# Amicus Brief — National Gerimedical Hospital and Gerontology Center v. Blue Cross of Kansas City > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0806%3A08 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Brief - **Published:** January 1, 1981 - **Citation:** 452 U.S. 378 ## 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 v. 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 rs 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 10 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). m4 11 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 * * *.” s% 7% 12 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 -* 13 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 s% 14 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. 15 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. ’% 7? 16 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- 17 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 la 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 ; rt 2a —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 * 3a 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. * * * * 7% ry 4a 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 5a 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 ry i: 6a 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 *% 7% Ta 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- m~ rs 8a 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 ss - 9a “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 r% 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. 4% -% | 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 **% ry 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 (c) of the Business Review Procedure. Sincerely yours, /s/ Sanford M. Litvack SANFORD M. LITVACK Assistant Attorney General Antitrust Division 4 - 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. ry 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 r% 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. - 2la 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 ry 22a 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 23a 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0806%3A08. Public record. Not legal advice.