Amicus Brief — National Gerimedical Hospital and Gerontology Center v. Blue Cross of Kansas City

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Text

No. 80-802

pers cams sat me

otter

Iu the Supreme Court of the United States

| OCTOBER TERM, 1980

NATIONAL GERIMEDICAL HOSPITAL AND

GERONTOLOGY CENTER, PETITIONER

BLUE CROSS OF KANSAS CITY AND

BLUE Cross ASSOCIATION

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

WADE H. MCCREE, JR.

Solicitor General

SANFORD M. LITVACK

Assistant Attorney General

BARRY GROSSMAN

ANDREA LIMMER

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

IEC 19 1980

a CLERK

Iu the Supreme Court of the United States

OCTOBER TERM, 1980

No. 80-802

NATIONAL GERIMEDICAL HOSPITAL AND

GERONTOLOGY CENTER, PETITIONER

VU.

BLUE CROSS OF KANSAS CITY AND

BLUE Cross ASSOCIATION

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

QUESTION PRESENTED

Whether the National Health Planning and Re-

sources Development Act of 1974 created by implica-

tion an antitrust exemption for the voluntary actions

of private health care insurance providers, when

those actions are not required by the terms of any

statute or government program and are not regulated

by any government agency.

(1)

TABLE OF CONTENTS

Page

Interest of the United States —............2222..2..22....22-------e-eee- 1

Statement : BIO A II LTE BIRO EA 1

i slp antcncigualahiedebeiiiiassbepauike 5

TNS REE RESALE) Vn ee ee ny 17

a i ats caanmtaesodiantintentibionte la

I ia ie sik laa sling patnctainnspeaiolaeammne 10a

SO OO ae rs Oe Sa salina dansiteenenaiogt 18a

TABLE OF AUTHORITIES

Cases:

California v. FPC, 369 U.S. 482 ..................--....---. 8, 11,16

Carnation Co. V. Pacific Westbound Conference,

IRE Sahat ESA SN ent SR AIR eh aR 16

Epstein v. Resor, 296 F. Supp. 214, aff’d, 421 F.2d

980, cert. denied, 398 U.S. 966 .....-...........-.-.2.--..... 14

Fashion Originators’ Guild v. FTC, 312 U.S. 4657.. 15

Gordon v. New York Stock Exchange, Inc., 422

OER ea SAR Line 9 OC Cy 8

Group Life & Health Ins. Co. v. Royal Drug Co.,

Oi I his in sgs mstblceedicntg esas encninesissveibacabatendintiinn 7,8

Otter Tail Power Co. v. United States, 410 U.S.

RR ERE ar AAR ARO OCS. AE AO ee 8, 15

Silver v. New York Stock Exchange, 373 U.S. 841.. 8,14

Transamerica Mortgage Advisors, Inc. Vv. Lewis,

PT GEARS aR eR ARAC ea A Tomer vat IT RR 17

United States v. Borden Co., 308 U.S. 188 .............. 16

United States v. Colgate Co., 250 U.S. 300 .............. 8

United States v. Socony-Vacuum Oil Co., 810 U.S.

RRR TN EA ran: ESR aes BL tes <lcR TE ae ea 11

United States v. United Mine Workers, 330 U.S.

URIS Ripa REM va a SY SCARE NE eA OC 14

(1)

| PREVIOUS PAGE-WAS BLANK |

Statutes and regulation: Page

Sherman Act, 15 U.S.C. 1 et seq. o00.......cccccccceeeneeeee 3

GREE, Bg SPB Sccesesvecnccesasecscsceccccnesesseneee 1-2

Fe 1-2

McCarran-Ferguson Act, 15 U.S.C. 1011 et seq..... 3

National Health Planning and Resources Develop-

ment Act of 1974, 42 U.S.C. (& Supp. III) 300k

PR SILO RASS . 1,2,3

SEE SEC 10

42 U.S.C. (Supp. III) 300k-2 ...............000000..... 10

42 U.S.C. (Supp. III) 300k-2(a) (17) .~......... 18

42 U.S.C. (Supp. III) 800k-2(b) (1)-(3) -..... 13

RS 9

42 U.S.C. 8001-1(b) (4) 22222222222 eeeeeeeeeeeeeee eee 16

42 U.S.C. (Supp. ITI) 8001-2 —.......00000000...... 2

42 U.S.C. (& Supp. III) 300/-2(a) -................ 10

42 U.S.C. (Supp. III) 300/-2(a) (4) .............. 4,10

42 U.S.C. (Supp. III) 300/-2(b) (2) -............ 9

42 U.S.C. 8001-2(c) (1) ....222....22.-22. cee ceeeeeeeeeee eee 4,10

42 U.S.C. 8001-2(c) (2) ....................0........200000- 9

42 U.S.C. (Supp. III) 300/-2(c)-(e) ............ 9

42 U.S.C. 8001-2(f)-(h) 2200.02.22... eee eee 9

42 U.S.C. (Supp. III) 300/-2(e) —.................. 6, 15

42 U.S.C. 8001-2) (2) 2.22... cece cee ceee eee 15

re 6,9, 15

a ee I insets. 6

Ge Ts ED sdbedecesecsnceeec....................... 15

42 U.S.C. (Supp. IIT) 300-4 2.0... 9

42 U.S.C. (Supp. III) 300m-2(a) (4) ........... 9,15

42 U.S.C. (Supp. III) 300m-2(a) (4) (B) ...... 9

42 U.S.C. 300m-2(a) (5) 2200. 15

42 U.S.C. (Supp. IIT) 300m-3(d) ...... ......... 16

42 U.S.C. 300n-1(a) ......... 1S ce 11, 15

42 U.S.C. (Supp. IIT) 300n-1(b) 2.000000... 11, 15

42 U.S.C. (Supp. ITI) 300n-1(b) (12) (E) .... 15

Sa Tae te Ne ati rie liicletaniatieensimndrncaseesesscesceceoce 6

Miscellaneous: Page

124 Cong. Rec. H11962 (daily ed. Oct. 10, 1978) .... 14

Department of Justice Release (June 18, 1978) .... 7, 18a

Department of Justice Release (May 8, 1980) .... 6,la

Department of Justice Release (Aug. 29, 1980) .... 7, 10a

Health Care Financing Administration, Projec-

tions of National Health Expenditures: 1980,

1985, and 1990, Health Care Financing Review

CU Cn dsseecnstance 5

S. Rep. No. 96-96, 96th Cong., Ist Sess. (1979) .... 18

U.S. Department of Labor, Bureau of Labor Sta-

tistics, Employment and Earnings (Sept. 1980) .. 5

’%

‘NTEREST OF THE UNITED STATES

The United States has a general interest in as-

suring that the National Health Planning and Re-

sources Development Act of 1974, 42 U.S.C. 300k

et seqg., is interpreted in a manner which promotes

the achievement of the congressional health planning

policies embodied therein. The United States also has

primary responsibility for enforcing the antitrust

laws. Accordingly, it has an interest in assuring that

exemptions from the antitrust laws are not implied

unless congressional intent to’ create such exemp-

tions is clear. Moreover, to the extent that an anti-

trust exemption should be implied to avoid frustrat-

ing the congressional plan under a particular statute,

it has an interest in assuring that the exemption

is not broader than necessary to avoid that result.

The United States also has a more specific interest

in the issue presented in this case. The extent, if

any, to which an antitrust exemption should be recog-

nized under the National Health Planning and Re-

sources Development Act not only will affect law en-

forcement decisions concerning anticompetitive con-

duct by insurance providers, hospitals, and others

in the health services field, but also will affect the

advice given by government agencies to private

parties seeking to effectuate the policies of the Health

Planning Act while conforming their activities to the

requirements of the antitrust laws.

STATEMENT

Petitioner brought this action against respondents

Blue Cross of Kansas City and Blue Cross Associa-

tion under Sections 1 and 2 of the Sherman Act, 15

(1)

U.S.C. 1 and 2, alleging that Blue Cross of Kansas

City wrongfully had refused to accept petitioner as a

participating member provider in its health insur-

ance plan. The complaint further alleged that this

refusal occurred because petitioner had not obtained

a certificate of need from Mid-America Health Serv-

ices Agency, a party alleged to be a co-conspira-

tor in the antitrust violation but not named as a

defendant in the complaint.’

Respondent Blue Cross of Kansas City (“Blue

Cross”) is a private health services corporation that

sells prepaid health care plans to the public in Mis-

souri and Kansas and contracts with health care

providers to administer its plans (Pet. App. 20a).

Respondent Blue Cross Association is the national

parent association of Blue Cross. MAHSA is a pri-

vate not-for-profit Missouri corporation established

as a health systems agency (“HSA”) pursuant to

the National Health Planning and Resources Develop-

ment Act of 1974, 42 U.S.C. (& Supp. III) 300k et

seq. (Pet. App. 30a). Under the statute, an HSA is a

private organization whose sole function with respect

to new hospital construction is to advise federal and

state health agencies. It serves no independent regu-

latory function concerning such construction. 42

U.S.C. (Supp. IIT) 3001-2.

Petitioner National Gerimedical is a general acute

care hospital located in Missouri. Before opening in

1978, it sought to enter into a participating hospital

agreement with Blue Cross under which National

Gerimedical would receive 100% reimbursement di-

rectly from Blue Cross for all services provided to

Blue Cross policyholders. Without that contract, Na-

1 Petitioner also alleged violations of Missouri’s antitrust

laws (Pet. App. 18a).

tional Gerimedical would have to bill Blue Cross sub-

scribers who would then be reimbursed by Blue Cross

for only 80% of the hospital bill (Pet. App. 20a).

Although not required to do so by either federal

or state law, Blue Cross conditioned its grant of

participating membership to a new hospital on the

hospital’s receipt of a determination from the local

health systems agency (in this case MAHSA) that

a new-hospital was required to serve a “clearly evi--

dent need” for health care services in the area (Pet.

App. 6a-7a, 21a). Petitioner, however, neither sought

nor received MAHSA approval since MAHSA pre-

viously had announced that it would disapprove the

addition of any new acute care hospital beds (1d.

at 7a, 21a). Consequently, Blue Cross denied Na-

tional Gerimedical a participating member contract

because it had not obtained a certificate of “need”

from MAHSA (id. at 20a-21a).

Following Blue Cross’s denial of National Geri-

medical’s application, National Gerimedical filed this

action in the United States District Court for the

Western District of Missouri. Respondents moved to

dismiss the complaint on the ground that the Na-

tional Health Planning and Resources Development

Act of 1974 (“NHPRDA” or the “Act”) implicitly

repealed the antitrust laws to the extent that the

challenged action was undertaken to effectuate the

purposes of the Act.’

2 Respondents also claimed that their conduct was exempt

from the antitrust laws under the McCarran-Ferguson Act,

15 U.S.C. 1011 et seq., and that the prepaid medical plans

at issue did not constitute a part of “trade or commerce”

within the meaning of the Sherman Act (Pet. App. 18a,

38a-39a). Those claims were rejected by both courts below

(Pet. App. 15a, 22a-27a, 38a-44a), and are not before this

Court.

The district court granted summary judgment in

respondents’ favor and dismissed the complaint (Pet.

App. 19a). It found a clear repugnancy between

NHPRDA and the antitrust laws, and concluded that

Congress intended that private actions, taken pur-

suant to NHPRDA and “clearly within [its] scope,”

be exempt from application of the antitrust laws

(id. at 37a). In finding a conflict between NHPRDA

and the antitrust laws, the court did not measure

the challenged conduct against the requirements of

NHPRDA. Instead, it concluded that “the entire

concept of the * * * Act” revealed that Congress in-

tended to create a blanket antitrust exemption (id. at

32a)—‘“the antitrust laws were not intended to apply

to members of the health care industry clearly act-

ing within the scope of the Act” (id. at 32a-33a).

The court of appeals affirmed (Pet. App. la-15a).

It agreed with the district court that a “clear re-

pugnancy between the Act and the antitrust laws”

exists, since “the Act and regulatory scheme clearly

call for the action which has now become the basis

of an antitrust claim” (id. at 1la). The court relied

in particular on 42 U.S.C. (Supp. II) 300/-2(a) (4)

and 300I-2(c) (1), which describe as one of the stat-

ute’s goals the prevention of “unnecessary duplication —

of health resources,” and further provide that each

HSA “shall seek, to the extent practicable, to im-

plement its [health plans] with the assistance of

individuals and public and private entities in its

health service area” (Pet. App. 3a-9a). The court

of appeals also adopted in toto the district court’s

finding that the legislative history revealed congres-

sional intent “to immunize this type of voluntary

action from the antitrust laws” (Pet. App. 1la-15a).

DISCUSSION

1. The court of appeals has decided an important

question of federal law in a manner that leaves both

the health service industry and federal antitrust en-

forcement officials in need of this Court’s guidance.

The court of appeals’ decision has a substantial

adverse impact on competition and antitrust enforce-

ment in a large sector of our economy. The health

services industry employs more than five million per-

sons,* and annual national health care expenditures

now total more than $200 billion.* The district court

found an implied blanket antitrust immunity under

NHPRDA for the voluntary activities of all private

parties in the health care field who may be said to

act within the broad scope of that statute (Pet.

App. 82a). The court of appeals’ opinion generally

endorses the district court’s analysis of the immunity

issue (Pet. App. 8a, lla, 15a). Since the court of

appeals did not limit or qualify the district court’s

recognition of a blanket immunity, the scope of that

immunity appears to be sweeping.°

This ruling has an important effect on antitrust

enforcement in the health care field. Almost any

U.S. Department of Labor, Bureau of Labor Statistics,

Employment and Earnings 57 (Sept. 1980).

*Health Care Financing Administration, Projections of

National Health Expenditures: 1980, 1985, and 1990, Health

Care Financing Review 1, 11 (Winter 1980).

5 Although this case arose in a special factual setting be-

cause Missouri did not have a “certificate of need” program

in effect at the time of Blue Cross’s action, the decision is

not limited to such a situation. The broad scope of the exemp-

tion recognized by the court of appeals would make it ap-

plicable to many types of unregulated private conduct oc-

curring outside of the procedures provided by statute.

form of exclusionary conduct can be viewed as fall-

ing within the purposes of NHPRDA, so long as the

participants claim that their anticompetitive actions

were designed to avoid what they deem to be “un-

necessary” duplication of facilities or services.

For many years, the Department of Justice,

through the Antitrust Division’s Business Review

Procedure,® has attempted to explain its enforcement

intentions regarding conduct contemplated by per-

sons requesting guidance. This program is designed

to allow parties to proceed with lawful activities free

from unnecessary fear of government law enforce-

ment action. Within the past few years, the De-

partment of Justice has been asked to state its en-

forcement intentions with respect to certain coopera-

tive activities of health care providers and health

systems agencies. While the Department has recog-

nized that certain concerted activities appear to be

contemplated by the Act,’ it consistently has refused

to recognize any implied antitrust exemption for un-

regulated or unsupervised concerted action by local

providers affecting the supply and price of health

care services. The Department has stated that “we

do not believe that the Health Planning Act creates

a complete antitrust exemption for all efforts by

HSAs, and private parties working with HSAs, to im-

plement health plans.” Department of Justice Release

(May 8, 1980).° The Department also has refused to

6°28 C.F.R. 50.6.

7 Such activities might include, for example, certificate of

need review, federal grant review, and appropriateness re-

view by HSAs pursuant to 42 U.S.C. (Supp. III) 300I1-2(e),

8001-2(f), and 300I-2(g).

8 That release is attached hereto as Appendix A.

recognize any implied antitrust exemption for pro-

posed agreements among private health care pro-

viders to limit services offered at a new facility, when

such agreements are neither authorized nor required

by any regulatory agency and are not subject to

governmental supervision. Department of Justice Re-

lease (Aug. 29, 1980).°

The court of appeals’ decision in this case stands

in conflict with the Department’s conclusion in these

Business Review Letters. As a result, health systems

agencies and health care providers, as well as insur-

ance providers like Blue Cross, understandably may

be uncertain as to what activities they may engage

in without concern for antitrust liability. In view

of the size and importance of health services activi-

ties in our economy, resolution by this Court of the

issue raised in the petition would provide important

guidance to the industry and government officials.

2. The court of appeals’ decision conflicts with the

standards for finding an implied antitrust exemp-

tion established in numerous decisions of this Court.’

® That release is attached hereto as Appendix B. The De-

partment also has refused to authorize in the abstract a

“voluntary cost. containment program” among hospital and

medical associations without receiving information about the

program and its competitive impact. Department of Justice

Release (June 18, 1978) (attached hereto as Appendix C).

10TIn asserting that respondents’ conduct is not immunized

from antitrust scrutiny, we do not imply in any sense that

the conduct violates the Sherman Act. This Court is not

faced here with a question of violation, but of immunity.

Practices can be non-immune and still be perfectly lawful.

Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S.

205, 210 n.6 (1979). Following a trial or summary judg-

ment hearing addressed to the merits, respondents’ conduct

may be found lawful for several reasons. Blue Cross may

In a long line of cases, this Court has prescribed

strict standards governing judicial implication of

statutory immunity from the antitrust laws. Exemp-

tions from the antitrust laws are not lightly to be in-

ferred. See, e.g., Gordon v. New York Stock Exchange,

422 U.S. 659, 682 (1975); California v. FPC, 369

U.S. 482, 485 (1962). Only when a plain repugnanecy

is found between the antitrust laws and a subsequently

enacted regulatory scheme may an implied repeal be

found. Otter Tail Power Co. v. United States, 410

U.S. 366, 372 (1973). Even then, the exemption must

be construed narrowly to give effect, to the greatest

extent possible, to the purposes of both statutes. Growp

Life & Health Ins. Co. v. Royal Drug Co., 440 U.S.

205, 231 (1979) ; Silver v. New York Stock Exchange,

373 U.S. 341, 357-359 (1963). Examination of the

court of appeals’ decision reveals that the conduct

here in question was not measured against the fore-

going standards and that, when those standards are

applied to the challenged conduct, there exists no

plain repugnancy between NHPRDA and the Sher-

man Act.

a. NHPRDA contemplates a dual system of fed-

eral and state agencies whose function is to rational-

not have monopoly power in the insurance market in which

it operates. Even if it does, its refusal to deal may not have

been premised on a desire to abuse its monopoly power in

the insurance market to gain an advantage in the hospital

services market. See United States v. Colgate Co., 250 U.S.

800, 307 (1919); cf. Otter Tail Power Co. v. United States,

410 U.S. 366, 377-878 (1973). Similarly, petitioner’s restraint

of trade claim may fail for lack of an agreement between

Blue Cross and any other parties, or from failure to prove

either an anticompetitive purpose or a significant anticom-

petitive effect. !

ize the distribution of health resources. The statute,

among other things, requires the states, in order to

receive federal funds under public health programs,

to establish “certificate of need” regulatory programs.

42 U.S.C. (Supp. III) 300m-2(a) (4) (B). Under such

a program, a state administrative agency must ap-

prove capital expenditures above a threshold amount

for new institutional health services. bid.

The Act also calls for the designation of some 200

health systems agencies (HSAs), which are gen-

erally private, non-profit corporations, funded by the

federal government. 42 U.S.C. (Supp. III) 3001. Each

HSA must publish a 5-year “Health Systems Plan”

(“HSP”) and an “Annual Implementation Plan”

(“AIP”) “which, when developed, will assure that

quality health services will be available and accessible

in a manner which assures continuity of care, at rea-

sonable cost, for all residents of the area.” 42 U.S.C.

(Supp. III) 3001-2(b) (2). The HSA submits these

plans to its state regulatory agency and also makes

recommendations about how the state agency should

rule on certificate of need applications. 42 U.S.C.

3001-2 (c) (2), (£); 300m-2(a) (4). With respect to

new hospital construction, the HSA exercises advisory

functions only; it has no regulatory powers. 42 U.S.C.

(Supp. III) 300/-2(c)-(e), 42 U.S.C. 3001/-2(f)-(h).

At the time of the challenged activities in this case,

MAHSA had been designated and funded as a health

systems agency under the Act, 42 U.S.C. (Supp. III)

3001-4. The State of Missouri, however, had not im-

plemented NHPRDA. It had not designated any

state agency to review MAHSA plans, and it had not

established any certificate of need program (Pet.

App. 7a). Thus, any “certificate of need” findings

made by MAHSA were not made pursuant to any

’>

state program, and could not, under the Act, pre-

clude the construction of a new hospital.

b. The court of appeals’ finding of an implied ex-

_ emption in this case concededly was not based on any

specific statutory authorization of the challenged con-

duct. It was not based on any conflict with state

certification of need regulations—for Missouri had

no such regulatory program. Nor was it based on

MAHSA’s solicitation or endorsement of the chal-

lenged conduct, for the court did not find that

MAHSA consulted with Blue Cross or was even aware

of Blue Cross’s action. Nonetheless, the court con-

cluded that Blue Cross’s conduct was “clearly call[ed]

for” by the statute (Pet. App. 1la).” That conclu-

sion apparently was based on 42 U.S.C. 300l-2(a)

(4), which calls on health systems agencies to formu-

late plans with a view toward preventing ‘“unneces-

sary duplication of health resources.” The court also

relied (Pet. App. 8a) on 42 U.S.C. 300l-2(c) (1)

which provides:

The [health systems] agency shall seek, to

the extent practicable, to implement its HSP

[health systems plan] and AIP [annual im-

plementation plan] with the assistance of in-

dividuals and public and private entities in its

health service area.

The statutory goal of avoiding “unnecessary du-

plication,” however, is only one of many general goals

that are to be considered by administrative and regu-

latory agencies in evaluating proposals and making

plans. See 42 U.S.C. 300k, (Supp. III) 300k-2 and (&

Supp. III) 300/-2(a). These goals are broadly stated

11 The district court had concluded that Blue Cross’s cer-

tificate of need requirement “seems to be authorized by the

Act” (Pet. App. 32a; emphasis added).

and frequently quite vague. While such generality may

be acceptable, and even necessary, when delegating

authority to a public agency, it hardly reflects a pre-

cise congressional determination that a category of

voluntary private conduct must be immunized from

the antitrust laws if the public interest in health care

is to be fostered. The statutory desire to reduce “un-

necessary” duplication, of course, is not self-defining.

If all duplication were deemed undesirable, the adjec-

tive “unnecessary” would not have been included. De-

termining the point where duplication ceases to be

desirable requires a careful balancing of sometimes

conflicting values, e.g., facilitating consumer choice

versus limiting short term costs. And when new entry

is denied by government authorities after balancing

these various public interest factors, the statute pro-

vides explicit procedural safeguards and judicial re-

view (42 U.S.C. 300n-1(a), (Supp. III) (b)). There

is thus no evidence of any congressional desire to sup-

plant the antitrust laws with unsupervised private de-

cisionmaking.” The congressional admonition to re-

12 There is no indication in this case that respondents’ pri-

vate actions were approved by the HSA. But even if they

were, such approval would not immunize Blue Cross from

antitrust liability. United States v. Socony-Vacuum Oil Co.,

810 U.S. 150, 225-228 (1940); California v. FPC, supra,

869 U.S. at 488-489. Moreover, the antitrust laws are not

rendered inapplicable simply because respondents may have

believed that their exclusionary practices were in further-

ance of general statutory objectives such as avoiding

unnecessary expenditures or duplication of services. See

United States v. Socony-Vacuum Oil Co., supra, 310 U.S. at

227-228: “The fact that the [defendants’] buying programs

may have been consistent with the general objectives and

ends sought to be obtained under the National Industrial

Recovery Act is likewise irrelevant to the legality under the

Sherman Act of [their] activities * * *.”

sponsible administrators to avoid “unnecessary dupli-

cation” does not even remotely suggest that Congress

meant to remove private exclusionary practices from

antitrust scrutiny. There is, moreover, no necessary

repugnance between the statutory goals of preventing

private anticompetitive practices and administering

the Health Planning Act in a manner that looks to

avoidance of unnecessary duplication of services.

Nor is there merit to the court of appeals’ conclu-

sion that the statutory mandate that HSAs “seek the

assistance” of private entities requires a displacement

of the antitrust laws. The statute merely directs

HSAs to seek private input into health planning de-

cisions. It is clear that Congress intended to en-

courage communication between the public and HSAs,

but there is no indication that Congress meant to

sanction private restraints on competition. Parties

may communicate with HSAs without abusing monop-

oly power or entering into unlawful agreements in

restraint of trade, as alleged in the complaint in this

case. Moreover, it is clear that the statute neither

directs nor provides procedures to control private ex-

clusionary conduct. To the contrary, under the statu-

tory scheme, final implementation of a health plan

rests with the HSA, not with private parties. And

final determination whether a new hospital facility

shall go into operation rests with the state regulatory

agency. Since, in this case, there is not even a finding

that Blue Cross’s actions were taken to assist MAHSA

in implementing its HSP, scrutiny of Blue Cross’ ac-

tion under the antitrust laws can hardly give rise to

the “plain repugnancy” that is required to bestow

immunity. .

While seizing on the general statutory language

discussed above, the court of appeals disregarded

the only statutory language that specifically refers to

competition. 42 U.S.C. (Supp. III) 300k-2(a) (17)

calls for the strengthening of competition in the health

services industry when competition can serve the pub-

lic interest. It is true that 42 U.S.C. (Supp. III) 300k-

2(b) (1)-(3) indicates that the effectiveness of com-

petition has been diminished to some extent by insur-

ance payment procedures, and directs state health

agencies and HSAs to allocate the supply of services

when competition breaks down. But this same provi-

sion calls for promotion of competition when it can

serve the public interest. In sum, Congress has ex-

pressed a general policy in favor of competition; to

the extent that competition is not effective in serving

the public interest, Congress has required regulatory

action by state agencies and HSAs—not private par-

ties—to supplement competitive market forces."*

18 Sections 300k-2(a)(17) and 300k-2(b)(1)-(3) were

added to NHPRDA in 1979. The legislative history shows that

the endorsement of competition in 1979 was not a change in

the underlying statutory design. There is no indication that

the later Congress believed that its predecessor had rejected

competition and the antitrust laws in the health care field.

See S. Rep. No. 96-96, 96th Cong., lst Sess. 8-9, 50, 52

(1979). The Senate Committee Report noted that:

After four years experience with the law, Congress is

now in a position to assess the strengths and deficiencies

of the program, and to legislate the changes necessary

to improve the process and fulfill the goals set forth in

the original legislation.

Id. at 5. Such language hardly bespeaks an intent to re-

verse an earlier repudiation of competition and antitrust.

™ The courts below pointed to congressional concern over

increasing hospital costs and improper utilization of existing

facilities (Pet. App. 1la-18a, 38a-84a), and Committee Re-

ports calling for prevention of unnecessary duplication of re-

sources and implementation of health plans with assistance

8. The court of appeals’ decision also conflicts with

the rationale of this Court’s decision in Silver v. New

York Stock Exchange, 373 U.S. 341 (1963). In Silver,

this Court held that the failure of Congress to pro-

vide regulatory supervision over the challenged con-

duct indicated that there was not a sufficient conflict

between the regulatory scheme and the antitrust laws

to support an implied exemption. The Court’s de-

cision reflected the principle that in our society

private parties may not arrogate to themselves the

from the private sector (ibid.). These congressional mate-

rials, however, simply restate the provisions of the bill that

were ultimately enacted. They add no different gloss to the

statutory language.

The courts’ reliance on Rep. Rogers’ statements in de-

bates preceding the 1979 amendments (Pet. App. 14a-15a,

34a-35a) is also misplaced. Even if directed at this type of

case, Rep. Rogers’ individual remarks would not meet the

heavy burden of implying an antitrust exemption in the face

of statutory language endorsing competition in the health

services area. Nor are the remarks evidence of Congress’s

original intent in enacting NHPRDA for, as this Court fre-

quently has held, opinions of individual legislators voiced

after passage of legislation should be accorded little weight.

United States v. United Mine Workers, 330 U.S. 258, 282

(1947) ; Epstein v. Resor, 296 F.Supp. 214, 216 (N.D. Cal.

1969), aff’d, 421 F.2d 930 (9th Cir.), cert. denied, 398 U.S.

965 (1970). Rep. Rogers’ remarks fail to indicate a clear

congressional intent to create a broad antitrust exemption

for yet another reason: they are made to counter statements

by others that NHPRDA did not bestow antitrust immunity

sufficient to exempt all cooperative efforts of hospitals and

HSAs. 124 Cong. Rec. H11962 (daily ed. Oct. 10, 1978).

Finally, Rep, Rogers did not address the situation presented

here—the unilateral action of Blue Cross in granting and

withholding its own participating member contracts. Rather,

he was addressing a situation in which private parties were

participating in HSA activities, as contemplated by the

NHPRDA.

authority to impose significant restraints on competi-

tion, even if they purport to serve the public interest.

Such authority is public in nature: it is not entrusted

to private hands. Fashion Originators’ Guild v.

FTC, 312 U.S. 457 (1941).° The court of appeals’ de-

cision fails to consider the extraordinary nature of its

commitment of unsupervised public power to private

hands. This Court’s opinions require clear evidence

that Congress intended such an exceptional result. No

such evidence of congressional intent can be gleaned

from this statute.

Indeed, the Act does not give even HSAs or state

agencies unfettered authority to bar new entry into

the health services field on grounds of “unnecessary”

duplication. Decisions by HSAs to deny funding or

refuse certificates of need are advisory only. 42 U.S.C.

(Supp. III) 300/-2(e), (76 ed.) (f), (76 ed.) (h).

They must be referred to state or federal bodies for

final decision. 42 U.S.C. 300I-2(e) (2), (Supp. III)

300m-2(a) (4), (76 ed.) (5). At both the HSA and

state agency levels, there are opportunities for notice

and hearing before an application is denied (42 U.S.C.

300n-1(a), (Supp. III) (b)). And any final decision

to deny an application is reviewable for arbitrariness,

capriciousness, or failure to comply with the law. 42

U.S.C. (Supp. IIT) 300n-1(b) (12) (E). Thus, to the

extent the Act does sanction decisionmaking by state

agencies which might conflict with antitrust policies

of free competition, the Act provides procedural safe-

guards and avenues of review to assure that the re-

15 When Congress envisions an economic process governed

by business judgment rather than regulatory coercion, “courts

must be hesitant to conclude that Congress intended to over-

ride the fundamental national policies embodied in the anti-

trust laws.” Otter Tail Power Co. v. United States, supra,

410 U.S. at 874.

’%

quired balancing of public interest considerations is

effectuated in full compliance with statutory require-

ments.

In the present case, Blue Cross allegedly imposed

an economic sanction on petitioner without the inter-

mediation of any government body. MAHSA, whose

policy Blue Cross purported to promote, lacked such

power. It could only recommend that a state agency

foreclose new entry. Under these circumstances, the

court of appeals’ decision immunizing private exclu-

sionary action undercuts, rather than promotes, the

manifest purposes of the statute.

4. The court of appeals’ decision also conflicts with

decisions of this Court holding that when Congress

has explicitly immunized specified activities from the

antitrust laws, that action “show[s] beyond question

how far Congress intended that the * * * Act should

operate to render the Sherman Act inapplicable. If

Congress had desired to grant any further immunity,

Congress doubtless would have said so.” United States

v. Borden Co., 308 U.S. 188, 201 (1939); Carnation

Co. v. Pacific Westbound Conference, 383 U.S. 213,

217 (1966); see also California v. FPC, supra, 369

U.S. at 485.

In NHPRDA, Congress expressly exempted from

liability for damages “under any law of the United

States or any state” a “health systems agency” and

any “individual member of the governing body of a

health systems agency” acting in performance of the

agency’s duties without gross negligence or malice.

42 U.S.C. (Supp. III) 300l-1(b) (4). See also 42

U.S.C. (Supp. III) 300m-3(d) (similar exemption

from damage liability for members and employees of

Statewide Health Coordinating Councils). These are

carefully formulated and narrowly drawn exemp-

tions. They are limited to specified entities and indi-

viduals. Moreover, the immunity itself is limited to

damage actions; injunctive relief is still available.

Thus, Congress has clearly declared the extent to

which it intended to bestow immunity. Congress was,

of course, aware of the fact that health providers and

insurance companies like Blue Cross would partici-

pate with HSAs and their employees in health

planning activities. But it chose not to clothe them

with immunity. In view of the measured provision

of immunity to certain persons, the absence of an

express exemption for others like Blue Cross may not

be attributed to congressional inadvertence. T'rans-

america Mortgage Advisors, Inc. v. Lewis, 444 U.S.

11, 19-20 (1979). The court of appeals’ extension

of immunity to private exclusionary activities in the

health care field that arguably foster congressional

goals is thus contrary to the statute itself, as well as

to the decisions of this Court.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

WADE H. MCCREE, JR.

Solicitor General

SANFORD M. LITVACK

Assistant Attorney General

BARRY GROSSMAN

ANDREA LIMMER

Attorneys

DECEMBER 1980

ATTACHMENT A

[SEAL]

DEPARTMENT OF JUSTICE

FOR IMMEDIATE RELEASE AT

THURSDAY, MAY 8, 1980 202-633-2014

The Department of Justice today announced it

had sent a business review letter stating the Anti-

trust Division’s enforcement intentions with respect

to certain proposed activities of Central Virginia

Health Systems Agency (CVHSA).

The Department’s position was stated in a May

6 letter by Sanford M. Litvack, Assistant Attorney

General in charge of the Antitrust Division, to Wil-

liam G. Kopit, attorney for CVHSA.

The agency is a publicly financed, private, non-

profit corporation, with headquarters in Richmond,

Virginia. It is one of about 200 health systems agen-

cies designated by the United States Department of

Health Education and Welfare pursuant to the Na-

tional Heaith Planning and Resources Development

Act of 1974.

The activities proposed by CVHSA included con-

duct that could involve concerted action by local pro-

viders affecting the supply and price of health

services.

The business review raised the question of the

extent to which the Act creates creates an implied

antitrust immunity for the providers and health

systems agencies that undertake such conduct.

The Department’s letter said that certain of the

activities proposed by CVHSA appear to be clearly

contemplated by the relevant statutes, such as:

—Reviewing applications for certificates of need

for new institutional health services ;

—Recommending to the appropriate agency of

the Commonwealth of Virginia whether such

certificates should be granted;

—Reviewing applications for federal grants;

—Making recommendations to HEW on such

grants;

—Reviewing existing institutional health serv-

ices;

—Advising state agencies of the appropriateness

of such services.

The Department has no intention to challenge

such activities so long as they correspond to the

statutory scheme.

On the other hand, the Department does not be-

lieve that the Health Planning Act creates a complete

exemption for all efforts by health systems agencies

and private parties working with them to imple-

ment their plans.

For example, the Department beiicves that agree-

meiits among competing hospitals limiting the num-

ber uf patients they could serve or the kinds of serv-

ice they could offer are probably not exempt from

the antitrust laws in the absence of conscious and

explicit authorization by the State.

The letter said that the Department will formulate

enforcement intentions on specific implementation

activities only upon detailed assessment of the con-

duct in question.

In doing so, the Department will consider a variety

of factors, including the relationship of the conduct

to goals established by Congress, the degree to which

competition :vould properly allocate resources if given

the opportunity, whether providers or third-party

payers will act in concert and whether coercive meas-

ures are used.

The Department said it was unable to state its

enforcement intentions with respect to the health

system plan and implementation plan activities pro-

posed by CVHSA because the proposed conduct was

too general and its effects too unpredictable.

The Department’s letter noted with approval that

CVHSA had deleted from its plan a, statement. that

it would encourage certain hospitals to explore the

feasibility of cooperative assessments that would re-

sult in joint action to adjust the number of beds,

physicians and allied health manpower.

Under the Department’s Business Review Proce-

dure an organization may submit a proposed action

to the Antitrust Division and receive a statement

as to whether the Division would challenge that ac-

tion under the antitrust laws.

A file containing the business review request and

the Department’s response will be made available to

the public immediately and may be examined in the

Legal Procedure Unit, Antitrust Division, Room

7416, Department of Justice, Washington, DC 20530.

After a 30-day waiting period, the documents sup-

porting the business review will be added to the

above file.

* * * *

UNITED STATES DEPARTMENT OF JUSTICE

Washington, D.C. 20530

[SEAL]

ASSISTANT ATTORNEY GENERAL

ANTITRUST DIVISION

6 May 1980

William G. Kopit, Esquire

Epstein, Becker, Borsody & Green

1900 M Street, N.W.

Washington, D.C. 20036

Dear Mr. Kopit:

This responds to your letter of January 25, 1979,

requesting a statement of the Department’s present

enforcement intentions, through the Antitrust Di-

vision’s Business Review Procedure, concerning pro-

posed activities of the Central Virginia Health Sys-

tems Agency [CVHSA]. On May 1, 1979 you sub-

mitted additional material in response to our request

for more information.

CVHSA is a publicly financed, private, nonprofit

corporation which performs health planning func-

tions pursuant to the National Health Planning and

Resources Development Act of 1974, Pub. L. 93-641,

42 U.S.C. § 300k et seg. [the Act]. While CVHSA

engages in health planning and other advisory func-

tions, it is not a governmental agency of either the

United States or the Commonwealth of Virginia.

It is one of about 200 Health Systems Agencies

[HSAs] which have been fully designated by the

United States Department of Health, Education and

Welfare [HEW] under the Act. The activities pro-

posed by CVHSA include conduct that may involve

concerted action by local providers affecting the

supply and price of health services. This raises the

question of the extent to which the Act creates an

implied antitrust immunity for the providers and

HSAs that undertake such conduct. )

In accordance with the Act and guidelines and

regulations issued thereunder, CVHSA has published

a Health Systems Plan and an Annual Implementa-

tion Plan for the Central Virginia Health Service

Area. On the basis of these Plans, CVHSA proposes

to undertake four activities. It will:

(1) review applications for certificates of need for

new institutional health services, and recom-

mend to the appropriate agency of the Com-

monwealth of Virginia whether such certifi-

cates should be granted;

(2) review applications for federal grants for

the development, expansion, or support of

health resources, and recommend to HEW

whether such grants should be approved;

(8) review existing institutional health services

and advise the proper state agency about the

appropriateness of such services; and

(4) seek to implement its Health Systems Plan

and Annual Implementation Plan with the

assistance of individuals and public and pri-

vate entities.

In developing its plans, and in performing these

four functions, CVHSA has stated that it will com-

ply with all requirements of the Act and regulations

promulgated thereunder. It will encourage providers

and consumers of health care services to participate

in its activities by inviting them to testify at public

hearings and submit written comments.

Decisions by the Department of Justice as to

whether to initiate antitrust enforcement actions

necessarily are based upon analysis of the factual

and legal context of the proposed conduct. The role

of competition in affected industries, the achievement

of the ultimate goals which competition and the

antitrust laws serve, and relevant statutory schemes

established at the state and federal levels all must

be taken into account in judgments regarding

whether certain conduct unreasonably restrains trade

or is in any event authorized or directed by other

laws. These judgments are particularly difficult in

the health planning area due to the peculiar eco-

nomic incentives created by the existence of third-

party payers and the comprehensive statutory and

regulatory environment.

Certain of the activities proposed by CVHSA ap-

pear to be clearly contemplated by relevant statutes.

Thus, we have no present intention to bring anti-

trust enforcement actions challenging the first three

activities proposed by CVHSA—certificate of need

review, federal grant review, and appropriateness

review. The Act specifically requires HSAs to advise

governmental agencies on these subjects. 42 U.S.C.

§§ 3001-2(e), 3001-2(f), 3001-2(g). Our statement

of enforcement intentions is, of course, premised on

the assumption that the activities of CVHSA will in

all respects correspond to the statutory scheme.

We are unable, however, to state specific enforce-

ment intentions with respect to the Plan implementa-

tion activities described in (4) above. The requisite

competitive analysis cannot be undertaken because

the proposed conduct is too general and its effects

too unpredictable. This uncertain factual context,

the ambiguous language of the Act, and the lack of

any reference to the antitrust laws makes a respon-

sible enforcement decision impossible.

Also, unlike the other three functions described in

your submission, the Plan implementation activities

cover a broad spectrum of conduct not necessarily

authorized or even contemplated by the Act. We

cannot imply antitrust immunity for such activities.

For example, we note that the “Annual Implementa-

tion Plan, 1978-1979” originally submitted to us

contained a statement that:

Hospitals in Planning Districts 13, 14, 15, and

19 offering obstetric services will be encouraged

by the Central Virginia Health Systems to ex-

plore the feasibility of cooperative assessments

that will result in joint action to adjust the num-

ber of beds, physicians and allied health man-

power, and the division of services in a manner

that will best serve the needs of the people of

HSA IV.

As we have advised you, we believe that agree-

ments among competing hospitals limiting the num-

ber of patients they could serve or the kinds of

services they could offer in the absence of conscious

and explicit authorization and supervision by the

State are probably. not contemplated by the Act nor

exempt from the application of federal antitrust

laws. The following statement in your letter to the

Antitrust Division of May 1, 1979 appears to recog-

nize this and is reassuring:

No implementation activities undertaken

by the Agency as a result of any Agency recom-

mendation made pursuant to any review activity

described above, including actions designed to

encourage voluntary action based on the results

of an appropriateness review, will involve any

combined or concerted activity between the

Agency, or its personnel or agents, and two or

more medical care institutions, either directly

or through any organization or organizations

representing groups of such institutions.

In essence, we do not believe that the Health

Planning Act creates a complete antitrust exemption

for all efforts by HSAs, and private parties working

with HSAs, to implement health plans. An antitrust

exemption protecting all activities which arguably

furthered the general statutory goals is not, in our

view, justified. The legislative history of the Act

reveals no congressional intent to restrict the opera-

tion of the antitrust laws to such an extent. More-

over, that interpretation would clearly conflict with

the well-established principle that implied repeal of

the antitrust laws is disfavored and that antitrust

exemptions should be construed narrowly.

Thus, we would formulate enforcement intentions

with respect to specific implementation activities only

upon assessment in detail of the conduct in question,

the specific circumstances in which it occurs, its

relationship to the goals established for health plan-

ning by Congress and to the specific objectives of

relevant plans, whether the conduct is necessary to

achieve those goals and objectives, the degree to

which competition would properly allocate resources

if given the opportunity, and the availability of less

anticompetitive alternatives. Relevant considerations

would also include the extent to which plans are

sufficiently detailed to assure that what is being

“implemented” has in fact been approved under rele-

vant statutes; whether providers or third-party

payers will act in concert, rather than unilaterally;

and whether coercive measures are used.

As you know, there is considerable debate as to

the relative merit of various approaches to the im-

portant problem of hospital cost containment, and

the role that competition may play in those ap-

proaches. As knowledge grows, and laws and poli-

cies are formulated, application of the antitrust laws

should become more definitive. Meanwhile, in exer-

cising our prosecutorial discretion, we are mindful

that an underlying purpose of both the antitrust laws

and the Act is to promote a proper allocation of eco-

nomic resources in light of congressionally stated

goals.

Our statement herein is made in accordance with

the Department’s business review procedure, 28

C.F.R. 50.6. Pursuant to its terms, your business

review request and this letter will be available to

the public immediately and your supporting data

will be made available publicly within 30 days of

the date of this letter.

Sincerely yours,

/s/ Sanford M. Litvack

Assistant Attorney General

Antitrust Division

10a

ATTACHMENT B

DEPARTMENT OF JUSTICE

[SEAL]

FOR IMMEDIATE RELEASE AT

FRIDAY, AUGUST 29, 1980 202-633-2014

The Department of Justice announced today that

it could not rule out antitrust enforcement action

against a proposed agreement between the Westlake

Health Campus Association, Westlake, Ohio, and

Lakewood Hospital, Lakewood, Ohio. The agreement

would prevent the Association from offering speci-

fied health care services at its hospital, now under

construction in Westlake.

The Department’s position was contained in a

business review letter signed by Sanford M. Litvack,

Assistant Attorney General in charge of the Antitrust

Division, issued August 27.

The Department’s intentions were requested con-

cerning the proposed agreement—part of an overall

agreement in settlement of lawsuits between the

Hospital and the Association.

The proposed agreement would provide that for a

10-year period through 1988 the new facility would

not offer cardiac surgery, major vascular surgery,

microscopic neurosurgery, joint replacement, micro-

scopic ENT procedures, microscopic opthalmology

procedures, cardiac catheterization laboratory serv-

ices or CAT scanner services unless such services be-

came customary for a 200-bed acute care hospital.

The Department’s letter pointed out that this agree-

ment could reduce competition between competing

hospitals. Moreover, the agreement is not exempted

lla

from the operation of the antitrust laws by virtue of

any state or federal legislation.

The letter also stated, ‘Moreover, the agreement

may limit the effectiveness of the state’s regulatory

program, since the state may be denied the oppor-

tunity to consider a Certificate of Need application

from an otherwise qualified applicant.”

Under the Department’s business review Proce-

dure, and organization may submit a proposed action

to the Antitrust Division and receive a statement as

to whether the Division would challenge that action

under the antitrust laws.

A file containing the business review request and

the Department’s response will be made available to

the public immediately and may be examined in the

Legal Procedure Unit, Antitrust Division, Room 7416,

Department of Justice, Washington, D.C. 20530.

After a 30-day waiting period, the documents sup-

porting the business review will be added to the

above file.

| 12a

UNITED STATES DEPARTMENT OF JUSTICE

Washington, D.C. 20530

[SEAL]

Assistant Attorney General

Antitrust Division

SML:JWP

60-423-134

August 27, 1980

Paul A. Schraff, Esquire

Ford, Whitney, Crump & Schulz

1500 Williamson Building

Cleveland, Ohio 44114

Dear Mr. Schraff:

This responds to your letter of October 9, 1979,

requesting a statement of the Department’s present

enforcement intentions, through the Antitrust Divi-

sion’s Business Review Procedure, concerning a pro-

posed agreement between the Westlake Health Camp-

us Association (the Association) and Lakewood

Hospital.

The Association will operate a 200-bed acute care

general hospital, now being constructed, in Westlake,

Ohio. The association was formed by St. John Hos-

pital, a 323-bed acute care general hospital, and West

Shore Health Center, an Ohio non-profit corporation.

West Shore Health Center was formed by Fair-

view General Hospital, a 457-bed acute care general

hospital, and Cleveland Osteopathic Hospital, d.b.a.

Bay view Hospital, a 116-bed acute care general

hospital. Lakewood Hospital is a 378-bed acute

care general hospital operated by the City of Lake-

wood, an Ohio municipal corporation. All four

**%

13a

hospitals are located in the western portion of Cuya-

hoga County, Ohio, and have overlapping service

areas.

On January 5, 1979, Lakewood Hospital filed

a lawsuit against the Association in the Court of

Common Pleas, Cuyahoga County, Ohio, seeking to en-

join construction of the Association’s proposed hos-

pital. Lakewood Hospital alleged, among other things,

that the construction and operation of the hospital

would result in a decrease of occupany in Lakewood.

In anticipation of this lawsuit, the Association had

filed an action for declaratory judgment on January

4, 1979.

These lawsuits, which had been consolidated, were

settled on January 26, 1976. The settlement included

a proposed agreement that the Association would not

provide any of eight specified services * until after

December 31, 1988, unless the offering of any such

service became customary for a 200-bed acute care

hospital. The agreement will go into effect only if

the Department of Justice states that it has no

present intention to take any enforcement action with

respect to the agreement. It is our understanding

that the Association could not offer these services in

any event without obtaining a Certificate of Need pur-

suant to Chapter 3702 of Ohio Code.

Agreements between competitors as to the prod-

ucts or services that each will offer are prohibited by

the antitrust laws because of their plainly anti-

competitive purpose and effect. State and federal

*Cardiac surgery, major vascular surgery, microscopic

neurosurgery, joint replacement, microscopic ENT proce-

dures, microscopic ophthalmology procedures, cardiac cath-

eterization laboratory services and CAT scanner.

’%

l4a

regulatory programs reflect a legislative judgment

that if competition is to be restrained, it should be re-

strained by the appropriate regulatory agencies, and

not by private agreements. The agreement has not

been authorized or required by any regulatory agency

and is not subject to governmental supervision. It has

not been addressed by the health systems agency plan

and has not been authorized or required by the health

systems agency or the state health planning and de-

velopment agency. Moreover, the agreement may

limit the effectiveness of the state’s regulatory pro-

gram, since the state may be denied the opportunity

to consider a Certificate of Need application from

an otherwise qualified applicant. These considerations

also preclude the application of any implied antitrust

exemption that may arise from the National Health

Planning and Resources Development Act, 42 U.S.C.

§ 300k et seqg., from which the state regulatory

scheme is derived. Accordingly, the Department can-

not state an intention not to sue to enjoin the pro-

posed agreement.

Our statement herein is made in accordance with

the Departments business review procedure, 28

C.F.R. 50.6. Pursuant to its terms, your business

review request and this letter will be available to the

public immediately. Your supporting data will be

made available publicly within 30 days of the date of

this letter unless you request that any part of the ma-

terial be withheld in accordance with Paragraph 10

Sincerely yours,

/s/ Sanford M. Litvack

SANFORD M. LITVACK

Assistant Attorney General

Antitrust Division

15a

October 9, 1979

Assistant Attorney General

Antitrust Division

Department of Justice

Washington, D.C. 20530

Re: Westlake Health Campus

Dear Sir:

This is to request review by the Antitrust Division

of the Justice Department, of the enclosed proposed

Agreenent between Westlake Health Campus As-

sociation (the Association) and the City of Lakewood

(the Agreement) (see enclosed Item B). The under-

signed submit this request pursuant to authorization

by their respective clients, who are parties to the

Agreement.

The Agreement, which has not yet been executed,

results from the settlement of litigation brought by

the City of Lakewood challenging the new hospital

which the Association proposed to build in western

Cuyahoga County, Ohio. As a condition of the set-

tlement, both the Antitrust Division and the Ohio

Attorney General must give a favorable business

review to the Agreement, whereby the Association

would agree not to provide certain services and

facilities in its new hospital. The City of Lakewood

owns and operates Lakewood Hospital. The Asso-

ciation, an Ohio non-profit corporation, is building

a new hospital and is comprised of existing hospitals

(see enclosed Item 1, pages vii and viii for overview

of corporate structure). Service areas of the hos-

pitals overlap. The antitrust implications of the

Agreement necessitate this request for review.

16a

The following documents are submitted herewith:

Item A—Proposed Agreement. between Lake-

wood (Lakewood Hospital) and the

Association ;

Item B-—Letter Agreement dated January 26,

1979 from the Association to the City

of Lakewood;

Item C—Statement of Relevant Data and Back-

ground Information (the Statement) ;

Items 1 through 37—Operative documents and

other exhibits (see enclosed table of

contents).

Please note that all operative documents referred

to in the Statement are included herein. All under-

standings between the parties are embodied in the

enclosed documents and there are no collateral oral

understandings.

If any additional information is required, please

direct your request jointly to the undersigned.

Very truly yours,

/3/ Paul A. Schraff

PAUL A. SCHRAFF

Ford, Whitney, Crump & Schultz

Counsel for Lakewood Hospital

/s/ James D. Knotter, Jr.

JAMES D. KNOTTER, JR.

Hahn, Loeser, Freedheim,

Dean & Wellman

Counsel for St. John Hospital

17a

/3/ Robert E. Glaser

ROBERT E. GLASER

Arter & Hadden

Counsel for Westlake Health

Campus Association,

West Shore Health Center and

Bay View Hospital

m™%

18a

ATTACHMENT C

[SEAL]

DEPARTMENT OF JUSTICE

FOR IMMEDIATE RELEASE AT

TUESDAY, JUNE i3, 1978 202-739-2014

The Department of Justice today declined to say

whether it would take antitrust action on a proposed

“Voluntary Cost Containment Program” sponsored

by the American Hospital Association, the American

Medical Association, and the Federation of American

Hospitals.

Hugh P. Morrison, Jr., Acting Assistant Attorney

General in charge of the Antitrust Division, said the

Department’s position was in a business review letter

issued June 12.

Under the proposed program, state hospital and

medical societies would establish goals for hospital

cost increases and would attempt to persuade hospi-

tals to hold cost increases below the specified amount.

The Department noted that the national sponsors

of the program would not control the goals adopted or

the procedures used to persuade hospitals.

The letter said that such a program, if adopted in

other industries, would violate the antitrust laws,

because it would lessen the independence of individ-

ual firms in making business decisions.

The applicants argued that there were significant

differences between the hospital service industry and

other industries and that the program would not

have the predictable anticompetitive consequences of

similar activity in other industries.

The Department concluded that, to reach a defini-

tive conclusion, it would have to speculate about the

19a

competitive effects of uncertain conduct in a very

unusual market.

Under the Department’s Business Review Proce-

dure a firm or organization may submit a proposed

action to the Antitrust Division and receive a state-

ment as to whether the Division would challenge that

action under the federal antitrust laws.

After a 30-day waiting period, a file containing

the Business Review request, the supporting docu-

ments, and the Department’s response will be made

available to the public and may be examined in the

Legal Procedure Unit of the Antitrust Division,

Room 7416, Department of Justice, Washington, D.C.

20530.

20a

UNITED STATES DEPARTMENT OF JUSTICE

Washington, D.C. 20530

[SEAL |

Assistant Attorney General

Antitrust Division

[Jun. 12, 1978]

Richard J. Wertheimer, Esq.

Arnold & Porter

1229 Nineteenth Street, N.W.

Washington, D.C. 20036

Dear Mr. Wertheimer:

This is in response to your February 2, 1978 let-

ter requesting a statement of the Department’s pres-

ent enforcement intentions, pursuant to the Antitrust

Division’s Business Review Procedure, with regard

to a proposed Voluntary Hospital Cost Containment

Program sponsored by the American Hospital Asso-

ciation, the American Medical Association and the

Federation of American Hospitals.

As indicated in your letter of February 2, the Pro-

gram’s National Steering Committee has adopted na-

tional objectives of (1) a 2% reduction in the rate

of increase of non-federal, short-term hospital ex-

penditures, for each of the next two years, (2) no

net increase in the total stock of hospital beds as of

December 31, 1977, and (3) a reduction, over the

next two years, on total new capital investment to

80% of the annual price adjusted average of such

investment for the period 1975-1977.

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In order to achieve these goals, the Steering Com-

mittee has asked the hospital association and medical

society of each state to form state cost containment

committees. The state committees will be assisted by

full-time professional staffs, and committee expenses

will be shared by the state hospital association and

medical society.

Each state committee will adopt specific numerical

goals for containing hospital expenditures within its

state. The committee will also adopt screening guide-

lines for identifying hospitals which may require spe-

cial attention.

After developing these goals and guidelines, state

committees will adopt one or more of the following

programs. Under a “Certification Program,’ the

state committee would certify, as participants in the

cost containment program, hospitals which (1) sub-

mit a resolution endorsing the state program and its

objectives, (2) review current operating and capital

expenditure budgets to determine if the rate of in-

crease can be reduced, and (3) submit a written

report specifying how the _uidelines are being met,

and explaining any failure to meet the guidelines.

The state committee may identify hospitals which do

not participate in the program, but no other action

will be taken against non-participating hospitals.

Under a ‘‘Technical Assistance Program,” hospitals

will be offered a broad range of technical assistance,

generally of a consulting nature, to help them evalu-

ate their policies, improve their management opera-

tions, and examine and modify their organizational

goals and objectives. |

Under a “Review Program,” participating hospi-

tals which fail to meet state guidelines may undergo

formal review and be asked to submit written justi-

fications. If the state committee determines that

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these justifications are inadequate;~a public or pri-

vate hearing may be held, at which the hospital will

be allowed to present witnesses and additional infor-

mation. The state committee will then issue in

writing, and make available to the public, its find-

ings and conclusions as to whether the hospital’s

justifications are reasonable.

In addition, the state committees will work closely

with the state and loval health planning agencies.

The committees will assist those agencies in assess-

ing the particular health care needs of the state, and

ask that the committee’s goals be considered in the

review of individual hospital capital investment pro-

posals.

You have represented that participation in this

program is entirely voluntary. No hospital will be

compelled to participate, and the state committees

will take no action against non-participating hospi-

tals, beyond publicizing the fact of non-participation.

In addition, however, you have indicated that each

state committee will make its own decisions and

adopt its own procedures, and the National Steer-

ing Committee will have no authority to compel ad-

herence by individual state committees or their mem-

bers to the goals and procedures it set forth.

As you are aware, joint action by competitors

which lessens the independence of individual firms

regarding the price, quantity, or quality of the goods

and services they purchase or sell raises serious

antitrust issues. In fact, as you recognize, the con-

duct proposed here would almost surely be consid-

ered an antitrust violatior in many other industry

contexts. Nevertheless, you have argued that the

application of this fundamental antitrust principle is

not dispositive here; that because of the peculiar

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structure of the hospital service market, the joint

activity contemplated by this program may not have

the predictable anticompetitive consequences of simi-

lar activity in other industries.

There may well be significant differences between

the hospital service industry and other industries

that affect the competitive potential of particular

conduct. However, the necessarily generalized de-

scription of the program and the way in which it

will be carried out, the difficulty in predicting its

actual impact, and the tentative nature of our pres-

ent understanding of this complex industry preclude

a definitive analysis of the proposal. To attempt

such an analysis would require undue speculation

about the possible competitive effects of uncertain

conduct in a very unusual market. Accordingly, we

must decline your request for a statement of our

enforcement intentions with regard to this program.

Our statement herein is made in accordance with

the Department’s business review procedure, 28

C.F.R. 50.6. Pursuant to its terms, your business

review request and this letter will be available to the

public immediately and your supporting data will

be made available publicly within thirty days of the

date of this letter.

Sincerely yours,

/s/ Hugh P. Morrison, Jr.

HuGH P. MorRISON, JR.

Acting Assistant

Attorney General

Antitrust Division

W ov. &. covernment parintine orrice; 1980 334751 206

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.