# Appendix — Arizona v. Maricopa County Medical Soc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0437%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1982 - **Citation:** 457 U.S. 332 ## Text No. 80-419 IN THE JUN 15 1981 Supreme Court of the United sratet ALEXANDER L. STEVAS, OctToser TERM, 1980 CLERK STATE OF ARIZONA, Petitioner, vs. Maricopa County Mepicau Society, Maricopa FounDATION For MeEpICcAL CarE, and Pima Foundation For Medical Care, Respondents. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT JOINT APPENDIX Vol. 1 Pages 1-274 Ropert K. Corsin Attorney General KENNETH R. Reed Special Assistant Attorney General 114 West Adams, Suite 760 Phoenix, Arizona 85003 Counsel for Petitioner (602) 254-1973 Of Counsel: Auison B. SWAN Chief Counsel Antitrust Division Cuarves L. Ecer Assistant Attorney General Antitrust Division 114 West Adams, 6th Floor Phoenix, Arizona 85003 (602) 255-4751 Puiuie P. BERELSON Brown & Bain, P.A. 222 North Central Avenue Phoenix, Arizona 85004 (602) 257-8777 Counsel for Respondent Maricopa Foundation for Medical Care Rosert O. LesHer Lesher, Kimble & Rucker, P.C. 3773 East Broadway Tucson, Arizona 85716 (602) 795-1470 Counsel for Respondent Pima Foundation for Medical Care Danie. J. MCAULIFFE Snell & Wilmer 3100 Valley Bank Center Phoenix, Arizona 85073 (602) 257-7211 Counsel for Respondent Maricopa County Medical Society PETITION FOR CERTIORARI FILED SEPTEMBER 16, 1980 CERTIORARI GRANTED MARCH 9, 1981 Oflice-Supseme Court, us. | FILED ‘ PO ree ae: case presses upon the Court a chain of connection ch has “no logical endpoint.” The mere “presence” of »ral statutes in the health industry cannot automatically fer “in commerce” jurisdiction over local health provi- 3 any more than federal highway statutes or labor utes convey automatic “in commerce” jurisdiction over ion-dollar oil companies competing in sizeable local ‘kets. The Court further observed: The plaintiff must allege and prove that apparently cal acts in fact have adverse consequences on inter- tate markets and the interstate flow of goods in order o invoke federal antitrust prohibitions. See United ‘tates v. Yellow Cab Co.” (Citations omitted) (Id., at 02) t is undisputed that all 400 doctors in the Foundation | all 6,000 policyholders are residents of Pima County, | that the Foundation restricts its operations to Pima inty in the State of Arizona. (See Exhibit “B.”) “he fact that some patients come from out-of-state to be ited by doctors in Arizona is totally irrelevant to the duct of these defendants. The Foundation has no con- | over what price Foundation or non-Foundation doctors 67 charge non-Foundation patients. The contract between the Foundation and its member doctors is completely silent as to the member doctor’s dealings with non-Foundation pa- tients, such as tourists from another state. This contract does fix a price limit on the doctor’s charge to Foundation policyholders. (A limitation for covered charges is common in health insurance policies. Without it, health insurance carriers would be totally at the mercy of doctors and patients.) It should be pointed out that the contract does not require the doctor to charge anything at all to a Foundation policyholder. If he so desires, the doctor could treat the patient for nothing, or for less than maxi- mum rate. The Foundation contract merely sets a maximum limit on the charge for covered services, based upon the nature of the service and the doctor's specializa- tion, Since the Foundation is located in Pima County, all of the member doctors are located in Pima County, and all of the policyholders reside in Pima County, it is wholly a local matter what prices are charged. Out-of-state patients are treated according to the doctor’s own pricing policy, what- ever that may be. The Foundation has no pricing policy for out-of-state patients or for in-state patients who are not policyholders in Foundation sponsored plans. In jurisdictional terms, the relationship between Founda- tion doctors and policyholders is similar to the relationship between local taxi drivers and local residents. United States v. Yellow Cab Co., 332 U.S. 218, 67 S.Ct. 1560 (1946). In that case, Chicago taxi companies held licenses which specifically restricted their service “between any two points within the corporate limits of the City.” (332 U.S., at pp. 230-231) When a local passenger would leave his home, board a cab, and then travel to a city railway station to embark on interstate business, the cab ride from the pas- senger’s home to the terminal was held to be outside of the stream of interstate commerce, Likewise, when a resident returned to Chicago by train, boarded a cab from the ter- 68 minal, and traveled to his home, that ride was also outside interstate commerce. The Court held that “such transporta- tion is too unrelated to interstate commerce to constitute a part thereof within the meaning of the Sherman Act.” (Id., at p. 230) However, if an interstate passenger on a train boarded the same cab to travel the short distance between one inter- state terminal to another, that trip was held to be within the stream of commerce. (Id., at p. 228) Therefore, even though a Foundation policyholder visited a Foundation doctor before leaving the state or immedi- ately upon returning to the state, the doctor-patient relationship would be totally based within the state. Since the entire conduct of the Foundation is centered in its member doctors and its policyholders—all of whom are residents of Pima County—where is the adverse effect on interstate commerce that the Attorney General must prove? Copp Paving, supra. Given that only one percent of the population of Pima County is covered by a Foundation- sponsored health plan, any effect would be de minimus. The maximum rates of health care payment would certainly not interfere with interstate travel in any reasonable way. Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 85 S.Ct. 348 (1964). The Foundation does not, as a corporate entity, purchase any drugs or medical supplies, or wield any influence on individual doctors and pharamcists as to their purchases in interstate commerce. Since the Attorney General has not named these individual doctors and pharmacists as defen- dants, the allegation that the Foundation “affects” commerce through purchase of such gupplies is without evidentiary foundation. 69 LOCAL ACTIVITIES WHICH “AFFECT COMMERCE” The Attorney General has cited a number of cases where local activity had an adverse “effect” upon interstate com- merce. These cases are distinguishable from the present case. The Attorney General repeatedly cites Rex Hospital, supra, for the proposition that local health care activity may have a substantial effect on interstate commerce. Be- fore considering the factual differences between Rex Hospital and the present case, it should be noted that the lower Court dismissed the original complaint on the plead- ings. On remand, the United States Supreme Court stated: “We have held that ‘a complaint should not be dis- missed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief’... And in antitrust cases, where ‘the proof is largely in the hands of the alleged conspirators’ ... dismissals prior to giving the plaintiff ample opportun- ity for discovery should be granted very sparingly ...” (Citations omitted.) 425 U.S., at pp. 746-747. Therefore, the Court did not rule on the factual merits of the case, but held that the complaint was sufficient under several theories to state a cause of action. (In the present case, the Attorney General has had ample opportunity for discovery and has introduced evidence.) The plaintiff, Hospital Building Company, was a private company which desired: (1) to relocate Mary Elizabeth Hospital to a site within Raleigh, N.C., and (2) to expand its size from 49 to 140 beds. Defendant Rex Hospital, also located in Raleigh, attempted to block Hospital Building's application for a state permit to relocate and expand. After 70 a long delay, the permit was granted, after which Rex Hos- pital allegedly engaged in frivolous litigation and maliciously published adverse information about Mary Eliz- abeth Hospital’s proposed expansion. Thus, an existing provider of health service in the city, Rex Hospital, attempted to completely foreclose the efforts of a competitor from moving into the same geographical area and from thereafter tripling in size. If Rex Hospital succeeded in foreclosing this relocation and expansion, Hospital Building Company would not have purchased as many medical supplies, borrowed as much money, or served as many patients—allegedly from out-of- state. Since the trial court dismissed the complaint on its pleadings, Hospital Building Company had no opportunity to present admissable evidence as to the actual “effect” on commerce. In weighing the dismissal on the pleadings, the United States Supreme Court properly assumed that such “effect” could have been shown by the plaintiff. Since the present proceeding is one in Summary Judg- ment, the Court has the benefit of the Attorney General's evidence as to “adverse effect on interstate commerce.” There is no showing of interstate lending activity which has been foreclosed by defendant’s conduct. Nor has the Attor- ney General shown how the Foundation may have adversely affected the interstate flow of drugs, medical supplies or patients. The Foundation has done nothing to foreclose the health care industry in Pima County, or any part of it, nor has there been any evidence that competition has been other than benefitted by the addition of new prepaid health plans with unique controls over major expense items. Rex Hospital did not involve the McCarran Act or the “business of insurance” exemption, nor did the competing hospitals even claim the “business of insurance” exemption. 71 Even if the McCarran Act was applicable, the remand of Rex Hospital would be fully consistent with its “boycott,” “coercion” and “intimidation exceptions.” Defendant Rex Hospital mounted an attempted total boycott of the pro- posed reloca vn and expansion of Mary Elizabeth Hospital, and attempted to coerce and intimidate Mary Elizabeth Hospital, its prospective patients and customers. The Attorney General has cited other cases where local activity was held to “affect” interstate commerce. In each of these decisions, the defendants were guilty of conduct which could be equated with “boycott,” “coercion” or “in- timidation.” For example, Goldfarb involved a total boycott by the Virginia State Bar against any attorney who would charge a title examination fee lower than the Bar-approved mini- mum: that attorney, would be presumed to be “guilty of misconduct.” The minimum fee schedule also acted to coerce property buyers, since it was virtually impossible to buy property without the title examination, and only Vir- ginia lawyers had legal authority to do the work. Goldfarb did net address the McCarran Act or the “business of in- surance” exemption. The same is true of United States v. Employing Plaster- ers Assoc., 347 U.S. 186, 74 S.Ct. 452 (1953). Chicago plastering contractors and labor unions, who controlled 60% of the plastering market in the area, combined to pre- vent out-of-state contractors from doing business i» the Chicago area. The Foundation has not acted to prevent any health provider or insurer from entering the competing in the local market. 72 Mandeville Island Farms v. American Crystal Sugar Company, 334 U.S. 219, 68 S.Ct. 996 (1948) involved a con- spiracy by local sugar refiners against local sugar beet growers. The refiners were the only market for the buyers, thus, the refiners were able to intimidate and coerce the growers to accept the refiners’ pricing formula. The same pattern emerged in other cases cited by the Attorney General, e.g., DeVoto v. Pacific Fidelity Life In- surance Co., 516 F.2d (9th Cir., 1975) (a Transamerica loan company and a Transamerica insurance company elimi- nated a competitor insurance company from a sizeable portion of the California mortgage market); Gough v. Ross- moor, 487 F.2d 373 (9th Cir., 1973) (a Rossmoor land developer and a Rossmoor retailer of carpets and drapes combined to exclude a private retailer of furniture, carpets and drapes from a Rossmoor residential development); Las Vegas Merchant Plumbers Ass’n. v. United States, 210 F.2d 732 (9th Cir., 1954) (a plumbing association estab- lished a committee to allocate bids; wholesalers and laborers who did not comply were boycotted by the remain- der of the association); Boddicker v. Arizona State Dental Association, 549 F.2d 626 (9th Cir., 1977) (the state and local dental associations coerced its member dentists to also be members of the American Dental Association, even though a dentist in Arizona could practice his profession without joining any of them). The Foundation has done none of the things which would place them in this line of cases. The Foundation treats Foundation and non-Foundation doctors alike. All pharma- cists and hospitals are treated alike. CONCLUSION The Sherman Act is “aimed at substance rather than form.” United States v. Yellow Cab Co., 332 U.S., at p. 227. Mere exchange of average price information does not run afoul of antitrust prohibitions, even if some uniformity of pricing results. Cement Mfgrs., Maple Flooring Mfgrs., supra. The fact that Foundation-sponsored health policies 73 contain maximum prices may appear to have the “form” of a conspiracy in restraint of trade does not mean that such a conspiracy exists in “substance.” The State of Arizona, through its Department of Insur- ance, has admitted that the Foundation is an “Insurance Administrator” under Arizona law. (Exhibit “A”) There- fore, even if the Attorney General could prove the merits of its case, the McCarran Act “business of insurance” exemp- tion would eliminate federal jurisdiction. 15 U.S.C., § 1012(b); Oregon State Medical Society, Proctor, Page, Ohio AFL-CIO, Dexter, Usery, Manasen, Benjamin, North Lit- tle Rock Transp. Co., Lawyers Title Company of Missouri, supra. Even if the “business of insurance” ememption was in- applicable to this case, the Attorney General has failed to submit evidence that this defendant was “in commerce” or “affected commerce.” Oregon State Medical Society, Yel- low Cab Co., Copp Paving Co., supra. The 400 doctors who are members of the Foundation serve approximately 6,000 residents of Pima County, or little more than one percent of the County’s population. Communication of average price information across state lines is insufficient to create federal jurisdiction. Cement Mfgrs., Maple Flooring Mfurs., supra. The transfer of funds across state lines, even between a parent corporation and its wholly-owned subsidiary, is insufficient to confer federal jurisdiction. See Copp Paving, supra. There being no material issues as to the facts upon which federal jurisdiction are based, the Motions of the Attorney General should be denied, and the Complaint dismissed against this defendant, as prayed in its Answer here. (Signatures omitted in printing.) EXHIBIT “A” OMITTED IN PRINTING 74 (Caption omitted in printing.) AFFIDAVIT STATE OF ARIZONA a County of Pima THOMAS P. FINLEY, being first duly sworn, deposes and says: 1. I am the Executive Director of the Pima Foundation for Medical Care, a position which I have occupied since February, 1978. I reside at 9035 Bears Path Road in Tuc- son, Arizona. 2. I have personal knowledge of the day-to-day opera- tions of the Pima Foundation for Medical Care (“Foundation”), including its dealings with the Pima County Medical Society (‘Medical Society”), the State of Arizona Department of Insurance and various outside par- ties such as insurance brokers and carriers involved in Foundation sponsored health plans. 3. The Foundation was formed in 1971 by the Medical Society. Its primary purpose was to offer a competitive health plan to help control the rapid increase in the cost of health care within Pima County. In 1978, the Foundation became independent of the Medical Socieiy, which no longer has the right of approval over the selection of Direc- tors for the Foundation. 4. Of approximately 1300 doctors in Pima County, some 400 doctors are members of the Foundation. Several Foun- dation-sponsored plans provide prepaid health insurance coverage to 6,000 men, women and children in Pima Coun- ty, or little more than 1% of the total population (500,000) of the County. All of the member doctors and all of the pol- icyholders are residents of Pima County. The 6,000 EXHIBIT “B” 75 policyholders, if evenly dispersed among all 1,300 doctors, would amount to 4 or 5 patients per doctor. Spread among the 400 Foundation doctors, these 6,000 policyholders amount to roughly 15 patients per doctor. 5. The Medical Society has nothing whatever to do with Foundation-sponsored claim processing or with the setting of any premium rates or claim payment rates. Nor does the Medical Society have any authority over its 1,300 doctors with respect to what prices they charge in their individual practices, nor has it attempted to wield such authority. 6. Neither the Foundation nor the Medical Society have any formal connection with counterpart organizations in Maricopa County. The prepaid health plans sponsored by the Foundation is independent of any other organization. Any contact with other organizations has been casual and in a discussion of common concerns, but no conspiracy to fix prices has or will be entered into. 7. Most or all of the 400 members of the Foundation are also members of the Medical Society. However, neither the Foundation nor the Medical Society attempt to control the individual decisions of each doctor as to affiliation in either organization or as to policies adopted by either organiza- tion. An individual doctor may bécome affiliated with the Foundation, may decline to affiliate, or may change a pre- vious decision. Membership in each organization is a matter of personal choice, and neither organization applies any direct or indirect pressure on the individual doctor. 8. Approximately 900 doctors in Pima County have not joined the Foundation. Since February, 1978, I have person- ally been told by a number of these non-participating doctors that they will not join because they feel the rates established by the Foundation are too low, unreasonable and unfair. 76 9. In view of its stated goal to help control the rising cost of health care, the Foundation and its sponsored plans have implemented the following control procedures: (a) Since a large part of health cost dollars are consumed by long and sometimes unnecessary hospital confinements, the Foundation has adopted a formal program to review every instance of a policyholder being sent to the hospital. The Foundation employs a trained nurse who visits every policyholder while in the hospital, and certifies that there was medical justification for the admission and for the pro- jected length of stay. To the best of my knowledge and be- lief, no other health plan in Pima County provides such comprehensive scrutiny of this major factor in cost of medi- cal care. (b) The Foundation acts as the claims agent for the pri- vate insurance carriers who actually underwrite the risks. Each claim is carefully reviewed to assure that the reim- bursement for doctor’s fees, medicine and hospital services do not exceed the maximum rates established by the Foun- dation. 10. The Foundation does not discriminate among doc- tors, pharmacists, hospitals or other suppliers of health care services and products. A policy holder may select a Founda- tion doctor or a non-Foundation doctor. The only possible difference is that the non-Foundation doctor has not con- tractually agreed to charge no moie than the ceiling rate for his services. Thus, if a policyholder receives medical care from a non-Foundation doctor, he will be personally liable for any excess in charge by that doctor over the Founda- tion’s maximum rate. 11. The Foundation does not discriminate between in- state doctors or out-of-state doctors. If a policyholder hap- pens to be outside Arizona when the need for health care arises, the Foundation will process the claim for covered health items the same as for any other non-Foundation doctor who is located within Arizona. However, the fact remains that the 6,000 policyholders receive covered medi- 77 cal services from out-of-state doctors only a_ negligible number of times each year. The policyholder remains liable to that doctor for any charge that is in excess of the Foun- dation maximums. 12. The Foundation does not discriminate in any way against any hospital, pharmacist or other supplier of cover- edf health services. The choice is wholly left up to the patient-policyholder. The Foundation’s goal is simply to see that certain portions of covered expenses are insured, no matter which provider of health care (doctor, hospital, pharmacist) the policyholder selects. 13. According to my best information and belief, the presence of the Foundation’s prepaid health plans covering approximately one percent of the population of Pima County tends to increase competition among health care providers and insurers. The controls which the Foundation exercises over the necessity of each hospital stay, together with rigid review of billings against Foundation maximum rates, tends to reduce the cost of health care for the 6,000 policyholders. 14. Three private carriers underwrite the various Foun- dation-sponsored plans, i.e., Arizona Blue Cross-Blue Shield, Pacific Mutual Life Insurance Company, and Con- necticut General Life Insurance Company. Each of the Foundation’s plans are rated retrospectively. In other words, the savings achieved by the Foundation’s hospital review procedure, preliminary scrutiny and review for com- pliance with rate maximums—these savings are passed along to the policyholder in the subsequent year, once the carrier's overhead expenses are deducted. 15. The Foundation is a nonprofit corporation. It does not collect premiums or actually underwrite the risks, but it does act as the claims agent for the three private insurance carriers who underwrite the risks. These carriers, which are regulated by the State of Arizona, reimburse the Founda- tion for its cost-control services and claims payment. The reimbursement is calculated at 6% of monthly premiums 78 received by the carrier. The Foundation has no control over premiums charged by the carriers, other than the effective cost-savings measures that are reflected in lower premiums as the carriers retrospectively rate each plan’s experience with loss. 16. The Foundation does exercise direct control over the establishment of maximum payment rates for medical ser- vices. However, these rates are a ceiling, not a floor, for Foundation members. Each doctor who is a member of the Foundation expressly agrees that covered expenses will be reimbursed at no more than the maximum rate established by the Foundation. 17. The Foundation rates are based upon the nature of the medical service rendered and the particular specializa- tion of the doctor performing the service. The rates are set, in part, based upon a Relative Value Schedule and a Unit Conversion Factor. 18. The Foundation’s Board of Directors weighs the var- ious factors from industry sources and from their own experience in recommending a rate schedule. After its ini- tial determination, the Board recommends the overall rate schedule to the Foundation’s membership. Th» recommen- dation becomes effective after a majority of the 400 members approve it. Such payment schedules are reviewed every year or 80. 19. The Foundation originally designed its health insur- ance plan, then contacted an insurance broker to find carriers who would provide the desired coverage. A unique feature in the contracts with the carriers is that the Foun- dation will perform cost-control review of hospitalization and review all charges against the ceiling rates. 20. Neither the Foundation or the Medical Society pur- chase any drugs or any medical products, but a minimal amount of office supplies are purchased each year. Doctors, in their individual capacities, do purchase drugs or medical products, or prescribe the same for their patients. The 79 Foundation has no control or concern over which particular drugs or products are thus favored by individual doctors, nor does the Foundation exercise or attempt to exercise such control with respect to individual pharmacists or hos- pitals. Thus, the price of drugs and medical supplies in Pima County and elsewhere is totally unrelated to the oper- ation of the Foundation. 21. Based upon my personal knowledge, the Pima Foun- dation for Medical Care is concerned with the rising cost of medical care in Pima County. Inasmuch as these costs can- not be contrviled in various circumstances without some kind of uniform cost ceilings, the Foundation has sponsored several prepaid health insurance plans to implement such maximum rates, and to eliminate unnecessary hospital stays by tight scrutiny from within the medical profession itself. (Signature and notarization omitted in printing.) Filed - DEC 11, 1978 W. J. Furstenau, Clerk U. S. District Court For The District of Arizona (Caption omitted in printing.) RESPONSE OF DEFENDANT MARICOPA COUNTY MEDICAL SOCIETY TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE ISSUE OF LIABILITY Defendant Maricopa County Medical Society hereby opposes the plaintiff's Motion for Partial Summary Judg- ment on the Issue of Liability filed herein upon the grounds and for the reasons set forth in the Memorandum in Re- sponse to that Motion filed by Defendant Maricopa Foundation for Medical Care. Respectfully submitted this 11th day of December, 1978. (Signature omitted in printing.) 81 Filed - DEC 11, 1978 W. J. Furstenau, Clerk U. S. District Court For The District of Arizona (Caption omitted in printing.) DEFENDANT MARICOPA COUNTY MEDICAL SOCIETY’S RESPONSE TO PLAINTIFF'S STATEMENT OF UNDISPUTED MATERIAL FACTS ON ITS MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE ISSUE OF LIABILITY Most of the factual allegations contained in Plaintiff's Statement of Facts are directed to either the Maricopa or Pima Foundations for Medical Care. Defendant Maricopa County Medical Society is without sufficient knowledge to form a belief as to the truthfulness of the allegations con- tained in those statements of facts, and is therefore unable to controvert them. 1. Defendant Maricopa County Medical Society denies that it published a Foundation fee schedule (see General Objection No. 1 and Answer to Nos. 59 and 60 of Defendant Maricopa County Medical Society's Responses to Plaintiff's First Request for Admissions and Interrogatories). 2. Defendant Maricopa County Medical Society is unable to discern the meaning or relevance of Plaintiff's Statement No. 38, and therefore denies the same. (Signature omitted in printing.) 82 Filed - DEC 12, 1978 W. J. Furstenau, Clerk U. S. District Court For The District of Arizona (Caption omitted in printing.) DEFENDANT MARICOPA FOUNDATION FOR MEDICAL CARE’S STATEMENT OF MATERIAL FACTS AS TO WHICH THERE IS A GENUINE ISSUE PRECLUDING PARTIAL SUMMARY JUDGMENT IN FAVOR OF THE PALINTIFF ON THE ISSUE OF SUBJECT MATTER JURISDICTION Defendant Maricopa Foundation for Medical Care (“Maricopa Foundation”) submits, pursuant to Local Rule 11(h), this statement of material facts which preclude par- tial summary judgment in favor of the plaintiff on the issue of subject matter jurisdiction. A. Maricopa Foundation disputes plaintiff's contention that the following paragraphs of “Statement of Undisputed Facts Supporting Plaintiff's Motion for Partial Summary Judgment on the Issue of Subject Matter Jurisdiction” are not disputed: 1. With respect to Plaintiff's Statement 1, doctors in Maricopa County have not agreed to be bound by a fee schedule adopted by members of Maricopa Foundation. The only determinations with respect to fees charged for medical services which are made by Maricopa Foundation are with respect to maximum fees paid with respect to pa- tients covered by Maricopa Foundation endorsed plans to member doctors of Maricopa Foundation. They have agreed to accept Maricopa Foundation’s determination of maxi- mum fees as payment in full for services performed by them on patients covered by Foundation endorsed plans when they billed the patient more than that amount. If the patient is billed less than that amount, the physician is paid the amount billed if the services are determined by Maricopa Foundation to have been medically appropriate. Maricopa Foundation does not and never has taken any 83 position with respect to the amount of fees a physician should bill any patient. (See, eg. Mitten § Aff., November 17, 1978, paras. 3, 4.) 2. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 2. 3. With respect to Plaintiff's Statement 3, Maricopa Foundation has entered into agreements with insurers Pa- cific Mutual Life Insurance Company, Washington National Life Insurance Company, Connecticut General Life Insur- ance Company, Metropolitan Life Insurance Company, Northwestern National Life Insurance Company, Cal West- ern Insurance Company, and Occidental Life Insurance Company, all of which transact business in Arizona wherein insurers agreed to reimburse doctors for services rendered to patients insured under Maricopa Foundation-endorsed health insurance plans in accordance with the their usual and customary fees charged for such services but not to exceed the maximum reimbursable level of compensation set forth in the Maricopa Foundation’s minimum standards for Foundation-endorsed group insurance programs, except at the insurer's discretion. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's state- ment with respect to Pima Foundation or other defendants. (See, e.g., Response 12 of Defendant Maricopa Foundation for Medical Care’s Responses to Plaintiff's First Request for Admissions and Interrogatories.) 4. Maricopa Foundation for Medical Care has no infor- mation sufficient to admit or deny Plaintiff's Statement 4. 5. Maricopa Foundation for Medical Care has no infor- mation sufficient to admit or deny Plaintiff's Statement 5. 6. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 6. 7. Maricopa Foundation denies that the payment of premiums, claims and service fees on Maricopa Foundation endorsed insurance plans has involved a continuous stream of fee schedules, claims and continuous transfers of sub- 84 stantial sums of money across state lines and states it has no information sufficient to admit or deny the remainder of Plaintiff's Statement 7. 8. Maricopa Foundation denies that underwriting and operation of Maricopa Foundation endorsed insurance plans have involved a continuous stream of fee schedules, agreements, policies, claims and other materials and ser- vices across state lines and states it has no information sufficient to admit or deny the remainder of Plaintiff's Statement 8. 9. With respect to Plaintiff's Statement 9, if a patient insured under a Maricopa Foundation endorsed plan seeks treatment from a doctor outside the state of Arizona, the Foundation will pay the claim in the same manner as any claim for services performed by a doctor. Claims paid on Maricopa Foundation endorsed health insurance plans to out-of-state doctors are very few in number. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's statement with respect to Pima Foundation. (See, Mitten Aff., December 11, 1978, para. 7.) 10. With respect to Plaintiff's Statement 10, the relative value schedules prepared and used by Maricopa Founda- tion are based in part upon the 1964 edition of the Relative Value Schedule adopted by the California Medical Associa- tion, in part upon the Relative Value Schedules adopted by the American Society of Anesthesiologist, and in part upon the Relative Value Schedules adopted by the American Col- lege of Radiology. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's statement with re- spect to Pima Foundation, Pima Society, or Maricopa Society. (See, Responses 19, 21, and 23 of Defendant Mari- copa Foundation for Medical Care’s Responses to Plaintiff's First Request for Admissions and Interrogatories.) 11. With respect to Plaintiff's Statement 11, Maricopa Foundation has requested various professional organiza- tions whose members are doctors to advise Maricopa Foundation only in connection with Maricopa Foundation’s 85 determination of maximum reimbursable levels of compen- sation to doctors providing medical services to patients insured under Maricopa Foundation endorsed health insur- ance plans to be proposed to Maricopa Foundation’s participating and cooperating members for adoption. Mari- copa Foundation has no information sufficient to admit or deny Plaintiff's statement with respect to Pima Founda- tion, Pima Society, or Maricopa Society. (See, Responses 44 through 53 of Defendant Maricopa Foundation for Medical Care’s Responses to Plaintiff's First Request for Admis- sions and Interrogatories.) 12. With respect to Plaintiff's Statement 12, Maricopa Foundation denies it obtained fee schedules and materials related to fee schedules through interstate association with other foundations for medical care. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's statement with respect to Pima Foundaon, Pima Society, or Maricopa Society. (See, Mitten Aff., December 11, 1978, para. 4.) 13 With respect to Plaintiff's Statement 13, officers and employees of Maricopa Foundation have traveled to other states for meetings with representatives of other founda- tions for medical care for two purposes: 1. To study the claims processing operations used by other medica! foundation; and, 2. To promote the foundation concept of health insur- ance. No officer or employee of Maricopa Foundatien has met with the representative of another medical foundation to discuss or to take any action with respect to fees charged for medical services by doctors in Arizona. (See, Mitten Aff., December 11, 1978, para. 4.) 14. With respect to Plaintiff's Statement 14, Maricopa Foundation has received only one grant from the federal government. The amount of the grant was less than $100,000.00 and its purpose was to study the desirability 86 and feasibility of Maricopa Foundation forming a Health Maintenance Organization. That study was not related to the functions performed by Maricopa Foundation as a med- ical foundation and no changes in the operations of Maricopa Foundation took place as a result of that study. Maricopa Foundation has no information sufficient to ad- mit or deny Plaintiff's statement with respect to Pima Foundation. (See, Mitten Aff., December 11, 1978, para. 5.) 17. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 17 with respect to the amounts of prescription drugs, equipment, goods and products which are manufactured and distributed in other states and shipped into Arizona. 18. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 18 with respect to the amount of money paid annually for services, goods and products sold by doctors within the state of Arizona. 19. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 19 with respect to the portion of the prices charged by the doctors in the State of Arizona which are paid through private health insurance. 20. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 20 with respect to the amount paid by the state of Arizona for health insur- ance premiums in 1977. 21. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 21 with respect to the number of persons in Arizona who had insurance pro- tection against medical expenses or surgical expenses in 1975. 22. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 22 with respect to the amount of premiums paid for private health insurance in Arizona. 87 23. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 23. 24. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 24. 25. Maricopa Foundation has no information sufficient to admit or deny Plaintiff's Statement 25. B. Maricopa Foundation incorporates herein by refer- ence the facts set forth in the affidavits of Anthony D. Mitten, sworn to November 17, 1978 and December 11, 1978, which set forth material facts precluding summary judgment in favor of plaintiff. December 11, 1978 (Signatures omitted in printing.) 88 (Caption omitted in printing.) AFFIDAVIT OF ANTHONY D. MITTEN STATE OF ARIZONA 88 County of Maricopa ANTHONY D. MITTEN, being duiy sworn, under oath deposes and says: 1. I am the Executive Director of defendant Maricopa Foundation for Medical Care (“Maricopa Foundation’”’) and have been its chief administrative employee since its incep- tion. I make this affidavit in opposition to plaintiff's motions for partial summary judgment on the issues of sub- ject matter jurisdiction and liability and to supplement my affidavit sworn to November 17, 1978 which is incorporated herein by reference. I have personal knowledge with respect to the matiers related in this affidavit. 2. The sole purpose for which relative value schedules and conversion factors have been prepared or used by the Maricopa Foundation is in determining the maximum reim- bursable levels of compensation for medical services provided to those patients insured under Maricopa Founda- tion endorsed medical health insurance plans. The Maricopa Foundation does not publish or distribute relative value schedules or conversion factors used by the Founda- tion to non-members except to insurers who may be interested in underwriting Maricopa Foundations endorsed health insurance plans and persons eligible for membership in Maricopa Foundation who have expressed an interest in joining the Maricopa Foundation. 3. Conversion factors used by Maricopa Foundation to determine the maximum reimbursable levels of compensa- tion for medical services provided to patients insured under Maricopa Foundation endorsed medical health insurance plans are revised when it is felt by Maricopa Foundation’s Board of Trustees that they have fallen so far below usual 89 ! and customary fees in Maricopa County that doctors will resign from or refuse to renew membership in Maricopa Foundation if the conversion factors are not revised. Revi- sion of those conversion factors is not conducted at any regular interval. The Maricopa Foundation has surveyed its members with respect to the fees they usually and custom- arily charge for their services on only two occasions. On both occasions the survey was conducted to aid Maricopa Foundation’s Board of Trustees in determining whether to revise the maximum reimbursable levels of compensation for medical services provided to patients insured under Maricopa Foundation endorsed medical health insurance plans and the nature of the revisions which the Board of Trustees would submit to the participating and cooperating members of Maricopa Foundation for their approval. On three other occasions such revisions have been submitted to participating and cooperating members for their approval without any such survey. 4. Officers and employees of Maricopa Foundation have traveled to other states for meetings with representatives of other foundations for medical care for two purposes: (1) to study the claims processing operations used by other medi- cal foundations; and (2) to promote the Foundation concept of health insurance. At no time, to my knowledge, has any officer or employee of Maricopa Foundation met in another state with a representative of another medical foundation or an association of doctors to discuss or take any action with respect to fees charged for medical services by doctors in Arizona. 5. The Maricopa Foundation has received only one grant from the Federal Government. The amount of the grant was less than $100,000 and its purpose was to study the de- sirability and feasibility of Maricopa Foundation forming a 90 Health Maintenance Organization. That study was not re- lated to the functions performed by Maricopa Foundation as a medical foundation and no changes in the operations of Maricopa Foundation took place as a result of that study. 6. To the best of my knowledge, information and belief, at no time has the Board of Trustees of Maricopa Founda- tion recommended to the membership or the membership of Maricopa Foundation approved a maximum reimbursa- ble level of compensation for medical services provided to patients insured under Maricopa Foundation endorsed medical health insurance plans in excess of what Maricopa Foundation’s Board of Trustees believed to be the prevail- ing average or median usual and customary fee charged by doctors in Maricopa County for their services. 7. Virtually all of the member doctors of the Maricopa Foundation and almost all of the policyholders insured under Maricopa Foundation endorsed health insurance plans are residents of Maricopa County, Arizona. The vast majority of claims paid on Maricopa Foundation endorsed health insurance plans are paid to Arizona doctors for ser- vices rendered in Arizona. Claims paid on Maricopa Foundation endorsed health insurance plans to out-of-state doctors are very few in number. 8. The Maricopa Foundation does not purchase any drugs, medical equipment, goods or products. Maricopa Foundation does not have or exercise any control over the particular drugs, medical equipment, goods or products purchased by doctors, pharmacists or hospitals or the prices charged by them for drugs or medical products, equipment or goods. To the best of my knowledge, information and belief, the prices paid for drugs and medical products in Maricopa County and elsewhere are not affected in any way by the operation of Maricopa Foundation. 9. To the best of my knowledge, information and belief, at no time has Maricopa Foundation taken any action to request, urge or even suggest that a doctor increase the fee charged to any patient or taken any action with respect to 91 any doctor as a result of any fee charged by a doctor to any patient, other than to bring to the attention of the Arizona Board of Medical Examiners, those instances in which, in the opinion of the Board of Trustees of Maricopa Founda- tion, the fee charged by a doctor is so excessive as to constitute unprofessional conduct pursuant to A.R.S. 4 32- 1451. (Signature and notary clause omitted in printing.) 92 (Caption omitted in printing.) AFFIDAVIT OF GARY L. SWINGLE STATE OF ARIZONA 88 County of Maricopa GARY L. SWINGLE, being duly sworn, under oath de- poses and says: 1. I am an associate of the law firm of Brown & Bain, P.A., attorneys for defendant Maricopa Foundation for Medical Care (“Maricopa Foundation”). I make this affida- vit in support of Maricopa Foundation’s Motion for Order Compelling Discovery. 2. In support of its motion for a preliminary injunction, plaintiff compared graphically “the relationship between foundation fee schedules and the payments made by the Industrial Commission of Arizona since 1970 for medical and anesthesiological services.” Memorandum in Support of Application for Order to Show Cause and Motion for Pre- liminary Injunction dated October 25, 1978 at pp. 6-7. In opposing Maricopa Foundation’s Motion for Order Compel- ling Discovery, plaintiff states “... that memorandum refers only to payments made by the Industrial Commis- sion,” not to relative value schedules, unit conversion factors, or fee schedules used or referred to by the In- dustrial Commission and therefore, the discovery sought by Maricopa Foundation is “completely irrelevant to any issue in this lawsuit.” Plaintiff's Response to Defendant Mari- copa Foundation for Medical Care’s Motion for Order Compelling Discovery dated December 8, 1978 at p. 5. 3. The Industrial Commission of Arizona is charged by law with the responsibility to fix a schedule of fees to be charged by physicians attending injured employees, which shall be reviewed annually by the Commission. A.R.S. § 23- 908. Pursuant to this charge, the Industrial Commission of Arizona publishes a “MEDICAL FEE SCHEDULE.” An- 93 nexed hereto as Exhibit A is a true copy of the first 38 pages and Appendix I of “Medical Fee Schedule Adopted by the Industrial Commission of Arizona” dated December 1, 1970 (“Arizona Industrial Commission Fee Schedule”). On information and belief the Arizona In- dustrial Commission Fee Schedule is currently used by the Industrial Commission of Arizona to determine payments made by it and fees charged by physicians attending in- jured employees. 4. On information and belief, the Arizona Industrial Commission has annually established, pursuant to A.R.S. § 23-908, separate unit values and conversion factors for each of the five sections of the Arizona Industrial Commission Fee Schedule. The Arizona Industrial Commission Fee Schedule contains a relative value schedule divided into four sections: “Medicine,” “Surgery,” “Radiololgy,” and “Laboratory” based on the 1964 California Relative Value Studies, published by the California Medical Association. The Arizona Industrial Commission Fee Schedule states that the Arizona Industrial Comission has approved the American Society of Anesthesiologists’ Relative Value Guide (Second edition, 1967) for use with its conversion factor to establish fees for anesthesiology. 5. The opening page of the Arizona Industrial Commis- sion Fee Schedule contains the following statement: “This Medical Fee Schedule, with the pertinent con- version factors adopted by The Industrial Commission of Arizona (see “resolution”), establishes the maximum fees that can be charged by physicians and surgeons to insurance carriers or self-insured employers for ser- vices performed for employees under workmen's compensation coverage.” 6. The Arizona Industrial Commission Fee Schedule specifies that fees are to he calculated in the following manner: 94 “The amount of fee is to be calculated by multiplying the unit value (listed under the specific code number for a specific procedure) by the conversion factor es- tablished for each section in the schedule (see “Resolution”). Formula: Unit Value x Conversion Fac- tor = Fee.” 7. At the beginning of each section of the Arizona In- dustrial Commission Fee Schedule, the foowing state- ments appear: “In billing, the physician must include the Code Num- ber as assigned to the [medical, surgical, radiological, or laboratory] procedure involved and use the Unit Value prescribed by the Industrial Commission to de- termine his fee. Billing Formula: Unit Value x Conversion Factor = Fee.” 8. A comparison of the “payments made by the Industrial Commission” with the maximum insurance reimbursement levels to physicians for services to patients insured under Maricopa Foundation endorsed health insurance reveals that in some instances the Arizona Industrial Commission Fee Schedule provides higher payments to physicians, and in some instances it provides the same payments as the maximum reimbursement rate of Maricopa Foundation endorsed health insurance plans. 9. It is respectfully submitted that the foregoing facts amply demonstrate the relevance to this action of the ma- terials sought by Maricopa Foundation’s Motion for Order Compelling Discovery. (Signature and notary clause omitted in printing.) MEDICAL FEE SCHEDULE THE INDUSTRIAL COMMISION OF ARIZONA PHOENIX, ARIZONA = = + ~~ DECEMBER 1, 1970 EXHIBIT A 96 STATE OF ARIZONA MEDICAL FEE , SCHEDULE for PHYSICIANS adopted by THE INDUSTRIAL COMMISSION OF ARIZONA Bruce C. Thoeny, Chairman Frank G. Murphy, Vice Chairman John L. Ahearn, Member Robert W. Knox, Member Hugh W. Stewart, Member December 1, 1970 Robert L. Kley, Director 97 ORDER OF CONTENTS Page A. INTRODUCTORY MATERIAL PIIIEE bekcthanvcicaveibinaedancckicesdlisebciiosisocennapiononeweesseliiita 5 Resolution of The Industrial Commission of Ari- OT csssnenncrecspilideililiciceysesthittatacensabiocciedehaaveptahadivearintnenbens 6 Laws and Rules of Procedure ...........cccsssseeeeeeees 8-23 Instructions for Physicians ...............sccssscssseeseeeseees 24-31 I. General Information on Treatment .............. 24-26 II. Forms Used by Physicians ...............ccsceeeeees 27-28 III. Filing of Reports and Claims ................cc000 29 IV. Check-Off List for Procedures ..........ss000 30-31 B. MEDICAL FEE SCHEDULE ..................... arranged by Code Numbers I. Medicine II. Surgery Ill. Radiology IV. Laboratory ©. APPENDIX I: ANESTHESIA D. APPENDIX Il: PROCEDURAL INDEX (by Alphabet with Code Numbers designated) Because the Industrial Commission has adopted the 1964 California Relative Value Studies as the basis for this schedule of fees, the following statement is in order: “Portions of the Relative Value Studies are taken from the copyrighted material of the California Medical Asso- ciation and are reproduced with the permission of the California Medical Association. Grateful acknowledge- ment is made to them for the use of this information.” It must be stressed, however, that this schedule of fees as such and the conversion factors to be applied thereto are the determination of The Industrial Com- mission of Arizona. 98 FOREWORD In 1925, when the Arizona legislature passed the State’s first Workmen’s Compensation Act, The Industrial Com- mission of Arizona was established to administer that compensation law. In 1943, industrial insurance coverage was extended by the State under the Arizona Occupational Disease Disabil- ity Law to cover certain job-connected diseases. Thus for 43 years, the Industrial Commission was respon- sible, both for the administration of these workmen’s com- pensation laws, and for the processing of all claims entered under those laws. Then in 1968, when the Legislature reorganized the In- dustrial Commission, the ICA retained its regulatory role, to administer and enforce the laws for insurance coverage of industrial injuries end occupational diseases. Processing of claims for industrial injuries occurring since Jan. 1, 1969, was assigned to the State Compensation Fund and other authorized private insurance carriers. However, the In- dustrial Commission still retained the responsibility for processing all claims filed before Jan. 1, 1969, as well as no- insurance claims and claims filed under occupational dis- ease disability laws. As stated in the following Resolution, the Industrial Commission is charged with fixing a schedule of fees to be charged by physicians attending injured employees. The statutes also give the ICA full authority to meke rules and regulations reasonably required in the performance of its duties. Physicians attending employees under industrial insur- ance coverage are obligated by law to charge according to - the schedule of fees herein adopted. Accurate calculation of fees based upon this schedule, the prompt filing of reports ia 99 and bills for payment, and the use of forms prescribed are essential to early and correct remuneration for a physician’s services and can be vital in the award of benefits to the workman and his dependents. RESOLUTION WHEREAS pursuant to the provisions of A.R.S. 4 23-908 (1968), The Industrial Commission of Arizona is charged with the responsibility of, and has full power, jurisdiction and authority to fix a schedule of fees to be charged by physicians attending injured employees, which shall be re- viewed annually by the Commission, and WHEREAS, the Commission, after carefully reviewing all material received and developed in order to evaluate the fee schedule for physicians, in its regular meeting on Sep- tember 15, 1970, unanimously voted to approve the fol- lowing: 1. Adoption of the 1964 California Relative Value Stud- ies as the basis for the schedule which the Commis- sion will publish to have available on the effective date of December 1, 1970. 2. Continuation of approval of the use of the A.S.A. Relative Value Study as the basis of charges for anesthesia. 3. Conversion factors to be applied to the new sched- ule effective December 1, 1970: CONVERSION FACTOR i I oe Oa sccsccinceetnanbiaes $ 7.0 a scssoneneneinien 6.5 ey INI d,s cictatlh eabosscssctseorcyeostinntmneaddahs 6.5 GI EIEN cicsaietdscuhscecsitsnnsooievinctisetenss 6.0 CAEL LEC OE ROP 7.0 100 NOW, THEREFORE, BE IT RESOLVED that The Industrial Commission of Arizona adopts the schedule of fees presented to it for its consideration at its regularly schedule meeting on October 27, 1970, and that the fees to be charged by physicians attending injured employees shall be in accordance with said schedule of fees, and BE IT FURTHER RESOLVED that The Industrial Commission of Arizona adopts the following conversion fac- tors to be applied to the schedule of fees herein adopted effective December 1, 1970 and to continue in effect until further action by this Commission: CONVERSION FACTOR SIP EPID