN CORNYN

December 27,200l

The Honorable Patrick B. Haggerty Opinion No . JC-0447

Chair, House Corrections Committee

Texas House of Representatives Re: Whether a hospital may contract exclusively

P. 0. Box 2910 with a single medical insurance provider

Austin, Texas 78768-29 10 (RQ-0407-JC)

Dear Representative Haggerty:

You ask about the authority of a hospital to enter into an “exclusive” point-of-service,

member hospital contract with a group hospital corporation.’ We understand that you are concerned

that such a contract violates the Texas Free Enterprise and Antitrust Act of 1983. See TEX. BUS. &

COM. CODEANN. 44 15.01-.52 (Vernon 1987 & Supp. 2002) (the “Act”).* Generally, it is beyond

the purview of the opinion process to construe particular contracts and investigate or make findings

of fact. Even assuming that the contract in question is an “exclusive” contract, we cannot provide

a definitive response. Exclusive dealing arrangements do not, as a matter of law, violate the Act.

Whether a particular exclusive contract violates the Act depends on whether it has an actual adverse

effect on competition in the relevant market by foreclosing competition in a substantial share of that

market.

By way of background, a point-of-service health benefit plan is similar to a preferred

provider health benefit plan.3 A fundamental feature of such a managed care plan is that health care

coverage is offered through a network of health care providers that contract with the health plan or

insurer. See ERS Letter, sup-a note 3, at 2. The contracts are negotiated to enable the health plan

or insurer to obtain the lowest possible health care service rates from the network health providers

for the individuals covered by the plan, and the provider a guaranteed volume of business from the

plan’s participants. See id.

‘See Letter from Honorable Patrick B. Haggerty, Chair, House Corrections Committee, Texas House of

Representatives, to Honorable John Cornyn, Texas Attorney General (July 26,200l) [hereinafter Request Letter] and

attached “dictation” from Lawrence P. Boyle, M.D. (July 18,200l) (on file with Opinion Committee) [hereinafter Dr.

Boyle Dictation].

2You do not indicate the laws that the particular contract violates. See generali’y Request Letter, supra note

1. However, the dictation from Lawrence P. Boyle, M.D., states that the contract “might involve federal antitrust

legislation or perhaps State Attorney General legislation.” See Dr. Boyle Dictation, supra note 1, at 4.

3See Letter from Paula A. Jones, General Counsel, Employees Retirement System of Texas, to Honorable John

Cornyn, Texas Attorney General (Oct. 3,200l) (on file with Opinion Committee) [hereinafter ERS Letter].

The Honorable Patrick B. Haggerty - Page 2 (JC-0447)

The specific contract giving rise to your request is the “Member Hospital Contract (Point of

Service (POS) Program)” between Huntsville Memorial Hospital, a private Texas nonprofit

corporation (“Memorial Hospital”), and Blue Cross and Blue Shield of Texas, Inc., a Texas group

hospital corporation (BCBSTX).4 Under the Contract, in exchange for an agreed reimbursement

rate, Memorial Hospital has contracted to provide certain health care services to subscribers of

BCBSTX or BCBSTX-affiliated health plans. See Memorial Hospital Brief, supra note 4, at 5?

These services are provided at the facility also known as the Huntsville Memorial Hospital (the

“Hospital Facility”), which Memorial Hospital leases from the Walker County Hospital District (the

“Hospital District”). See Memorial Hospital Brief, supra note 4, at 4. The Hospital District is not

a party to the Contract. See Contract, supra note 4, at 1. In 1998, Memorial Hospital and BCBSTX

amended the Contract to provide that the Hospital Facility would be the only facility in Walker

County under contract with BCBSTX for the provision of ambulatory surgery services and that

BCBSTX would not contract with another ambulatory surgery center in the county without the

written consent of Memorial Hospital. See Memorial Hospital Brief, supra note 4, at 5; Huntsville

Surgery Brief, supra note 5, at l-2. In 2001, the parties again amended the Contract to provide that

the Hospital Facility would be the only facility in Walker County under contract with BCBSTX for

the provision of medical imaging services, specifically magnetic resonance imaging (“MRI”) and

computer tomography (“CT”) scans for two years. See Memorial Hospital Brief, supra note 4, at

5; Huntsville Surgery Brief, supra note 5, at 2. In return, Memorial Hospital further decreased its

hospital service fees, resulting in additional savings to BCBSTX. See Huntsville Surgery Brief,

supra note 5, at 2. The significance of the Contract and the two amendments is that services at the

Hospital Facility are compensated by BCBSTX at “in-network” or higher rates; services offered by

other medical providers in Walker County are compensated by BCBSTX at “out-of-network” or

lower rates. See Memorial Hospital Brief, supra note 4, at 5; Huntsville Surgery Brief, supra note

5, at 3.

Huntsville Surgery Center, a private outpatient surgery center (“Huntsville Surgery”),

contends that because the Contract prevents Huntsville Surgery from becoming an “in-network”

provider, the Contract is an “exclusive” contract that by “its very nature” violates the Texas Free

Enterprise and Antitrust Act. See Huntsville Surgery Brief, supra note 5, at 4, 5, 10. Huntsville

Surgery does not contend that Memorial Hospital is a public hospital. See id., supra note 5, at 4. Nor

is Huntsville Surgery concerned with the latter’s status as a private or public entity, “but rather [with]

the exclusivity of [the] preferred provider arrangement.” Id., supra note 5, at 4. Memorial Hospital

disputes, first, that the Contract is exclusive, and second, even assuming that it is exclusive, that it

violates the Act. See Memorial Hospital Brief, supra note 4, at 9.

4See “Member Hospital Contract (Point of Service (POS) Program)” at 1 [hereinafter Contract], attached at

subdivision “J” to Brief submitted on behalf of Huntsville Memorial Hospital, from Michael L. Spain, Fulbright &

Jaworski, L.L.P. (Oct. 2,200l) (on file with Opinion Committee) [hereinafter Memorial Hospital Brief].

‘See also Brief submitted on behalf of Huntsville Surgery Center, from Jerry W. Baker, Fairchild, Price,

Thomas, Haley & Willingham, L.L.P. (Oct. 2,200l) (on file with Opinion Committee) [hereinafter Huntsville Surgery

BriefJ.

The Honorable Patrick B. Haggerty - Page 3 (~~-0447)

Generally, it is beyond the purview of the opinion process to construe contracts or scrutinize

particular contractual arrangements, especially those between private entities, and to determine

whether they satisfy specific statutory requirements or are otherwise legally permissible.6

Additionally, this office does not undertake investigations or make findings of facts in the opinion

process.7 Accordingly, even assuming here that public interests rather than private interests are

affected by the Contract and assuming that it is an “exclusive” contract, we cannot determine

whether it violates the Act. Such a determination requires investigation, presentation, and weighing

of factual data regarding the adverse effects of the Contract in the “relevant market” that is clearly

beyond the purview of an attorney general opinion. While we cannot provide a definitive response

to your question, we provide the general legal criteria for assessing whether an exclusive contract

violates the Act with the following caveat: It is beyond the scope of an attorney general opinion to

provide an exhaustive treatment of antitrust law, and we do not purport to do so here.

The Act’s stated purpose is to “maintain and promote economic competition in trade and

commerce. . . and to provide the benefits of that competition to consumers in the state.” TEX. BUS.

& COM. CODE ANN. 9 15.04 (Vernon 1987); see also Caller-Times Pub1 ‘g Co. v. Triad

Communications, 826 S.W.2d 576,58 1 (Tex. 1992) (Act’s purpose is to protect competition and not

individual competitors). The legislature adopted the Act in 1983 as a “sweeping reform of the

former Texas antitrust act originally passed in 1889, one year before Congress passed the Sherman

Antitrust Act,” and “to update Texas antitrust law and afford courts broader powers of protection

than that provided by the ‘laundry list’ of particular violations set out in” the earlier law. Caller-

Times, 826 S.W.2d at 579-80. It is modeled on both the federal Sherman Antitrust Act and the

Clayton Act. See id. at 580. Consistent with its foundation in federal law, section 15.04 of the Act

provides that it is to be interpreted in harmony with federal judicial interpretations of comparable

federal law. See TEX. BUS. & COM. CODE ANN. 5 15.04 (Vernon 1987); Caller-Times, 826 S.W.2d

at 580. This provision gives the Texas Supreme Court “wide latitude in developing an appropriate

test” when the United States Supreme Court has not developed a test for a particular type of antitrust

violation. See id. at 580-8 1. Significantly, the Texas Supreme Court is not bound by the decisions

of the Fifth Circuit when there is no United States Supreme Court precedent. See id.

Huntsville Surgery’s contention, as we understand it, is that the Contract unlawfully restrains

trade or creates a monopoly in violation of sections 15.05(a) and 15.05(b) of the Act. See Huntsville

Surgery Brief, supra note 5, at 5. Those subsections provide as follows:

(a) Every contract, combination, or conspiracy in restraint of trade

or commerce is unlawful.

6SeeTex. Att’y Gen. LO-94-00 1, at 2.

‘See, e.g., Tex. Att’y Gen. Op. Nos. JC-0032(1999) at 4; JC-0027(1999) at 3; JC-0020 (1999) at 2.

The Honorable Patrick B. Haggerty - Page 4 (JC-0447)

(b) It is unlawful for any person to monopolize, attempt to

monopolize, or conspire to monopolize any part of trade or

commerce.

Id. 5 15.05(a), (b) (V emon Supp. 2002). We consider each subsection in turn.

Subsection (a), making contracts that restrain trade unlawful, is comparable to and taken from

section 1 of the Sherman Antitrust Act, 15 U.S.C. 5 1. See DeSantis v. Wackenhut Corp., 793

S.W.2d 670, 687 (Tex. 1990). Not every contract in restraint of trade is unlawful under section 1

of the Sherman Antitrust Act, but only those contracts that unreasonably restrain trade, i.e., those that

fail the “rule of reason” test. See DeSantis, 793 S.W.2d at 687 (citing Standard Oil Co. v. United

States, 221 U.S. 1 (1911) and UnitedStates v. Am. Tobacco Co., 221 U.S. 106 (1911)). The focus

of the “rule of reason” test is whether the restraint promotes or suppresses competition. See id.

(citing Chicago Bd. of Trade v. United States, 246 U.S. 23 1 (1918) and Cont ‘1 T V., Inc. v. GTE

Sylvania, Inc., 433 U.S. 36 (1977)).

Some restraints on trade have an inherently pernicious effect upon competition and are “per

se” unreasonable. See Cont’l T.V., 433 U.S. at 36-37 (1977); see also Jefferson Parish Hosp. Dist.

v. Hyde, 466 U.S. 2,9 (1984) (“A price fixing agreement between competitors is the classic example

of [a ‘per se’ unreasonable] arrangement.“). Under the “per se” rule, a restraint on trade that seldom

serves any purpose other than to restrain competition is illegal without proof of market power or

anticompetitive effect. See Jefferson Parish Hosp. Dist. 466 U.S. at 33 (O’Connor, J., concurring).

A price fixing agreement between competitors is an example of a “per se” illegal contract. See id.

at 9. Agreements to refuse to deal with non-members of an association or to license a patented

device on condition that unpatented materials be used in conjunction with the patented device are

additional examples of “per se” illegality. See id. at 11, n. 10.

Arrangements that are not “per se” unreasonable are analyzed using the “rule of reason” test.

To establish a violation under the “rule of reason” test, it is necessary to prove that a contract has an

actual adverse effect on competition in the relevant market, and establish the relevant market. See

DeSantis, 793 S.W.2d at 688 (citing Consultants & Designers, Inc. v. Butler Serv. Group, Inc., 720

F.2d 1553 (11 th Cir. 1983) and Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983)); see also

Winston v. Am. Med. Int ‘l., 930 S.W.2d 945, 95 l-52 (Tex. App.-Houston [ 1st Dist] 1996, writ

denied).

Exclusive dealing contracts generally are not “per se” violations of section 1 of the Sherman

Antitrust Act. See Jefferson Parish Hosp. Dist., 466 U.S. at 2 (upholding contract providing that all

anesthesiologist services required at hospital would be provided by single anesthesiologist firn~);~

’ As Justice O’Connor explained in her concurring opinion:

(continued.. .)

The Honorable Patrick B. Haggerty - Page 5 (JC-0447)

Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) (upholding contract requiring utility

company to purchase all coal needed at generating plants from a single supplier); Surgical Care Ctr.

v. Hosp. Serv. Dist., No. CIV.A.97-1840,200l WL 8586 (E.D. La. Jan. 3,200l) (upholding hospital

contract with health maintenance organizations and preferred provider organizations designating

hospital as sole health service provider in designated area in exchange for discounted charges);

Gonzalez v. San JacintoMethodist Hosp., 880 S.W.2d 436 (Tex. App.-Texarkana 1994, writ denied)

(concluding that hospital’s exclusive contract for anesthesiologist services did not violate Act in

absence of actual adverse effect on competition). In Tampa Electric, the United States Supreme

Court explained that an exclusive dealing contract does not violate the antitrust laws “unless the

court believes it probable that performance of the contract will foreclose competition in a substantial

share of the line of commerce affected.” Tampa Elec., 365 U.S. at 327. This analysis requires

consideration of the area of competition for the product or service - the relevant market - and a

finding that “opportunities for other traders to enter into or remain in the market [are] significantly

limited as was pointed out in Standard Oil Co. v. United States, supra.” Id. at 328. Similarly, in

Jefferson Parish Hospital District, the Court stated that an exclusive contract does not violate section

1 of the Sherman Antitrust Act unless it unreasonably restrains competition. See Jefferson Parish

Hosp. Dist., 466 U.S. at 29. Moreover, “[wlithout a showing of actual adverse effect on competition,

respondent cannot make out a case under the antitrust laws . . . .” Id. at 3 1. Finally, in a concurring

opinion in that case, four of the justices reiterated that exclusive dealing is an unreasonable restraint

on trade only when a significant fraction of buyers or sellers are frozen out of the market. See id.

at 45 (O’Connor, J., concurring) (citing Standard Oil Co. v. United States, 337 U. S. 293 (1949)).

Even when it is alleged that an exclusive contract involves an illegal “tie” - a form of

marketing in which a seller insists on selling two distinct products or services as a package -

application of the “per se” rule is limited to situations where the seller has the market power to force

purchase of a product or service that would not otherwise be purchased from the seller. See id. at

1 l-l 5; see also San Jacinto Methodist Hosp., 880 S.W.2d at 441-42. Without evidence of this

“forcing” market power, a “tying” is not illegal. See Jefferson Parish Hosp. Dist., 466 U.S. at 16-

19; see also id. at 34-35 (O’Connor, J., concurring) (“per se” doctrine in tying cases has always

‘(...continued)

Exclusive dealing arrangements may, in some circumstances, create or extend

market power of a supplier or the purchaser party to the exclusive dealing

arrangement, and may thus restrain horizontal competition. Exclusive dealing can

have adverse economic consequences [on consumers] by allowing one supplier of

goods or services unreasonably to deprive other suppliers of a market for their

goods, or by allowing one buyer of goods unreasonably to deprive other buyers of

a needed source of supply. In determining whether an exclusive dealing contract

is unreasonable, the proper focus is on the structure of the market for the products

or services in question--the number of sellers and buyers in the market, the volume

of their business, and the ease with which buyers and sellers can redirect their

purchases or sales to others.

Jefferson Parish Hosp. Dist. v. Hyde, 466 U.S. 2,45 (1984) (O’Connor, J., concurring).

The Honorable Patrick B. Haggerty - Page 6 (JC-0447)

required elaborate inquiry into economic effects of tying arrangement because Court has never been

willing to say that arrangement is always illegal, without proof of market power or anticompetitive

effect); see also Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28 F.3d 1379, 1382 (5th Cir. 1994)

(“per se” illegality makes sense when describing price fixing or horizontal market division, but is

confusing with respect to illegal tie because it requires market power analysis as predicate to “per

se” illegality).

Because an exclusive dealing arrangement is generally not a “per se” violation of the antitrust

laws, a particular exclusive contract, such as the Contract here, would be subject to the “rule of

reason” test under section 15.05(a) of the Act: To constitute an unlawful restraint on trade, the

Contract must have an actual adverse effect on competition in the relevant market by foreclosing

competition in a substantial share of that market. To establish that the Contract restrains trade,

Huntsville Surgery would be required to provide evidence of the Contract’s actual adverse effects

on competition in the relevant market - by foreclosing competition in a substantial share of that

market - and establish the relevant market.

We next consider section 15.05(b), which is comparable to section 2 of the Sherman Antitrust

Act: both make it unlawful for a person to monopolize or attempt to monopolize. See Caller-Times,

826 S. W.2d at 5 80. “Monopoly power is the power to control price or exclude competition.” United

States v. E.I. duPont de Nemours & Co., 351 U.S. 377,391 (1956).

An unlawful monopoly or attempted monopoly under section 15.05(b) requires a showing

that an entity has through some anticompetitive act acquired or maintained monopoly power, such

as to control price or exclude competition, or that there is a dangerous probability that it will acquire

such monopoly power through some anticompetitive act. The elements necessary to establish a

completed monopoly under these sections are “( 1) the possession of monopoly power in the relevant

market and (2) the willful acquisition or maintenance of that power, as distinguished from growth

or development as a consequence of a superior product, business acumen, or historical accident.”

Caller-Times, 826 S.W.2d at 580 (citing United States v. Grinnell Corp., 384 U.S. 563, 570-71

(1966)). With respect to the first element, an assessment of monopoly or market power requires a

definition of the relevant market. See Roy B. Taylor Sales, 28 F.3d at 1386; see also E.I. duPont,

35 1 U.S. at 393 (“Illegal [monopoly] power must be appraised in terms of the competitive market

for the product.“). The relevant market is, in turn, defined by the product or service and the

geographic area in which it is sold. See Roy B. Taylor Sales, 28 F.3d at 1386. Absent special

circumstances, courts have generally required a market share higher than fifty percent of the relevant

market to support a finding of monopoly. See Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732

F.2d 480,489 (5th Cir. 1984). The second element of completed monopoly requires a showing of

some “predatory” or “anticompetitive” act. See Caller-Times, 826 S.W.2d at 580. Turning to

attempted monopoly, the necessary elements are “( 1) . . . predatory or anticompetitive conduct with

(2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.”

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Demonstrating the dangerous

The Honorable Patrick B. Haggerty - Page 7 (~~-0447)

probability of monopolization in an attempt case also requires an inquiry into the relevant product

and geographic market and a defendant’s economic power in that market. See id. at 459.

Huntsville Surgery does not elaborate on its contention that the Contract violates section

15.05(b). Presumably, the Contract is the anticompetitive act of which Huntsville Surgery

complains. It is unclear, however, whether Huntsville Surgery believes that Memorial Hospital or

BCBSTX has acquired or maintained an illegal monopoly or attempted such monopoly. In any case,

to prove either an illegal monopoly or attempted monopoly, Hunstville Surgery would have to

establish that Memorial Hospital or BCBSTX has the requisite market power in the relevant market.

Huntsville Surgery asserts that the Contract is unlawful, as a matter of law, under section

15.05(a) and (b) of the Act, relying on Southern Health Ass ‘n v. Harris Memorial Methodist

Hospital, 180 S.W.2d 169 (Tex. Civ. App.-Fort Worth 1944, writ ref d w.o.m.). See Huntsville

Surgery Brief, supra note 5, at 7-8. Huntsville Surgery’s reliance on this case as dispositive of the

“per se” illegality of the Contract is misplaced. See id. In Southern Health, the court opined that

an exclusive hospitalization agency contract between a hospital - Harris Memorial Methodist

Hospital - and an insurance company restricting insured policy holders to hospital services at

Methodist Hospital violated the state’s antitrust laws. See S. Health, 180 S.W.2d at 176. As

Huntsville Surgery acknowledges, this case was decided well before the prevalence of health

maintenance organizations and preferred provider organizations. See Huntsville Surgery Brief,

supra note 5, at 7. But more importantly, it was decided under the state’s 1889 version of the

antitrust laws, when Texas courts did not interpret its provisions consistently with federal antitrust ’

law. See Red Wing Shoe Co. v. Shearer’s Inc., 769 S.W.2d 339,342-43 (Tex. App.-Houston [lst

Dist.] 1989, no writ) (holding that 1983 amendment to state antitrust laws overruled former law

holding vertical nonprice restrictions illegal “per se”; such restraints subject to “rule of reason”

analysis applied by federal courts and adopted by 1983 Act); see also DeSantis, 793 S.W.2d at 688

(post-employment noncompetition agreement does not violate section1 5.05(a) of Act unless it fails

the same “rule of reason” analysis that would be applied under federal law). Southern Health ‘s

analysis does not reflect antitrust jurisprudence under the Act.

Additionally, Huntsville Surgery contends that the Contract is unlawful because BCBSTX

did not follow the contracting procedures applicable to “Preferred Provider Benefit Plans” set out

in section 3 of article 3.70-3C of the Insurance Code. See Huntsville Surgery Brief, supra note 5,

at 9. Section 3 of article 3.70-3C provides as follows:

(a) A health insurance policy that includes different benefits from the

basic level of coverage for use of preferred providers shall not be

considered unjust under Article 3.42 of this code, or unfair

discrimination under Article 2 1.2 l-6, added by Chapter 415, Acts of

the 74th Legislature, 1995, or Article 21.21-8 of this code or to

violate Subsection (B), Section 2, Chapter 397, Act of the 54th

Legislature, 1955 (Article 3.70-2, Vernon’s Texas Insurance Code),

The Honorable Patrick B. Haggerty - Page 8 (JC-0447)

or Article 21.52 of this code, if it meets the requirements of this

section.

(b) (1) Physicians, practitioners, institutional providers, and health

care providers other than physicians, practitioners, and institutional

providers, if such other health care providers are included by the

insurer as preferred providers, licensed to treat injuries or illnesses or

to provide services covered by the health insurance policy that

comply with the terms and conditions established by the insurer for

designation as preferred providers may apply for and shall be

afforded a fair, reasonable, and equivalent opportunity to become

preferred providers. Such designation shall not be unreasonably

withheld.

(2) If a designation as a preferredprovider is withheld relating

to a physician orpractitioner, the insurer shallprovide a reasonable

review mechanism that incorporates, in an advisory role only, a

reviewpanel. Any recommendation of the panel shall be provided on

request to the affected physician or practitioner. In the event of an

insurer determination contrary to any recommendation of the panel,

a written explanation of the insurer’s determination shall also be

provided on request to the affected physician or practitioner.

(4) The insurer must give a physician or health care provider

not designated on initial application written reasons for denial of the

designation; however, unless otherwise limited by this code, this

section does not prohibit an insurer from rejecting an application

from a physician or health care provider based on a determination

that the preferred provider benefit plan has sufficient qualified

providers.

(c) Any insurer, when sponsoring a preferred provider benefit plan,

shall immediately nottfi, by publication or in writing to each

physician and practitioner, all physicians and practitioners in the

geographic area covered by the plan of its intent to offer such a plan

and of the opportunity to participate. Such notice and opportunity

shall be provided on a yearly basis thereafter to noncontracting

physicians and practitioners in the geographic area covered by the

plan. The insurer shall on request make available to any physician or

health care provider information concerning the application process

The Honorable Patrick B. Haggerty - Page 9 (JC-0447)

and qualification requirements for participation as a provider in the

plan.

TEX. INS. CODEANN. art. 3.70-3C 8 3(a), (b), (c) (V emon Supp. 2002) (emphasis added).

Huntsville Surgery specifically alleges that (1) it was not provided the opportunity to

participate in the preferred provider benefit plan; (2) it has been unable to apply for participation;

(3) no review panel has been employed to review the withholding of the preferred provider status;

(4) BCBSTX has not given any reasons for denial of the designation; and (5) Huntsville Surgery’s

“designation as a preferred provider has been unreasonably withheld, and this withholding is solely

due to the exclusive contract between” Memorial Hospital and BCBSTX. See Huntsville Surgery

Brief, supra note 5, at 10.

While an insurer must follow the procedures set out in article 3.70-3C, section 3 in

contracting with preferred health providers to the extent applicable,’ a health care provider is not

entitled to a designation as a preferred provider. The statute only requires that the designation “shall

not be unreasonably withheld.” TEX. INS.CODE ANN. art. 3.70-3C 8 3(b)( 1) (Vernon Supp. 2002).

An insurer may reject a health care provider’s application for preferred provider designation based

on a determination that the preferred provider benefit plan has sufficient qualified providers. See

id. 8 3(b)(4). Withholding a preferred provider designation based on such a determination is

statutorily “reasonable.” See id. 8 3(b)(l), (4).

If BCBSTX has determined that its Contract with Memorial Hospital provides sufficient

“qualified providers” in the geographic area, nothing in the statute requires that it nonetheless

contract with another health provider. See id. 8 3 (b)(4). Whether BCBSTX’s determination is

unreasonable - which appears to be the essence of Huntsville Surgery’s contentions - involves

questions of fact. Similarly, determining whether BCBSTX’s failure to comply with the procedural

requirements of the statute, assuming the truth of Huntsville Surgery’s assertions, is fatal in light of

BCBSTX’s contractual obligation with Memorial Hospital also involves questions of fact. In any

case, the Texas Department of Insurance is the appropriate entity, in the first instance, to investigate

and determine whether BCBSTX has violated section 3 of article 3.70-3C. See TEX. INS.CODEANN.

9 3 1.002 (Vernon 2002) (Texas Department of Insurance shall regulate the business of insurance and

ensure that the Insurance Code and other laws regarding insurance are executed.).

‘Memorial Hospital argues that because Huntsville Surgery is not a “physician” or a “practitioner,” BCBSTX

is not required to give notice and opportunity to participate on an annual basis under section 3(c) or provide a “review

panel” under section 3(b)(2). See Supplemental Brief submitted on behalf of Huntsville Memorial Hospital, from

Michael L. Spain, Fulbright & Jaworski, L.L.P., at 2-4 (Oct. 22, 2001) (on file with Opinion Committee).

The Honorable Patrick B. Haggerty - Page 10 (JC-0447)

SUMMARY

Whether a particular exclusive contract between a public or

private hospital and a medical insurance provider violates the Texas

Free Enterprise and Antitrust Act of 1983 depends on whether it has

an actual adverse effect on competition in the relevant market by

foreclosing competition in a substantial share of that market.

Exclusive dealing arrangements do not, as a matter of law, violate the

Act.

Ve truly your

4 cl Qv

JOIj[N CORNYN

Attorney General of Texas

HOWARD G. BALDWIN, JR.

First Assistant Attorney General

NANCY FULLER

Deputy Attorney General - General Counsel

SUSAN D. GUSKY

Chair, Opinion Committee

Sheela Rai

Assistant Attorney General, Opinion Committee