Appendix — Arizona v. Maricopa County Medical Soc.
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No. 80-419
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IN THE {
Supreme Court of the United States
OcrokER TERM, 1980
STATE OF ARIZONA,
Petitioner,
vs.
Maricopa County Mepicat Society,
Maricopa FounDATION For MEpicat 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. 2 Pages 275-541
Ropert K. Corsin Pump P. BERELSON
Attorney General Brown & Bain, P. A.
Kennet R. Reep 222 North Central Avenue
Phoenix, Arizona 85004
Special Assistant (602) 257-8777
Attorney General
114 West Adams, Counsel for Respondent
Suite 760 Maricopa Foundation for
Phoenix, Arizona 85003 Medical Care
Counsel for P titioner Ropert O. LesHer
(602) 254-197 Lesher, Kimble & Rucker, P.C.
Of Counsel: 3773 East Broadway
ALISON B. Swax Tucson, Arizona 85716
Chief Counsel (602) 795-1470
eer er Counsel for Respondent Pima
nce“ Foundation for Medical Care
‘HARLES L. EGER
Assistant Attorney General D ‘Snell . —
Antitrust Division — —
114 West Adams, 6th Floor 3100 Valley Bank Center
Phoenix, Arizona 85003 Phoenix, Arizona 85073
(602) 255-4751 (602) 257-7211
Counsel for Respondent
Maricopa County Medical
Society
PETITION FOR CERTIORARI FILED SEPTEMBER 16, 1980
CERTIORARI GRANTED MARCH 9, 1981
275
EXHIBIT J
EXHBT. 31 FOR I D
HOLIDAY & ASSOCIATES
KENNETH R. MILLER
DATE 11-22-78
(Mitten Depo)
MARICOPA FOUNDATION FOR MEDICAL CARE
September 30, 1977
TO: All Foundation Doctors
Dear Doctor:
Enclosed is a ballot which asks your opinion of a pro-
posed increase in the conversion factors used by the
Foundation. If these increases are approved by a simple
majority, they will become effective December 1, 1977 for
all insurance plans initiated or renewed after that date.
Since its inception in 1969, the Foundation has at-
tempted to convince the public that private practice, fee-
for-service medicine is not only superior in regard to pa-
tient care, but is also cost effective. Because we have all
been faced with increased expenses we are necessarily
forced to consider a change in the fee schedules we use. We
urge you to voice your feelings by responding with this bal-
lot.
In the near future you will be receiving an application for
participation in the Foundation in the calendar year 1978.
We hope you will continue to support the Foundation con-
cepts and activities. The Board of Trustees sincerely
appreciate comments concerning any aspect of the Founda-
tion operation.
Sincerely,
Lawrence J. Shapiro, M.D.
PRESIDENT
LJS:lm
Enclosure
276
MARICOPA FOUNDATION FEE SCHEDULE BALLOT
Based on the California Medical Association’s Relative
Value Study of 1964, the conversion factors should be as
follows:
$10.50 per unit for surgery
$12.25 per unit for medicine and pathology
$ 7.50 per unit for clinical laboratory
$13.25 per unit for anesthesiology (based on the 1973
ASA Guide)
$ 8.50 per unit for radiology (based on the ACR, 1973)
() YES () NO
If you decide to vote no we would appreciate your com-
ments:
Name (please print)
277
EXHIBIT K
EXHBT. 4 FOR ED
HOLIDAY & ASSOCIATES
KENNETH N MILLER
DATE 11-22-78
(Mitten Depo)
MINUTES
MARICOPA FOUNDATION FOR MEDICAL CARE
BOARD OF TRUSTEES
October 17, 1977
PRESENT: Doctors: Norman Brown, M.D., James
Campbell, M.D., Richard Daley,
M.D., Robert Diserens, M.D., Keith
Harris, M.D., Rudger Hiatt, M. D,
James Laugharn, M.D., Donald
Miles, M.D., Patrick P. Moraca,
M.D., William Myers, M.D., Law-
rence J. Shapiro, M.D., and Ronald
Suiter, M.D.
Guests: Doctors Herbert Brown, M.D., Ira
B. Ehrlich, M.D., Neil Ward, M.D.,
Mr. Anthony D. Mitten and Mrs.
Dwyn Keller.
MINUTES: The minutes of the September 19, 1977 Board
of Trustees meeting were reviewed and accepted as submit-
ted.
FINANCIAL REPORT: The financial report for September
was discussed at length and approved as submitted.
FEE SCHEDULE BALLOT: The ballot report indicated a
majority of the ballots returned with 691 members approv-
ing the following conversion factors. $10.50 per unit for
surgery, $12.25 per unit for medicine and pathology, $7.50
per unit for clinical laboratory, $13.25 per unit for anesthe-
siology (based on the 1973 ASA Guide), $8.50 per unit for
radiology (based on the ACR, 1973).
278
A letter from Don Schaller, M.D. was read. The content of
this letter was felt to be erroneous in nature since the in-
crease is only 5% over a two year period of time.
AAFMC DUES: The billing for the annual American Asso-
ciation of Foundations for Medical Care dues in the amount
of $680.00 was approved for payment.
ARIZONA PIPE TRADES UNION: The proposal submit-
ted by Martin Segal Company for Foundation sponorship,
CHAP and Peer Review was discussed. It was the consensus
of the Board to investigate the conversion factors used for
payment to non-member physicians and to obtain a more
concrete proposal showing a comparison of the conversion
factors for the next Board meeting.
PSRO: George Stavros, M.D. has been nominated to serve
as Executive Medical Director for the Northern Arizona
Medical Evaluation Systems PSRO during the planning
period of the PSRO grant. He will submit a schedule out-
lining the duties to be undertaken in the performance of
this job.
279
EXHIBIT L
PIMA FOUNDATION FOR MEDICAL CARE
MAXIMUM FEE SCHEDULE FOR
PREVENTATIVE CHILD CARE
Newborn Care (routine)
Well infant or Well child office visits
DPT
Tri Sabin Oral Polio
PPD skin test
Cocci skin test
Hemoglobin or Hematocrit
Urinalysis
Measles, Mumps or Rubella
(separately)
Combination of two where available
(Mumps-Rubella or Measles-Rubella)
MMR (Measles-Mumps-Rubella)
$35.00
12.00
5.00
5.00
5.00
5.00
2.50
4.50
10.00
15.00
20.00
280
EXHIBIT M
MINUTES
MARICOPA FOUNDATION FOR MEDICAL CARE
FEE REIMBURSEMENT COMMITTEE
May 22, 1978
PRESENT: Doctors: Richard Daley, M.D., John Kelley,
M.D., Richard Pendergast, Robert
Fox, M.D., Norman Brown, M.D.,
Keith Harris, M.D., Lawrence
Shapiro, M.D., Laurance Nilsen,
M.D. and William Devine, D.O.
Staff: Anthony D. Mitten and Dwyn
Kelier
The goals of this committee were discussed and several
methods were considered to accomplish the Board directive
to upgrade the present method of identifying services to the
Foundation for payment.
This committee approved using the 1974 RVS complete
with unit values. Each specialty is to establish a conversion
factor to use with 1974 RVS that will reflect the current
Foundation payment. This recommendation will be brought
to the June 19, 1978 Foundation Board meeting.
Doctor Harris requested each member to also list the proce-
dures that were gross inequities and bring these to the next
meeting of this committee for consideration prior to re-
questing Board approval of any charges.
This committee will meet again on June 26, 1978 to discuss
acceptable conversion factors.
There being no further business, the meeting was adjourned
at 8:00 p.m.
Respectfully sumitted,
Keith Harris, M.D.
Chairman
281
EXHIBIT N
BY-LAWS
OF
PIMA FOUNDATION FOR MEDICAL CARE
CHAPTER I
GENERAL PROVISIONS AND PROPERTY
INTERESTS
Section 1, Business to be conducted without profit: This
corporation shall conduct and carry on its business without
profit to itself or its members, or any class thereof. No
member of this corporation shall, by reason of membership
herein, be or become entitled at any time to receive any
assets, property, income, or earnings from the corporation,
or to profit therefrom in any manner.
Section 2. Use of income: All of the income, revenue, and
earnings of the corporation shall be held, used, managed,
devoted, expended and applied in the discretion and judg-
ment of the Trustees, to carry out the objects and purposes
of the corporation, and without profit, direct or indirect, to
any member of the corporation as such.
Section 3. Distribution of assets on dissolution: In the event
of the dissolution of this corporation, all of its assets and
property, after payment and satisfaction of all claims and
demands against the corporation and all liabilities of the
corporation, shall be conveyed and transferred to such non-
profit, charitable organization as the Board of Trustees of
this corporation shall determine.
CHAPTER II
MEMBERSHIP
Section J. Classes of membership: There shal! be only one
class of membership in this corporation. It shall be known
as Corporate Members. Any physician who has previously
282
applied for and been accepted as a Participating or a Coop-
erating Member shall hereafter be a Corporate Member
until his membership shall be terminated as provided in
these By-Laws.
Section 2. Qualifications of Corporate Members: Any physi-
cian or podiatrist authorized by the statutes of the State of
Arizona to practice medicine in the State of Arizona, who
practices in Pima County or a county contiguous to Pima
County shall be eligible to apply for membership as a Cor-
porate Member. This membership may be granted by the
Board of Trustees to any such person so qualified upon
making application therefor. The dues and assessments to
be charged for admission to Corporate Membership, or to
be imposed upon members shall be determined by the
Board of Trustees.
Section 3. Rights and privileges of Corporate Members:
Corporate Members shall have the right to vote on the
adoption of any contract limits for medical services by the
Foundation. Adoption of any such schedule for medical ser-
vices shall be by mail ballot. A simple affirmative majority
of those ballots received shall be required for adoption. On
any such issue submitted to the Corporate Members, the
voting power of Corporate Members shall be equal to that
of every other entitled to one vote on issues submitted to
the Corporate Members. Both cumulative and proxy voting
are expressly prohibited. Adoption of any contract limits by
the membership notwithstanding. The Board of Trustees
may negotiate health care contracts on behalf of the Foun-
dation and such contracts will be binding on the
Foundation, even though they may represent a variance or
potential variance from the established contract limits. In
such cases, however, the membership must be polled re-
garding the acceptability of the contract limits within a
reasonable time, and in no event to exceed one year from
283
the date of such contracts. Voting shall be by mail ballot
and the results of the voting will be a determining factor to
be considered by the Trustees in re-negotiating the con-
tracts in question.
Section 4. Term of membership: Corporate Membership
shall be for a five (5) year period of time. Membership may
be determined by (A) Voluntary request in writing by the
Corporate Member to resign his membership submitted to
the Board of Trustees to become effective January 1, of the
following year; or (B) involuntary termination as initiated
and undertaken according to Chapter XII, Section 8, of
these By-Laws.
Section 5. Procedure for admission to Corporate Member-
ship: Any person who desires to become a Corporate
Member of this corporation shall fill out and sign in dupli-
cate the application blank provided for that purpose by the
corporation. Such application blank shall be in the form or
forms determined by the Board of Trustees, and shall con-
tain a clause stating in substance that the applicant agrees
to be bound by the constitution, By-Laws, and rules and
regulations of this corporation; that said applicant agrees to
be bound by the principles of professional conduct of this
corporation; that the applicant, as long as his membership
in this corporation is effective, agrees to be bound by any
and all rules, regulations, committee decisions, contract
limits, and the like, adopted by this corporation.
Said application shall be filed with the secretary-treasurer
at the principal office of the corporation. The application
shall be referred by the secretary-treasurer to the Member-
ship Committee, which shall investigate the background
and present status of the applicant, and shall report to the
Board of Trustees, with a recommendation, thereon. At the
next meeting of the Board of Trustees, the president shall
announce the names of those applicants submitted to it by
the Membership Committee, and the committee recommen-
284
dation, if any. Each applicant shall thereupon be voted on
individually; and it shall require a two-thirds majority vote
of the Board of Trustees to elect to membership.
Section 6. Non-transferability of membership: Neither Cor-
porate Membership in this corporation nor any certificate
evidencing the same nor the interest of any Corporate
Member in this corporation, or any of the assets thereof,
shall (A) be subject to execution or become or be an asset of
the estate of any deceased member, or of any member who
may become insolvent or bankrupt, (B) descend to or vest
in the heirs, legatees, or devisees or any member, or (C) be
transferable or assignable in any form either by the volun-
tary or by the involuntary act of any member, or by
operation of law. In the event of the death, insolvency or
bankruptcy of any member of this corporation or of any
certificate evidencing the same or of any interest of any
member in this corporation, or any of the assets thereof,
whether by the voluntary act of the member or otherwise,
such membership certificates and all interests of any such
member in this corporation and all assets thereof shall be
immediately cancelled, revoked and terminated.
Section 7. Membership roll: A written record of the Corpo-
rate Membership of this corporation shall be kept by the
secretary and said record shall contain the name and ad-
dress of each Corporate Member, and in any case where any
membership has been terminated for any reason whatsoev-
er, an entry of such fact, together with the date upon which
said membership was so terminated.
CHAPTER III
CERTIFICATES OF MEMBERSHIP
Section 1, Certificates: Certificates of membership shall be
of such form and device as the Board of Trustees may pre-
scribe. Each certificate shall express on its face the year
issued, and person to whom it is issued. Certificates of
membership shall be non-transferable. Issuance to and ac-
ceptance by a member of such certificate of membership
shall be conclusive evidence of the consent of the member
285
to become a Corporate Member of this corporation, and of
this agreement to comply with and be governed by all the
provisions of the articles of incorporation, By-Laws and
rules and regulations of this corporation. Certificates of
membership in this corporation shall be cancelled by the
secretary whenever a member ceases to be eligible as such,
or whenever the membership of the member terminates, in
accordance with the provisions of the articles of incorpora-
tion, or these By-Laws. All certificates of membership shall
be signed by the president or vice-president and by the sec-
retary of this corporation.
CHAPTER IV
MEETING OF MEMBERS
Section 1. Annual meetings; Annual meetings of all mem-
bers shall be held on the second Tuesday of December in a
location to be designated by the Board of Trustees. Notice
of all annual meetings of members will be given to all
members.
Section 2. Regular meetings: Regular meetings of the Board
of Trustees shall be held monthly at the corporate offices of
the organization.
Section 3. Special meetings: Special meetings of Corporate
Members, for any purpose or purposes whatsoever, may be
called at any time by the president or the Board of Trust-
ees; or by one-third of the members. Notice of special
meetings shall be given to each member entitled to vote
thereat either personally or by mail addressed to such
member at his address appearing upon the books of the
corporation at least ten (10) days in advance of the date of
such special meetings; and such written notice shall also
state the place, day and hour of such meeting and general
nature of the business to be transacted. No business shall
be transacted at a special meeting other than stated in the
purposes set forth in the notice. Special meetings may be
held at the principal office of the corporation or at any
other place within Pima County, State of Arizona.
286
Section 4. Adjourned meetings and notice thereof: Any
members’ meeting, annual or special, whether or not a quo-
rum is present, may be adjourned from time to time by the
vote of a majority of the members who are present in per-
son; but in the absence of a quorum, no other business may
be transacted at any such meeting. A quorum shall consist
of twenty-percent (20%) of the Corporate Membership of
the corporation.
When any members’ meeting, either regular, annual or spe-
cial, is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an origi-
nal meeting. Save as aforesaid, it shall not be necessary to
give notice of any adjournment or of the business to be
transacted at any adjourned meeting, other than by an
announcement at the meeting at which such adjournment is
taken.
Section 5. Entry of notice: Whenever any member entitled
to vote has been absent from any special meeting of mem-
bers, or a class thereof, an entry in the minutes to the effect
that notice has been duly given shall be conclusive and in-
controvertible evidence that due notice of such meeting was
given to such member or members as required by law and
the By-Laws of this corporation.
Section 6. Consent of absentees: The transaction of any
meeting of members, or a class thereof, either regular, an-
nual, or special, however called and noticed, shall be as
valid as though had a meeting duly been held after regular
call and notice if a quorum be present in person, sign a
written waiver of notice or consent to the holding of such
meeting or an approval of the minutes thereof. All such
waivers, consents, or approvals shall be filed with the cor-
porate records or made a part of the minutes of the
meeting.
287
Section 7. Action without meeting: Any action which may
be taken at a meeting of the members, or a class thereof,
may be taken without a meeting if authorized by a writing
signed by all of the members who would be entitled to vote
at a meeting of such purpose, and filed with the secretary of
the corporation.
CHAPTER V
CORPORATE POWERS
Section 1. Corporate powers vested in Board of Trustees:
The corporate powers of this corporation shall be vested in
a Board of at least twelve (12) Trustees. Two-thirds of said
Trustees shall constitute a quorum for the transaction of
business.
Section 2. Powers of Trustees: Subject to these By-Laws,
the Board of Trustees shall have full and sole power to con-
trol and manage the property and conduct the affairs and
business of this corporation; and in furtherance of the fore-
going powers, but not in limitation thereof, it ghall have
power:
First: To select and remove all the other officers,
agents and employees of the corporation, prescribe
such powers and duties for them as may not be incon-
sistent with law, with the articles of incorporation, or
with these By-Laws; fix their compensation; and re-
quire from them security for faithful service.
Second: To conduct, manage and control the affairs
and business of the corporation; and to make such
rules and regulations therefore not inconsistent with
law, with the articles of incorporation, or with these
By-Laws, as they may deem best.
Third: To procure the membership application forms
and membership certificate forms; and to alter such
membership application forms and membership certifi-
cates from time to time.
Fourth: To make assessments, borrow money and in-
cur indebtedness for the purpose of the corporation;
and to cause to be executed and delivered therefor in
the corporation name promissory notes, bonds, deben-
288
tures, deeds of trust, mortgages, pledges, hypotheca-
tions, or other evidences of debt and securities therefor
subject only to concurrence of two-thirds of the Board
of Trustees.
Fifth: To appoint an executive committee and other
committees, and to delegate to the executive commit-
tee any of the power and authority of the Trustees in
the management of the business and affairs of the cor-
poration, except the power to adopt, amend, or repeal
By-Laws. The executive committee shall be composed
of three or more Trustees of this corporation and
membership therein is expressly limited to Trustees.
Sixth: to appoint and employ an executive secretary or
manager, and any subordinate officials and employees.
Seventh: To consider, approve or disapprove all rec-
ommendations of any committee; and to adopt and to
propose to the Corporate Members contract limits for
medical services, which when adopted by a majority
vote of the Corporate Membership shall be binding
upon all Corporate Members of this Corporation while,
and so long as they are Corporate Members in good
standing of this corporation.
CHAPTER VI
BOARD OF TRUSTEES
Section 1. Terms of office: The first Trustees designated as
such in the articles of this corporation shall hold office and
exercise all powers granted to the Board of Trustees until
the next regular annual meeting of the Corporate Members
of this corporation. Thereafter, a new Board of Trustees
shall be elected by the Corporate Members in accordance
with these By-Laws. The new Board of Trustees so elected
may be composed of all, some, or none of the first Trustees
designated as such in the articles of incorporation. Four (4)
members of said Board of Trustees shall be elected for a
period of three (3) years; four (4) for a period of two (2)
years; and four (4) for a period of one (1) year. Yearly
289
thereafter, four (4) new members shall be elected to the
Board of Trustees of this corporation for a period of three
(3) years. No more than three (3) consecutive terms may be
served by any one individual.
Section 2. Removal from office: Any Trustee may be re-
moved from office as such by the affirmative vote of two-
thirds of the members, at any annual or special meeting of
the members, on written notice satting forth the reasons
and ground therefor, mailed to such Trustee at his last
known address at least ten (10) days prior to the date of
such meeting. Three (3) consecutive unexcused or four (4)
unexcused absences in any twelve (12) months shall be suf-
ficient grounds for summary dismissal from the Board of
Trustees.
Section 3. Vacancies: In the event of a vacancy on the
Board of Trustees, the vancancy shall be filled by a major-
ity vote of the Board of Trustees for the remainder of the
vacancy term.
Sectior 4. Amendment for expansion of Board: The Board
of Trustees of this corporation shall be composed of at least
twelve (12) persons, two-thirds () of whom must be Cor-
porate Members of this corporation. One-third () may be
lay (non-physician) individuals from the Pima County, Ari-
zona community selected for their interest in the provisions
of quality health services to the community compatible
with the philosophy, objectives and ethics of the Fima
Foundation for Medical care. Initially one-third (4) of lay-
members will be elected for three (3) years, one-third (d)
for two (2) years and one-third ‘'s) for one (1) year, and
yearly thereafter each lay-member will be lected for three
(3) year periods.
290
CHAPTER VII
MEETINGS
Section 1. Regular meetings: Regular meetings of the Board
of Trustees shall be held. The scheduled time and location
of such meetings shall be at the office of the Pima Founda-
tion for Medical Care.
‘Section 2. Special meetings: Special meetings of the Board
of Trustees for any purposes shall be called at any time by
the president, or any three (3) Trustees. Written notice of
the time and place of special meetings shall be delivered or
sent to each Trustee at his address as it is shown upon the
books of the corporation. In such case notice is mailed, it
shall be deposited in the United States mail at least sev-
enty-two (72) hours before the time of the holding of the
meeting. Mailing or delivering shall be due, legal and per-
sonal notice of such Trustees.
Section 3. Written consents and waiver of notice: The
transactions of any meetings of the Board of Trustees, how-
ever called and noticed, or wherever held, shall be as valid
as though had a meeting duly been held after regular call
and notice. If a quorum be present, and if, either before or
after the meeting, each of the Trustees not present sign a
written waiver of notice or consent to holding such meeting
or an approval of the minutes thereof. All such waivers,
consents, or approvals shall be filed with the corporate
records and made a part of the minutes of the meeting.
CHAPTER VIII
OFFICERS
Section 1. Officers: The officers of this corporation shall be
a president, a vice-president, a secretary, a treasurer, and
such other officers as the Board of Trustees may appoint.
291
Section 2. Election: The officers of the corporation shall be
chosen annually by the Board of Trustees from its member-
ship at its organization meeting, and each shall hold his
office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and
qualified.
Section 3. Removal and resignation: Any officer may be
removed, either with or without cause, by a majority of the
Trustees in office at the time, at any regular or special
meeting of the Board. Any officer may resign at any time
by giving written notice to the Board of Trustees or to the
president or to the secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein; and un-
less otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Vacancies: A vacancy in any office because of
death, resignation, removal, disqualification, or any other
cause shall be filled by the Board of Trustees until the next
annual! election of officers.
CHAPTER IX
DUTIES OF OFFICERS
Section 1. President: The president shall be the chief exec-
utive officer of the corporation, and shall, subject to the
control of the Trustees, have general supervision, direction,
and control of the business and officers of the corporation.
He shall preside at all meetings of the members and at all
meetings of the Trustees. He shall be at all meetings of the
members and at all meetings of the Trustees. He shall be
ex-officio a member of all the standing committees includ-
ing the executive committee, if any, and shall have the
general powers and duties of management usually vested in
the office of the president of a corporation, and shall have
such other powers and duties as may be prescribed by the
Board of Trustees or these By-Laws.
292
Section 2. Vice-President: In the absence or disability of
the president, the vice-presidents in order of their rank as
fixed by the Board of Trustees—or, if not ranked, the vice-
president designated by the Board of Trustees—shall per-
form all the duties of the president, and when so acting,
shall have all the powers of, and be subject to, all the re-
strictions upon the president. The vice-president shall have
such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the
Trustees or by these By-Laws.
Section 3. Secretary: The secretary shall keep, or cause to
be kept, a book of minutes at the principal office of the
corporation, or such other place as the Board of Trustees
may order, of all meetings of the Board of Trustees and
Corporate Members, with the time and place of holding,
whether special or regular, and if special, how authorized,
the notice thereon given, the names of those present at
Board meetings, the number of members present at mem-
bers’ meetings, and the proceedings thereof. He shall also
keep and maintain the membership certificate book and
membership roll of the membership of this corporation, and
records of all terminations of memberships in this corpora-
tion.
The Secretary shall give, or cause to be given, notice of all
the meetings of members and of the Trustees required by
these By-Laws or by the law to be given and he shall have
such other powers and perform such other duties as may be
prescribed by the Board of Trustees or by these By-Laws.
Section 4. Treasurer: The treasurer shall keep and main-
tain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions
of the corporatior including accounts of its assets, liabili-
ties, receipts, disbu.sements, gains and losses.
The treasurer shall deposit all monies and other valuables
in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Trustees.
He shall disburse the funds of the corporation as may be
293
ordered by the Board of Trustees; shall render to the presi-
dent and the Board of Trustees, whenever they request it,
an account of all his transactions as treasurer, and of the
financial condition of the corporation; and shali have such
other powers and perform such other duties as may be pre-
scribed by the Board of Trustees or by these By-Laws.
CHAPTER X
EXECUTIVE COMMITTEE AND OTHER
COMMITTEES ESTABLISHED BY TRUSTEES
Section 1. Executive Committee: There is hereby created an
executive committee to consist of the president, the vice-
president, the secretary, and the treasurer of the corpora-
tion. Such executive committee shall be vested with all of
the powers of the Board of Trustees when the Board of
Trustees is not in session.
Section 2. Standing committees: Standing committees of
this corporation shall be as follows:
A. Constitution and By-Laws Committee
B. Membership Committee
C. Actuarial Advisory Committee
D. Minimum Standards Committee
E. Peer Review Committee
Section 3. Qualifications and terms of office of committee
members: The members of the committees shall be ap-
pointed by the president, subject to the approval of the
Board of Trustees, and shall hold office for a period of one
year.
Section 4. Composition and duties of committees: Each
standing committee shall have as many members thereon as
the Board of Trustees may from time to time determine,
and shall have such duties and perform such functions as
may be required of them by the Board of Trustees from
time to time.
294
Section 5. Other committees: The Board of Trustees may
from time to time create other standing and special com-
mittees, appoint the numbers thereof, and invest therein
such powers and duties as it may deem desirable.
CHAPTER Xi
ELECTIONS
Section 1. Board of Trustees: The Corporate Members of
this corporation shall elect, by a majority vote, and in ac-
cordance with these By-Laws and the articles of
incorporation, the Board of Trustees of this corporation.
The Nominating Committee shall present to the member-
ship forty-five (45) days prior to date of election at least
one nominee for each vacancy on the Board of Trustees.
Each nominee must have agreed to accept the nomination.
These nominations will be mailed to the membership at
least thirty (30) days prior to election. Nominations may be
made by the membership. The nomination must be made
by five Corporate Members and the nominee must have
agreed to accept the nomination. Election will be made by
mail ballot sent fourteen (14) days prior to the date of elec-
tion, and the counting of ballots which will coincide with
the date of the annual meeting.
Section 2. Officers: The Board of Trustees of this corpora-
tion, at the next regular meeting following their election to
said Board, shall by simple majority vote, and in accord-
ance with these By-Laws, elect the officers of this
corporation.
CHAPTER XII
MISCELLANEOUS
Section 1. Inspection of corporate records: The membership
roll or register or duplicate membership roll or register, the
books of accounts, and the minutes of proceedings of mem-
bers and Trustees shall be open to inspection upon written
demand of any Corporate Member at any reasonable time,
and for a purpose reasonable related to his interest as such
member and shall be exhibited at any time when required
by the demand of ten (10) percent of the members. De-
295
mand of inspection other than that at a members’ meeting
shall be made in writing upon the president, or the secre-
tary.
Section 2. Checks, drafts, etc: All checks, drafts, or other
order for payment of money, notes, or other evidences of
indebtedness issued in the name or payable to the corpora-
tion shall be signed or endorsed by such person or persons,
and in such manner, as from time to time shall be deter-
mined by resolution of the Board of Trustees.
Section 3. Annual Report: The Board of Trustees shall
cause to be sent to the members, not later than one
hundred twenty (120) days after the close of the fiscal or
calendar year, an annual report of the financial affairs of
the corporation.
Section 4. Contracts, etc. - how executed: The Board of
Trustees, except as in these By-Laws otherwise provided,
may authorize any officer or officers, agent or agents to
enter into any contract or to execute any instrument in the
name of any on behalf of the corporation, and such author-
ity may be general or confined to specific instances. Unless
so authorized by the Board of Trustees, no officer, agent, or
employee shall have any power or authority to bind the
corporation by any contract or engagement, or to pledge its
credit to render it liable for any purpose or to any amount.
Section 5. Inspection of By-Laws: The corporation shall
keep in its principal office for the transaction of business
the original or a copy of the By-Laws as amended or other-
wise altered to date, certified by the secretary, which shall
be open to inspection by the members at ail reasonable
times during office hours.
Section 6. Rules of order: Roberts’ Rules of Order shall be
the parliamentary guide when not in conflict with the arti-
cles of incorporation or these By-Laws.
296
Section 7. Rules of Professional conduct: Principles of Pro-
fessional Conduct as this corporation may adopt by a
majority vote of its members shall govern this corporation
and all members thereof.
Section 8. Disciplinary Action: A member who is guilty of a
criminal offense or gross misconduct, either as a physician
or as a citizen, or violates any of the provisions of the arti-
cles of incorporation of this corporation, or these By-Laws,
or who acts contrary to or in violation of any contracts,
agreements, or statements of principle of this corporation,
shall be liable to censure, suspension or expulsion.
Section 9. Fiscal and Administrative Year: The fiscal and
administrative year of this corporation shall begin on the
first day in January and end on the last day of December of
the same year commencing January 1, 1971.
CHAPTER XIII
AMENDMENTS
These By-Laws may be amended or repealed by a simple
majority of those Corporate Members voting in a written
ballot.
Section 2. Powers of Trustees: Subject to Section 1 of this
chapter, by-laws, other than a by-law or amendment
thereof changing the qualifications or classes of member-
ship, or the authorized number of Trustees, or a chaging
the powers of limitations of the Board of Trustees, may be
adopted, amended, or repealed by the Board of Trustees.
297
Filed - DEC 22, 1978
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
Phoenix, Arizona
November 22, 1978
10:00 a.m.
DEPOSITION OF ANTHONY D. MITTEN
(VOL. D
~_* * „
[4]
1
Q. Would you tell us your name and home address,
please?
A. Anthony Mitten; 14851 North Skokie Court, Phoenix.
080
Q. And with whom are you employed?
A. I am employed by the Maricopa County Medical So-
ciety
Q. What is your position with the Maricopa County Med-
ical Society? A. Executive Director.
1
15
_* * *
Q. Do you also hold a position with the Maricopa Foun-
dation For Medical Care? A. Yes.
[6]
Q. What position do you hold?
A. Executive Director.
Q. With the Maricopa Foundation For Medical Care?
A. Executive Director.
298
Q. What are your responsibilities in the Maricopa Foun-
dation for Medical Care?
A. To administer the Foundation’s operations.
Q. For what period of time have you been Executive
Director for the Maricopa Foundation For Medical Care?
A. Let me explain something to you. They have changed
titles. I have always been the chief administrator / officer of
the Foundation since its inception, but the title of Execu-
tive Director did not exist at that time.
W * * *
[40]
Q. I see. Is it the ordinary practice of the Maricopa Foun-
dation to execute agreements with insurance companies
that underwrite Foundation plans?
A. Generally—we generally executed administrative
agreements with underwriting companies.
*_* „ „*
156]
8 „ * &
Q. BY MS. METZGER: Paragraph 2 of Exhibit 17 states,
“Since our agreement with the Insurance Advisory Commit-
tee indicated that whenever possible the Foundation would
give 90 days notice of any changes in the minimum stan-
dards, these changes will be effective November 1, 1974,
and are as follows,” and certain information provided at the
time Exhibit 17 was prepared and sent by you — did you
have knowledge of such an agreement?
A. I believe that we have always had a similar type of
agreement, yes. We are trying to notify the insurance peo-
ple as much as possible in advance of any changes in the
Minimum Standards,
299
157
with the hope that it would be at least 90 days.
Q. And would such notification normally be provided to
the insurance companies?
A. Generally, yes.
Q. Was it then the normal practice of the Maricopa
Foundation to send notices such as Exhibit 17 to members
of the Insurance Advisory Committee?
W * „* „*
Q. BY MS. METZGER: Is it the ordinary course of busi-
ness for Maricopa Foundation to send in _ writing
notifications to members of the Insurance Advisory Com-
mittee of proposed increases in the Foundation Fee
Schedule?
A. It is the normal course of business to have us advise
underwriting companies of changes in the Foundation Min-
imum Standards.
Q. Would such changes in the Foundation Minimum
Standards include changes in the Foundation reimburse-
ment schedule?
[58]
A. Yes, it would.
E e+ * *
160]
Q. Has the Martin E. Segal Company made any other
actuarial determinations on the effect of certain Minimum
Standards on Foundation plans on premium rates that
would be charged for such plans?
A. I do believe that they have made some assumptions on
that, yes.
0
300
163]
Q. BY MS. METZGER: Would the type of expertise
sought by Exhibit 20 include a rough estimate of the effect
on premiums charged for Foundation plans of the proposed
increases in the Minimum Standards on Foundation plans?
A. Yes, it probably would include some assumption, or
request some assumption from them.
E „ „ *
164
W * * *
Q. BY MS. METZGER: The court reporter has marked
as Exhibit 22 à copy of a letter dated October 31, 1975,
from yourself to Jack Lionovan of
165
Blue Cross / Blue Shield. Would you review Exhibit 22 and
tell us if that is a copy of the letter which you sent to Mr.
Donvan?
A. I believe it is, yes.
Q. Was Exhibit 22 sent to Mr. Donovan at or near the
date appearing thereon?
A. Yes.
Q. And was Exhibit 22 sent in the ordinary course of
Maricopa Foundation’s business?
A. Yes, it was.
Q. Was the same letter sent to other insurance companies
at or about the date marked on Exhibit 22?
A. Not the same letter, no.
Q. Were letters containing the information concerning
changes in the Foundation’s Minimum Standards which is
contained in Exhibit 22, sent to other insurance companies
at or about that date?
A. I believe it was, yes.
301
(71)
ft
Q. BY MS. METZGER: Mr. Mitten, what relative value
schedules are currently being used by the Maricopa Foun-
dation?
A. The Foundation basically makes use of the 1964 Cali-
fornia Relative Value Schedule and two or three other
specialty schedules to determine the maximum reimburse-
ment they make.
Q. Can you identify the two or three other specialty
schedules that are used?
A. I believe the 1973 American Society of Anesthesiolo-
gists and there is the American College of Radiology, but I
don’t remember the year.
I think that’s the only three that we use.
8 4 * *
[84]
E * * *
Q. BY MS. METZGER: Would it be correct to say, then,
that Maricopa Foundation distributed to its members the
1964 edition of the California Relative Value Schedule, as
prepared by the Maricopa Foundation, with instructions for
use provided by the Maricopa Foundation?
A. We distributed it with our own cover and the instruc-
tions as indicated before.
Q. At approximately what date was that Relative Value
Schedule distributed to the Foundation members by the
Maricopa Foundation?
A. Well, at various dates.
Q. Could you tell me on what occasions the Relative
Value Schedule has been distributed to the Foundation
members by the Maricopa Foundation?
302
A. The main mailing would have been made, if I recall
correctly, sometime in 1970. Subsequent mailings would
have been made as a member joined — as a physician
joined the Foundation.
E „ * *
188]
W * * *&
Q. Do each of the Relative Value Schedules used by the
Maricopa Foundations at the present time, assign relative
value to services performed by doctors?
A. I don’t think they are referred to in
189
that way.
Q. How would you refer to the numbers or values that
are listed next to the procedures, or services identified, for
example, in Exhibit 24?
MR. BERELSON: Off the record.
(Discussion off the record.)
A. I would say I believe there were two or three sets of
numbers. The ones on the left-hand side of the column
would be the identifying number, the number that would
identify the procedure from a code standpoint.
The values on the other side, I think, in the terms are the
most common understanding would be considered unit val-
ues, as opposed to relative values.
Q. BY MS. METZGER: Are those unit values used to
determine the amounts payable for each of the procedures
or services listed? A. In the 647
Q. In any of the Relative Value Schedules used by the
Foundation, is that the general way in which the Schedules
are used?
303
MR. McAULIFFE: Used by whon.? Industrial Commis-
sion?
Q. BY MS. METZGER: Used by Maricopa Foundation?
[90]
A. Generally, with the exception of the amounts that
might have shown the Minimum Standards, they would
vary that number, that unit value.
Q. To determine the amount payable for a procedure
listed in the Relative Value Schedule, the Foundation mul-
tiplies the unit value assigned to that procedure by the
conversion factor adopted by the Foundation for that cate-
gory of relative value; is that correct?
A. That would be the maximum allowable payment that
we would make for that service, using the method you de-
scribed, yes.
*_*+ * *
197
0
Q. BY MS. METZGER: Is Exhibit 28 currently being
used by the Foundation as a Schedule of Unit Conversion
Factors?
A. It currently is being used as a Conversion Factor for
all groups, new or renewed groups, after December Ist, last
year. There may be some groups that had different conver-
sion factors prior to December Ist that are still in force.
1114
Q. BY MS. METZGER: The court reporter has marked
the letter dated September 30th which you referred to and
it is attached to the Maricopa Foundation Fee Schedule
ballot as Exhibit 31.
304
Was Exhibit 31 found in the files of the Maricopa Foun-
dation?
A. Yes.
Q. And was Exhibit 31 within the custody, possession
and control of the Maricopa Foundation prior to your pro-
ducing it here this morning?
A. Yes, it was, I believe.
Q. Was Exhibit 31 kept in the course of
1115]
the Maricopa County Foundation's regular conducted busi-
ness activities? A. Ves, it was.
Q. And is it the regular practice of the Maricopa Founda-
tion to maintain such records in the course of their business
activities? A. Yes.
Q. Was Exhibit 31 made at or near the date appearing
thereon? A. Yes, I believe it was.
Q. Do you know what use the Maricopa Foundation
made of the ballots which were sent to the members with
Exhibit 31, which were returned to the Foundation by those
members?
A. My recollection is that they used them to determine
whether the membership would approve the change in the
conversion factors.
Q. And did the membership approve the proposed change
in the conversion factors?
A. My recollection is that they did.
Q. And the conversion factors approved by the Founda-
tion are the conversion factors listed in Exhibit 21; is that
correct?
305
11171
Q. BY MS. METZGER: Mr. Mitten, attached as part of
Exhibit 31 is a Maricopa Foundation Fee Schedule ballot,
or a document so entitled; are you
[118]
familiar with that ballot? A. Yes.
Q. Was that ballot sent in the form of a postcard to
Foundation members? A. I can’t answer that.
Q. I asked that because of the size of it.
A. It was on a card that may have been returned, ad-
dressed. It may have been just a postcard-size blank card
that had to be sent back in an addressed envelope; I don’t
know.
Q. It is correct to say, however, that
A. It is a ballot.
Q. That ballot was sent to members with the intention
that the members return the ballot to the Foundation in
the mail? A. Yes.
Q. Many of the members who were sent that ballot by
the Foundation returned those ballots to the Foundation in
the mail?
A. I can’t give you specific numbers by recollection.
Maybe the Minutes shows it. Yes, many, I suppose.
oe & a
Filed - DEC 22, 1978
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
Phoenix, Arizona
November 22, 1978
3:10 p.m.
306
DEPOSITION OF ANTHONY D. MITTEN
(VOL. ID)
(6)
FF ye
Q. BY MRS. METZGER: All right. Did you have occa-
sion to transcribe or review »ach of the Exhibits 32 through
45 at or about the time each of those exhibits was pre-
pared? A. Yes.
Q. May I see those, please.
On page two of Exhibit 32, which is minutes of a July 18,
1977, meeting of the Foundation board of trustees, there is
reference to returns from a questionnaire sent to Founda-
tion members. Would Exhibit 32 then be the minutes which
you referred to previously as a survey of the Foundation
membership?
MR. BERELSON: Let him look at it so he can see what
it is.
MRS. METZGER: Sure.
A. BY THE WITNESS: I believe these would refer to the
survey that was done in the Spring of
(7)
77.
Q. BY MRS. METZGER: Thank you. Exhibit 32, page
two, further records that the board directed the staff to
determine what a ten percent increase in physicians’ fees
would do to Foundation-endorsed insurance premiums. Did
you e Executive Director of the Foundation make that
determination?
MR. BERELSON: Could you let him look at that.
A. BY THE WITNESS: I believe I did. Yes.
307
118)
939 900 90
Q. Ves. As of today has the Fee Reimbursement Commit-
tee submitted to the Foundation or the Foundation board
of trustees a report on its evaluation of the 1974 Relative
Value Schedule?
A. I think there is a preliminary report in some of those
minutes somewhere, board minutes somewhere.
Q. I see. Is there any other report not found in the board
minutes? A. Not that I know of.
Q. Is the Fee Reimbursement Committee then evaluating
the Foundation’s use of the 1974 California Relative Value
Schedule rather than the 1964 California Relative Value
Schedule?
A. Yeah. I believe they were appointed to look at the 74
Relative Value Schedule.
W * * &
125
8 * * *
Q. BY MRS. METZGER: Does the Maricopa Foundation
have more than one committee whose responsibilities in-
volve a Relative Value Schedule, Schedule of Conversion
Factors, or other schedule or index to prices or amounts
payable? A. At the present time?
Q. Yes A. Yes. I believe it would in effect have more than
one committee.
Q. I see. Would one of those committees then be the Fee
Reimbursement Committee concerning which you have
previously testified? A. Yes.
308
Q. And the responsibilities of the Fee Reimbursement
Committee include the evaluation of the 1974 California
Relative Value Schedule for use by the Foundation in place
of the 1964 California Relative Value Schedule; is that cor-
rect?
A. I believe that was one of the charges given to the
committee by the board.
187
Q. BY MRS. METZGER: Exhibit 61 reports that no ac-
tion can be taken since the replies from the specialty
societies and other information concerning fees have not
been accumulated by the Foundatior.. Is it the normal prac-
tice of the Foundation board of trustees not to take action
concerning a Relative Value Schedule until it receives re-
plies on that subject from specialty societies?
A. Well, the action discussed was a relation to the con-
version factors that might be used for the Relative Value
Schedules to determine maximum
„ W * *
188]
reimbursements.
It is usual for them to wait for information that comes
from outside. In this case evidently they felt the need to. In
previous cases they have done different things.
Q. At the time of the board meeting, which is recorded in
Exhibit 61, which is May, 1977, the Foundation was polling
specialty societies regarding relative values and conversion
factors to be used by the Foundation, was it not?
A. I believe they are asking the specialty societies to give
them some indication of what the usual and customary
changes for certain services would be.
309
Filed - APR 19, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
AFFIDAVIT OF
ANTHONY D. MITTEN
STATE OF ARIZONA
88.
County of Maricopa
ANTHONY D. MITTEN, being first duly sworn, deposes
and says:
1. lam Executive Director of defendant Maricopa Foun-
dation for Medical Care (“Maricopa Foundation”). I make
this affidavit to correct misstatements in Plaintiff's Reply
Memorandum on the Effect of Royal Drug (‘Plaintiff's
Reply“).
2. Plaintiff's assertion that defendants' fee schedules
fully protect the doctor from losing any money on a diffi-
cult case’” because “In addition to the values assigned for
each medical procedure, the relative value schedules used
by defendants provide for additional values to be added to
the bill for any extra time, expense, service, materials or
risk the doctor might incur on an individual patient” is not
true. Participating physicians, other than anesthesiologists,
are not additionally compensated for unexpected time ex-
pended or complexity encountered in performing a
particular procedure on an individual patient. The relative
values set forth in Exhibit E to Plaintiff's Statement of
Undisputed Facts Supporting Plaintiff's Motion for Partial
Summary Judgment on the Issue of Liability with Supple-
mental References (‘Plaintiff's Statement“) are based upon
the time and complexity normally required for the perfor-
mance of each procedure. If the cost to the physician of
actual performance of a procedure exceeds its predeter-
mined relative value, Maricopa Foundation participating
physicians nevertheless agree to accept that relative value
310
as the basis of their maximum level of reimbursement. In
cases of unusual procedures for which there is little prior
experience upon which to determine a relative value, a rela-
tive value is derived by the physician’s submission of a
report which is subject to peer review. [Plaintiff's State-
ment, Ex. E, p. 9]
3. The Maricopa Foundation maximum level of compen-
sation does not include the risk modifiers to the relative
values for radiology services set forth in Exhibit F to Plain-
tiff's Statement on which plaintiff relies to support the
foregoing incorrect assertion of fact.
4. Plaintiff's assertion that Maricopa Foundation deter-
mines anesthesiology values “by adding a ‘Basic Value’
which is related to the complexity of service, plus ‘Modify-
ing Units’ which reflect the patient’s age, physical condition
and risk of complications, and “Time Units’ which reflect
‘each 15 minutes or fraction thereof’ the doctor spends with
the patient” is nat true. The method for determining the
maximum level of reimbursement for anesthesiology ser-
vices provided to patients insured under Maricopa
Foundation-endorsed insurance programs is clearly set
‘orth in Maricopa Foundation’s Minimum Standards for
Foundation-Endorsed Group Insurance Programs (Min-
imum Standards”), appended as Exhibit No. MF 64 to
Plaintiff's First Request for Admissions and Interrogato-
ries,
5. The Maricopa Foundation maximum level of reim-
bursement for anesthesia services provided to patients
insured under Maricopa Foundation-endorsed group insur-
ance programs consists of a basic value plus time values for
the time actually spent by the anesthesiologist in providing
anesthesia services. Additional compensation for risk o7
complexity is very limited. Only “[o]ne risk modifier in...
Anesthesia will be allowed for emergency cases after 6 p.m.,
subject to Foundation peer review. [Ex. No. MF 64, p. 12]
(emphasis added) The Maricopa Foundation, therefore,
expressly limits additional reimbursement for “risk” or
311
complexity to a single unit modifier for emergency cases
arising after 6 p.m., and even that modification is subject to
peer review of the medical necessity and appropriateness of
the service provided.
6. By limiting anesthesia risk modifiers, Maricopa Foun-
dation expressly rejected the use of risk modifiers for age
and other contingencies outlined in The American Society
of Anesthesiologists’ Relative Value Guide 1973 (‘Relative
Value Guide“) that is relied upon and cited by plaintiff in
footnote two of Plaintiff's Reply. Maricopa Foundation par-
ticipating physicians, therefore, assume the risk which
would be protected against if they were reimbursed in ac-
cordance with the Relative Value Guide that plaintiff cites.
(Signature and notary clause omitted in printing.)
312
Filed - APR 30, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT O« ARIZONA
STATE OF ARIZONA
Plaintiff,
vs.
Maricopa County MEpicat Society, an
Arizona non-profit corporation; MARICOPA
FOUNDATION FOR MEDICAL CARE, and
Arizona non-profit corporation; Pima
County Mepicat Society, an Arizona
non-profit corporation; and Pima
FouNDATION For MEDICAL CaRE, an
Arizona non-profit corporation,
Defendants.
af
Pursuant to stipulation of the parties,
NO CIV.
78-800
PHX WPC
ORDER
IT IS ORDERED that the provisions of Paragraph 6 of
the Order dated November 2, 1978 in this matter shall
remain in effect pending further order of this Court.
DONE IN OPEN COURT this 20 day of April, 1979.
/s/
Honorable William P. Copple
Judge, United States District Court
313
Filed - JUN. 15, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
SEPARATE ANSWER OF MARICOPA COUNTY
MEDICAL SOCIETY TO COMPLAINT
The Maricopa County Medical Society (hereinafter the
Society“), for its Answer to plaintiff's Complaint herein,
admits, denies and alleges as follows:
I
No answer is made herein to the allegations set forth in
paragraphs 8(b), 8(c), and 8(d) of the Complaint, as these
allegations concern the status and conduct of defendants
other than this answering defendant, and defendant lacks
knowledge or information sufficient to form a belief con-
cerning the truth thereof. No answer is made to the
remaining allegations of the Complaint to the extent they
concern or refer to the status, conduct, or activities of per-
sons or entities other than this answering defendant.
II
Answering paragraph 1 of the Complaint, admits that the
Complaint purports to allege violations of Section 1 of the
Sherman Act, 15 U.S.C., \ 1, but denies that that Act has
been violated by this answering defendant, as alleged or at
all. Further admits that the Complaint purports to invoke
this Court's jurisdiction pursuant to the provisions of 28
314
U.S.C. § 1331 and 1337 and 15 U.S.C. 4 26, but denies that
this Court’s jurisdiction has been properly invoked, as al-
leged or at all.
III
Answering paragraph 2 of the Complaint, denies that this
Court has subject matter jurisdiction over the claims for
relief set forth in Count One of the Complaint and, accord-
ingly, denies that this Court may exercise pendent
jurisdiction over the claims for relief set forth in Count Two
of the Complaint.
IV
Answering paragraph III of the Complaint, admits only
that this answering defendant is incorporated and main-
tains an office within the District of Arizona, that this
Court has personal jurisdiction over this answering defen-
dant, and that venue is properly laid in this judicial district,
but denies the remaining allegations set forth in said para-
graph.
V
Denies the truth of each and every allegation set forth in
paragraph 4 of the Complaint.
VI
No answer is made to the allegations set forth in para-
graph 5 of the Complaint as they are definitional in nature.
This answering defendant does not thereby concede the va-
lidity or accuracy of any of the definitions set forth therein.
VII
Answering paragraph 6 of the Complaint, admits that the
State of Arizona purports to bring this action on its own
behalf and as parens patriae on behalf of the citizens of the
State of Arizona, but denies that the State of Arizona has
the requisite standing to maintain this action and denies
that this action may be brought by the State of Arizona as
parens patriae as alleged or at all.
315
VIII
Is without knowledge or information sufficient to form a
belief concerning the truth of the allegations set forth in
paragraph 7 of the Complaint.
IX
Admits the allegations set forth in paragraph 8(a) of the
Complaint.
X
Denies the truth of the allegations set forth in paragraph
9 of the Complaint.
XI
Answering paragraphs 10 through 13 of the Complaint,
inclusive, this answering defendant is without knowledge or
information sufficient to form a belief concerning the truth
thereof, but denies that the activities of the defendants, as
alleged in the Complaint, occurred in interstate commerce
or had a direct and substantial effect upon such interstate
commerce, as alleged or at all, and denies that this Court
has subject matter jurisdiction over the claims for relief set
forth in the Complaint.
XII
Denies the truth of each and every allegation set forth in
paragraph 14 of the Complaint.
XIII
Denies the truth of each and every allegation set forth in
paragraph 15 of the Complaint, and each of its subpara-
graphs.
XIV
Denies the truth of each and every allegation set forth in
paragraph 16 of the Complaint, and each of its subpara-
graphs.
316
XV
Denies the truth of each and every allegation set forth in
paragraph 17 of the Complaint, and each of its subpara-
graphs.
XVI
Answering paragraph 18 of the Complaint, this answering
defendant repeats and realleges the allegations contained in
the foregoing paragraphs of this Answer as if fully set forth
herein.
XVII
Denies the truth of each and every allegation set forth in
paragraph 19 of the Complaint.
XVIII
The Complaint, and each Count thereof, fail to state a
claim upon which relief can be granted against this answer-
ing defendant.
XIX
This Court lacks subject matter jurisdiction over the
claims for relief set forth in the Complaint, and each Count
thereof.
XX
The claims for relief set forth in the Complaint, and each
Count thereof, concern activities which constitute the
“business of insurance” within the meaning of the Mc-
Carran-Ferguson act, 15 U.S.C. \ 1011, et seq., and are thus
exempt from the antitrust laws.
XXI
Each allegation of the Complaint not expressly herein
admitted is expressly denied.
317
WHEREFORE, having fully answered, defendant Mari-
copa County Medical Society prays that plaintiff's
Complaint be dismissed and that plaintiff take nothing
thereby, that defendant be awarded its costs herein in-
curred, and for such other and further relief as may seem
just in the premises.
DATED this 15th day of June, 1979.
(Signature omitted in printing.)
318
Filed - JUN 15, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
ANSWER OF DEFENDANT MARICOPA FOUNDATION
FOR MEDICAL CARE
Defendent Maricopa Foundation for Medical Care
(“Maricopa Foundation”), by its undersigned attorneys,
answers the complaint herein as follows:
1. Denies each and every averment of paragraph 1 except
admits that plaintiff purports to bring this action and to
invoke the jurisdiction of this Court pursuant to the statu-
tory provisions cited therein.
2. Denies each and very averment of paragraphs 2, 4, 9,
14, 15 and each subparagraph thereof, 16 and each subpara-
graph thereof, 17 and each subparagraph thereof, and 19.
3. Denies each and every averment of paragraph 3, except
states that it is without knowledge or information sufficient
to form a belief as to the truth of the averments with re-
spect to defendants Pima County Medical Society (“Pima
319
Society”) and Pima Foundation for Medical Care (“Pima
Foundation”), admits that plaintiff purports to lay venue in
this District pursuant to the statutory provisions cited
therein and that Maricopa Foundation and Maricopa
County Medical Society (“Maricopa Society”) are each in-
corporated, each maintains an office, and each transacts
business within the District of Arizona.
4. Admits that plaintiff purports to define the terms set
forth in subparagraphs (a)-(i) of paragraph 5 for use in the
complaint, states that it is without knowledge or informa-
tion sufficient to form a belief as to the truth of the
averments contained therein and denies that the terms
have been defined in accordance with commonly accepted
usage.
5. Denies the averments of paragraph 6 except admits
that plaintiff purports to bring this action on its own behalf
and as parens patriae on behalf of the citizens of the State
of Arizona.
6. States that it is without knowledge or information suf-
ficient to form a belief as to the truth of the averments of
paragraph 7 except denies that plaintiff and citizens of Ari-
zona have been and continue to be injured by the violations
of the antitrust laws alleged in the complaint.
7. States that it is without knowledge or information suf-
ficient to form a belief as to the truth of the averments
contained in subparagraphs (c) and (d) of paragraph 8 and
denies each and every averment contained in subparagraph
(b) of paragraph 8 except admits that it is an Arizona non-
profit corporation with its principal place of business in
Phoenix, Arizona, that it has four classes of membership,
that the Executive Director of the Maricopa Society is also
its Executive Director, and states that every person, upon
becoming a member of the Board of Directors of the Mari-
copa Society is entitled to become, and, without further
action or proceeding, becomes an administrative member of
it, and states that it is without knowledge or information
sufficient to form a belief as to the truth of the averment
320
that over 70 percent of the doctors practicing in Maricopa
County are participating or cooperating members of the
Maricopa Foundation.
8. States that it is without knowledge or information suf-
ficient to form a belief as to the truth of the averments
contained in paragraph 10.
9. States that it is without knowledge or information suf-
ficient to form a belief as to the truth of the averments
contained in paragraph 11 except denies that doctors in
Arizona prescribe medicines and other goods and products
which are shipped in interstate commerce and form an inte-
gral part of the interstate distribution of such prescription
drugs, goods and products and that the practice of medicine
involves the purchase, use and sale of goods and products
which are manufactured and sold and flow in a continuous
and uninterrupted stream of interstate commerce.
10. States that it is without knowledge or information
sufficient to form a belief as to the truth of the averments
of paragraph 12 except denies that health insurance in-
volves a continuous and uninterrupted flow of services,
products, contracts and claims in interstate commerce.
11. Denies each and every averment of paragraph 13 with
respect to it except admits it endorses health insurance
plans and it will not endorse a health insurance plan unless
it meets minimum standards for Foundation-endorsed
group insurance programs formulated by it or it agrees in
writing to a modification of those standards, and that some
plans endorsed by it are underwritten by private insurers,
each such private insurer doing business from a location in
Arizona and at least some doing business from locations
outside Arizona and states that it is without knowledge or
information sufficient to form a belief as to the truth of the
averments contained in paragraph 13 with respect to the
Pima Foundation.
321
12. Maricopa Foundation repeats and ealleges its an-
swers to paragraphs | through 17 of the complaint in the
same manner and to the same extent as though each answer
were again set forth in full.
FIRST AFFIRMATIVE DEFENSE
13. The complaint fails to state a claim against Maricopa
Foundation upon which relief can be granted against it.
SECOND AFFIRMATIVE DEFENSE
14. The Court lacks jurisdiction over the subject matter
alleged in the complaint.
THIRD AFFIRMATIVE DEFENSE
15. The claims set forth in the complaint are barred by
the doctrine of unclean hands.
FOURTH AFFIRMATIVE DEFENSE
16. The claims set forth in the complaint are barred by
plaintiff's wilful failure to comply with the requirements of
A. R. S. J 44-1401 et seq.
FIFTH AFFIRMATIVE DEFENSE
17. The claims set forth in the complaint are barred by
the doctrine of laches.
SIXTH AFFIRMATIVE DEFENSE
18. Plaintiff is estopped from pursuing the claims set
forth in the complaint.
SEVENTH AFFIRMATIVE DEFENSE
19. The claims set forth in the complaint concern activi-
ties which constitute the business of insurance which is
exempt from the antitrust laws pursuant to the McCarran-
Ferguson Act, 15 U.S.C. § F011 et seq.
WHEREFORE, Maricopa Foundation demands judg-
ment dismissing the complaint with prejudice, together
with its costs and disbursements incurred herein and for
such other and further relief as is appropriate.
June 18, 1979.
(Signature omitted in printing.)
322
Filed - JUN 27, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
MOTION OF DEFENDANT MARICOPA FOUNDATION
FOR MEDICAL CARE TO VACATE TEMPORARY
RESTRAINING ORDER OF APRIL 30, 1979 AND
NOTICE OF SUBMISSION WITHOUT A HEARING
Defendant Maricopa Foundation for Medical Care
(“Maricopa Foundation”) moves the Court, pursuant to
Rule 65(b) of the Federal Rules of Civil Procedure, to va-
cate its Order entered April 30, 1979 extending indefinitely
the effectiveness of the temporary restraining order con-
tained in Paragraph 6 of the Order dated November 2,
1978 on the grounds that: (1) Maricopa Foundation only
stipulated to extend that temporary restraining order for
three weeks beyond the Court’s determination of the mo-
tions decided by the Court on June 5, 1979; (2) Maricopa
Foundation will be severely prejudiced by the continuation
of that order; (3) plaintiff has not carried its burden of
showing the threat of irreparable injury to justify the issu-
ance of a preliminary injunction; (4) plaintiff has not
carried its burden of demonstrating probability of success
on the merits, and; (5) plaintiff has failed to give security,
all of which more fully appear in the accompanying memo-
randum submitted in support of this motion. Alternatively,
Maricopa Foundation moves that plaintiff be required to
give security pursuant to Rule 65(c) of the Federal Rules of
Civil Procedure.
Please take notice that this motion is submitted pursuant
to Local Rule 11(f) without a hearing.
(Signatures omitted in printing.)
323
File JUN 27, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
MEMORANDUM IN SUPPORT OF DEFENDANT
MARICOPA FOUNDATION FOR MEDICAL CARE’S
MOTION TO VACATE TEMPORARY RESTRAINING
ORDER OF APRIL 30, 1979
PRELIMINARY STATEMENT
On April 30, 1979, this Court extended indefinitely the
temporary restraining order contained in Paragraph 6 of its
Order dated November 2, 1978.* Defendant Maricopa
Foundation for Medical Care (“Maricopa Foundation”) now
moves the Court to vacate that order pursuant to Rule
65(b) of the Federal Rules of Civil Procedure on the
grounds that: (1) Maricopa Foundation has not stipulated
to any extension of the temporary restraining order beyond
June 26, 1979; (2) Maricopa Foundation will be severely
prejudiced by the continuation of that order; (3) plaintiff
has not carried its burden of showing irreparable injury
necessary to justify a continuation of the restraint; (4)
plaintiff has not carried its burden of demonstrating proba-
bility of success on the merits, and; (5) plaintiff has failed
to give security as required by Fed. R. Civ. P. 65(c). To
permit Paragraph 6 of the November 2 Order to remain in
* Paragraph 6 provides:
For the purpose of maintaining the status quo until plaintiff's pre-
liminary injunction motion may be heard, until the earlier of
May 1, 1979, or final judgment for any party in this action, or fur-
ther order of this Court, no defendant, nor any officer, agent,
servant, employee or attorney of any defendant nor any person in
active concert or participation with any defendant who receives
actual notice of this order by personal service or otherwise shall
participate in any survey, agreement, vote or other step to estab-
lish, determine or disseminate any relative value or conversion
factor with respect to medical services, goods or products other
than those relative values and conversion factors in effect on or
before October 18, 1978.
324
effect constitutes the de facto issuance of a preliminary in-
junction without plaintiff having made the required
showing of entitlement to such reiief pursuant to Rule
65(a).
ARGUMENT
THE COURT’S NOVEMBER 2, 1978 TEMPORARY
RESTRAINING ORDER CANNOT BE CONVERTED
INTO A PRELIMINARY INJUNCTION WITHOUT ANY
SHOWING BY PLAINTIFF OF ENTITLEMENT TO
SUCH EXTRAORDINARY RELIEF.
1. Because Maricopa Foundation Never Stipulated
to an Extension of the Temporary Restraining
Order Beyond June 26, 1979, Plaintiff Cannot
Simply Treat the Order as an Open-Ended Pre-
liminary Injunction,
In its Motion for Extension of Temporary Restraining
Order filed on April 20, 1979, plaintiff represented to the
Court that the parties had been unable to agree upon a
stipulated extension of the temporary restraining order
which by its terms expired May 1, 1979. In fact, defendants
had offered to stipulate to an extension of Paragraph 6 of
the November 2 Order for three weeks after the Court’s
decision if the Court denied the then pending motions to
dismiss. (Maricopa Foundation For Medical Care’s Re-
sponse to Plaintiff's Motion for Extension of Temporary
Restraining Order, at 2 (April 25, 1979).) Not content with
anything short of open-ended injunctive relief, this offer
was rejected by plaintiff.
Apparently realizing that the April 30 Order gives it the
equivalent of a preliminary injunction, plaintiff no longer
presses for a hearing on its pending application for an order
to show cause. At the Rule 42A conference held on Thurs-
day, June 21, 1979, plaintiff's counsel represented that
plaintiff intended to move for reconsideration of this
Court’s June 5, 1979 Order, or in the alternative, certifica-
tion of that ruling pursuant to 28 U.S.C.A. § 1292(b), or
alternatively for summary judgment under the rule-of-
325
reason standard applicable to the practices challenged in
this case. Although declining to stipulate to a vacation of
the April 30 Order, plaintiff did not disclose any intention
to move forward with a hearing on its motion for a prelimi-
nary injunction.* Furthermore, any preliminary injunction
hearing would necessarily be delayed because plaintiff has
yet to respond fully to defendant’s outstanding discovery
requests and to date has not even stated when its responses
will be forthcoming.
Under the circumstances, plaintiff has simply ignored its
burden of showing entitlement to a preliminary injunction,
choosing instead to treat the order as having already issued.
Rule 65(b), however, prohibits any such effect being attril -
uted to the extension of the temporary restraining order
absent the consent of the Maricopa Foundation. And the
Maricopa Foundation has not consented to any such exten-
sion.
* Plaintiff cannot have it both ways. It is well-established that an
order extending a TRO beyond the time limits permitted by Fed. R. Civ.
P. 65(b) is treated like a preliminary injunction, National City Bank b.
Battisti, 581 F.2d 565, 568 (6th Cir. 1977) (“Upon examination of the
entire record this court concludes that the motion of the various parties
..» for extension of the injunctive provisions of the November 4th order
should be treated as a motion for a preliminary injunction, and the
November 18th order of the district court was in effect a preliminary
injunction which was intended to extend and enlarge the injunctive pro-
visions of the temporary restraining order of November 4th and was
intended to make the injunctive provisions effective beyond the time
permitted under a temporary restraining order by Rule 65(b)"); there-
fore, without a hearing, the issuance of findings of fact and conclusion of
law and the giving of security, the validity of the order is questionable.
Granny Goose Foods, Inc. u. Brotherhood of Teams, Etc., 415 U.S. 423,
443 n.17 (1974) (“Where a temporary restraining order has been contin-
ued beyond the time limits permitted under Rule 65(b), and where the
required findings of fact and conclusions of law have not been set forth,
the order is invalid”).
326
2. The Harm to Maricopa Foundation and the Ab-
sence of Any Showing of Irreparable Injury to
Plaintiff Are Sufficient Grounds to Vacate the
Temporary Restraining Order.
The provisions of Paragraph 6 of the November 2 Order,
as continued in effect by the Court’s April 30 Order, pro-
hibit the Maricopa Foundation from taking any steps to
alter the maximum level of reimbursement payable to phy-
sicians for services rendered to patients insured under
Foundation-endorsed health insurance plans. Defendant
has not adjusted its maximum level of reimbursement since
December 1, 1977. (Affidavit of Anthony D. Mitten, para.
3, annexed hereto as Exhibit “A”.) During this period, in-
creasing costs to participating physicians have rendered it
uneconomical for them to continue to provide services to
subscribers of Foundation-endorsed plans at the current
maximum levels of reimbursement; in fact, many physicians
have expressed an unwillingness to continue their participa-
tion absent a revision in the maximum level of
reimbursement.* (Id., para. 4.) As a result, the viability
of the Foundation is threatened by its inability to offer fair
and reasonable reimbursement to the providers of services
to Foundation-plan subscribers. Additionally, the Founda-
tion cannot negotiate renewal of outstanding agreements
due to expire with the underwriters of its plans or with ex-
isting groups when there is a serious question concerning
continued physician participation. (/d., para. 5.) This threat
to defendant’s economic viability by itself is sufficient
grounds to vacate the continuing restraint on the Maricopa
Foundation. Democratic Cent. Com. of D.C. v. Washington
Met. A. T. Com’n, 436 F.2d 233, 235 (D.C. Cir. 1970)
It cannot be doubted that if physicians resign due to the prevail-
ing low reimbursement levels applicable to Foundation-endorsed plans,
the cost of medical care to those otherwise covered by Foundation-
endorsed plans will necessarily increase when the constraint of Founda-
tion reimbursement levels is removed. It follows that the public interest
is not served by an order that in effect forces the public to pay more for
health care.
327
(declining to stay an order authorizing a fare increase by
the D.C. Transit System, Inc., the court stated that “[wle,
however, cannot ignore the prospect, to which the record
lends credence, that the increases are essential to Transit's
continued existence, nor can we treat lightly the serious
constitutional question that denial of the increases would
pose in the circumstances“).
In contrast to the obvious harm to Maricopa Foundation
from the continuation of the temporary restraining order,
plaintiff has not and cannot show the threat of irreparable
injury necessary to warrant the issuance of a preliminary
injunction. The only injuries alleged by plaintiff in Para-
graph VIII of the Complaint are higher prices which, if
shown, might conceivably be compensable by money dam-
ages. By definition, such alleged injury is not irreparable
and thus not a sufficient basis for the award of temporary
or preliminary injunctive relief even where plaintiff alleges
the amount of damage is substantial.* SCM Corp. v.
Xerox Corp., 507 F.2d 258, 360, 363 (2d Cir. 1974)
(affirming denial of preliminary injunction because plaintiff
had not shown irreparable injury where it claimed damages
of threefold the amount of $145,000,000, court stated that
plaintiff “admittedly cannot escape its burden of establish-
ing the threat of irreparable harm. The statute [Section 16
of the Clayton Act] so requires and we are not free to disre-
gard it. Indeed, the flaw in the SCM case here is its
continuing failure to supply proof of a threat of irreparable
* Plaintiff asserted in support of its application to require defen-
dants to post a bond that a continuation of the subject practices would
result in substantial damages to the citizens of Arizona. (Memorandum
in Support of Motion to Vacate or Modify Stay Order of December 27,
1978, at 17-18 (January 12, 1979).) Accepting arguendo the grossly in-
flated figures put forth by plaintiff, still the only “damage” claimed by
plaintiff is calculable and compensable. It should be noted that on a per
capita basis the figure is de minimis. Moreover, even were the prospect
of future money damages a form of irreparable harm, any increase in
maximum levels of reimbursement would not be effective until
January 1, 1980, undermining any claims by plaintiff that relief pen-
dente lite is necessary (Affidavit of Anthony D. Mitten, para. 5).
328
harm. [I]t is basic that equitable relief will not be granted
where an adequate remedy at law exists. Money damages
. constitute such an adequate remedy“).
To summarize, plaintiff cannot make out the indispensi-
ble predicate to injunctive relief—irreparable harm. On the
other hand, Maricopa Foundation is directly and seriously
prejudiced by the temporary restraining order not only in
terms of immediate financial loss but in terms of a real
threat to its continued existence. The harm to defendant
from contination of the temporary restraining order surely
outweighs any alleged but unproved irreparable injury to
plaintiff.
3. Because Maricopa Foundation’s Conduct Is to
Be Tested Under the Rule of Reason, Plaintiff
Has Not Demonstrated Likelihood of Success
on the Merits.
Equally fatal to any effort by plaintiff to secure a de
facto preliminary injunction through extension of the
November 2 Temporary Restraining Order is its inability
to show a reasonable likelihood of success on the merits. In
its Order of June 5, 1979, denying plaintiff's motion for
summary judgment, this Court concluded that “the Rule of
Reason approach should be used in analyzing the chal-
lenged conduct in the instant case.” (Memorandum and
Order at 12.) The Court further stated that plaintiff would
be required to present sufficient evidence “as to the pur-
pose and effect of the allegedly unlawful practices and the
power of the defendant.” Id.
As a result of the Court’s ruling, the predicate underlying
plaintiff's motion for a preliminary injunction has vanished.
In support of its motion, plaintiff argues that the “clarity of
this per se rule” demonstrates the “strong probability that
plaintiff will succeed in the merits.” (Memorandum in Sup-
port of Order to Show Cause and Motion for Preliminary
329
Injunction, at 12 (Oct. 25, 1978).) The factual inquiries now
mandated under the Court’s ruling eliminate plaintiff's
simplistic assessment of the ultimate outcome of the litiga-
tion.
Antitrust cases involving conduct tested by the Rule of
Reason are particularly unsuited to the issuance of tempo-
rary or preliminary injunctive relief restraining the
challenged practice. Fuchs Sugar & Syrups, Inc. v. Amstar
Corporation, 380 F. Supp. 441, 444 (S.D.N.Y. 1974)
(denying motion for preliminary injunction, the court
stated “[{T]he Court is not convinced that Amstar’s actions
constitute a scheme to fix prices, which would be per se il-
legal, but rather sees numerous factual and legal
questions... . It does not yet clearly appear to this Court
that defendant has acted with the purpose or the effect of
reducing competition or unlawfully extending a monopoly
position in the market“); see Heldman v. United States
Lawn Tennis Ass’n, 354 F. Supp. 1241, 1250 (S.D.N.Y.
1973) (no reasonable probability of ultimate success where
“there are close and complex issues raised—particularly
with regard to the antitrust allegations—which should only
be resolved upon a full trial of the facts”); Jones v. Na-
tional Collegiate Athletic Ass’n, 392 F. Supp. 295, 304
(D.Mass. 1975) (court found no substantial likelihood of
success to warrant preliminary injunctive relief, stating: “In
order to make out a group boycott claim the plaintiff must
allege that the defendant’s purpose was to exclude a person
or group from the market or accomplish some other anti-
competitive objective. The issue in group boycott cases then
is not merely the existence or nonexistence of a concerted
refusal to deal, but rather whether the association was de-
signed to exclude outsiders from participation in the
marketplace“). Because the Court has now determined that
the Rule of Reason test will be applied in this case, it would
simply be an exercise in conjecture for plaintiff to contend
that it will ultimately prevail on the merits before the facts
have been fully developed. Application of the Rule of Rea-
son gives rise to complex issues whose resolution is most
330
appropriately left for trial. In advance of trial, no informed
and reasoned showing can be made by plaintiff that a de-
termination of these issues will be in its favor. The Order of
April 30, 1979 should therefore be vacated.
4. If the Order of April 30, 1979 Is Not Vacated,
Its Continuation Should Be Conditioned Upon
Plaintiff's Giving Security as Required Under
the Federal Rules of Civil Procedure.
While plaintiff has repeatedly characterized Paragraph 6
of the November 2 Order as injunctive relief,“ it has con-
veniently ignored Fed. R. Civ. P. 65(c) which requires a
party obtaining a temporary restraining order or prelimi-
nary injunction to give security in the event that the
restrained party is found to have been wrongfully enjoined.
Rule 65(c) is, by its terms, mandatory, declaring in perti-
nent part:
No restraining order or preliminary injunction shall
issue except upon the giving of security by the appli-
cant, in such sum as the court deems proper, for the
payment of such costs and damages as may be incurred
or suffered by any party who is found to have been
22 enjoined or restrained.* (Emphasis
a 0
*See, e. g., Memorandum in Support of Motion to Vacate or Modify
Stay Order of December 27, 1978, at 17 (Jan. 12, 1979) (The stay order
should certainly be clarified to preserve the prohibitory injunction of
Paragraph 6 of the November 2, 1978 Order”).
»C. Wright & A. Miller, Federal Practice and Procedure 5 2954, at
524:
Although it is settled that security need not be posted at the time
interlocutory injunctive relief is applied for, the rule is phrased in
mandatory terms and the conclusion seems inescapable that once
‘the court decides to grant equitable relief under Rule 65 it must
require security from the applicant. In fact, a district court's failure
to require the posting of a bond or other security has been held
reversible error.
Section 16 of the Clayton Act, 15 U.S.C.A. § 26, similarly provides
that an injunction shall not issue except “upon the execution of proper
bond against damages for an injunction improvidently granted.”
331
The Court does, of course, have discretion with respect to
the amount of the security that will be required. In this
regard, “the judge usually will fix security in an amount
that covers the potential incidental and consequential costs
and ... the losses the unjustly enjoined or restrained party
will suffer during the period he is prohibited from engaging
in certain activities. C. Wright & A. Miller Federal
Practice and Procedure § 2954, at 525. Plaintiff has itself
furnished to the Court its calculation of the amount of the
loss which defendant will suffer by virtue of continuing the
temporary restraining order. In its Motion to Vacate or
Modify Stay Order of December 27, 1978, at 17 (Jan. 12,
1979), plaintiff calculates those losses at $1.8 million per
month. Therefore, if the Court does not vacate the tempo-
rary restraining order, Maricopa Foundation submits that
plaintiff should be required to post a bond in favor of Mari-
copa Foundation sufficient to cover the losses accruing to
Maricopa Foundation at the rate of $1.8 million per month
for so long as the Court permits a temporary restraining
order or preliminary injunction to remain in effect.
Conclusion
For the foregoing reasons, defendant Maricopa Founda-
tion submits that the Court’s Order of April 30, 1979
should be vacated or, in the alternative, that plaintiff
should be required to give security in an amount to be de-
termined by the Court but not less than $1.8 million per
month for so long as the Court permits a restraining order
or preliminary injunction to remain in effect.
(Signature omitted in printing.)
332
(Caption omitted in printing.)
AFFIDAVIT OF ANTHONY D. MITTEN
STATE OF ARIZONA
88.
County of Maricopa
Anthony D. Mitten, being first duly sworn, under oath,
deposes and say:
1. I am the Executive Director of defendant Maricopa
Foundation for Medical Care (“Maricopa Foundation“). I
make this affidavit in support of Maricopa Foundation’s
Motion to Vacate the Temporary Restraining Order of
April 30, 1979.
2. On or about November 2, 1978, Maricopa Foundation
stipulated to the entering of an order whereby it agreed to
refrain until no later than May 1, 1979 from
participating]! in any survey, agreement, vote or other
step to establish, determine or disseminate any relative
value or conversion factor with respect to medical services,
goods or products other than those relative values and con-
verison factors in effect on or before October 18, 1978.“
{Stipulation dated November 2, 1978, para. 6] Prior to the
filing of Plaintiff's Motion for Extension of Temporary Re-
straining Order on April 20, 1979, Maricopa Foundation
‘offered to stipulate to extend that order three weeks be-
yond determination of the Rule 12 motions then pending.
The stipulation of November 2, 1978 and offer to extend
the stipulation in April 1979 were made in good faith and
were based upon Maricopa Foundation’s best judgment as
to the length of time during which it could agree to main-
tain the status quo without jeopardizing its economic
viability and, hence, its ability to serve as a competitive al-
ternative in the providing of health care services in
Maricopa County, Arizona.
333
3. Maricopa Foundation presently compensates physi-
cians who provide services to patients insured under
Marico, Foundation endorsed insurance programs in ac-
cordance with a maximum level of reimbursement that was
effective as of December 1, 1977. Maximum levels or reim-
bursement to Maricopa Foundation members for treating
patients insured under Maricopa Foundation endorsed
health insurance plans have remained the same for a period
of nearly two years, despite the high general rate of infla-
tion in the national economy.
4. Increasing numbers of Maricopa Foundation members
have requested that they be allowed to terminate their
memberships because the Maricopa Foundation’s current
maximum levels of reimbursement in many cases do not
adequately compensate physicians for the services they
provide.
5. In order for Maricopa Foundation to maintain its
membership and to continue to provide a competitive
health care alternative, it is imperative that it be permtted
to establish new maximum levels of reimbursement (to be
effective no sooner than January 1, 1980) upon which to
base negotiations for the renewal of outstanding agreements
with employee groups and underwriters which shall expire
on or before December 31, 1979. If the Maricopa Founda-
tion is not permitted to negotiate contracts on the basis of
new maximum levels of reimbursement, its economic viabil-
ity will be seriously threatened and it will be irreparably
damaged.
(Signature and notary clause omitted in printing.)
Filed JUN 29, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
MOTION OF DEFENDANT PIMA FOUNDATION FOR
MEDICAL CARE TO VACATE TEMPORARY
RESTRAINING ORDER OF APRIL 30, 1979, AND
NOTICE OF SUBMISSION WITHOUT A HEARING
The defendant, Pima Foundation for Medical Care (Pima
Foundation), appears and joins with the Maricopa Founda-
tion for Medical Care in that defendant’s Motion to vacate
the Court’s Order of April 30, 1979, on the grounds and for
the reasons set forth in the moving papers of the defendant,
Maricopa Foundation, and the affidavit of Thomas P. Fin-
ley, the Executive Director of the Pima Foundation for
Medical Care, attached hereto and made a part hereof.
This motion is also submitted pursuant to Local Rule
11(f) without a hearing.
(Signature omitted in printing.)
335
(Caption omitted in printing.)
AFFIDAVIT OF THOMAS P. FINLEY
STATE OF ARIZONA
88.
County of Pima
Thomas P. Finley, being first duly sworn, under oath,
deposes and says:
1. That I am the Executive Director of Defendant Pima
Foundation for Medical Care (Pima Foundation). I make
this affidavit in support of Pima Foundation’s Motion to
Vacate the Temporary Restraining Order of April 30, 1979.
2. On or about November 2, 1978, Pima Foundation stip-
ulated to the entering of an order whereby it agreed to
refrain until no later than May 1, 1979, from “partici-
patling] in any survey, agreement, vote or other step to es-
tablish, determine or disseminate any relative value or
conversion factor with respect to medical services, goods or
products other than those relative values and conversion
factors in effect on or before October 18, 1978.”
(Stipulation dated November 2, 1978, para. 6). Prior to the
filing of Plaintiffs Motion for Extension of Temporary Re-
straining Order on April 20, 1979, Pima Foundation offered
to stipulate to extend that order three weeks beyond deter-
mination of the Rule 12 motions then pending. The
stipulation of November 2, 1978, and offer to extend the
stipulation in April, 1979, were made in good faith and were
based upon Pima Foundation’s best judgment as to the
length of time during which it could agree to maintain the
status quo without jeopardizing its economic viability and,
hence, its ability to serve as a competitive alternative in the
providing of health care services in Pima County, Arizona.
3. Pima Foundation presently compensates physicians
who provide services to patients insured under Pima Foun-
dation endorsed insurance programs in accordance with a
maximum level of reimbursement that was effective as of
December 1, 1977. Maximum levels of reimbursement to
336
Pima Foundation members for treating patients insured
under Pima Foundation endorsed health insurance plans
have remained the same for a period of nearly two years,
despite the high general rate of inflation in the national
economy.
4. Increasing numbers of Pima Foundation members
have requested that they be allowed to terminate their
memberships because the Pima Foundation's current maxi-
mum levels of reimbursement in many cases do not
adequately compensate physicians for the services they
provide.
5. In order for Pima Foundation to maintain its member-
ship and to continue to provide a competitive health care
alternative, it is imperative that it be permitted to establish
new maximum levels of reimbursement (to be effective no
sooner than January 1, 1980) upon which to base negotia-
tions for the renewal of outstanding agreements with
employee groups and underwriters which shall expire on or
before December 31, 1979. If the Pima Foundation is not
permitted to negotiate contracts on the basis of new maxi-
mum levels of reimbursement, its economic viability will be
seriously threatened and it will be irreparably damaged.
(Signature and notary clause omitted in printing)
337
Filed - JUL 11, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
NO. CIV. 78-800 PHX-WPC
MEMORANDUM AND ORDER
Defendants Maricopa Foundation for Medical Care and
Pima Foundation for Medical Care have moved to vacate
the order of the Court dated April 30, 1979, which contin-
ued until further order the temporary restraining order
contained in Paragraph 6 of the order dated November 2,
1978. The defendants have established irreparable injury to
themselves by substantiating without dispute through affi-
davits that participating physicians have threatened to
withdraw from the defendant foundations. The plaintiff, on
the other hand, has failed to show injury to itself and those
it represents that cannot be compensated by money dam-
ages or that could be avoided if the motion to vacate the
temporary restraining order were denied. The plaintiff has
also not demonstrated that the injury to it in granting the
motion exceeds that incurred by defendants in denying the
motion. The plaintiff, moreover, has not shown that it is
likely to succeed on the merits based on the Rule-of-Reason
approach adopted here, which requires relatively complex
factual inquiries. Thus, whether treated as a motion to va-
338
cate the temporary restraining order, or, because of the
lapse of time and the preparation of the parties, as an ap-
plication for a preliminary injunction, the defendants are
entitled to relief. Therefore,
IT IS ORDERED:
The defendants’ motion to vacate the April 30, 1979,
temporary restraining order is granted.
DATED July 17, 1979.
/s/
United States District Judge
339
Filed - JUL 6, 1979
W. J. Furstenau, Clerk
U.S. District Court
For The District of Arizona
(Caption omitted in printing.)
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
AND PERMANENT INJUNCTION
Plaintiff STATE OF ARIZONA moves pursuant to Rule
56(a), Federal Rules of Civil Procedure, for entry of an or-
der awarding summary judgment in its favor and against
defendants that defendants’ combination and conspiracy
and acts done in pursuance thereof were and are an unrea-
sonable restraint of trade and commerce in violation of
section 1 of the Sherman Act, 15 U.S.C. § 1, and the Uni-
form State Antitrust Act, Ariz. Rev. Stat. Ann. J 44-1402,
under the Rule of Reason standard, and permanentiy en-
joining defendants and their members from continuing
those activities and from entering into any combination,
conspiracy, agreement, understanding or concert of action
having a similar purpose or effect.
In the event summary judgment is not rendered fully on
this motion as prayed, plaintiff respectfully requests in the
alternative that the Court enter an order pursuant to Rule
56(d), Federal Rules of Civil Procedure, specifying the facts
that appear without substantial controversy and the issues
of fact and law that remain to be tried and directing further
proceedings in this matter including the hearing of plain-
tiff's motion for preliminary injunction.
This motion is based upon section 1 of the Sherman Act,
15 U.S.C. § 1, section 16 of the Clayton Act, 15 U.S.C. § 26,
the Uniform State Antitrust Act, Ariz. Rev. Stat. Ann. §\
44-1402, 44-1408, Rule 56, Federal Rules of Civil Procedure,
the entire record in this matter and the accompanying
statement of undisputed facts and memorandum of law.
DATED: July 6, 1979.
(Signature omitted in printing.)
340
Filed - JUL 6, 1979
W. J. Furstenau, Clerk
U. S. District Court
For The District of Arizona
(Caption omitted in printing.)
MEMORANDUM IN SUPPORT OF PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT AND
PERMANENT INJUNCTION
I,
INTRODUCTION
Plaintiff State of Arizona previously moved on
November 20, 1978 for partial summary judgment on the
issue of liability in this matter, basing its legal argument
primarily upon the per se standard of liability. Having de-
termined that the Rule of Reason approach should be used
in analyzing the conduct at issue in this case, this Court
denied plaintiff's motion of November 20, 1978, with leave
to file a similar motion based upon the Rule of Reason
standard (Memorandum and Order of June 5, 1979).
Plaintiff readily accepts that invitation and respectfully
requests that the Court enter its order granting summary
' Plaintiff has respectfully requested in a separate motion filed con-
currently with this motion for summary judgment and permanent
injunction that this Court reconsider and vacate its Memorandum and
Order of June 5, 1979, insofar as it denied plaintiff's motion for partial
summary judgment on the issue of liability based upon the conclusion
that the per se standard of analysis does not apply to price-fixing by a
professional trade association, and that it grant plaintiff's motion for
partial summary judgment on the issue of liability. Alternatively, that
motion requests this Court to enter its order pursuant to 28 U.S.C. §
1292(b) that insofar as it denied plaintiff's motion for partial summary
judgment on the issue of liability the Memorandum and Order of June 5,
1979 involves a controlling question of law as to which there is substan-
tial ground for difference of opinion and that an immediate appeal from
that portion of the order may materially advance the ultimate termina-
tion of the litigation. Plaintiff's Motion for Reconsideration of
Memorandum and Order of June 5, 1979, or alternatively, Motion for
Certification for Interlocutory Appeal Pursuant to 28 U.S.C. § 1292(b) of
Memorandum and Order of June 5, 1979.
341
judgment in plaintiff's favor and against defendants that
the conduct of defendants alleged by plaintiff and estab-
lished by the record in this case is in violation of section 1
of the Sherman Act and Arizona's Uniform State Antitrust
Act under the Rule of Reason standard, and providing
permanent injunctive relief from the continuation of such
conduct. In the alternative plaintiff respectfully requests
that the Court make an order pursuant to Rule 56(d), Fed-
eral Rules of Civil Procedure, specifying the facts that
appear without substantial controversy and the issues of
fact and law that remain to be tried, and directing further
proceedings in this matter including the hearing of plain-
tiff’s motion for preliminary injunction.
“The inquiry mandated by the Rule of Reason is whether
the challenged agreement is one that promotes competition
or one that suppresses competition.” National Society of
Professional Engineers v. United States, 435 U.S. 679, 691,
98 S. Ct. 1355, 1365 (1978). In this case, the undisputed
evidence establishes that the defendant foundations func-
tion as doctors’ cartels whose members adopt by majority
vote the prices they will accept for services rendered to in-
dividual patients on a fee-for-service basis. It is undisputed
that the price-fixing activities at issue here are entirely hor-
izontal in nature, as the agreed-upon price increases and
uniform fee schedules adopted by the defendants are deter-
mined by a majority vote of defendants’ doctor members
not the insurers and other third parties that pay for doc-
tors’ services in accordance with the foundation fee
schedules.
That the horizontal price-fixing activities of these doc-
tors’ cartels has been patently anticompetitive both in
purpose and effect is amply documented in the record.
Whatever procompetitive benefits the defendants might
assert could be achieved by far less anticompetitive proce-
dures than those at issue here. See Smith v. Pro Football,
Inc., 593 F.2d 1173, 1183-1189 (D.C. Cir. 1978); Mackey v.
National Football League, 543 F.2 606, 620-622 (1976).
342
Because the undisputed facts in this matter reveal that de-
fendants’ price-fixing activities have been far more
restrictive than necessary to serve any legitimate purpose,
summary judgment is appropriate under the Rule of Rea-
son standard. E.g., Associated Press v. United States, 326
U.S. 1, 65 S. Ct. 1416 (1945); Kapp v. National Football
League, 390 F. Supp. 73, 82-83 (N.D. Cal. 1974), aff d, 586
F.2d 644 (9th Cir. 1978); see National Society of Profes-
sional Engineers, 435 U.S. at 691-92, 98 S. Ct. at 1365-66;
Silver v. New York Stock Exchange, 373 U.S. 341, 345, 360-
61, 83 S.Ct. 1246, 1251, 1259 (1963).
II.
SUMMARY OF THE FACTS’
A. The Defendants
It is undisputed that each of the defendants is an asso-
ciation of doctors’ who are licensed to practice in the
State of Arizona (Statement of Undisputed Facts Support-
ing Plaintiff's Motion for Summary Judgment and Per-
manent Injunction (hereinafter “Statement of Facts” No.
1). The defendant medical societies are the local compo-
nents of the American Medical Association in Maricopa and
Pima Counties. (Statement of Facts No. 8.) Having founded
the defendant foundations to promote the interests of fee-
for-service medicine, the defendant societies have con-
* The undisputed facts upon which this motion for summary judg-
ment is based are set forth in detail with citations to the record in the
accompanying Statement of Undisputed Facts Supporting Plaintiff's
Motion for Summary Judgment and Permanent Injunction and summa-
rized here with references to that Statement.
Medical and osteopathic physicians and surgeons and podiatrists
who practice in Pima County or a county contiguous to Pima County
may qualify for membership in the Pima Foundation for Medical Care
(“Pima Foundation”). Medical and osteopathic physicians and surgeons
may qualify for participating membership, und podiatrists and oral sur-
geons may qualify for cooperating membership, in the Maricopa
Foundation for Medical Care (“Maricopa Foundation”) no matter where
in the State of Arizona they practice. The term “doctors” is used inclu-
sively to refer to all foundation members.
343
trolled the activities of the foundations, including the
activities at issue here.“ (Statement of Facts Nos. 2,3.)
Defendants have repeatedly represented that their mem-
bership includes a substantial percentage of the fee-for-
service physicians in their respective communities. (State-
ment of Facts No. 4). For example, in a bid dated May 18,
1979, the Maricopa Foundation represented that:
The Maricopa Foundation for Medical Care was
incorporated in 1969 and initially enrolled 80 percent
of the active private practicing physicians in Maricopa
County as participating members.
There are approximately 1500 active practicing
M.D.’s available to private patients and 250 Osteo-
pathic physicians in Maricopa County. The Founda-
tion has consistently maintained over 70% of the pri-
vate practicing M.D.’s and approximately one-half of
the Osteopathic physicians as members. The majority
of the Podiatrists in Maricopa County also participate
in the Foundation organization. (Exhibit to Affidavit
of Alice McLain, dated July 5, 1979, Exhibit V to
Statement of Facts.)
At the present time, over 1,000 of the licensed doctors in
Maricopa County and over 400 of the licensed doctors in
Pima County are members of the defendant foundations.
Under the By-Laws of both of the defendant foundations, the
elected directors of the defendant societies have also served as the ad-
ministrative members of the defendant foundations. In that capacity, the
societies’ directors have had the only general voting power on foundation
affairs and have selected the foundations’ trustees. (Statement of Facts.)
The Pima County Medical Society (“Pima Society”) severed its
relationship with the Pima Foundation in October, 1978, after the com-
plaint in this action had been filed, and a consent judgment was
thereafter entered against the Pima Society on November 17, 1978. The
trustees of the Pima Foundation are now elected by the members of that
foundation.
344
(Statement of Facts Nos. 31 and 32.) Thus, a substantial
portion of the providers of fee-for-service medicine in Mari-
copa and Pima Counties have been involved in the practices
at issue here.
B. Purpose
Defendants concede that the foundations were estab-
lished by the defendant societies to promote the interests of
fee-for-service medicine (Statement of Facts Nos. 3, 4), the
dominant form of medical practice in which individual
providers of doctors’ services are paid on the basis of the
particular services they render to individual patients.’ In
repeated communications to their members and other phy-
sicians, the defendant foundations have emphasized that
they have been working to protect the interests of physi-
cians who practice on a fee-for-service basis. (Statement of
Facts No. 4, 36.)
A primary function of the defendant foundations since
their inception has been the preparation and adoption of
“uniform fee schedules” for doctors’ services. Indeed, the
only power granted to the members of either of the defen-
dant foundations under the By-Laws of those associations
has been the power to vote on the adoption of ... uniform
fee schedules ... by mail ballot.” (Statement of Facts Nos.
12, 13.) The By-laws of both groups have also called for the
establishment of standing fee schedule committees and
have specifically authorized the foundations’ trustees to
* See American Medical Association v. United States, 317 U.S. 519,
536, 63 S. Ct. 326, 332 (1943). Doctors who practice on a fee-for-service
basis may practice alone or in a partnership or corporation with several
other doctors. The key factor in fee-for-service practice is that the doctor
(or his partnership or ...poration) functions as an independent unit and
is paid by the individual patient (or a third party which has assumed
responsibility for that patient's doctor bills) on the basis of the services
sold to the individual patient (rather than being paid a flat rate or a sal-
ary). See generally, Council on Wage and Price Stability, Physicians
Fees, A Study of Physicians’ Fees (1978) (Exhibit 2 to the Statement of
Undisputed Facts Supporting Plaintiff's Motion for Partial Summary
Judgment on the Issue of Liability with Supplemental References).
345
adopt and to propose to the [membership] uniform fee
schedules for medical services” which when adopted by the
majority vote of the [membership have been] binding upon
all {members].” (Statement of Facts Nos. 13, 14, 20 & 21.)
Doctors who apply for membership in the foundations have
been required to complete and sign application blanks
which contain an agreement to be bound by any and all
rules, regulations, committee decisions, fee schedules and
the like, adopted by [the foundation]. (Statement of Facts
Nos. 14, 22, 30, 34.)
In addition to determining the amounts which insurers
must pay for professional services, the minimum standards
promulgated by the defendant foundations have expressly
limited the “professional payments” made under founda-
tion-approved plans to “duly licensed (a) Physicians and
Surgeons, (Doctors of Medicine), (b) Doctors of Dentistry,
(c) Physicians and Surgeons (Doctors of Osteopathy), [and]
(d) Doctors of Chiropody (Podiatrists).” (Statement of
Facts No. 47, 49.) Thus, the services rendered by chiroprac-
tors, naturopaths, and other categories of duly licensed
medical providers have been excluded from coverage in
foundation-approved plans.
It is undisputed that the foundation members who have
agreed to accept the amounts set in the foundation fee
schedules as “full satisfaction” of their bills to patients in-
sured under foundation-approved plans have been the very
same persons who have decided by majority vote what
those amounts would be.
Defendants have repeatedly indicated both to their
member doctors and to the various specialty groups of doc-
tors in Arizona that the fees set by their uniform fee
schedules have been intended to approximate the usual and
customary charges of the majority of doctors in their com-
munities. (Statement of Facts Nos. 42, 63.) Defendants
have repeatedly asked other associations of doctors to meet
and agree on the fees and fee schedules to be used by their
members and to report the results of their agreements to
346
the defendants. (Statement of Facts Nos. 60, 62.) After
their adoption by majority vote of the foundation member-
ship, the defendants’ fee increases have been circulated to
doctors throughout the State of Arizona. ({.atement of
Facts No. 65.)
This Court has already found that the fee schedules
adopted by the doctor members of the defendant founda-
tions have set the maximum fees to be paid to doctors by
insurers for services rendered to patients enrolled in health
insurance plans approved by the foundations. (Memo-
randum and Order of June 5, 1979, at 2, 6. See Statement
of Facts No. 48.) Indeed, the minimum standards promul-
gated by the defendent foundations have required the
insurers which underwrite foundation-approved plans to
pay 100 percent of the fees charged by doctors for services
covered under those plans up to the maximum amounts set
in the foundation fee schedule.“ (Statement of Facts Nos.
43 & 46.)
The insurers which underwrite foundation plans have
had no vote at all on the fee schedules which determine the
amounts they are required to pay for doctors’ services un-
der foundation-approved plans. As this Court noted in its
Memorandum and Opinion of June 5, 1976, at 6-7, this is
not a situation in which insurance companies have individ-
ually determined the maximum prices to be paid and the
physicians have individually agreed to those terms. To the
contrary, this is a situation in which defendants admit that
This requirement binds the insurer with respect to non-
participating as well as participating doctors. In the case of a participat-
ing doctor, however, the patient's claim is automatically assigned and
paid directly to the doctor and the doctor agrees not to bill the patient
for payment in excess of the amount set by the foundation fee schedule.
In either case, the patient may be required to pay a fixed deductible
amount. (See Statement of Facts No. 70, 48).
347
they have decided by majority vote of their members what
prices they will accept for their services, and insurers and
other third party payors have been required to pay those
prices.
C. The Conduct at Issue
What is at issue in this lawsuit is the determination of
prices to be paid for doctors’ services by majority vote of an
association of doctors rather than the independent business
judgment of individual doctors and insurers. The anticom-
petitive character of the foundation fee schedules is well-
illustrated by the procedures which the defendants have
admittedly followed in adopting and maintaining them.
It is undisputed that the defendant foundations have
repeatedly polled the various specialty groups of doctors in
Arizona on the prices charged and the relative value sched-
ules and conversion factors used or preferred by their
members. (Statement of Facts Nos. 57-59, 61.) On some
occasions, the foundations have explicitly asked specialty
groups of doctors to poll their members concerning the unit
values and conversion factors they should use in the future.
(Statement of Facts No. 64.) In response to those requests
by defendants, numerous price communications and price
agreements have occurred involving many doctors who were
not even members of the defendant foundations. (State-
ment of Facts Nos. 57, 59, 61, 64.) For example, on
April 14, 1977, the Maricopa Foundation’s President wrote
to the presidents and secretaries of at least fifteen different
specialty societies, stating in part:
The Maricopa Foundation for Medical Care is inter-
ested in maintaining as close-as-possible a relationship
between the maximum allowance for Foundation plans
and the usual and customary charges made by physi-
cians in this area.
348
To that end we would ask you to review with mem-
bers of your specialty groups the present Foundation
conversion factors (attached) and advise as to any
changes you feel would be appropriate either on an
overall conversion factor change or specific procedures
where your group feels the payments are inequitable.
We hope by these means to keep the Foundation
concept viable in this community in protecting the pri-
vate practice, free choice of physician method of health
care delivery. (Exhibits MF-27 through MF-46 to
Plaintiff's First Request for Admissions.)
Within a matter of weeks after that April 23, 1977 letter
was sent to the specialty societies in Maricopa C unty, a
number of those societies reported to the foundation that
they had discussed and agreed upon the prices to be
charged and the fee schedules to be used by their members.
(See Exhibits MF-4 through MF-26 to Plaintiff's First
Request for Admissions.) On the other hand, the represent-
atives of several specialty groups notified the foundation
that they would not participate in the foundation's price
survey because it appeared to violate the antitrust laws.
(Exhibits MF-20 through MF-22 to Plaintiff's First Re-
quest for Admissions.)
The defendants have also involved the specialty sucieties
on a regular basis in their continuing efforts to revise, up-
date and maintain the relative value schedules and
conversion factors adopted by the foundation members.
(Statement Facts No. 64.) On several occasions when new
categories of doctors’ services have been added to the cover-
age required by the foundations’ minimum standards, the
foundation fee schedules and payment criteria for those
services have been prepared by associations of doctors who
specialize in those fields of medicine. For example, in 1976
defendant Pima Foundation consulted the local pediatric
society concerning the coverage and fees which the Pima
Foundation should establish in its minimum standards for
pediatric services. It was thereafter reported to the founda-
tion that the society’s members had “agreed to bill under
349
the 1964 California RVS 9040 with a factor of 11, which
equals $14.40 with a Well-Baby Check office visit.” (See
Exhibit PF-109 to Plaintiff's First Request for Admissions.)
On repeated occasions defendant Maricopa Foundation
has polled its member doctors for a “consensus” on prices
and on the relative value schedules and conversion factors
they used or desired to use. (Statement of Facts Nos. 50, 59,
63.) On such occasions, the membership has been informed
that the foundation fee schedule should be “‘as close as pos-
sible” to the usual and customary fees charged by most
doctors in the community. (Statement of Facts Nos. 42, 63.)
On the heels of those price surveys, the foundation mem-
bers have received proposed fee schedules recommended by
the foundation's trustees with mail ballots for approval or
disapproval of the proposed jee increases. (Statement of
Facts Nos. 38-40.)
Typical of the Maricopa Foundations’ mes bership polls
is a June 7, 1977 letter to the foundation’s members stating
in part:
[Wle feel it is time to survey the entire Foundation
membership for their opinons concerning our fee
schedule. While we do not feel that the Foundation
Fee Schedule can be considered usual and customary
for this area we do feel strongly that it should approx-
imate the majority of physicians charges.”
350
In order to arrive at a reasonable consensus we need
your prompt response to the enclosed post card ques-
tionnaire.’ As soon as we tabulate this poll you will
receive a ballot asking for your approval of any
changes in the Foundation Fee Schedule. (Exhibit
MF-3 to Plaintiff's First Request for Admissions.)
In order to determine the allowable price set in a founda-
tion fee schedule for a particular doctor’s service, the user
must refer to an agreed-upon relative value schedule and an
agreed-upon unit conversion factor. (Statement of Facts
No. 49.) Relative value schedules are lists or compilations of
doctors’ services which assign a comparative unit value to
each service listed. (Statement of Facts No. 52.) Unit con-
version factors are number or dollar figures used to
multiply the unit value found in a relative value schedule
for any doctor’s service into a dollar figure payable for that
service. (See Statement of Facts No. 53.) The foundation
fee schedules provide unit conversion factors for six catego-
ries of medicine to be used with certain agreed-upon
relative value schedules. (Statement of Facts No. 54.)
The defendant foundations have admittedly adopted,
revised, published, circulated and encouraged the agreed-
upon use by doctors of relative value schedules which were
initially prepared and published by the California Medical
The post card questionnaire referred to in the letter was the fol-
lowing (Exhibit MF-2 to Plaintiff's First Request for Admissions
(Emphasis added).):
Maricopa Foundation for Medical Care-1977 Fee Schedule
Write a single dollar conversion factor in your practice category.
Medicine Surgery Clinical Lab
Radiology Anesthesiology
Please indicate the Relative Value Guide you are presently using.
1964 1969 1974
California Relative Value Schedule
Other (specify)
Your speciality or field of practice
please print
Your name
please print
351
Association, The American College of Radiology and the
American Society of Anesthesiology. (Statement of Facts
No. 50.) In recent years, both the California Medical Asso-
ciation and the American College of Radiology have been
enjoined by consent orders entered in proceedings before
the Federal Trade Commission from preparing, revising,
publishing or circulating the same relative value schedules
which the defendants are continuing to update and revise
in concert with their doctor members and other groups of
doctors." (Statement of Facts No. 51.)
Defendants have frequently adjusted the maximum
prices payable for certain procedures by changing the unit
values assigned to those procedures. (Statement of Facts
No. 58.) For example, the maximum allowable price set by
defendant Maricopa Foundation for a routine office visit
was increased by 50 percent when the Maricopa Foundation
increased the unit value accorded to such a visit from 1.0 to
1.5. On numerous occasions when defendants have adjusted
the unit values for certain procedures in their adopted rela-
tive value schedules, they have acted in concert with groups
of doctors who specialize in the procedures in question.
(Statement of Facts Nos. 57-62. 64.)
While an increase in the relative value assigned to a spe-
cific procedure has only increased the maximum price for
that procedure, an agreed-upon increase in the foundation
conversion factor for any category of medicine has had the
effect of increasing the prices allowed for all the doctors’
services included in that medical category. (Statement of
Facts No. 55.) Consequently, the information needed for a
collective price increase for thousands of doctors’ services
has been provided to the foundation's doctor members on
* Consent decrees enjoining the agreed-upon use of relative value
schedules by doctors have also been entered in a number of cases to date.
See, e.g., Reply Memorandum in Support of Plaintiff's Motion for Par-
tial Summary Judgment on the Issue of Liability, at 10-11.
352
postcard ballots. On repeated occasions, the foundation’s
doctor members have voted by overwhelming margins to
raise the price levels determined by the foundation conver-
sion factors. (Statement of Facts Nos. 39-40.)
After their adoption, the foundation fee schedules have
been published and circulated to doctors throughout the
State of Arizona, including both members and non-
members of the defendant foundations. (Statement of Facts
Nos. 37, 65, 66, 67.) They have been mailed to foundation
members, published in the monthly publications of both
defendant societies, and mailed with applications for foun-
dation membership to doctors who were not foundation
members. (Statement of Facts Nos. 66, 68.)
The foundations have provided advance notice of their
price increases to the insurers which underwrite founda-
tion-approved plans, (Statement of Facts No. 74), and it is
undisputed that the agreed-upon increases in defendants’
fee schedules have resulted in increases in the premiums
charged on those plans. (Statement of Facts Nos. 75.)
On several occasions, the increased conversion factors
adopted by the Maricopa Foundation’s membership have
been sent to the Pima Foundation’s Board of Trustees, and
that Board has sent the same conversion factors to the
Pima Foundation’s membership for approval. (Statement of
Facts Nos. 72.)
The record also establishes that foundation conversion
factors have been increased to levels which were signifi-
cantly higher than the average and median conversion
factors charged by most doctors in Arizona at the time that
the increase was approved. For example, the record clearly
shows that in October of 1975 the trustees of defendant
Maricopa Foundation recommended an increase in that
foundation's conversion factors to a level that was substan-
tially higher than the average charges of physicians
statewide as shown in the results of a statewide price survey
353
conducted by the Arizona Medical Association and re-
viewed by the foundation’s trustees immediately before
they voted to recommend the foundation fee increase.
(Statement of Facts Nos. 71.)
D. Effects of the Conduct at Issue
The agreed-upon relative value schedules and conversion
factors adopted by the defendant foundations have clearly
provided a comprehensive pricing system for doctors who
practice on a fee-for-service basis in Arizona. It is undis-
puted that the periodic adoption of those comprehensive
fee schedules has been the occasion for widespread meet-
ings, discussions and agreements among doctors who sell
the same services in the same community on a fee-for-
service basis concerning the prices to be paid for those ser-
vices and the relative value schedules and conversion
factors which the doctors will use in determining those
prices. By increasing their agreed-upon conversion factors
from time to time, the members of the defendant founda-
tions have agreed on overall increases in the prices set by
the foundation fee schedule. (Statement of Facts No. 55.)
On other occasions, defendants have increased the prices
payable for certain procedures by increasing the unit values
for those procedures; those specific price increases have not
required a ballot of the foundation membership but have
been published to all foundation members as well as to the
insurers who must pay the increased prices. While the
members of the California Medical Association and the
American College of Radiology (including the members of
the Arizona Radiological Society) have been enjoined from
preparing, revising, publishing, or circulating their relative
value schedules, the defendant foundations are performing
those functions in their place here in Arizona.
Manifestly, the fee schedules adopted by foundation
members provide the same maximum fees to be paid to all
doctors regardless of their experience, training, expertise or
reputation. It is also clear that the foundations’ uniform fee
schedules have led to uniform pricing, for the Maricopa
354
Foundation, which processes the doctors’ bills, has admit-
ted that 85 to 95 percent of foundation members bill at or
above the rates set in the foundation fee schedules. This
admission of uniform pricing is corroborated by the fee
data collected by the Arizona Medical Association and the
Health Insurance Association of America during 1975 and
1976, showing that the average fees charged by Arizona
doctors over the level set in the fee schedules adopted by
the foundation members. (Statement of Facts No. 71.) That
data further indicates that after an increase in the level of
fees set in the foundation fee schedule has been adopted by
the foundation members, overall doctors’ fees have risen to
that level. (Statement of Facts No. 72.) It is undisputed
that increases in doctors’ prices result in increases in prem-
iums for insurance plans which cover doctors’ services.
(Statement of Facts Nos. 75-76.)
It is also clear that reimbursement schedules for doctors
can be determined by thrid party payors rather than doc-
tors. Blue Cross and Blue Shield of Arizona, for example,
provides doctors’ services to its insured through a panel of
doctors who decide individually whether or not to accept
the reimbursement formula set by Blue Cross and Blue
Shield. (See Exhibits A and B to the Alice McLain Affida-
vit; dated July 5, 1979, Group Life & Health Insurance Co.
v. Royal Drug Co., 995 S.Ct. 1067, 1072 (1979).
That the defendant foundations can provide administra-
tive and peer review services to insurers without setting the
fees which the insurers must pay to doctors has been
proven by the defendants’ own commercial experience. In a
bid which defendant Maricopa Foundation recently submit-
ted to the Arizona Department of Economic Security
(Exhibit E-3 to Alice McLain Affidavit, Dated July 5) the
foundation reported that it had successfully provided ad-
ministrative and peer review services for the State of
Arizona's Comprehensive Medical and Dental Program for
Foster Children and sought to continue providing those
services. Under Arizona law, maximum fees paid to doctors
355
under The Foster Children Program must be determined
independently by the Department of Economic Security.
(Exhibit C-1 to McLain Affidavit, ; Ariz. Rev. Stat.
Ann. § 8-512(C). Accordingly, the Department has itself
established a schedule of maximum fees payable for doc-
tors’ services under its Foster Children Program (Ariz. Rev.
Stat. Ann. 5 8-512(c)). Without setting the fees to be paid
to doctors, therefore, the Maricopa Foundation has pro-
vided administrative and peer services for The Foster
Children Program, with non-member and member doctors
alike participating in the peer review function.
III.
DEFENDANTS’ PRICE-FIXING IS UNLAWFUL
UNDER RULE OF REASON ANALYSIS
A. The Conduct At Issue In This Case Has Been
Anticompetitive In Purpose and Effect.
In National Society of Professional Engineers v. United
States, 435 U.S. 679, 98 S.Ct. 1355 (1978), the Supreme
Court reviewed “the contours of the Rule of Reason“ and
discussed the application of that rule to a professional so-
ciety’s ethical rule against competitive bidding by its
members. 435 U.S. at 687, 98 S.Ct. at 1363.
The Court made it clear that contrary to its name, the
Rule does not open the field of antitrust inquiry to any
argument in favor of a challenged restraint that may
fall within the realm of reason. Instead, it focuses di-
rectly on the challenged restraint’s impact on
competitive conditions. 435 U.S. at 688, 98 S.Ct. at
1363.
In Professional Engineers, the Supreme Court ruled that
“an agreement that interferels] with the setting of price by
free market forces’ is illegal on its face.” 435 U.S. at 692, 98
S.Ct. at 1365 (citation omitted). Even though the ban on
competitive bidding at issue in Professional Engineers did
The development of the standard of reasonableness under the
Sherman Act is more fully discussed in plaintiff's concurrent motion for
reconsideration of the Memorandum and Opinion of June 5, 1979.
356
not in the Court’s judgment constitute “price-fixing as
such,” the Court nevertheless held that “no elaborate in-
dustry analysis is required to demonstrate the anticom-
petitive character of such an agreement” 435 U.S. at 692, 98
S.Ct. at 1365.
It operates as an absolute ban on competitive bidding,
applying with equal force to both complicated and
simple projects and to both inexperienced and sophis-
ticated customers. As the District Court found, the ban
‘impedes the ordinary give and take of the market
place,’ and substantially deprives the customer of ‘the
ability to utilize and compare prices in selecting engi-
neering service.’ On its face, this agreement restrains
trade within the meaning of § 1 of the Sherman Act.
435 U.S. at 692-93, 98 S.Ct. at 1365-66. (citation omit-
ted).
In this case, the record exposes undisputed horizontal
price-fixing which has had a direct and substantial impact
on competitive conditions in the market for fee-for-service
medicine. In a medical marketplace where each fee-for-
service physician possesses a significant degree of natural
monopoly power, the defendants have enlisted a substantial
percentage of those physicians in a doctors’ cartel which
has determined by majority vote of its membrs the profes-
sional fees to be paid by third parties for medical services.
With their admitted objective being the promotion of the
commercial interests of fee-for-service physicians, the de-
fendant foundations have established, maintained and
circulated uniform and comprehensive pricing systems for
fee-for-service doctors. Their uniform fee schedules and fee
increases have resulted in uniform pricing and have sup-
pressed the individual pricing of medical services by fee-
for-service doctors and third party payors. No elaborate
analysis is needed to discern the anticompetitive impact of
such conduct.
357
Because the conduct at issue here does constitute “price-
fixing as such,“ “ its anticompetitive character is even plai-
ner than that of a ban on competitive bidding. In
Professional Engineers, the Court was presented with “an
agreement among competitors to refuse to discuss prices
with potential customers until after negotiations [had] re-
sulted in the initial selection of an engineer.” 435 U.S. at
692, 98 S.Ct. at 1365. In this case, the Court is presented
with an agreement among competitors not to discuss prices
at all with third party payors, but rather to set by agree-
ment among themselves schedules of uniform prices which
they will accept from those third party payors. The record
clearly demonstrates the anticompetitive character of those
horizontal price agreements.
1. Defendants’ Market Power Is Significantly Greater Than
That of Ordinary Trade Associations.
The market power of the defendant foundations, whose
membership comprises a substantial percentage of the fee-
for-service doctors in Maricopa and Pima Counties, is far
greater than that of an ordinary trade association. It has
been widely recognized that “[e]ach fee-for-service doctor
has a substantial amount of monopoly power over his indi-
vidual patients as a result of their medical ignorance and
dependency and their willingness to pay.” Havighurst,
Health Maintenance Organizations and the Market for
Health Services, 35 Law and Contemp. Prob. 716, 768
(1970) (Hereinafter “Havighurst, HMOs’”’).
Plaintiff respectfully suggests that because the conduct at issue
here constitutes “price-fixing as such,” that conduct is more appropri-
ately judged under the per se standard of analysis. This position is more
fully briefed in plaintiff's motion for reconsideration of the Order of
June 5, 1979, and will not be repeated in this memorandum. It must be
noted however, that in Professional Engineers the Supreme Court ex-
pressly distinguished price-fixing from that conduct of a professional
trade association which is appropriately analyzed under the Rule of Rea-
son. 435 U.S. at 692, 98 S.Ct. at 1365.
358
A physician possesses a degree of natural monopoly
power over his patients and this power is enhanced by
the presence of insurance which relieves patients of
concern about fees or other costs. Kallstrom, Health
Care Cost Control by Third Party Payors: Fee Sched-
ules and the Sherman Act, 1978 Duke L.J. 645, 660
(hereinafter “Kallstrom, Fee Schedules”’)
As explained in a recent law review article which was
cited by this Court in its Memorandum and Order of
June 5, 1979:
The medical profession differs from many other trades
because of the substantial market power, bordering on
monopoly power, which every doctor and hospital
wields in dealing with the consuming public.
Nevertheless, professional organizations in the
health care sector resemble ordinary trade associations
in that they represent and act to further the collective
interests of the professions ... It has been suggested
that, in a subtle fashion, the very independence and
power of their members makes these organizations
even more dangerous than traditional trade associa-
tions because anticompetitive practices can be main-
tained within them with fewer formalities than is
usually the case. Kallstrom, Fee Schedules, supra at
692, n. 197 (citations omitted).
It is therefore, no exaggeration to state that the defendant
trade associations, whose membership comprises a substan-
tial portion of the fee-for-service doctors in their
communities, are in effect combinations of monopolists
with unique power as sellers in the medical marketplace.
2. Defendants Have Cartelized the Pricing of Doctors’ Ser-
vices.
From their inception the defendant foundations have
served the function of establishing and maintaining “uni-
form fee schedules” which were adopted and revised by
majority vote of a substantial portion of the fee-for-service
doctors in their communities.
359
By setting a cartel price for the services they provide to
insured persons, the foundations’ member doctors have di-
rectly restricted independent pricing of doctors’ services
and have curtailed the bargaining power which third party
payors might have exercised in the absence of a doctors’
cartel. Rather than negotiate with individual fee-for-service
providers in Arizona on the prices to be paid for profes-
sional services, third party payors have been faced with a
doctors’ cartel that has already decided by a majority vote
of its members what prices they will accept from third par-
ties for medical services to insured patients.
In a recent article, Professor Havighurst aptly described
the anticompetitive character of cartel pricing by founda-
tions for medical care:
Under the procompetitive premise of the antitrust
laws, FMCs [foundations for medical care] and similar
{professionally controlled health financing plans]
should be recognized as part of a profit-maximizing
strategy of a coalition of monopolists. Case law sug-
gesting that the fixing of maximum prices is regarded
no more favorably than minimum-price fixing would
seem appropriately invoked to curb private price regu-
lation undertaken by a cartel. In many market
circumstances, an FMC could be challenged as an ex-
clusionary tactic of a monopolist or as the product of a
conspiracy to monopolize the provision of medical care.
The most likely theory of attack on FMC-type efforts,
however, would be under section 1 of the Sherman Act
as a combination in restraint of trade lacking virtues
sufficient to redeem its several anticompetitive fea-
tures. The fundamental premise of the antitrust laws,
which can be contested in a legislative but not in a ju-
dicial forum, is that the competitie solution is always
preferable to the cartel’s. Havighurst, Professional
Restraints on Innovation in Health Care Financing,
1978 Duke L.J. 303, 377-378 (footnotes omitted)
(hereinafter Havighurst, Professional Restraints.)
360
3. Defendants’ Cartel Pricing Has Suppressed the Bargain-
ing Power of Third Party Payors.
In determing by agreement what professional fees should
be paid by insurance companies and other third party pay-
ors, the defendants and their doctor members have not only
suppressed independent pricing by doctors, they have
usurped an economic function which would otherwise have
been performed by the party responsible for paying those
fees. It is undisputed that the foundations’ fee schedules
and minimum standards have been formulated by defen-
dants and their members in a completely horizontal
combination. The insurance companies and other third par-
ties that underwrite foundation-approved plans have had
no vote whatsoever on the professional fees they must pay
under those plans.
If it were not immediately obvious that the determina-
tion of professional fees to be paid by insurers through
associations of doctors devoted to fee-for-service practice
was inherently anticompetitive, the defendants’ conduct
has made their restrictive purpose clear. Under the mini-
mum standards promulgated by the defendants, profes-
sional fees can only be paid to medical or osteopathic physi-
cians and surgeons, podiatrists and dentists; the services of
duly-licensed chiropractors, naturopaths and other medical
practitioners have been excluded from coverage. Conse-
quently, persons insured under foundation-approved plans
have been limited in their choice of medical treatment to
the categories of treatment in which the defendants’ mem-
bers engage, and the insurers’ determination of the types of
medical treatment to be covered has been made for them
by a doctors’ cartel.
Just recently the Supreme Court commented on the “se-
rious anticompetitive consequences” which result from this
type of physician control over the professional payments
made by third party payors. Group Life & Health Insur-
ance Co. v. Royal Drug Co., 99 S.Ct. 1067, 1083-84, n. 40
(1979). The Court warned that exempting provider agree-
>
361
ments from the antitrust laws would be likely in at least
some cases to have serious anticompetitive consequences.
Id. (emphasis added). Noting that “physicians and other
health care providers typically dominate the Boards of
Directors of Blue Shield plans,” the Court surmised that as
a result of such physician control “there is little incentive
to minimize costs, since it is in the interest of the prov-
iders to set fee schedules at the highest possible level.” Id.
at 1083-84, n. 40 (emphasis added). This physician domina-
tion of insurers, the Court noted, was “said to have resulted
in rapid escalation of health care costs to the detriment of
consumers generally.” Id. (citation omitted.)
It is noteworthy that the members of the Supreme Court
were unanimous in their concern over the anticompetitive
impact of horizontal combinations in the health care indus-
try. Even those Justices who dissented from the majority
ruling in Royal Drug commented that a horizontal conspir-
acy of providers which pressured an insurer to go along
with its arguments, would constitute an “illegal conspiracy”
which was “neither necessary nor related to the insurer's
effort to satisfy its obligations to its policyholders.” Id. at
1094 (Brennan, J., dissenting).
Not only is the horizontal price fixing of the defendants
unnecessary to the insurer's efforts to satisfy its policy obli-
gations, it is a direct and severe restraint on the bargaining
power of the insurer in negotiating reimbursement sched-
See Staff Report to the Federal trade Commission and Proposed
Trade Regulation Rule, Medical Participation in Control of Blue Shield
and Certain Other Open-Panel Medical Prepayment Plans (April 1979);
CCH Trade Reg. Rep. No. 384, at 6 (May 7, 1979).
It should perhaps be noted that the one-time relationship between
Blue Shield of Arizona and the Arizona Medical Association was severed
several years ago. More recently, the Ohio State Medical Association
agreed to sever its relationship from the Ohio Blue Shield Plan as a term
of the consent judgment entered in State of Ohiv v. Ohio Medical In-
demnity, Inc., 1976-2 CCH Trade Cas. J 61,128 (S.D. Ohio, filed
September 16, 1976) (copy of consent judgment attached as Exhibit F to
Statement of Facts.)
362
ules with fee-for-service physicians. A recent decision of the
Court of Appeals for the District of Columbia Circuit held
that a similar restraint on the bargaining power of sellers in
professional sports was unlawful under Rule of Reason
analysis. Smith v. Pro Football Inc., 593 F.2d 1173 (D.C.
Cir. 1978), held that the player selection system of “draft”
of the National Football League (“NFL”) was a violation of
section 1 of the Sherman Act under the Rule of Reason
because it deprived football players of their “real bargain-
ing power” in negotiating with NFL teams. Noting that
there were less anticompetitive alternatives to the draft sys-
tem the court held that “this level of restraint cannot be
justified.” 593 F.2d at 1187. For similar reasons, the Court
of Appeals for the Eighth Circuit has held that the NFL’s
Rozelle Rule is unlawful. Mackey v. National Football
League, 543 F.2d 606, 621-622 (8th Cir. 1976), and the Fed-
eral District Court for the Northern District of California
has held the NFL’s Rozelle Rule, player draft rule, one-man
rule, tampering rule and Standard Player Contract rule
unlawful under Rule of Reason analysis. Kapp v. National
Football League, 390 F. Supp. at 82. Although those cases
did not involve the severe anticompetitive impact of a di-
rect restraint on price, the restriction of the bargaining
power of football players under NFL rules was deemed an
impermissible restraint upon the market for players’ ser-
vices.
4. Defendants’ Challenged Practices Have Had a Direct
and Substantial Impact on Prices.
A primary function of the defendant foundations since
their inception has been the preparation and adoption of
“uniform fee schedules” for doctors’ services. So basic is
price fixing to the function of those trade associations that
the principal incident of membership in the foundations
has been the power to vote on “uniform fee schedules.”
Indeed, the very By-Laws of the defendant foundations
expressly provided for the establishment of standing fee
schedule committees and specifically authorized the foun-
363
dations’ trustees to prepare and recommend changes in the
foundation fee schedules which could only be adopted by
mail ballots of the foundations’ member doctors. The pro-
cedures by which the defendants have maintained and
revised those fee schedules through widespread price sur-
veys an price agreements among the foundations’ member
doctors und the various specialty groups of doctors in Ari-
zona have clearly been intended to result in agreed-upon
price levels for doctors.
Examination of the business records of the defendants
reveals that defendants have consistently strived to keep
their “uniform fee schedules” at a level approximating “the
majority of physicians’ charges” and have so advised their
members. The repeated polls, meetings, discussions and
agreements among doctors which the defendants have insti-
gated regarding the prices to be charged and the relative
value schedules and conversion factors to be used by doc-
tors have involved future as well as current pricing
information, and have included both members and non-
members of the foundations. Defendants have made it clear
that the fee schedules they have proposed to their members
for adoption represented a consensus on the prices which
doctors in the community would be charging in the period
after the fee schedules were adopted, and it is established
that over 85 percent of the foundations’ member doctors
have billed their fees at or above the levels set in those fee
schedules. Thus, the record clearly shows that the defen-
dants’ fee schedules were intended to function and did
function as uniform fee schedules for foundation members.
It is particularly significant that both the preliminary
price agreements encouraged by the defendarts and the
adoption of fee schedules by majority vote of the defen-
dants’ doctor members were manifestly intended to result
in collective price increases. Even if the prices charged by
doctors had not been uniform at the time a new fee sched-
ule was adopted, the agreement of defendants’ doctor
members to raise their prices simultaneously operated as a
364
direct restraint on independent pricing decisions. In this
case, the anticompetitive character of an agreement to raise
prices at a given time was exacerbated by the defendants’
widespread communications that the proposed price in-
creases represented a “consensus” and would approximate
the charges of most doctors in the community.
Through defendants’ publication of the agreed-upon in-
creases in the fees set by the foundation fee schedules,
doctors who might not have considered their current prices
too low have been reminded that the majority of the foun-
dations’ doctor members consider the newly increased fee
schedule to be appropriate. If there could be any doubt that
the defendants’ repeated communications of price increases
and price agreements have had a substantial anticompeti-
tive impact, the admitted fact that 85 to 95 percent of
foundation members bill at or above the level of fees set by
the foundation fee schedule would surely resolve it.
It is undisputed that increases in the doctors’ fees set in
the foundation fee schedule result in increases in the prem-
iums charged on foundation-approved health plans, and
that general increases in doctors’ prices result in general
increases in health insurance premiums. Since the admitted
facts in this case establish that 85 to 95 percent of the doc-
tor members of the foundation bill at or above the level of
fees set by the foundation fee schedule and the foundation
membership includes a large percentage of the fee-for-
service doctors in Maricopa and Pima Counties, it follows a
fortiori that increases in the level of fees set by the founda-
tion fee schedule have resulted in general fee increases for
many doctors in those counties, and those fee increases
have in turn resulted in increases insurance premiums.
There is no dispute that the agreed-upon relative value
schedules and conversion factors adopted by the founda-
tions’ doctor members provide a comprehensive pricing
system for fee-for service doctors. The establishment and
maintenance of a uniform pricing system is by itself a sub-
stantial anticompetitive result of the defendants’ activities.
365
In the absence of an agreed-upon pricing system, individual
doctors might develop their own pricing methods and bar-
gain individually with third party payors on the prices they
would accept for their services. By producing and publish-
ing a consensus on appropriate fees and fee schedules, the
defendants have suppressed the diversity of doctors pricing
which might otherwise prevail.
Indeed, the setting of uniform prices for all doctors’ ser-
vices irrespective of the training, experience, reputation and
expertise of the individual doctor is a significant restraint
in itself. A third party payor might well tend to offer a
lower price to a novice doctor than to a renowned specialist,
but the foundations dictate that all be paid the same. In
the analogous area of legal fees, one would naturally balk at
being asked to pay to an associate fresh out of law school
the same hourly fee that an experienced, highly-reputed
attorney would command. See, e.g., Opinion and Order of
April 16, 1979 in In re Arizona Dairy Products Litigation,
No. CIV 74-569 A PHX CAM (D. Ariz., filed [date of
complaint]), at 3-4 (finding that rates ranging from $60.00
per hour for a new associate in his/her first year out of law
school up to $90.00 for an attorney not yet four years out of
law school were excessive in the circumstances of that case,
Judge Muecke reduced certain attorneys’ fees to “what the
Court feels are reasonable rates of compensation for per-
sons of comparable skill and experience in the Phoenix
area.“) Like an attorney’s hourly rate, a doctor’s conversion
factor might be set in accordance with the individual doc-
366
tor’s experience and training were it not for the uniform
pricing established by the defendants.'*
The anticompetitive impact of uniform pricing by profes-
sionals was recognized and condemned by the district court
in Goldfarb v. Virginia State Bar, 355 F. Supp. 491 (E.D.
Va. 1973). Noting the impact which agreed-upon fee sched-
ules necessarily have on entry pricing by new members of a
profession, the court held such fee schedules “to be repug-
nant to the philosophy of the Sherman Act.”
This type of price-fixing has been held under other
circumstances to be repugnant to the philosophy of the
Sherman Act. Plymouth Dealers Ass’n v. United
States, 279 F.2d 128 (9th Cir. 1960). It is contrary to
the spirit of competition which sustains a free enter-
prise system in that it prevents competitors from using
their own judgment in determining the value of their
own services. Keifer-Stewart Co. v. Seagram and Sons,
340 U.S. 211, 213 (1951).
The district court explained the impact of fee schedules
on consumers:
There is no distinction between the benefits ascribed
to the minimum fee schedule by its advocates and
those existing in a minimum sales price if, for example,
the latter were to be adopted by General Motors and
Ford Motor Company as to suggested sales prices for
comparable automobiles. In each instance, a new
dealer and a new lawyer, both unfamiliar with the cus-
tomary charges in the field, would find such a
ln fact, many insurers do adjust their allowable payments for doc-
tors’ services in accordance with the “usual fees” of the individual
provider. (See, e. g., Exhibits to McLain Affidavit describing the payment
criteria of Blue Cross and Blue Shield of Arizona.) While the “UCR”
reimbursement method has been criticized as inflationary, it is relevant
here to note that many insurers have, in the exercise of their indepen-
dent business judgment, chosen not to use a reimbursement schedule
which provides uniform payments to all doctors, but the pricing uniform-
ity encouraged by the defendants’ horizontal price agreements suppresses
the individual development of varying “usual fees” by doctors.
367
minimum fee or sales price schedule helpful in setting
charges. In each instance an adequate fee or price
would insure a margin of profit adequate to assure fur-
ther research and development or continued legal
education. In each instance the public would be as-
sured, by an examination of such schedule, that what
was being charged was in line with what was generally
charged in the field. Yet in none of these instances
would a member of the public have any better idea
that the fee or price was reasonable after he had seen
the schedule than he did before. Id.
The conclusion of the district court that the professional
fee schedules violated the Sherman Act was, of course, con-
firmed by the Supreme Court. 421 U.S. 773, 95 S.Ct. 2004
(1975).
More recently, another district court reviewed the coordi-
nation and publication of rate schedules by a rate bureau
for common carriers. United States v. Southern Motor
Carriers Rate Conference, Inc., 467 F. Supp. 471 (N.D. Ga.
1979). Like the defendants in this case, the rate bureau had
prepared, proposed, published and circulated rate sched-
ules, which the district court held to be a “naked price
restraint” which violated the Sherman Act “at its most sen-
sitive spot.” 467 F. Supp. at 486. Holding that the
horizontal coordination of rates was unlawful under both
per se analysis and the Rule of Reason, the court granted
plaintiff's motion for summary judgment and injunctive re-
liet. Id. at 486-87.
The evidence in this case corroborates what the long line
of cases dealing with horizontal price fixing has taught:
The aim and result of every price-fixing agreement.
is the elimination of one form of competition. United
States v. Gillen, 1979-1 CCH Trade Cas. “ 62.627 at
77,579 (3d Cir. 1979), quoting United States v. Tren-
ton Potteries Co., 273 U.S. 392, 897 (1926).
368
Because defendants’ challenged practices have had a direct
and substantial impact on the pricing of individual doctors’
services, it is outside the pole of the Sherman Act under the
Rule of Reason.
B. This Level Of Price Restraint Is Patently
Unreasonable.
As this Court recognized in its Memorandum and Order
of June 5, 1979, it is of no consequence that the founda-
tions’ member doctors technically remain free to charge
whatever price they wish, as they have agreed in advance to
accept the amount determined by the foundation fee sched-
ule in full consideration for their services. Slip Op. at 6. By
defining the level of fees whicn doctors will accept from
third party payors, the defendants have directly impinged
“the freedom of [individual doctors and insurers} and
thereby restrain[ed] their ability to sell in accordance with
their own judgment.” Kiefer-Stewart Co. v. Joseph E. Sea-
gram & Sons, 340 U.S. 211, 213, 71 S.Ct. 259, 260 (1951).
When competitors agree on a “starting point” or “range” of
prices fro the services or products they sell, an essential
form of competition is eliminated regardless of whether the
agreed-upon prices are maximum or minimum, uniform or
list prices and whether the agreement is mandatory or vol-
untary.
Common sense tells us that there is no need for com-
petitors to meet, agree upon content, print and
circulate ‘list prices’ that are never to be looked at.
Plymouth Dealers Ass'n of Northern California v.
United States, 279 F.2d 128, 133 (9th Cir. 1960). See
also Vandervelde v. Put and Call Brokers and Deal-
ers Ass'n, 334 F. Supp. 118, 134 (S.D.N.Y. 1972).
Although horizontal price restraints are universally
judged under the per se rule, several courts have held in the
alternative that price agreements which were strikingly sim-
ilar to those at issue in this case were also unlawful under
Rule of Reason analysis. For example, United States v.
Utah Pharmaceutical Ass'n, 201 F. Supp. 29 (D. Utah
369
1962), aff'd, 371 U.S. 24, 83 S.Ct. 119 (1962), involved an
association of independent pharmacists which adopted a
pricing schedule and successive revisions, distributed them
to members throughout the State of Utah and encouraged
the members to use the schedule for the pricing of prescrip-
tion drugs. 201 F. Supp. at 34. Finding that “one cannot
lawfully agree with others to fix the price of goods in com-
merce merely because of professional credentials or because
such price-fixing also touches upon professional fees,” the
district court held that the association’s price schedules
were per se illegal. 201 F. Supp. at 35, citing United States
v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811
(1940), and United States v. Trenton Potteries Co., 273
U.S. 392, 47 S.Ct. 377 (1947). Alternatively, however, the
court held that the association’s price schedules were also
unlawful under Rule of Reason analysis.
There could not be considered reasonable under
any circumstances a conspiratorial agreement, and
the distribution and promotion of implementing price
schedules, among those in a dominant position in the
business and profession of dispensing drugs within
the State of Utah, which carried to the extent sought
by the Association would almost completely remove
price competition in the field of prescription drugs.
The good faith and professional standing of those con-
cerned being fully accepted, if such a system were
accepted as reasonable, any other similar group of well
intentioned men could accomplish the same results in
their own businesses through their own associations.
This result, with any effective agreement to that end,
is unacceptable to the antitrust laws. It is the duty of a
Court to apply these laws in easy cases as well as hard
cases, and as against well intentioned parties to an
agreement conspiratorial only in law as well as against
conspirators in sinister sense which, of course, cannot
apply to the parties before the Court. Even under the
‘rule of reason,’ as said in Board of Trade of City of
Chicago v. United States, supra, The true test of le-
gality is whether the restraint imposed is such as
370
merely regulates and perhaps thereby promotes com-
petition or whether it is such as may suppress or even
destroy competition.“ The system promoted by the
Association does not meet this test[.]
201 F. Supp. at 35-36.
Accord, Northern California Pharmaceutical Ass'n v.
United States, 306 F.2d 379 (9th Cir.), cert. denied, 371
U.S. 262, 83 S.Ct. 119 (1962) (holding almost identical facts
sufficient for criminal liability under section 1 of the Sher-
man Act.) 306 F.2d at 391. The extensive analysis of the
Ninth Circuit in Plymouth Dealers Ass’n, supra, and of the
District Court for the Southern District of New York in
Vandervelde v. Put and Call Brokers and Dealers’ Ass'n,
supra, would also support a holding of illegality on a Rule
of Reason standard, though the price fixing at issue in those
cases was held to be unlawful per se. As the district court
noted in United States v. Southern Motor Carriers Rate
Conference, 467 F. Supp. at 486-87, n. 11, the focus of in-
quiry in a price fixing case under the Rule of Reason
continues to be on the effect of the cha
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