Petition — Blue Shield v. Virginia Academy of Clinical Psychologists

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In the Supreme Court of the Uni . States, een

October Term, 1980

BLUE SHIELD OF VIRGINIA CHAEL RODAK, JR., CLERK |

and

BLUE SHIELD OF SOUTHWESTERN VIRGINIA,

Petitioners,

VS.

VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS

and

ROBERT J. RESNICK,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FOURTH CIRCUIT

GRIFFIN B. BELL

(Counsel of Record)

MICHAEL ErRIc Ross

JAMES D. MILLER

Kinc & SPALDING

2500 Trust Company Tower

Atlanta, Georgia 30303

(404) 572-4600

Attorneys for Petitioner, Blue Shield

of Virginia

WILLIAM B. Porr

RoNaALpD M. AYERS

| HEMAN A. MARSHALL, III

Woops, Rocers, Muse, WALKER

& THORNTON

105 Franklin Road, S.W.

Roanoke, Virginia 24004

(703) 982-4200

Attorneys for Petitioner, Blue Shield

of Southwestern Virginia

E. L. MenvENHALL, INc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030

QUESTIONS PRESENTED FOR REVIEW

1. Whether the independent decisions of the Peti-

tioners to expand the coverage under their contracts with

subscribers to include treatment by a psychologist where

the psychologist’s bill is submitted for payment by a

physician fall outside “the business of insurance” for pur-

poses of the McCarran-Ferguson Act??

2. Whether the Petitioners are inherent “contract[s],

combination[s] . . . or conspirac[ies]” of participating

physicians within the meaning of § 1 of the Sherman Act

where the physicians have no actual control over the day-

to-day activities of the Petitioners and where the expan-

sion of coverage to include psychologists was directly con-

trary to the physicians’ economic interests?

3. Whether concerted action taken openly and in good

faith to provoke a judicial resolution of the constitutionality

of a Virginia statute (which was later held unconstitutional

by the Virginia Supreme Court) lacks First Amendment

protection under the Noerr-Pennington doctrine?

PARTIES

Blue Shield of Virginia;

Blue Shield of Southwestern Virginia;

Neuropsychiatric Society of Virginia, Inc.;

Virginia Academy of Clinical Psychologists;

and

Robert J. Resnick.

1. 15 U.S.C. §§ 1011 to 1015.

TABLE OF CONTENTS

Questions Presented for Review ................-ccsseceseeeeeeeeseeees I

Nee eee ee cain III

REALTOR ETE PINOT IRN oN IV

Nee TO ccasisluniptebuinsianisaginns 2

ESE a ee ee aa 2

EET SOOT 2

Statement of the Case—

i ARE PRC SP SD RO re 2

i ea ch ct cteattttionacunios 4

Ef ET AE 7

Reasons for Granting the Writ—

(a) The Fourth Circuit Refused to Follow This

Court’s Decision in Royal Drug ...............2...---+-- 9

(b) The Fourth Circuit’s Erroneous Holding that

the Plans Are Inherent Conspiracies Can Be

Read to Threaten the Existence of Many Blue

I I Sei csisininnccinsiatiiascenantdasedeeiblambsaindentbiigiveticess 12

portant Civil Rights Guaranteed to the Plans

and Their Participating Physicians by the

First Amendment and the Noerr-Pennington

ER RR PES ae nese ee tne SPE Me 14

III sl lan ctindaaeecsetbuaic dat sabe eaabeaiaisininciodpedipaliomenbantinniondires 17

Appendix:

Appendix A—Opinion of the District Court, East-

ern District of Virginia (April 9, 1979) 0000000000... Al

PREVIOUS PAGE WAS BLANK |

Appendix B—Opinion of the Court of Appeals,

Fourth Circuit (June 16, 1980) -..00.022022.. eee A27

Appendix C—Order of the Court of Appeals,

Fourth Circuit (September 9, 1980) _...0.0..2... A50

Appendix D—Relevant Statutes 0000000000000. A5d1

TABLE OF AUTHORITIES

CASES

Allied Internat’l, Inc. v. International Longshoremen’s

Ass’n, 492 F. Supp. 334 (D. Mass, 1980) .200002... 16

Blue Cross & Blue Shield v. Commonwealth, No. 800056

CM. Ts Sng FUMIE, hy BY wi iacneceseviictentsncnnniewrenvinces 7

Crown Central Petroleum Corp. v. Waldman, 486 F.

Supp. 759 (M.D. Pa. 1980), rev’d on other grounds,

[1980] 5 Trade Reg. Rep. (CCH) {63,635 (3rd Cir.

I ie 16

Eastern R.R. Presidents Conference v. Noerr Motor

Frewgnt, IN6., BES WB. 1BT (OGL) nn scccnccccincsecescocssescees 14

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

RN Oe ED visrcetrctdccblhctieserviccniodnivcccetane 7, 9,10, 11, 17

Mackey v. Sears, Roebuck & Co., 237 F.2d 869 (7th

Cir. 1956), cert. denied, 355 U.S. 865 (1957) 000... 13

Missouri v. National Organization for Women, Inc., 620

F.2d 1301 (8th Cir. 1980), cert. denied, ...... TS. Scsikcn

49 U.S.L.W. 3216 (October 6, 1980)

Nelson Radio & Supply Co. v. Motorola, 200 F.2d 911

(Sth Cir. 1952), cert. denied, 345 U.S. 925 (1953) .... 13

SEC v. National Sec., Inc., 393 U.S. 453 (1969) 000000... 10

Spence v. Washington, 418 U.S. 405 (1974) ooo. 15

United Mine Workers v. Pennington, 381 U.S. 657

GO Saly N RENEE Wilco ae Re Mer ea? SOI eae CECE OAC 14

Virginia Academy of Clinical Psychologists v. Blue

Shield of Virginia, 469 F. Supp. 552 (E.D. Va. 1979),

aff'd on this issue, 624 F.2d 476 (4th Cir, 1980) ........ 3

STATUTES

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Te en ere as 2) 2,3

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pS Oc Re Re Re 2, 4

Ie Te ee ee 2, 5, 6

ic |S eRe eee: 2,6

Pe I I else i eS 2,6

RULES AND REGULATIONS

Supreme Court Rule 17.1(a) ooo. ccccccccceecceeeeeeo 8

Supreme Court Rule 19.6 20.0.0... ccccccccsccccssseccosecosesces.... 1

Be I I gence 14

PN I oe i 14

Rule 52(a), Federal Rules of Civil Procedure ....._. 8

OTHER

Dep’t of HEW, Medicare Carriers Manual, Part 3,

I I serrata 5

In the Supreme Court of the United States

October Term, 1980

BLUE SHIELD OF VIRGINIA

and

BLUE SHIELD OF SOUTHWESTERN VIRGINIA,

Petitioners,

vs.

VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS

and

ROBERT J. RESNICK,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE FOURTH CIRCUIT

Blue Shield of Virginia (the “Richmond Plan”) and

Blue Shield of Southwestern Virginia (the “Roanoke

Plan”) respectfully petition for a writ of certiorari to

review the judgment of the United States Court of Ap-

peals for the Fourth Circuit in this case.”

2. The Richmond Plan and the Roanoke Plan were appellees

below. Neither of the Plans has any parent, subsidiary or af-

filiated company other than wholly-owned subsidiaries. The

Plans believe that the third appellee below, the Neuropsychiatric

Society of Virginia, Inc., has no interest in the outcome of this

petition under Rule 19.6 of the Rules of the Supreme Court.

OPINIONS BELOW

The opinion of the United States District Court for

the Eastern District of Virginia, attached to this Petition

as Appendix A, is reported at 469 F. Supp. 552 (E.D.

Va. 1979). The opinion of the United States Court of

Appeals for the Fourth Circuit, attached as Appendix B,

is reported at 624 F.2d 476 (4th Cir. 1980).

JURISDICTION

The judgment of the Fourth Circuit was entered on

June 16, 1980. Timely Petitions for Rehearing and Sug-

gestions for Rehearing En Banc were denied on September

9, 1980. The Order of the Fourth Circuit denying the

petitions is attached as Appendix C. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

Section 1 of the Sherman Act, 15 U.S.C. § 1; sec-

tions 2 and 3(b) of the McCarran-Ferguson Act, 15 U.S.C.

§§ 1012 and 1013(b); and sections 38.1-347.1, -360, -811,

-814, -817, -822.1 and -824 of the Code of Virginia are

set forth in Appendix D.

STATEMENT OF THE CASE

(a) The Parties

This antitrust action was brought in 1978 by respon-

dents Virginia Academy of Clinical Psychologists

(“VACP”) and Robert J. Resnick, then president of VACP,

against the Richmond Plan and the Roanoke Plan. VACP

also named as defendants Medical Service of the District

of Columbia, Inc. and the Neuropsychiatric Society of Vir-

ginia, Inc., but it voluntarily dismissed the former before

trial, and both the district court and the Fourth Circuit

agreed that the latter had not violated the antitrust laws.*

Both the Richmond Plan and the Roanoke Plan are

nonprofit, nonstock Virginia corporations organized under

a Virginia statute* authorizing “[a] group of physicians”

to conduct “a plan or plans for furnishing prepaid medical

. services.” The Plans, like most Blue Shield plans,

contract with their subscribers to provide prepaid medical

treatment. Commercial health insurance companies, in

contrast, generally pay only a fixed fee for any given

treatment, which may or may not cover the cost of that

treatment.

The Plans can provide prepaid medical treatment

only because they enter into agreements with “participat-

ing” physicians under which the physicians accept the

fees paid by the Plans as full payment for treating the

Plans’ subscribers. In fact, because Virginia law provides

that participating physicians are “jointly and severally

liable” on the insurance contracts made by the Plans,

the participating physicians would have to treat the Plans’

subscribers without charge if the Plans became insolvent.®

A subscriber to one of the Plans may visit any physician

he likes, including a non-participating physician, but must

pay the difference if the non-participating physician

charges more than the Plan has contracted to pay its

participating physicians.

The Plans are subject to extensive and detailed regu-

lation by the Bureau of Insurance of the Virginia State

3. Virginia Academy of Clinical Psychologists v. Blue Shield

of Virginia, 469 F. Supp. 552, 558-59 (E.D. Va. 1979), aff’d on this

issue, 624 F.2d 476, 483 (4th Cir. 1980).

4. Va. Code § 38.1-811 (included in Appendix D).

5. Id. § 38.1-814 (included in Appendix D).

Corporation Commission (the “SCC”). By statute the SCC

assigns each Plan a specific territory, and each Plan

is prohibited from selling health insurance to persons who

do not live or work in its territory.° Thus by law the

Plans cannot compete with each other, but each Plan is

in direct competition with the hundreds of commercial

health insurance companies doing business in Virginia.

(b) The Claims Policy

The focus of this case is a claims policy that has

been followed by the Roanoke Plan since it was organized

in 1945 and that was adopted by the Richmond Plan in

1972. This claims policy in effect amended the Plans’

contracts with their subscribers by expanding the cover-

age of the contracts to include treatment by psychologists

where: (1) the subscriber was referred to the psycholo-

gist by a physician; (2) the physician supervised the psy-

chologist’s treatment of the subscriber; and (3) the psy-

chologist’s bill was submitted to the Plan by the physician.

Any physician, whether participating or non-participating,

could perform these referral, supervision and billing re-

sponsibilities, and the claims policy prohibited the phy-

sician from adding any additional charges to the psycholo-

gist’s bill.

The Plans’ insurance contracts covered only “medically

necessary services . . . performed or prescribed by a Phy-

sician.” Since psychologists are not physicians, treatment

by psychologists was outside the coverage of the Plans’

contracts prior to the claims policy. Adoption of the claims

policy expanded the insurance benefits covered under the

Plans’ contracts with their subscribers.

However, the Plans’ insurance contracts cover only

“medically necessary” treatment. There are many medical

6. Id. § 38.1-822.1 (included in Appendix D).

procedures, such as purely cosmetic surgery, that are not

medically necessary. Similarly, there are instances where

psychotherapy, by a psychologist or a psychiatrist, would

not be medically necessary. The physician referral and

supervision requirements imposed by the claims policy

made certain that the Plans did not pay for treatment

by a psychologist of a nervous or mental disorder that

had a physiological cause, such as a tumor, that only a

physician could properly diagnose and treat. The phy-

sician-billing requirement, which did not permit any addi-

tional charge by the physician, was the only reliable and

practical means of assuring compliance with the referral

and supervision safeguards.

The Richmond Plan adopted this claims policy follow-

ing an intensive, eighteen-month review by its management

of the benefits being offered to its subscribers. At the

time the Richmond Plan finally made this decision, vir-

tually all commercial health insurance companies and fed-

eral and local government insurance programs had similar

policies. In fact, the federal Medicare program will not

pay for treatment by a psychologist unless the psychologist

is an employee of a physician.”

On June 1, 1973 the Virginia “direct payment” statute?

became effective. The Plans and the SCC interpreted

this statute to require direct payments to psychologists

for treatment rendered to the Plans’ subscribers, thus abro-

gating the physician-billing requirement of the Plans’

claims policy. From its enactment in 1973 until an amend-

ment in 1979, the direct payment statute in effect applied

7. Dep’t of HEW, Medicare Carriers Manual, Part 3, 1 2050.1

(1975).

8. Va. Code § 38.1-824 (included in Appendix D).

only to Blue Shield plans and not to commercial health

insurers. The 1979 amendment extended the direct pay-

ment statute to include commercial health insurers.

The Plans considered the direct payment statute un-

constitutional, and each Plan continued to follow its estab-

lished claims policy in order, as the Fourth Circuit said,

“to provoke a judicial resolution” of the statute’s validity.’°

Indeed, the Richmond Plan notified the Virginia psychol-

ogists in writing of its intent not to comply with the

statute" and actively encouraged the Virginia Psycholo-

gical Association (the “VPA”) to file a declaratory judg-

ment action in state court to test the statute." The VPA

brought such a test case against the Richmond Plan, but

voluntarily nonsuited the action after its motion for sum-

mary judgment was denied. (The facts surrounding this

test case are set forth in a binding stipulation between

the Richmond Plan and VACP that is attached as Appendix

F.)

The SCC then brought an administrative proceeding

to compel the Richmond Plan to amend its contracts

to comply with the direct payment statute. The Roanoke

Plan was not a party to the SCC action because it had

changed its policy to comply with the direct payment statute

9. Id, § 38.1-347.1, -360 and -824 (included in Appendix D).

Sections 38.1-347.1 and 38.1-824 are both direct payment statutes;

the former applies to commercial health insurers and the latter to

the Plans. The 1979 amerdment deleted a provision from § 38.1-

360 that had exempted ccmmercial health insurers from § 38.1-

347.1 with respect to group health contracts, which were approxi-

mately 90% of all health insurance contracts carried by the

commercial health insurers.

10. 624 F.2d at 482.

11. Letter dated May 25, 1973 from M. Roy Battista, then

Vice President of the Richmond Plan, to Virginia psychologists,

a copy of which is attached as Appendix E.

12. The Richmond Plan concluded on advice of counsel that

it could not itself maintain a declaratory judgment action be-

cause of the lack of an actual case or controversy.

before the SCC proceeding began. On appeal from the

SCC’s decision against the Richmond Plan, the Virginia

Supreme Court held that the statute was unconstitutional

for the period before the remedial amendment in 1979.'*

Both Plans are now complying with the direct payment

statute.

(d) Decisions Below

VACP alleged that the Plans adopted the claims policy

in concert, and that the Plans conspired not to comply with

the direct payment statute, all in violation of § 1 of the

Sherman Act. After a four-day bench trial, the district

court found for defendants on four independent grounds.

The court held: first, that the claims policy is exempt

from the Sherman Act under the McCarran-Ferguson Act;

second, that each of the Plans adopted the claims policy

separately and independently; third, that the decision not

to comply with the direct payment statute, even if con-

certed, was legitimate First Amendment activity immune

from the Sherman Act by the Noerr-Pennington doctrine;

and finally that the claims policy is not an unreasonable

restraint of trade in violation of the Sherman Act.'*

The Fourth Circuit reversed.® First, in direct con-

flict with the tests set forth by this Court in Group Health &

Life Insurance Co. v. Royal Drug Co.,'* it held that the

claims policy is not “the business of insurance” under the

McCarran-Ferguson Act.'7 Next, the Fourth Circuit held

13. Blue Cross & Blue Shield v. Commonwealth, No. 800056

(Va. S. Ct., August 28, 1980).

14. 469 F. Supp. at 557, 559, 560-62.

15. 624 F.2d at 480-84.

16. 440 U.S. 205 (1979.

17. The Fourth Circuit did not reach the question whether

the claims policy is a boycott within the meaning of § 3(b) of

the McCarran-Ferguson Act. The district court held that the

—— policy is not a boycott under § 3(b). 469 F. Supp. at

that the Plans were inherent conspiracies of physicians, and

that their disobedience of the Virginia direct payment

Statute was not protected by the Noerr-Pennington doc-

trine because it was not a “true” exercise of First Amend-

ment rights.* Finally, it held that the Plans’ physician-

billing requirement is an unreasonable restraint of trade

in violation of the Sherman Act.”

After the Fourth Circuit’s decision, the Virginia Su-

preme Court handed down its decision overturning the

direct payment statute for the period before 1979, but up-

holding it following the remedial amendment. The Rich-

mond Plan then began complying with the statute, and

both Plans promptly moved the district court on remand to

declare the entire case moot. On December 2, 1980, the

district court denied the motion and ruled that the Plans

may be required to accept and pay claims for services by

psychologists rendered after January 1, 1972.

18. The Fourth Circuit did not rely on the “sham” exception

to the Noerr-Pennington doctrine. 624 F.2d at 482 n. 9.

19. The Fourth Circuit agreed with the district court that

the Rule of Reason (rather than a per se rule) should be applied

to the physician-billing requirement, and it did not hold that the

district court’s factual finding of reasonableness was “clearly er-

roneous” under Fed. R. Civ. P. 52(a). Instead, the Fourth Circuit

disregarded both Rule 52(a) and settled principles of judicial

administi ation by announcing that the district court’s factual find-

ing of reasonableness was only a “value judgment,” 624 F.2d at

485, undertaking a de novo appellate trial of the facts, and re-

versing the district court’s holding. See Rule 17.1(a) of the Rules

of the Supreme Court (certiorari may be appropriate where a

federal court of appeals has “so far departed from the accepted

and usual course of judicial proceedings . . . as to call for an ex-

ercise of this Court’s power of supervision”).

REASONS FOR GRANTING THE WRIT

The decision of the Fourth Circuit below is in direct

conflict with the decision of this Court in Royal Drug.

Also, the Fourth Circuit’s erroneous holding that the Plans

are inherent conspiracies under § 1 of the Sherman Act

can be read to threaten the very existence of many non-

profit, nonstock Blue Shield plans, which insure eighty

million people in the United States. Finally the decision

denies important civil rights guaranteed to the Plans by

the First Amendment and the Noerr-Pennington doctrine.

(a) The Fourth Circuit Refused to Follow This

Court’s Decision in Royal Drug

The McCarran-Ferguson Act exempts “the business of

insurance” from the antitrust laws to the extent that it is

(1) regulated by state law, and (2) not an “agreement to

boycott, coerce or intimidate, or act of boycott, coercion, or

intimidation” in violation of the Sherman Act.2° The

Fourth Circuit held that the claims policy at issue here is

not “the business of insurance” because it supposedly does

not involve an underwriting decision as to which risks are

to be accepted:

“[The] decision regarding psychologists was not

whether to underwrite the risk of [nervous and mental]

disorders or even the need for psychothe?apy; rather

it was a question of who [the Plans] would pay for

such services. The coverage remained the same.”2!

The Fourth Circuit’s determination that the claims pol-

icy does not involve underwriting is in the teeth of Royal

Drug, where this Court defined Blue Shield’s “underwriting

20. 15 U.S.C. § 1013(b).

21. 624 F.2d at 484.

decision” as “insur/ing] against the risk that policyholders

will be unable to pay for prescription drugs during the

period of coverage.”** Here the Plans, by the terms of

their contracts, insured their subscribers against the risk

of not being able to pay for “medically necessary” treatment

“by a Physician.” The claims policy in effect amended

these contracts by extending coverage to include “medically

necessary” treatment by psychologists. Plainly this ex-

pansion of coverage increased both the benefits to sub-

scribers and the risks accepted by the Plans under the

contracts. The independent decisions of the Plans to ex-

pand the coverage of their subscriber contracts is in-

distinguishable from the “underwriting decision” specif-

ically recognized in Royal Drug and thus falls squarely

within “the business of insurance.” By the same token,

the physician referral, supervision and billing requirements

are inseparable parts of the underwriting decision to cover

psychologists’ services. Stated simply, these requirements

define the scope of the expanded coverage and the addi-

tional risk accepted by the Plans.

Moreover, the claims policy constitutes “the business

of insurance” because it directly affects the “reliability,

interpretation and enforcement”** of the insurance con-

tracts between the Plans and their subscribers. In fact,

the claims policy effectively amended the contracts to

include psychologists within the contracts’ definition of

“Physician.” The physician-billing requirement was in-

cluded as part of the claims policy specifically to make

certain that treatment rendered by psychologists to sub-

scribers (and paid for by the Plans) was “medically neces-

sary” within the meaning of the Plans’ contracts.** The

22. 440 U.S. at 213.

23. Id. at 216. See SEC v. National Sec., Inc., 393 U.S. 453,

460 (1969).

24. See 469 F. Supp. at 561.

physician-billing requirement is not a measure designed

to fix or limit the prices charged by providers similar to

the pharmacy agreements at issue in Royal Drug.% To

the contrary, it is not only indispensable for the reliable

enforcement of the Plans’ expansion of coverage to in-

clude psychologists’ services, but it was adopted as an in-

terpretation of the Plans’ conti cts. Thus the claims

policy, including the physician-billing requirement, is cer-

tainly “the business of insurance” under the “reliability,

interpretation and enforcement” standard reaffirmed in

Royal Drug.

_ The Fourth Circuit essentially merged into one the

two distinct tests of “the business of insurance” set forth

by this Court in Royal Drug. According to the Fourth

Circuit’s reasoning, the claims policy is not an “insurance

decision,” that is, a decision to underwrite a risk, and

therefore is only “tangential” to the relationship between

the Plans and their subscribers.** By making “underwrit-

ing” the sole gauge of whether the claims policy affects

the Plans’ contracts with their subscribers, the Fourth

Circuit has read out of Royal Drug this Court’s plain hold-

ing that a matter directly affecting the “reliability, inter-

pretation and enforcement” of an insurance contract con-

stitutes “the business of insurance” whether literally in-

volving underwriting or not. This is a drastic, and wholly

unjustified, narrowing of Royal Drug.

The Fourth Circuit has in effect appropriated to the

federal courts jurisdiction to regulate insurance under the

guise of the antitrust laws. Nothing could be more cer-

tain than that the claims policy is “the business of in-

surance” reserved exclusively for State regulation by the

McCarran-Ferguson Act. Petitioners pray this Court to

25. See 440 US. at 213.

26. 624 F.2d at 483-84.

grant certiorari and to reverse summarily the Fourth

Circuit’s holding that the claims policy is not “the business

of insurance” within the meaning of the McCarran-Fer-

guson Act.

(b) The Fourth Circuit’s Erroneous Holding That the

Plans Are Inherent Conspiracies Can Be Read

to Threaten the Existence of Many Blue Shield

Plans

The Fourth Circuit held that there is “sufficient phy-

sician control” of the Richmond Plan “to bring its actions

within the purview of Section 1 of the Sherman Act.”*?

The basis of this holding is that a majority of the mem-

bers of the board of directors of the Richmond Plan are

physicians.

In reaching this conclusion the Fourth Circuit relied

primarily on United States v. Sealy, Inc.** In Sealy, about

thirty mattress manufacturers were licensed to make and

sell Sealy mattresses in exclusive territories. The defen-

dant Sealy, the licensor, was jointly owned by the thirty

licensees, and Sealy’s president and directors were all

“nominees” of the licensees. Thus the small number

of licensees directly and actively managed Sealy’s affairs:

“Control does not reside in thé licensees only as a

matter of form. It is exercised by them in the day-

to-day business of the company including the grant,

assignment, reassignment, and termination of exclu-

sive territorial licenses. Action of this sort is taken

either by the board of directors or the executive com-

mittee of Sealy, both of which, as we have said, are

27. Id. at 481. The Roanoke Plan, according to the Fourth

Circuit, is “similarly structured.” Id.

28. 388 U.S. 350 (1967).

manned, wholly or almost entirely, by licensee-stock-

holders.””°

Under these circumstances, this Court held that Sealy was

a combination of its licensees within the meaning of § 1 of

the Sherman Act.

Sealy is totally inapplicable to the Plans here. There

are approximately 4,000 physicians participating in the

Plans, and these physicians exercise “control” of the Plans

“only as a matter of form.”*®° Certainly the physicians

have no influence over the “day-to-day business” of the

Plans. To the contrary, each of the Plans is indistinquish-

able from an ordinary, widely-held corporation, and there-

fore the Plans should be treated under the black-letter

rule that a corporation cannot conspire with itself."

In addition, this Court in Sealy found that the exclu-

sive territorial licenses at issue there were designed to

promote the interests of the licensees.*? The claims policy

here, however, is directly contrary to the economic in-

terests of the physicians who, according to the Fourth

Circuit, conspired in adopting the policy. In the absence

of the claims policy, the Plans’ contracts would not have

29. Id. at 353.

30. The Fourth Circuit’s holding that the Plans are inherent

conspiracies of physicians is flatly contradictory to its holding

that the Plans did not conspire with the Neuropsychiatric Society

of Virginia, Inc., the psychiatrists’ professional association. 624

F.2d at 483. It makes no sense to hold, as the Fourth Circuit has,

that the Plans can consult regarding the coverage of their sub-

scriber contracts with an organization of physicians (many of

whom also belong to the Plans) without conspiring under § 1 of

the Sherman Act, while holding on the other hand that the Plans’

internal policy-making procedures are conspiratorial.

31. E.g., Nelson Radio & Supply Co. v. Motorola, 200 F.2d

911, 914 (5th Cir. 1952), cert. denied, 345 U.S. 925 (1953); Mackey

v. Sears, Roebuck & Co., 237 F.2d 869, 873 (7th Cir. 1956), cert.

denied, 355 U.S. 865 (1957).

32. 388 U.S. at 354.

covered the services of psychologists at all. If, as the

Fourth Circuit found, psychologists compete with psychi-

atrists, then the claims policy improved the psychologists’

competitive position to the disadvantage of psychiatrists

and other physicians.

The implications of the Fourth Circuit’s holding could

be catastrophic. Blue Shield plans insure eighty million

people in the United States. Since these plans all have

physicians as members of their boards of directors,** the

Fourth Circuit’s inherent conspiracy holding could be con-

strued to have extraordinarily far-reaching and delete-

rious consequences. This is especially true in light of

the Fourth Circuit’s erroneously narrow interpretation of

the McCarran-Ferguson Act, supra. As a result of these

holdings, routine decisions made by Blue Shield plans

regarding coverage under their subscriber contracts could

be subjected to challenge under the Sherman Act. For

this reason alone, this Court should grant certiorari to re-

view and reverse the decision of the Fourth Circuit.

Civil Rights Guaranteed to the Plans and Their

Participating Physicians by the First Amendment

and the Noerr-Pennington Doctrine

It is well-established that activity protected by the

First Amendment is exempt from the antitrust laws under

the Noerr-Pennington doctrine.** Here the Plans elected

not to comply with the Virginia direct payment statute

33. It is significant that the Federal Trade Commission

recently rejected a trade regulation rule that would prohibit in-

dividual physicians from serving as directors of lue Shield

plans. 45 Fed. Reg. 17019, 17020 n. 2 (March 17, 1980).

34. Eastern R.R. Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127 (1961), and United Mine Workers v.

Pennington, 381 U.S. 657 (1965).

in order, as the Fourth Circuit said, “to provoke a judicial

resolution” of the Plans’ contention that the statute was

unconstitutional.*° The Plans’ refusal to comply did pro-

voke a judicial resolution, with the result that the direct

payment statute through 1979 was invalidated by the

Virginia Supreme Court.

Nonetheless, the Fourth Circuit held that the Noerr-

Pennington doctrine did not apply here “because the Plans,

especially Roanoke, never truly exercised [their First

Amendment] right.”** The Fourth Circuit did not explain

why the Plans’ good faith and open refusal to comply

with an unconstitutional statute was not “true” First

Amendment activity, nor did the Fourth Circuit cite any

authority for this novel proposition. Here the Plans not

only decided to disobey the statute, but the Richmond

Plan also notified Virginia psychologists in writing that

it would not comply and that it would maintain an “appro-

priate reserve” to pay psychologists’ claims if the statute

were upheld.** The Richmond Plan also encouraged the

VPA to bring a test case.** Thus the Plans’ activities

were clearly meant “to provoke a judicial resolution” of

the validity of the statute, and for this reason the Plans’

activities are protected by the First Amendment.®

35. 624 F.2d at 482. The Virginia Supreme Court’s deci-

sion invalidating the direct payment statute for the period before

| ee cg handed down two months after the Fourth Circuit’s

ecision.

36. Id.

37. See the letter from the Richmond Plan to psychologists

attached as Appendix E.

38. See the stipulation between the Richmond Plan and

VACP attached as Appendix F.

39. See Spence v. Washington, 418 U.S. 405, 409-11 (1974)

(conduct designed to communicate opposition to government action

can be protected by First Amendment).

Federal courts in other circuits have recently held

that the Noerr-Pennington doctrine protects gas stations

that close in concert to protest government price regula-

tions;*° longshoremen who protest the invasion of Afghan-

istan. by refusing to load ships bound for the Soviet

Union;* and organizations that boycott states that refuse

to ratify the Equal Rights amendment.” There is no

principled distinction between these cases and the Plans’

open and good faith refusal to comply with the statute

here, and this Court should resolve this conflict by re-

versing the Fourth Circuit’s holding.

In short, the Fourth Circuit’s decision chills the exer-

cise of important First Amendment rights, including the

fundamental right to challenge an unconstitutional statute.

This Court should grant certiorari to review and reverse

the Fourth Circuit’s unwise and dangerous narrowing of

the Noerr-Pennington doctrine.

40. Crown Central Petroleum Corp. v. Waldman, 486 F. Supp.

759, 766-68 (M.D. Pa.), rev’d on other grounds, [1980] 5 Trade

Reg. Rep. (CCH) 163,635 (3rd Cir. November 17, 1980).

41. Allied Internat’l, Inc. v. International Longshoremen’s

Ass’n, 492 F. Supp. 334 (D. Mass. 1980).

42. Missouri v. National Organization for Women, Inc., 620

F.2d 1301 (8th Cir. 1980), cert. denied, ........ ae , 49 U.'S.L.W.

3216 (October 6, 1980).

CONCLUSION

For all the foregoing reasons, the petition for writ

of certiorari should be granted and the Fourth Circuit’s

decision reversed. In particular, petitioners submit that

the Fourth Circuit’s holding that the claims policy is not

“the business of insurance” is in direct conflict with this

Court’s decision in Royal Drug and therefore should be

summarily reversed and remanded.

Respectfully submitted,

GRIFFIN B. BELL

(Counsel of Record)

MICHAEL Eric Ross

JAMES D. MILLER

Kinc & SPALDING

2500 Trust Company Tower

Atlanta, Georgia 30303

(404) 572-4600

Attorneys for Petitioner, Blue Shield

of Virginia

WILLIAM B. Porr

RONALD M. Ayers

HEMAN A. MarsHALL, III

Woops, Rocers, Muse, WALKER

& THORNTON

105 Franklin Road, S.W.

Roanoke, Virginia 24004

(703) 982-4200

Attorneys for Petitioner, Blue Shield

of Southwestern Virginia

APPENDIX

APPENDIX A

VIRGINIA ACADEMY OF CLINICAL

PSYCHOLOGISTS et al.

Vv.

BLUE SHIELD OF VIRGINIA et al.

Civ. A. No. 78-0496-A.

United States District Court,

E. D. Virginia,

Alexandria Division.

April 9, 1979,

Clinical psychologist and organization of clinical psy-

chologists brought action against prepaid health care plans

and neuropsychiatric society alleging violation of antitrust

statutes and seeking injunctive relief. The District Court,

Warriner, J., held that: (1) policy of health care plans of

paying fee of clinical phychologist only if services were

ordered by, supervised by, and billed through physician had

effect on interstate commerce; (2) activities of health

care plans in challenging state statute requiring direct re-

imbursements to psychologists could not accord basis for

antitrust suit in that such activity was protected by First

Amendment; (3) national accounts in which health care

plans were participants were joint activity and contractual

arrangements exempt from Sherman Anti-Trust Act by

reason of state action exemption; (4) neuropsychiatric so-

ciety’s close cooperation with health care plan by urging

plans to adopt policies governing payment to psychologist

and by advising plan on implementation of policies did not

amount to contract, combination or conspiracy within mean-

ing of Sherman Anti-Trust Act; (5) without conditions of

supervision and referral by a physician, clinical psychologist

would not render a competitive service with psychiatrists,

and thus plans’ policy was not illegally restraining psy-

chologists in their trade; (6) provisions of contract be-

tween health care plans and subscribers concerning covered

treatment for mental or nervous disease were partially

exempt from antitrust scrutiny, and (7) policy of dealing

with clinical psychologists only if their services were re-

sult of referral or supervision by physician and bill was

forwarded to plan through physician were medically and

economically necessary and reasonable, and thus such ac-

tivity was not a boycott of psychologists.

Judgment for defendants.

1. Monopolies (Key) 12(1.9)

Conspiracy in restraint of trade which is solely in-

trastate with no effect on interstate commerce is not pro-

hibited by Sherman Anti-Trust Act. Sherman Anti-Trust

Act, § 1, 15 U.S.C.A. § 1; Code Va.1950, § 32-195.1 et seq.

2. Commerce (Key) 62.11

Where clinical psychologist and other members of as-

sociation of clinical psychologists bought substantial

amounts of out-of-state equipment and supplies and treated

out-of-state patients, and amount of equipment and sup-

plies bought by clinical psychologists decreased as business

decreased, policy of prepaid health care plans governing

payment of fees to clinical psychologists which adversely

affected psychologists’ business had effect on interstate

commerce for purposes of action by psychologist against

plans alleging violation of Sherman Anti-Trust Act. Sher-

man Anti-Trust Act, § 1, 15 U.S.C.A. § 1; Code Va.1950,

§ 32-195.1 et seq.

3. Constitutional Law (Key) 91

Monopolies (Key) 18

Collaboration between prepaid health care plans chal-

lenging statute requiring psychologists, among others, to be

reimbursed directly for covered services by prepaid health

care plans if psychologists are rendering services which

they are licensed to perform did not form basis for Sherman

Anti-Trust Act claim against health plans in that such

activity was protected by First Amendment. Code Va.1950,

§ 32-195.10:1; U.S.C.A.Const. Amend. 1; Sherman Anti-

Trust Act, § 1, 15 U.S.C.A. § 1.

4. Monopolies (Key) 18

Where covered activities of two prepaid health care

plans in servicing national accounts was conduct made

necessary by state as sovereign, national accounts in which

plans were participants were joint activity and contractual

arrangements exempt from Sherman Anti-Trust Act by

reason of state action exemption. Sherman Anti-Trust Act,

§ 1, 15 U.S.C.A. § 1.

5. Monopolies (Key) 12(1)

Sherman Anti-Trust Act does not prohibit business en-

tity which needs information and advice from obtaining

such information and advice from other knowledgeable

business entities. Sherman Anti-Trust Act, § 1, 15 U.S.C.A.

§ 1.

6. Monopolies (Key) 18

Prepaid health care plan’s decision to implement policy

on payment to psychologists did not become conspiracy

with neuropsychiatric society merely because plan and so-

ciety both took essentially same position; plan was not

liable for conspiracy for acting as its interests dictated

and its decision was an independent one. Sherman Anti-

Trust Act, § 1, 15 U.S.C.A. § 1.

7. Monopolies (Key) 12(1.2)

It is against competitors that structures of antitrust

laws most stringently apply.

8. Monopolies (Key) 18

Neuropsychiatric society’s close cooperation with pre-

paid health care plan by urging plan to adopt policies

concerning payments to clinical psychologists and by ad-

vising plan on implementation of policy did not amount

to contract, combination or conspiracy as used in Sherman

Anti-Trust Act. Sherman Anti-Trust Act, § 1, 15 U.S.C.A.

§ 1.

9. Monopolies (Key) 12(1.1)

It is only those contracts, combinations or conspiracies

which are in restraint of trade or commerce which are

prohibited by Sherman Anti-Trust Act. Sherman Anti-

Trust Act, § 1, 15 U.S.C.A. § 1.

10. Monopolies (Key) 18

Clinical psychologist could render services competitive

with psychiatrist only if performed under supervision and

referral of medical doctors; thus, policy of prepaid health

care plan of not paying for services of clinical psychologist

unless under supervision and referral of medical doctor

did not treat psychologist with any competitive disad-

vantage in that in absence of such conditions psychologists

would not render a competitive service with psychiatrist

and such policy did not illegally restrain psychologists in

their trade. Sherman Anti-Trust Act, § 1, 15 U.S.C.A. § 1,

11. Monopolies (Key) 18

Billing procedures of prepaid health care plan requir-

ing clinical psychologists to bill through physician were

reasonable means of accomplishing end of assuring medical

necessity for psychologist’s services and meeting business

necessity of plans.

12, Monopolies (Key) 18

McCarran-Ferguson Act partially exempts from anti-

trust laws the business of insurance to extent that such

business is regulated by state law. McCarran-Ferguson

Act, § 2(b), 15 U.S.C.A. § 1012(b).

13. Monopolies (Key) 18

Provisions of contracts between prepaid health care

plans and subscribers governing covered treatment for men-

tal and nervous disease were partially exempt from anti-

trust scrutiny by McCarran-Ferguson Act. McCarran-

Ferguson Act, § 3(b), 15 U.S.C.A. § 1013(b).

14. Monopolies (Key) 18

Policy of prepaid health care plan to deal with clinical

psychologist only if his services were result of referral and

supervision by medical doctor and if bill was forwarded

to plan through supervising doctor was medically and eco-

nomically necessary and reasonable, and thus such activity

did not constitute boycott within meaning of McCarran-

Ferguson Act. McCarran-Ferguson Act, § 3(b), 15 U.S.C.A.

§ 1013(b).

Warwick R, Furr, II, Lewis, Mitchell & Moore, Vienna,

Va., Timothy J. Bloomfield, Dunnells, Duvall, Bennett &

Porter, Washington, D. C., for plaintiffs.

R. Gordon Smith, McGuire, Woods & Battle, Richard

L. Williams, Gilbert E. Schill, Jr.. James H. Walsh, Rich-

mond, Va., for Blue Shield of Va.

Ronald M. Ayers, Herman A. Marshall, III, Woods,

Rogers, Muse, Walker & Thornton, Roanoke, Va., for Blue

Shield of Southwestern, Va.

Joel I. Klein, Rogovin, Stern & Huge, Washington,

D. C., Francis J. Prior, Jr., Siciliano, Ellis, Sheridan &

Dyer, Arlington, Va., for Neuropsychiatric Society of Va.

MEMORANDUM

WARRINER, District Judge.

This anti-trust action has been brought by the Virginia

Academy of Clinical Psychologists (VACP), the profes-

sional organization of registered clinical psychologists in

Virginia, and a practicing clinical psychologist, Dr. Robert

J. Resnick, against Blue Shield of Virginia (BSV), Blue

Shield of Southwestern Virginia (BSSWV), and the Neuro-

psychiatric Society of Virginia (NSV). The action is

brought pursuant to Section 1 of the Sherman Act, 15

U.S.C. § 1, and the plaintiffs are seeking injunctive relief

pursuant to 15 U.S.C. § 26.

The gravamen of plaintiffs’ complaint is that the prac-

tice of defendants, allegedly a result of a conspiracy

amongst the defendants, of paying the fee of clinical psy-

chologists for out-patient psychological services rendered

to subscribers of Blue Shield only when these services are

ordered by, supervised by, and billed through a physician,

amounts to a conspiracy in restraint of trade in violation

of Section 1 of the Sherman Act.

As it is admitted that the policy complained of exists,

the question for decision is whether it was the result of a

contract, combination, or consipracy and if so, whether

such practice is a restraint of trade in violation of the

Sherman Act. In view of the applicability of the McCar-

ran-Ferguson Act to the medical insurnace contracts in

question here, the additional issue of whether the practice

complained of amounts to a boycott will be considered.

The Court, in its previous rulings on defendants’ mo-

tion to dismiss and motion for summary judgment, has

ruled that plaintiff VACP and plaintiff Resnick have stand-

ing to pursue this action. 'The Court has also ruled that

plaintiffs are not guilty of laches and that it would not be

appropriate to stay this action due to the pending State

Corporation Commission proceedings. See memorandum

opinion of Court filed 10 October 1978 and memorandum

opinion and order of Court filed 13 November 1978.

[1] A conspiracy in restraint of trade that is solely

intrastate with no effect on interstate commerce is not

prohibited by Section 1 of the Sherman Act, 15 U.S.C.

§ 1. In a carefully reasoned opinion, the Third Circuit

held that where a restraint on commerce decreases the

amount of out-of-state equipment and supplies bought by

the complainants, such a restraint is affecting interstate

commerce and is thus prohibited by the Sherman Act.

Doctors, Inc. v. Blue Cross of Greater Philadelphia, 490

F.2d 48, 50-54 (3rd Cir. 1973).

[2] In this case, there is testimony that plaintiff Res-

nick and other members of the VACP buy substantial

amounts of out-of-state equipment and supplies and treat

out-of-state patients. The amount of equipment and sup-

plies bought by clinical psychologists decreases when their

business decreases and since the complained of policy is

shown to adversely affect plaintiffs’ business, the Court

holds that the policy has an effect on interstate commerce,

as explained in Doctors.

Defendant BSV and defendant BSSWV exist pursuant

to a Virginia statutory scheme for pre-pzid health care

plans. Va. Code § 32-195.1 et seq. (1973 Repl.). BSV

is authorized by the State Corporation Commission to oper-

ate throughout most of the Commonwealth east of the

Blue Ridge Mountains, except for a small area in Northern

Virginia. BSSWV is authorized by the State Corporation

Commission to operate in Southwest Virginia. The plans

were organized in the 1940s by medical doctors as a way

of guaranteeing payment for provided medical services

rendered by them to their subscriber-patients.

Defendant NSV is a not-for-profit non-stock corpora-

tion whose members are psychiatrist-physicians who prac-

tice in Virginia. It is the professional organization of

Virginia psychiatrists.

Plaintiff VACP is the professional organization of clin-

ical psychologists in Virginia. Clinical psychologists, in-

cluding plaintiff Resnick and members of the VACP,

are licensed as practioners of “the healing arts” by the

Virginia State Board of Medicine. Va.Code § 54-274 (1978

Repl.). In order to apply for a license as a clinical psy-

chologist, a candidate must have a Ph. D. degree in clinical

psychology and must have at least two years of approved

supervised clinical experience, one of which must be post-

doctoral. The candidates are then given written and oral

examinations by the Virginia Board of Psychology, and

if they pass those examinations, the Board recommends

to the Virginia State Board of Medicine that they be li-

censed. It is the Virginia State Board of Medicine which

actually issues the license and subsequently regulates and

monitors their activities.

Since about 1962 major medical plans issued by the

two Blue Shield defendants have included coverage for

mental and nervous disorders and for psychotherapy as a

method of treating those disorders. Since about 1972, de-

fendant BSV has reimbursed a patient for psychotherapy

rendered outside a hospital only if he is treated by a psy-

chiatrist or if he is treated by a clinical psychologist upon

reference to and supervision by a physician with the

psychologist’s services billed through the physician.

BSSWV has followed such policy since its inception in

1945 with certain exceptions noted hereafter.

Virginia law licenses both psychologists and psychi-

atrists to perform psychotherapy, Va.Code § 54-273 (1978

Repl.). Plaintiffs’ complaint is that the policy of the Blue

Shield defendants, allegedly arrived at by combination or

conspiracy, of reimbursing patients who are treated by

psychiatrists for psychotherapy but only reimbursing pa-

tients who are treated by clinical psychologists if the ad-

ditional requirement of physician billing supervision, and

referral are met, adversely affects plaintiffs’ competitive

position as a result of a conspiracy in restraint of trade.

Plaintiffs allege that in addition to the parties defen-

dant, the Medical Society of Virginia, Blue Cross of Vir-

ginia, aud Blue Cross of Southwestern Virginia are part of

this cooperative undertaking in restraint of trade. These

latter entities are not named as defendants. Unlike Blue

Shield plans, Blue Cross plans deal solely with hospital

costs and in-patient services. Plaintiffs acknowledged at

trial that clinical psychologists are not capable of rendering

in-patient psychotherapy in competition with psychiatrists

in the absence of physician supervision. Thus only out-

patient care is in contention in this case.

The Court will first address the issue of whether BSV

and BSSWV have combined or conspired together in re-

straint of trade.

Al0

Defendant BSSWV now directly reimburses patients

for psychologists’ out-patient services if the definition of

“physician” in the subscriber’s contract includes “psy-

chologists.” Such a definition is contained in approximately

75 per cent of the current contracts issued by BSSWV.

Nervous and mental disorders are covered only in major

medical contracts and in more than 90 per cent of these con-

tracts the definition of “physician” includes “psychologists.”

[3] BSSWV has always opposed the payment of psy-

chologists directly but has agreed to direct payment in most

of its contracts, as noted above, because the Bureau of In-

surance of the State Corporation Commission had dis-

approved the form of a major medical contract submitted

which did not include “psychologists” in the definition of

“physician.”

This disapproval by the Bureau of Insurance followed

the enactment of Va.Code § 32-195.10:1 (Supp.1978) by the

General Assembly in 1973. This section is interpreted to

require that psychologists, among others, must be re-

imbursed directly for covered services by prepaid health

care plans where they are rendering services that they are

licensed to perform.! Unbeknownst to the Board of Di-

rectors of BSSWV the contract language was changed by

subordinate officials of BSSWV to meet the Bureau’s ob-

jection. When the Board of Directors subsequently learned

of the change inserted in their contracts, the Board decided

to honor the provision but at the same time reiterated its

opposition, as a matter of principle, to direct payment to un-

supervised clinical psychologists.

Collaboration between BSSWV and BSV concerning

the issue of payment to clinical psychologists has revolved

1. It is the constitutionality of this statute that is at issue

in the State Corporation Commission proceeding mentioned above.

All

in the main around the challenge in State tribunals to

the Virginia statutory scheme requiring such direct pay-

ment. BSSWV and BSV sought to bring a declaratory

judgment action in the State court, Then it was decided,

in consultation with counsel for VACP, that a suit by

a patient who was not reimbursed for the services of a

clinical psychologist would be the best means of chal-

lenging the statute. This test case was filed but was

subsequently non-suited at the instance of VACP. Finally,

BSV brought the matter before the State Corporation

Commission where it is pending or from which it is being

appealed.

Though BSSWV is not now directly participating in

the State legal actions, its collaboration with BSV cannot

afford a basis for a Sherman Act suit since the activity

is protected by the First Amendment. California Motor

Transport Co, v. Trucking Unlimited, 404 U.S. 508, 510-11,

92 S.Ct. 609, 30 L.Ed.2d 642 (1972); United Mine Workers

v. Pennington, 381 U.S. 657, 669-670, 85 S.Ct. 1585, 14

L.Ed.2d 626 (1965); Eastern Rr. President’s Conf. v. Noerr

Motor Freight, Inc., 365 U.S. 127, 138, 81 S.Ct. 523, 5

L.Ed.2d 464 (1961).

[4] The only other joint activity between BSSWV

and BSV centered around their participation in various

national accounts, including the Commonwealth contract,

the major medical insurance plan for employees of the

Commonwealth. The Commonwealth contract involves

defendant BSV, defendant BSSWV, and the Medical Ser-

vice of the District of Columbia. BSV negotiated the

contract with the Commonwealth, receives the premium

paid by the Commonwealth, maintains subscriber records,

and controls the administration of the contract. Defen-

dant BSSWV did not participate in the negotiations, does

not receive any direct payment from the Commonwealth,

Al2

and does not exercise any control over the administration

of the contract. Other than a requirement by the Com-

monwealth that all three Blue Shield organizations sign

the contract, this contract is similar to other national

accounts.

In a national account the “control” Blue Shield orga-

nization negotiates the contract and determines the ben-

efits available and rate to be paid for those benefits. Other

plans, known as participating plans, act as agents for the

control plan in administering the claims of subscribers

who are members of the subscribing group residing in

the service area of the participating plan. The partic-

ipating plan makes payment only for those benefits cov-

ered by the contract between the control plan and the

group. These national accounts exist to accommodate to

the difference between a covered group’s geographic dis-

persion and the specific territories assigned Blue Shield

organizations by State regulatory agencies. Thus when

there is a contract with a group whose beneficiaries

reside in more than one Blue Shield area, national account

coverage is provided.

National accounts require cooperation among partic-

ipating Blue Shield organizations. The Commonwealth

contract and the other national contracts require just such

cooperation between the two Blue Shield defendants. It

is State law which divides the service areas and which

thus compels the two Blue Shield defendants to cooperate

in order to provide service throughout the Commonwealth.

Such State regulatory activity is at the heart of the State

action exemption to the anti-trust laws enunciated in

Parker v. Brown, 317 U.S. 341, 350-1, 63 S.Ct. 307, 87

L.Ed. 315 (1943).

In Lafayette v. Louisiana Power & Light Co., 435

U.S. 389, 413, 98 S.Ct. 1123, 1137, 55 L.Ed.2d 364, 383

Al3

(1977) it is stated “that the Parker doctrine exempts

only anticompetitive conduct engaged in as an act of

government by the State as sovereign.” The cooperative

activities of the two Blue Shield defendants in servicing

national accounts is conduct made necessary by the State

as sovereign. It is only the sovereign which regulates

by force of law, and it is State law that divides the

Commonwealth into service areas thus forcing the Blue

Shield defendants to cooperate on national accounts. The

Court thus concludes that the national accounts, including

the Commonwealth contract, in which both Blue Shield

defendants are participants, are joint activity and con-

tractual arrangements exempt from the Sherman Act by

reason of the State action exemption.

In any event, this cooperation or combination is not

that which plaintiff decries and it is not shown to be

in restraint of trade.

[5] There is no evidence that defendant NSV acted

in conjunction with defendant BSSWV in establishing the

clinical psychologist payment policy. Plaintiff does not

seriously so contend. The main thrust of plaintiffs’ case

is that such a combination or conspiracy existed between

NSV and BSV. A review of the live testimony, the

documentary evidence, and the deposition extracts con-

vinces the Court that this corporate policy of BSV was

promulgated by the management and the Board of Direc-

tors of BSV after consultation with various provider

groups, including groups representing psychologists and

psychiatrists. The final decision, however, to adopt the

policy was made solely by BSV’s policy making bodies.

BSV had been inconsistent in its policy during the

1960’s and early 1970’s in regard to payment of clinical

Al4

psychologists. There is evidence that clinical psychologists

had been paid for services independently rendered and

yet it is not clear that this was company policy. Instead

it appears that it resulted from a lack of company policy.

In any event, the explosion of claims for nervous and

mental disorders which occurred in the late 1960’s came

to the attention of the then new president of BSV, Alden

Flory, and in 1971 it was decided that policy controls

were needed.

In determining what should be the proper coverage

for nervous and mental disorders the staff of BSV was

instructed to secure the views of the various provider

groups. Among those consulted were the Medical Society

of Virginia, the Virginia Psychological Association, NSV,

representatives of the Virginia Institute of Pastoral Care,

psychiatric social workers, psychiatric nurses, and others.

Although plaintiff VACP was not a separate entity at

the time, the views of clinical psychologists were ex-

pressed through the Virginia Psychological Association.

NSV closely cooperated with BSV and gave assistance

to BSV as it formulated policies in regard to who should

be paid for providing mental health care, how much they

should be paid, when they should be paid, and for what

they should be paid. On 3 March 1971, L. W. Hulley, Jr.,

M.D., the head of BSV’s professional relations committee

met with R. Terrell Wingfield, M.D., President of NSV.

Over the next year there was a substantial amount of

communication between the two organizations. On 19

May 1971 at Blue Shield’s corporate headquarters, a spe-

cial committee of NSV met with representatives of BSV

and discussed a large number of items dealing with pay-

ment to psychiatrists and clinical psychologists. A second

meeting was held on 9 June 1971 at Tucker Hospital in

Richmond. An extensive survey of Virginia psychiatrists,

including those who did not belong to NSV, regarding

Ald

psychiatric practice was provided BSV by NSV. The in-

surance committee of NSV met with representatives of

defendant BSV. The day before the adoption of BSV’s

interim corporate policy on 22 February 1972, the policy

which set the general guidelines as to payment, repre-

sentatives of BSV had met with representatives of NSV.

These committee meetings were working meetings

and the officials of NSV were of substantial assistance

to the officials of BSV in formulating the policy at issue

in this lawsuit. Defendant NSV notes that the report

of its committee was never officially adopted by the

membership of NSV but instead it was referred to the

President of NSV for further work. It is also true that

not all of defendant NSV’s recommendations were adopted

by defendant BSV. Additionally, NSV points out that

it took no position on the bill passed by the General

Assembly mandating direct payment to psychologists. But

this in no way detracts from the fact that NSV and BSV

cooperated closely in 1971 and 1972. There is also no

question that the two entities concurred that clinical

psychologists should be paid for psychotherapy only when

rendered under the supervision of a physician. The ques-

tion for the Court is whether this cooperation amounted

to a “contract, combination in the form of trust or other-

wise, or conspiracy” according to the language of Sec-

tion 1 of the Sherman Act, 15 U.S.C. § 1.

As pointed out above, BSV also consulted with repre-

sentatives of other provider groups. It was only atier

all such consultation that the management and Board of

Directors of BSV decided that as only medical doctors

could ultimately determine the medical necessity of treat-

ment for nervous and mental disorders, clinical psychol-

ogists would only be reimbursed for services rendered

where there was referral to, supervision by, and billing

through a medical doctor.

Al6

Though prior inquiry, consultation, and negotiation

clearly took place, no contract was entered into, no com-

bination was formed, and no conspiracy existed. Section

1 of the Sherman Act does not prohibit a business entity

which needs information and advice from obtaining infor-

mation and advice from other knowledgeable business

entities. The operation of a medical insurance plan would

be, for ail practical purpose, impossible if consultation

and cooperation with provider groups were barred.

[6] The problem of what constitutes a “contract,

combination in the form of trust or otherwise, or con-

spiracy” has continually confronted the Courts. In United

States v. Standard Oil Co., 316 F.2d 884, 896 (7th Cir.

1963), where 11 corporate defendants, all oil companies,

were appealing their convictions of conspiracy to raise

retail gasoline prices, the Court held that there can be

no conspiracy where there is no conscious commitment

to a common scheme. The Court noted that “certainly,

any defendant which heard of Standard’s price announce-

ment was not thereby immobilized and precluded from

acting in a normal fashion as its interests might dictate

so long as it was not pursuant to an understanding or

agreement.” Standard Oil, 316 F.2d at 896. Similarly,

BSV’s decision to implement its policy on payment to

psychologists does not become a conspiracy with NSV

because both took essentially the same position. On the

reasoning of Standard Oil, BSV is not liable for conspiracy

for acting as its interests dictated because BSV’s decision

was an independent one.

[7] Additionally, in contrast to the instant case, the

parties who acted in Standard Oil were competitors, And

it is against competitors that the strictures of the anti-

trust laws most stringently apply. See Ark Dental Supply

Co. v. Cavitron Corp., 461 F.2d 1093, 1094 (3rd Cir. 1973);

Al7

Joseph E. Seagram Sons, Inc. v. Hawaiian Oke Liquors,

Ltd., 416 F.2d 71, 78 (9th Cir. 1969), cert. den, 396 U.S.

1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970).

In Scranton Construction Co, Inc. v, Litton Industries

Leasing Corp., 494 F.2d 778 (5th Cir. 1974), cert. den.

419 U.S. 1105, 95 S.Ct. 774, 42 L.Ed.2d 800 (1975) the

Court confronted a situation where defendant Litton en-

gaged in rather unsavory business dealings for the express

purpose of assuring that defendant United Cement re-

ceived a certain subcontract on a construction project.

Plaintiff, an unsuccessful bidder against defendant United

Cement, alleged a conspiracy under the anti-trust laws

between defendant Litton and defendant United Cement

but the Court held that the independent business decisions

of defendant Litton, though helpful to defendant United

Cement, were not the bases of a combination or conspiracy.

Scranton Construction, 494 F.2d at 782-83. So here, the

independent business decision of BSV, though arguably

helpful to NSV, does not form the basis of a combination

or conspiracy with NSV.

[8] In sum, NSV cooperated closely with BSV by

urging BSV to adopt the policies in question and by ad-

vising BSV on their implementation. But this does not

amount to a “contract, combination . . . or conspiracy”

as used in Section 1 of the Sherman Act. Scranton Con-

struction Co.; Standard Oil Co.

III

[9] Even if it be found that the above activity

amounts to an illegal contract, combination or conspiracy,

the question of whether it operated in restraint of trade

needs to be addressed for it is only those contracts, com-

binations and conspiracies “in restraint of trade or com-

Al8

merce” that are prohibited by Section 1 of the Sherman

Act.

NSV first contends that all its activity amounts to

no more than taking a position on a matter of public

interest and it is thus protected under the First Amend-

ment. That question need not be dealt with at length

because the private meetings between the representatives

of defendants NSV and BSV which discussed the range

of psychiatric benefits, who was to provide them, and

who was to be paid for them, were not equivalent to

taking a position on a matter of public interest. Though

infected with a public interest, this was not the expres-

sion of a viewpoint concerning the provision of health

care in a public forum. These were private consultations

and working sessions where implementation of defendants’

corporate policy was discussed. California Motor Trans-

port Co, v. Trucking Unlimited, 404 U.S. 508, 515, 92

S.Ct. 609, 30 L.Ed.2d 642 (1972).

The question remains, assuming the conspiracy,

whether the policy is in restraint of trade. In approaching

this question, the Court is mindful of the rule, recently

reiterated in Continental T.V. Inc. v. GTE Sylvania, Inc.,

433 U.S. 36, 49 n.15, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977)

that anti-trust cases must be read in their factual context.

The starting point in deciding the proper factual con-

text for this case is deciding what sector of the economy

is affected. Once the Court has identified the proper

sector it can analyze whether defendants’ actions have en-

dangered competition within that sector. In other words,

the Court looks to see who is competing with whom so

as to understand whether defendants’ actions restrain trade

to the detriment of plaintiffs. Cf., John Lenore & Co.

v. Olympia Brewing Co., 550 F.2d 495, 498-9 (9th Cir.

1977); In re Multi-district Vehicle Air Pollution, 481 F.2d

Alg

122, 126 (9th Cir. 1973); G.A.F. Corp. v. Circle Floor Co.,

Inc., 463 F.2d 752, 757 (2nd Cir. 1972), cert. dismissed,

413 U.S. 901, 93 S.Ct. 3058, 37 L.Ed.2d 1045 (1973).

[10] The fundamental premise of plaintiffs’ case is

that clinical psychologists are equal providers of therapy,

in particular psychotherapy, with psychiatrists. It is true

that both psychologists and psychiatrists professionally

render psychotherapy to patients. But in the treatment

of nervous and mental disorders, psychiatrists are capable

of providing a full range of psychiatric treatments, not

just psychotherapy. In addition, as medical doctors psy-

chiatrists may render medical treatment and diagnosis.

It is undisputed that clinical psychologists are not qualified

to diagnose nervous and mental disorders and to decide

from what source these disorders stem. What appears

to be a nervous or mental condition is often the result

of a physical illness or disturbance which a psychiatrist

is qualified and licensed to analyze but which a clinical

psychologist is not. Plaintiffs themselves acknowledge

that the best practice for clinical psychologists to follow

before psychotherapy is referral to a physician for a phy-

sical examination. This is unanimously agreed to be neces-

sary so as to rule out a physical cause of the nervous or

mental problem. Psychotherapy is to a substantial extent

useless if the disease has a physical etiology.

It is also undisputed that the only method of making

sure that a physical disorder does not complicate treat-

ment by a clinical psychologist is regular contact between

the psychologist’s patient and a medical doctor. Whether

this be called supervision, or referral on a regular basis,

the medical necessity for this practice, in most, if not

all cases, is undisputed.

It thus appears that the clinical psychologist is not

competitive with the psychiatrist in regard to the treat-

A20

ment of nervous and mental disorders unless the clinical

psychologist is working under the supervision of a medical

doctor. The competition, then, is, on the one hand, be-

tween the clinical pevchologist working with a medical

doctor and, on the other hand, the psychiatrist working

alone. In this light, defendant BSV and defendant BSSWV

treat the two competing entities equally so long as they

both are shown to be providing medically necessary treat-

ment. There is an exception to this equality of treatment.

Clinical psychologists must submit their statement of fee

to Blue Shield via the supervising physician.

The Court can well understand that plaintiffs do not

like to bill through a physician as a matter of professional

pride. The evidence shows that billing through a medical

doctor is a requirement of the Blue Shield plan as a means

of ascertaining that the treatment given and billed for was

medically necessary. This procedure also tends to pro-

mote contact between the clinical psychologists and the

physicians at all stages of the treatment, and thus en-

hances the supervisory process.

Plaintiffs, admitting the efficacy of referral and super-

vision, have not come forward with another plan that

would be as economically and medically efficient. Indeed,

Dr. William Dunn, then president of VACP, wrote the

president of defendant BSV following a meeting on 14

October 1976, that “the arguments that you and your

staff have tendered in defense of your position we recognize

not only to be sound, but from a business point of view,

virtually inevitable.” On the facts presented, the Court

concurs in this view.

If one group of providers, equal in rendering service

with a second group, were suing the other group of pro-

viders and the Blue Shield defendants because the Blue

Shield defendants reimbursed subscribers who receive

A21

services from the second group but not the first, and such

policy arose from a combination, contract or conspiracy,

then a restraint of trade might well be stated. Proctor v.

State Farm Mut. Auto. Ins. Co., 182 U.S.App.D.C. 264,

277-8, 561 F.2d 262, 275-6 (1977), vacated and remanded on

other grounds, ........ SP dias , 99 S.Ct. 1417, 59 L.Ed.2d 631

(1979). But that is not this case. The medical necessity

of supervision and referral along with the economic neces-

sity of billing through a physician render this situation

substantially different. Here, it is only within these con-

ditions that the plaintiffs can render services competitive

with psychiatrists. And with these conditions met, the

defendant BSV treats plaintiffs without any competitive

disadvantage. Without these conditions met, the clinical

psychologists are not rendering a competitive service and

thus defendant’s policy is not illegally restraining plain-

tiffs in their trade.

[11] As a final plea plaintiffs contend that even

though the medical necessity of referral and supervision

is not contested, the billing procedures cannot be defended

on the basis of business necessity nor as a required check

on medical necessity since other Blue Shield plans (in-

cluding defendant BSSWV) and other health insurance

companies do not require such procedures. Those cases

are not before the Court. The billing procedures in the

instant case are a reasonable means of accomplishing the

end of assuring medical necessity and meeting business

necessity. As there is no evidence before the Court that

those goals are as adequately met by the procedures used

by other Blue Shield plans the fact that other Blue Shield

plans use different methods is of no moment.

The Court has held, then, that defendants have en-

gaged in no contract, combination or conspiracy and that

A22

the policies complained of are not in restraint of trade.

Thus there is no violation of Section 1 of the Sherman Act.

[12] Considering the fact that the trial of this case

revolved almost wholly around plaintiffs’ contention that

defendants’ conduct amounted to a boycott, and consider-

ing the fact that if the Court has erred in its holding that

there is no Sherman Act violation the question arises

whether the questioned activity, if not a boycott, is ex-

empt from the prohibitions of the anti-trust laws by the

McCarran-Ferguson Act, 15 U.S.C. 1012(b).

McCarran-Ferguson partially exempts from the anti-

trust laws “the business of insurance” to the extent such

business is regulated by state law. The core of the busi-

ness of insurance has been held to be “the relationship

between the insurance company and the policyholder.”

S.E.C. v. National Securities, Inc., 393 U.S. 453, 460, 89

S.Ct. 564, 569, 21 L.Ed.2d 668 (1969).

[13] The question of what is the “business of in-

surance” for McCarran-Ferguson Act purposes has recently

arisen in the context of Blue Shield plans in Group Life

' & Health Insurance Co. v. Royal Drug Co., Inc., ........ U.S.

eet , 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979). There the

question for decision was whether contracts between par-

ticipating pharmacies and Blue Shield of Texas which

set the price for drugs sold by the pharmacies to Blue

Shield subscribers were within the business of insurance

exemption of the McCarran-Ferguson Act. The Court

held that contracts between Blue Shield and providers,

there the participating pharmacies, were not the busi-

ness of insurance and thus were not exempt from anti-

trust scrutiny.

A23

The contracts in question here are not between pro-

viders and Blue Shield but between subscribers and Blue

Shield. These provisions define what medical services

are covered in the contract and thus are at the core of

the business of insurance.

Dicta in Royal Drug, ........ if a oe , 99 S.Ct. at

1079, might be interpreted to indicate that Blue Shield

organizations are wholly outside the business of insurance.

The Court’s discussion in Royal Drug is in the context of

whether Congress considered Blue Shield plans to be

engaged in the business of insurance when it passed the

McCarran-Ferguson Act.

Directly on point, however, is the footnote in Royal

ten a OF ........ ,n.37, 99 S.Ct. at 1082, n.37: “This

is not to say that the contracts offered by Blue Shield to

its policyholders, as distinguished from its provider agree-

ments with participating pharmacies, may not be the

‘business of insurance’ within the meaning of the Act.”

(Emphasis added.) This tentative exception coupled with

the definition of the business of insurance in National

Securities, leads this Court to hold that Blue Shield sub-

scriber contract provisions concerning covered treatment

for mental and nervous disease are partially exempt from

anti-trust scrutiny by the McCarran-Ferguson Act.

[14] The McCarran-Ferguson Act only provides par-

tial exemption as it reads in part: “Nothing contained in

this chapter [15 U.S.C. § 1011 et seq.] shall render the said

Sherman Act [15 U.S.C. § 1 et seq.] inapplicable to any

agreement to boycott, coerce, or intimidate.” 15 U.S.C.

§ 1013(b). Plaintiffs do not claim coercion or intimida-

tion but, as noted, the main thrust of plaintiffs’ case cen-

A24

tered around the claim that defendants’ activity amounted

to a boycott.

Just recently the Supreme Court decided a conflict

among the Circuit Courts of Appeal as to the definition

of boycott in the McCarran-Ferguson Act. St. Paul Fire

& Marine Ins. Co. v. Barry, 438 U.S. 531, 549, 98 S.Ct.

2923, 2934, 57 L.Ed.2d 932, 946 (1978) holds that the

definition of boycott for McCarran-Ferguson Act purposes

is the same as a boycott under the general anti-trust laws.

It rejected the narrower reading that the boycott excep-

tion was meant only to apply to “ ‘blacklists’ of insurance

companies or agents by other insurance companies or

agents.” Barry, 438 U.S. at 536, 98 S.Ct. at 2927, 57 L.

Ed.2d 938, n.5. In the same footnote, the Supreme Court

noted with apparent approval that the Fourth Circuit

and the D.C. Circuit had previously adopted the broader

reading of the definition of boycott. The Court will now

consider the defendants’ conduct in this case in light of

the two cited circuit court decisions which adopted the

broad view.

In Ballard v. Blue Shield of Southern W.Va., Inc.,

543 F.2d 1075 (4th Cir. 1976), cert. denied, 430 U.S. 922,

97 S.Ct. 1341, 51 L.Ed.2d 601 (1977), it was alleged that

the defendant Blue Shield corporations of West Virginia

refused to deal on any terms with chiropractors. The

Fourth Circuit ruled on appeal from the granting of a

motion to dismiss that this concerted refusal to deal on

any terms alleged a boycott under the McCarran-Ferguson

Act. Such a refusal to deal does not exist in the instant

case. There cannot be a refusal to deal when plaintiffs’

complaint is that the terms on which they are dealt with

are disadvantageous. Although Ballard might be seen as

merely an exclusion from coverage, the Fourth Circuit, on

an appeal from a dismissal, accepted the allegations to

A25

state a classic boycott case. Plaintiffs’ complaint in this

case is in regard to conditional coverage given to defen-

dants’ subscribers.

The other case cited by the Supreme Court was

Proctor. In Proctor, 182 U.S. App.D.C. 277-78, 561 F.2d

at 275-76, Judge McGowan analyzed the term “boycott”

in the McCarran-Ferguson context. Judge McGowan was

dealing with a situation where it was alleged that defen-

dant insurance companies would reimburse policyholders

for automobile repairs if certain repair shops were used

but not if other repair shops were used. Proctor held

that placing conditions on the use of repair shops by the

policyholder was not an unconditional or unreasonable

refusal to deal and thus did not amount to a boycott.

The line drawn between Judge Butzner in Ballard

and Judge McGowan in Proctor appears to be that an

unconditional refusal to deal or a refusal to deal except

on unreasonable terms can amount to a boycott but a

conditional refusal to deal, where the conditions are rea-

sonable, does not amount to a boycott under McCarran-

Ferguson. The facts in the instant case clearly fall in the

latter situation. Defendants deal with clinical psychologists

but only when their services are a result of referral and

supervision and when the bill is forwarded to Blue Shield

via the supervising physician. The Court has previously

analyzed these requirements and finds them medically

and economically necessary and reasonable. This Court

believes, then, that the decision herein does not offend

Ballard and is sanctioned by Proctor.

Thus it appears that the McCarran-Ferguson exemp-

tion is applicable, that the activity is not a boycott, and

that even if it would otherwise be illegal activity under

A26

the Sherman Act, McCarran-Ferguson removes any legally

enforceable right plaintiffs might have had.

For the foregoing reasons, judgment will be rendered

for defendants.

An appropriate order shall issue.

A27

APPENDIX B

VIRGINIA ACADEMY OF CLINICAL

PSYCHOLOGISTS, and Robert J.

Resnick, Ph.D., Appellants,

BLUE SHIELD OF VIRGINIA, Blue Shield of

Southwestern Virginia, and Neuropsychiatric

Society of Virginia, Inc., Appellees,

American Psychological Association,

Amicus Curiae.

No. 79-1345.

United States Court of Appeals,

Fourth Circuit.

Argued Feb. 5, 1980.

Decided June 16, 1980.

Organization of clinical psychologists and practicing

clinical psychologist brought Sherman Act action against

two Blue Shield plans and a neuropsychiatric society based

on plans’ refusal to pay for services rendered by clinical

psychologists unless such services were billed through

physicians. The United States District Court for the

Eastern District of Virginia, at Alexandria, D. Dortch War-

riner, J., 469 F.Supp. 552, entered judgment for defendants

and plaintiffs appealed. The Court of Appeals, K. K. Hall,

Circuit Judge, held that: (1) joint action of the plans chal-

lenging state statutory scheme requiring direct payment to

clinical psychologists was not protected by Noerr-Penning-

ton doctrine, which protects First Amendment right to peti-

tion, although collaboration of the plans in defiance of

statute may have been calculated to provoke judicial resolu-

tion of the plans’ grievance, where it amounted to no more

than agreement to persist in economically restrictive com-

A28

mercial activity in face of state law designed to open up

health care market; (2) evidence supported finding that

there had been no conspiracy between the plans and the

neuropsychiatric society; and (3) the joint policy by the

plans were in restraint of trade as proscribed by Sherman

Act, since the policy forced the two independent economic

entities, the psychologists and the psychiatrists, to act as

one, with necessary result of diminished competition in

health care field.

Affirmed in part, vacated and remanded in part.

1. Monopolies (Key) 18

Physician control of Blue Shield plan was sufficient to

bring its actions within purview of Sherman Act, where

plan was organized under Virginia statute providing that

group of physicians may control directly or through agency

a plan for furnishing medical and surgical services, plan

was made up of participating physicians who were re-

imbursed by it, state law required majority of board of

directors of plan to be health care providers and bylaws of

plan provided for a physician majority. Sherman Anti-

Trust Act, § 1, 15 U.S.C.A. § 1; Code Va.1950, §§ 38.1-811,

38.1-817.

2. Constitutional Law (Key) 91

Monopolies (Key) 12(1)

Collective action of two Blue Shield plans in challeng-

ing state statute requiring direct payment to clinical psy-

chologist, rather than paying for their services only if billed

through physician, was not protected by Noerr-Pennington

doctrine, which protects First Amendment right to petition,

although collaboration of the plans in defiance of statute

may have been calculated to provoke judicial resolution of

the plans’ grievance, where it amounted to no more than an

A29

agreement to persist in economically restrictive commercial

activity in face of state law designed to open up health care

market. Sherman Anti-Trust Act, § 1, 15 U.S.C.A. § 1;

U.S.C.A.Const. Amend. 1; Code Va.1950, §§ 38.1-810, 38.1-

811, 38.1-817, 38.1-824.

3. Monopolies (Key) 12(1)

State action exemption from Sherman Act did not

apply to collaboration of two Blue Shield plans in admin-

istration of national accounts, although state may have

created need for cooperation by prohibiting plans from

operating outside their assigned territories, since state

did not compel defendants to exclude psychologists from

direct coverage as plans had agreed to do. Sherman Anti-

Trust Act, § 1, 15 U.S.C.A. § 1; Code Va.1950, § 38.1-824.

4. Monopolies (Key) 28(7.4)

In action by clinical psychologists organization and

practicing clinical psychologist against Blue Shield plans

and neuropsychiatric society on ground that plans’ policy

of refusing to pay for services rendered by clinical psychol-

ogist unless such services were billed through a physician

violated Sherman Act, evidence supported finding that

there had been no conspiracy between the plans and the

neuropsychiatric society. Sherman Anti-Trust Act, § 1,

15 U.S.C.A. § 1.

5. Monopolies (Key) 12(1, 14)

Business does not violate Sherman Act by unilaterally

choosing those with which it will conduct business. Sher-

man Anti-Trust Act, § 1, 15 U.S.C.A. § 1.

6. Monopolies (Key) 12(17)

Purchaser of services, acting independently, may law-

fully solicit proposals from various providers and choose

A30

from among them. Sherman Anti-Trust Act, § 1, 15

U.S.C.A. § 1.

7. Monopolies (Key) 18

It was not illegal for neuropsychiatric society, as

“seller” of services, to recommend that Blue Shield plan

refuse to cover services rendered by clinical psychologists

unless billed through physicians, absent some form of

coercion. Sherman Anti-Trust Act, § 1, 15 U.S.C.A. § 1.

8. Monopolies (Key) 18

Joint policy of two Blue Shield plans to refuse to

pay for services rendered by clinical psychologists unless

billed through physicians was not exempt from antitrust

laws under McCarran-Ferguson Act on basis that state

regulated business of insurance was involved, where both

plans had been covering mental and nervous disorders

for several years and their decision regarding psychologists

was not whether to underwrite risk of disorders, or even

the need for psychotherapy, but who would pay for such

services. McCarran-Ferguson Act, § 2(b), 15 U.S.C.A.

§ 1012(b); Code Va.1950, § 38.1-824.

9. Monopolies (Key) 18

Joint policy by two Blue Shield plans to refuse to

pay for services rendered by clinical psychologists unless

billed through physicians was in restraint of trade as

proscribed by Sherman Act, since policy forced two inde-

pendent economic entities, psychologists and psychiatrists,

to act as one, with necessary result of diminished com-

petition in health care field. Sherman Anti-Trust Act,

§ 1, 15 US.C.A. § 1; Code Va.1950, §§ 38.1-811, 38.1-817.

A31

Warwick R. Furr, II, Vienna, Va. (Thomas M. Brown-

ell, Lewis, Mitchell & Moore, Timothy J. Bloomfield, Alan

J. Kriegel, Dunnells, Duvall, Bennett & Porter, Washington,

D.C., on brief), for appellants.

Joel I. Klein, Washington, D.C. (Eugene Comey, H.

Bartow Farr, III, Rogovin, Stern & Huge, Washington, D.C.,

R. Gordon Smith, Gilbert E. Schill, Jr., James H. Walsh,

McGuire, Woods & Battle, Richmond, Va., Ronald M. Ayers,

Heman A. Marshall, III, Woods, Rogers, Muse, Walker &

Thornton, Roanoke, Va., Francis J. Prior, Jr., Siciliano,

Ellis, Sheridan & Dyer, Arlington, Va., on brief), for ap-

pellees.

Before HALL and PHILLIPS, Circuit Judges, and

HOWARD’, District Judge.

K. K. HALL, Circuit Judge:

This controversy arises over the refusal by defendants

Blue Shield of Virginia and Blue Shield of Southwestern

Virginia to pay for services rendered by clinical psychol-

ogists unless such services are billed through a physician.

Plaintiffs Virginia Academy of Clinical Psychologists and

Dr. Robert J. Resnick, a practicing clinical psychologist,

claim that this policy violates Section 1 of the Sherman

Act. 15 U.S.C. § 1. The district court found no violation.

Virginia Academy of Clinical Psychologists v. Blue Shield

of Virginia, 469 F.Supp. 552 (E.D.Va.1979). We affirm

in part and reverse in part.

Since 1962, Blue Shield of Virginia [BSV or the Rich-

mond Plan] and Blue Shield of Southwestern Virginia

[BSSV or the Roanoke Plan] have included outpatient cov-

“Honorable Joseph C. Howard, United States District Court

for the District of Maryland, sitting by designation.

A32

erage for mental and nervous disorders and for psycho-

therapy as a method of treating those disorders. Between

1962 and 1972, Richmond Plan coverage included direct

payment to psychologists for psychotherapy rendered to

subscribers. In 1972, this policy was revised to allow pay-

ment only when the services were billed through a physi-

cian.

The revised policy of the Richmond Plan was an-

nounced after consultation with various provider groups,

including the American Psychological Association and the

defendant Neuropsychiatric Society of Virginia [NSV].

Contact between the Richmond Plan and NSV, however,

was particularly close.

Beginning in 1971, Dr. Levi Hulley, M.D., the head

of the Plan’s professional relations committee, met several

times with NSV’s president, Dr. Terrell Wingfield, M.D.,

over the question of payment for psychotherapy. Coopera-

tion between the two groups followed: NSV, at the Plan’s

request, conducted a survey of Virginia psychiatrists on

various aspects of psychiatric practice and later passed a

resolution recommending, inter alia, that the Richmond

Plan terminate direct payment to clinical psychologists.

Immediately prior to adopting its policy, Richmond Plan

officials met with a special NSV committee to discuss the

scope of mental health coverage. The Plan adopted some

of NSV’s recommendations, including that of refusing to

cover services rendered by psychologists unless billed by

a physician.

Following implementation of the non-payment policy,

the Virginia legislature, in 1973, added another dimension

to the problem by passing a “Freedom of Choice Statute”

Va.Code § 32-195.10:1 [now amended and codified at § 38.1-

A33

824], which requires Blue Shield plans to pay directly for

services rendered by licensed psychologists.’

The passage of this legislation provoked discussion be-

tween the Roanoke Plan and the Richmond Plan, resulting

in collaboration between the two Plans to continue deny-

ing direct payment to psychologists in violation of the stat-

ute and to pursue litigation to test the statute. A test case

was filed in state court by a subscriber and her psychologist

against the Richmond Plan, but was later voluntarily non-

suited. In 1976, the State Corporation Commission brought

an action against the Richmond Plan to compel compliance

with the statute. Commonwealth of Virginia ex rel. State

Corporation Comm’n v. Blue Cross of Virginia, Case No.

19829.

The Roanoke Plan was not a party to either State pro-

ceeding, but maintained an official policy of denying

payment, despite the statute, until November 1976. By

the time this case was tried, however, most Roanoke Plan

contracts allowed direct payment to psychologists.

This action was filed on July 14, 1978. Following the

voluntary dismissal of defendant Medical Service of Dis-

trict of Columbia, Inc., a Blue Shield Plan operating in

Northern Virginia, the case was tried to the court in

1. The Statute provided:

§ 38.1-824. Services Of certain practioners other than

physicians to be covered.—No Plan for furnishing prepaid

medical and surgical, and similar or related services, or any

of such services, shall fail or refuse, either directly or in-

directly, to allow or to pay for such services, or any pari

thereof, rendered by any doctor of podiatry, doctor of chir-

opody, or optometrist, optician and psychologist duly licensed

to practice in Virginia, to the holder of any contract or sub-

scription contract issued under or pursuant to such plan if

the services rendered (i) are services provided for by such

contract or subscription contract... . and, (ii) are services

which the doctor of podiatry, doctor of chiropody or op-

tometrist, optician and psychologist is licensed to render in

Virginia. (1966, c. 276; 1973, c. 428.)

A34

January 1979. On April 9, 1979, the district court issued

a Memorandum Opinion and Order, holding: (1) Plain-

tiffs had failed to prove any contract, combination or con-

spiracy cognizable under Section 1 of the Sherman Act;

(2) even if there was such an arrangement, it was not in

restraint of trade; and (3) the defendants’ conduct was

exempt from the antitrust laws under the McCarran-

Ferguson Act. 15 U.S.C. § 1012(b).

The district court held that the plaintiffs had failed

to prove a “contract, combination . . ., or conspiracy”

within the reach of Section 1 of the Sherman Act. First,

it found that agreement between the two Blue Shield Plans

was exempt from the Sherman Act. It held that the

Plans’ decision to challenge the Virginia “Freedom of

Choice” legislation was protected activity under the First

Amendment, and the joint administration of ‘national ac-

counts” restricting payment to psychologists was within

the “state action” exemption of Parker v. Brown, 317 U.S.

341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). 469 F.Supp. at 557.

Second, the court found no agreement between the

Plans and NSV. The court noted that “NSV cooperated

closely with BSV by urging BSV to adopt the policies in

question and by advising BSV on their implementation,”

but found that this was part of a program of consultation

with many provider groups, including the American Psy-

chological Association. The district court concluded:

Though prior inquiry, consultation, and negotiation

clearly took place, no contract was entered into, no

combination formed, and no conspiracy existed. Sec-

tion 1 of the Sherman Act does not prohibit a busi-

ness entity which needs information and advice from

obtaining information and advice from other knowl-

A35

edgeable business entities. The operation of a medical

insurance plan would be, for all practical purposes,

impossible if consultation and cooperation with pro-

vider groups were barred.

469 F.Supp. at 559.

a. Blue Shield

The district court treated the Plans as separate, in-

dependent entities. This characterization is only partly

accurate. Noticeably absent from the district court’s dis-

cussion is any mention of the plaintiff’s principal theory on

appeal: that the Blue Shield Plans are combinations of

physicians, operating under the direction and control of

their physician members.”

Blue Shield Plans are not insurance companies, though

they are, to a degree, insurers. Rather, they are gen-

erally characterized as prepaid health care plans, quantity

2. Provider control of the “Blues” has been the subject of

considerable controversy in recent years, in Congress, see Sky-

rocketing Health Care Costs. The Role of Blue Shield, Hearings

before the Subcommittee on Oversight and Investigations, Com-

mittee on Interstate and Foreign Commerce, House of Representa-

tives, 95th Cong., 2d Sess. (1978), and the Federal Trade Com-

mission, Medical Participation in Control of Blue Shield and Cer-

tain Other Open-Panel Medical Prepayment Plans, FTC Bureau

of Competition (Apr. 1979) as well as in recent scholarly

efforts. See M. Thompson, Antitrust and the Health Care Pro-

vider, 35 (1979); Goldberg and Greenberg, The Effect of Physi-

cian Controlled Health Insurance: U.S. v. Oregon State Medical

Society, 2 J. Health Pol. Pol’y & L. 48 (1977); Havighurst, Pro-

fessional Restraints on Innovation in Health Care Financing, 1978

Duke L.J. 303, 336-37, 348, 375-76 (1978); Kallstrom, Health Care

Cost Control by Third Party Payors: Fee Schedules and the

Sherman Act, 1978 Duke L.J. 645 ( 1978). The problem of pro-

vider control was also alluded to by the Supreme Court in Group

Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 232

n.40, 99 S.Ct. 1067, 1083 n.40, 59 L.Ed.2d 261, 281 n.40.

In United States v. Oregon Medical Society, 343 U.S. 326, 72

S.Ct. 690, 96 L.Ed. 978 (1952), the provider control of Oregon

Physicians Service was unchallenged, id. at 330, 72 S.Ct. at 694.

Goldberg & Greenberg, supra at 65-66.

A36

purchasers of health care services. See Group Life and

Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 225-

232, 99 S.Ct. 1067, 1080-1083, 59 L.Ed.2d 261, 277-80 (1979).

A plan may be viewed as an agent of its subscribers, a

buyers cooperative. See Jordan v. Group Health Associa-

tion, 71 App.D.C. 38, 107 F.2d 239 (1939). But see Blue

Cross v. Commonwealth, 211 Va. 180, 176 S.E.2d 439, 443

(1970). But in a real and legal sense, the Blue Shield

Plans are agents of their member physicians.®

The Virginia Statute authorizing the creation of Blue

Shield Plans states:

Medical and Surgical Plans.—A group of physicians

may conduct directly or through an agent, who may

be either an individual or nonstock corporation, a plan

or plans for furnishing prepaid medical or surgical or

similar or related services or both.

Va.Code § 38.1-811 [formerly codified at § 32-195.2]. The

Plans in this case, organized under the above provision,

are made up of “participating physicians” who as “mem-

bers” of the plan contract to provide services to sub-

scribers, and are reimbursed by the Plan.

State law requires that the majority of the board of

directors of such a plan be “health care providers,” Va.

Code § 38.1-817. The by-laws of the Richmond Plan,

however, until very recently, provided for a physician

majority:

3. A Blue Shield advertising brochure used until recently to

attract physician membership stated:

Blue Shield is a nationally recognized symbol of voluntary

prepayment coverage for medical expenses. It is known as

the “doctors’ plan for the people,” but it is, realistically also

the doctors’ plan for the doctors, with control and guidance

originating from members of the medical profession.

A37

The board shall have fifteen members. Not less than

eight of such members shall be Doctors of Medicine or

Osteopathy who are engaged in active practice and

who are members of the pian.

The Medical Society of Virginia is identified as “sponsor”

of the Richmond program, and its by-laws indicate that

five of the physician members of its board “shall be elected

from among those designated by the Medical Society of

Virginia.” |

The Supreme Court of Virginia emphasized collective

nature of a similar type of plan in Blue Cross v. Common-

wealth, 211 Va. 180, 176 S.E.2d 439 (1970). There the

court held that certain Pharmacy Agreements entered

into between Blue Cross and participating Pharmacists

violated the Sherman Act. Among the several combina-

tions found in that case was that of the participating hos-

pitals which constitute Blue Cross, in the same fashion as

participating physicians constitute Blue Shield. Compare

Va.Code § 38.1-810 with § 38.1-811. The court characterized

the arrangement as follows:

The Blue Cross participating hospitals determined

to inaugurate a plan for the furnishing of drugs to

the subscriber-public. To implement the plan, they

chose to act in concert through Blue Cross as their

agent in setting the price at which they would deal

with the sellers of drugs (the cooperating phar-

macists). The Commission found that sellers of drugs

knew they would lose business if they agreed to sell

at the price set by Blue Cross.

Id. at 190, 176 S.E.2d at 445. (emphasis added).‘

4. The Blue Shield brochure described in note 3 continued:

When new programs are established, they are sustained

by reimbursement principles representing the collective judg-

ments of area physicians acting through societies and through

Board representation.

A38

It is not sufficient to assert, as defendants do, that a

corporation cannot conspire with itself. We must look at

substance rather than form. E. g. United States v. Sealy,

Inc., 388 U.S. 350, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967) .°

Antitrust law has always been sensitive to the realities of

the marketplace and has been particularly watchful of

organizations of the various trades or professions. See,

e. g. National Society of Professional Engineers v. United

States, 435 U.S. 679, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978) ;

Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004,

44 L.Ed.2d 572 (1975); Silver v. New York Stock Exchange,

373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 ( 1963); Radiant

Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S.

656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Fashion Origina-

tors Guild v. Federal Trade Commission, 312 U.S. 457,

61 S.Ct. 703, 85 L.Ed. 949 (1941).

[1] We think the uncontradicted evidence and dis-

trict court findings show sufficent physician control of

Blue Shield of Richmond to bring its actions within the

purview of Section I of the Sherman Act.* See United

States v. Sealy, Inc., supra.

5. In United States v. Sealy, Inc., the Supreme Court re-

jected the contention of Sealy manufacturer-licensees that their

exclusive territories were vertically imposed by the licensor,

Sealy, Inc. The Court found that Sealy, Inc. was substantially

owned and controlled by the manufacturer-licensees, and there-

fore its action in allocating territories was actually a horizontal

agreement between its licensee stockholders. Accord, United States

v. er a Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d

515 (1972).

6. A most illuminating illustration of the provider interest

at work in the administration of the Plans is this statement by

Levi W. Hulley, Jr., M.D., medical director of the Richmond Plan,

which appears in the May 25, 1972 minutes of the Committee on

Mental Health of the Medical Society of Virginia:

BLUE CROSS-BLUE SHIELD COVERAGE; Dr. Hulley as-

sured the Committee of the interest of Blue Cross-Blue Shield

where psychiatric services are concerned and discussed a re-

(Continued on following page)

A39

Although appellants’ case focuses primarily on the ac-

tivities of the Richmond Plan, the Roanoke Plan is

similarly structured. Moreover, the district court found

that the two Plans had “collaborated.”7 The court con-

cluded, however, that the collaboration was exempt from

Sherman Act scrutiny because it “revolved in the main

around a challenge in State tribunals to the Virginia

statutory scheme requiring such direct payment.” 369

F.Supp. at 557. We do not think that the “N oerr-Penning-

ton doctrine,” upon which the court relied, is applicable

to this case.

In Eastern Railroad Presidents Conference v. Noerr

Motor Freight, 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464

(1961), a group of railroads had conducted a misleading

advertising campaign designed to influence legislative ac-

tion which would place trucking firms at a competitive

disadvantage. The Supreme Court held that this conduct

was protected by the First Amendment and therefore out-

side the Sherman Act despite its plainly anticompetitive

purpose and incidental anticompetitive effects. In United

Mine Workers of America v. Pennington, 381 U.S. 657, 85

Footnote continued—

port prepared under the direction of Dr. Wingfield and a

special committee of the Neuropsychiatric Society.

The report is concerned with services provided by psychia-

trists and charges involved. It has been referred to the Blue

Shield Board for consideration and final disposition.

It was brought out that a number of groups, which have a

part in the overall mental health Picture, are little by little

working their way into the therapy field. It seemed to be the

consensus that The Medical Society of Virginia should take

a firm stand on this encroachment and seek to stop it once

and for all.

It was brought out that psychotherapy apparently means dif-

ferent things to different people and it was agreed that it

should be defined as that performed by psychiatrists or under

the direct supervision of psychiatrists.

7. See American Motor Inns, Inc. v. Holiday Inns, Inc., 521

F.2d 1230, 1243 (3rd Cir. 1975).

A40

S.Ct. 1585, 14 L.Ed.2d 626 (1965), the Court exempted

from the Sherman Act an alleged collective effort by the

union and mine operators to induce the Secretary of Labor

to set a minimum wage so high that only larger govern-

ment contractors could afford to sell coal to the TVA. The

Noerr-Pennington exemption was later extendec, in a

somewhat narrower fashion, to genuine administrative and

judicial litigation in California Motor Transport v. Trucking

Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972).

The Noerr-Pennington doctrine protects the first

amendment right to petition. Feminist Women’s Health

Center v. Mohammad, 586 F.2d 530, 542 (5th Cir. 1978);

see also California Motor Transport, supra, 404 U.S. at

510, 92 S.Ct. at 611. The exemption does not apply in this

case because the Plans, especially Roanoke, never truly

exercised that right.

In response to the passage of Freedom of Choice leg-

islation in Virginia, Officers of the two Plans met and

decided to challenge the statute. Following the 1975

“Summit Meeting” at which the possibility of a declaratory

judgment action was discussed, the Roanoke Plan brought

itself into conformity with Richmond’s policy of noncom-

pliance by adopting a resolution to deny payment to

psychologists in spite of the statute. The declaratory ac-

tion was not pursued, and the court challenge against

BSV by a psychologist and his patient was nonsuited and

never revived. The challenge to the statute finally oc-

curred, but at the instance of the State Corporation Com-

mission® and did not include the Roanoke Plan.

8. Contrary to the suggestion by the district court, it was

the Commission and not BSV which brought the action. The .on-

stitutionality of the statute was upheld by the Commission. Com-.

monwealth of Virginia ex rel. State Corporation Comm. v. Blue

Cross of Virginia, Case No. 19829 (Feb. 14, 1979).

A4l1

[2, 3] The collective action of the Plans in this case

thus falls short of the activity protected by Noerr-Penning-

ton.’ The collaboration in defiance of the statute may have

been calculated to provoke a judicial resolution of the

Plans’ grievance, but it amounted to no more than an

agreement to persist in economically restrictive commer-

cial activity in the face of a State law designed to open

up the health care market. We think the efforts of States

to promote competition and consumer choice through

legislation would be seriously hampered if Noerr-Penning-

ton were extended so that those who would flout such a

law could avoid antitrust liability in the process.’

9. We do not hold that the defendant’s conduct was within

the “sham” exception to the Noerr-Pennington doctrine. See

Noerr, supra, 365 U.S. at 144, 81 S.Ct. at 533, California Motor

Transport, supra. The “sham” exception applies when the right

is actually exercised, but in a manner calculated to interfere di-

rectly with a competitor’s business. Repeated frivolous litigation

calculated to delay a competitor’s licensing would be an illegal

sham. But until the right to petition is exercised, the “sham” in-

quiry is not reached.

10. We are also unable to agree with the district court’s

application of the State action exemption to the collaboration of

the Richmond and Roanoke Plans in the administration of “na-

tional accounts,” the operation of which is fully described in the

district court’s opinion. 469 F.Supp. at 557-58. Although Virginia

may have created a need for cooperation by prohibiting the Plans

from operating outside their assigned territories, the State cer-

tainly does not compel the defendants to exclude psychologists

from direct coverage. The application of the State action exemp-

tion in this case is thus precluded by our decision in Ballard v.

Blue Shield of Southern West Virginia, Inc., 543 F.2d 1075 (1976).

[No] action on the part of West Virginia compels the defen-

dants to exclude chiropractors from their insurance plans.

West Virginia law specifically authorizes the defendant com-

panies to insure the costs of chiropractic treatment, but the

defendants have not elected to provide this coverage. There-

fore they can claim no immunity under Parker v. Brown.

Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49

L.Ed.2d 1141 (1976); Goldfarb v. Virginia State Bar, 421 U.S.

773, 778-92, 95 S.Ct. 2004 [2008-15], 44 L.Ed.2d 572 (1975).

543 F.2d at 1079. See also, California Retail Liquor Dealers Ass’n

v. Midcal Aluminum, Inc., ........ fe , 100 S.Ct. 937, 63 L.Ed.

(Continued on following page)

A42

b. Neuropsychiatric Society of Virginia

[4] Our decision as to the Blue Shield Plan does not

affect the Neuropsychiatric Society of Virginia. The physi-

cian domination of Blue Shield does not necessarily render

it unable to operate independently vis-a-vis other economic

entities. The evidence shows that NSV cooperated very

closely with the Richmond Plan and received more at-

tention than other provider groups, but the evidence also

shows that the Plan rejected some of NSV’s proposals,

while accepting others. We think there was a sufficient

factual basis for the district court’s finding that there was

no conspiracy between the two groups.

[5-7] Plaintiffs failed to show that NSV had some

control over Blue Shield’s decision-making, or that Blue

Shield agreed to abide by the decision of NSV in formulat-

ing its policy. It has long been recognized that a business

may unilaterally choose those with which it will conduct

business. United States v. Colgate Co., 250 U.S. 300, 39

S.Ct. 465, 63 L.Ed. 992 (1919). A purchaser of services,

acting independently, may lawfully solicit proposals from

various providers and choose from among them. E.g.

Scranton Construction Co. v. Litton Industrial Leasing, 494

F.2d 778 (5th Cir. 1974). Thus, it was not illegal for

Footnote continued—

2d 233 (1980). In this case the state does not even permit the

challenged policy; A fortiori it is not state action.

Despite our disagreement with the Court’s reasoning, we do

not rest our finding of — on the cooperation of the plans

in the management of these accounts. Each national account

involves a contract between one “control plan” and subscriber

whose employees reside in several Blue Shield territories. The

terms are arrived at between those parties; and the “participat-

ing plans” act as the agents of the control plan in administering

the contract in their respective areas. They are required to

follow exactly the terms of the control contract, and are reim-

bursed by the control plan for their expenditures. This coopera-

tion certainly is not in restraint of trade.

A43

NSV, as “‘seller” of such services, to make recommendations

aimed at persuading Blue Shield to adopt its proposal and

use its services, absent some form of coercion. Accord-

ingly, we affirm the judgment in favor of NSV.

[8] We next consider whether defendants’ policy is

exempt from the antitrust laws under the McCarran-Fer-

guson Act, 15 U.S.C. § 1012(b). To fall within that exemp-

tion the challenged conduct must be the State regulated

“business of insurance,” and not a boycott, 15 U.S.C.

§ 1913(b). Group Life and Health Ins. Co. v. Royal Drug

Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979) ;

St. Paul Fire and Marine Ins. Co. v. Barry, 438 U.S. 531,

98 S.Ct. 2923, 57 L.Ed.2d 932 (1978). We hold that the

defendants’ conduct is not the “business of insurance.”

Plaintiffs’ assertion that they have been subjected to a

boycott will be discussed in part III, infra.

In Royal Drug, supra, the Supreme Court held that

certain Pharmacy Agreements, entered into between Blue

Shield and participating pharmacies for the purpose of

providing drugs at a cost to Blue Shield’s policyholders of

$2.00 per prescription, were not the “business of insurance.”

While the present case is distinguishable from Royal Drug,

we think the Supreme Court’s opinion sheds considerable

light on this case.

The majority in Royal Drug explained that at the time

of the enactment of the McCarran-Ferguson Act, activities

of programs like Blue Shield were not considered to be

insurance at all. 440 U.S. at 225-229 99 S.Ct. at 1080-1082,

59 L.Ed.2d at 277-79. That discussion is not dispositive of

this case, for the Supreme Court also noted,

[t]his is not to say that the contracts offered by Blue

Shield to its policyholders, as distinguished from pro-

A44

vider agreements with participating pharmacies, may

not be the “business of insurance” within the meaning

of the Act.

Id., 440 U.S. at 320 n. 37, 99 S.Ct. at 1082 n. 37, 59 L.Ed.2d

at 279 n. 37. Nevertheless, the court’s analysis reinforces

our view that the exemption should be narrowly applied to

Blue Shield plans, especially where provider control is in

issue. See, id., 440 U.S. at 232 n. 40, 99 S.Ct. 1083 n. 40,

59 L.Ed.2d at 280 n. 40.

The essence of the business of insurance is the rela-

tionship between the insurance company and its policy-

holder. SEC v. National Securities, Inc., 393 U.S. 453, 89

S.Ct. 564, 21 L.Ed.2d 668 (1969); Bartholomew v. Virginia

Chiropractors Ass’n, 612 F.2d 812 (4th Cir. 1979), cert. de-

nied ........ Lo Sewer , 100 S.Ct. 2158, 64 L.Ed.2d 791 (1980).

We are persuaded that the defendants’ policy regarding

payment of clinical psychologists is only tangential to that

relationship in that it does not affect the benefit conferred

upon the subscriber.

Were we confronted with a decision by the Plans to

deny payment for mental and nervous disorders for psycho-

therapy as a method of treating those disorders we might

conclude that the decision was an insurance decision—

the refusal to underwrite a specific risk. In the present

case, however, both Plans have been covering these mental

and nervous disorders in their contracts since at least

1962. Their decision regarding psychologists was not

whether to underwrite the risk of those disorders or even

the need for psychotherapy; rather it was a question of

who they would pay for such services. The coverage re-

mained the same.

Thus, the case at bar is similar to Royal Drug, where

the Court held that the cost savings obtained by using

specific providers, even though mentioned in the sub-

A45

scriber contract, was not sufficiently a part of the insurer-

insured relationship to be the “business of insurance” be-

cause the subscribers received the same benefit—the as-

surance that they could obtain drugs for a maximum pay-

ment for $2.00 on each prescription—in any event. 440 U.S,

at 216-218 and n. 14, 99 S.Ct. at 1075-1976 and n. 14, 59

L.Ed.2d at 271-272 and n. 14.

III

[9] The final, critical issue is whether these combina-

tions were “in restraint of trade.” 15 U.S.C. § 1. The

district court held that under the rule of reason, no vio-

lation was established. We disagree.

The district court began: “[t]he starting point in de-

ciding the proper factual context for this case is deciding

what sector of the economy is affected.... In other words,

the court looks to see who is competing with whom.” 469

F.Supp. at 560. The court found that clinical psychologists

are not equal providers of therapy with psychiatrists be-

cause they do not render medical treatment and are not

qualified to diagnose nervous and mental disorders or

ascertain their source. The court further found that

medical necessity in most, if not all cases requires regular

contact between the psychologist’s patient and a medical

doctor.

The district court concluded that the clinical psy-

chologist is not competitive with the psychiatrist unless

the clinical psychologist is working under the “supervision”

of a medical doctor. A psychologist working with a physi-

cian, the court continued, is paid by the Plans on an equal

basis with a psychiatrist, except that the psychologist must

bill through a physician,

The court can well understand that plaintiffs do not

like to bill through a physician as a matter of pro-

A46

fessional pride. The evidence shows that billing

through a medical doctor is a requirement of the Blue

Shield plan as a means of ascertaining that the treat-

ment given and billed for was medically necessary.

This procedure also tends to promote contact between

the clinical psychologists and the physicians at all

stages of treatment, and thus enhances the supervisory

process.

469 F.Supp. at 561.

Appellants assert that the evidence establishes a boy-

cott and therefore their exclusion from direct Blue Shield

coverage is illegal per se. We agree that the challenged

policy closely resembles that alleged in Ballard v. Blue

Shield of Southern West Virginia, 543 F.2d 1075 (4th Cir.

1976), which we found to be a boycott. Nor does the

comparison necessarily fail because the concerted refusal

to deal is conditional, rather than absolute. See Webb v.

Utah Tour Brokers Ass’n, 568 F.2d 670, 675-76 (10th Cir.

1977); Proctor v. State Farm Mutual Auto Ins. Co., 561

F.2d 262, 276 n. 23 (D.C. Cir. 1977); Paramount Famous

Lasky Corp. v. United States, 282 U.S. 30, 51 S.Ct. 42, 75

L.Ed. 145 (1930).

The “boycott” characterization, however, avails us lit-

tle in determining whether an agreement such as this is

per se illegal. Cf. Broadcast Music Inc. v. Columbia Broad-

casting System, 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1

(1979). Because of the special considerations involved in

the delivery of health services, we are not prepared to apply

a per se rule of illegality to medical plans which refuse

or condition payments to competing or potentially com-

peting providers. See Goldfarb v. Virginia State Bar,

421 U.S. 773, 788 n. 17, 95 S.Ct. 2004, 2013 n. 17, 44 L.Ed.

2d 572; Arizona v. Maricopa County Medical Society,

PU italien , 1980-1 Trade Cas. J 63,239 (9th Cir. 1980); Note,

A47

The Professions and Noncommercial Purposes: Applicabil-

ity of Per Se Rules Under the Sherman Act, 11 U.Mich.J.L.

Ref. 387 (1978).

While we agree with the district court’s rejection of a

per se rule in this case, we think the court’s analysis was

misdirected. The rule of reason looks to the impact of

the challenged practice upon competitive conditions. Na-

tional Society of Professional Engineers v. United States,

435 U.S. 679, 690, 98 S.Ct. 1355, 1364, 55 L.Ed.2d 637 (1979).

The district court’s finding that “the clinical psychologist is

not competitive with the psychiatrist in treating nervous

and mental disorders unless the clinical psychologist is

working under the supervision of a medical doctor” re-

flects a value judgment, rather than an evaluation of anti-

competitive effects.

The record demonstrates that psychologists and psychi-

atrists do complete; indeed it is susceptible to judicial no-

tice. Both provide psychotherapy, 469 F.Supp. at 560, and

are licensed to do so by State law. See Va.Code §§ 54-273

(10), -274, -309.1, -936 (1978 Replacement Vol.) Competi-

tion in the health care market between psychologist and

M.D. providers of psychotherapy is encouraged by the legis-

lature, see Va.Code § 38.1-824, and its existence is well docu-

mented."

The Blue Shield Plans are a dominant source of health

care coverage in Virginia. Their decisions as to who will

be paid for psychotherapy necessarily dictate, to some ex-

tent, which practitioners will be chosen from among those

competent under the law to provide such services.

11. One could scarcely find a more revealing statement of

competitive conditions than the statement of Dr. Hulley, supra

n. 6 concerning the need to stop “encroachment” by non-M.D. pro-

viders of therapy.

A48

Whether the “medical necessity” of referral and close

contact between the therapist and a physician satisfies the

rule of reason, as a cost control measure, is a matter not

before us. The Plan’s requirement that the psychologists’

fee be billed through a physician, however, cannot stand.

The issue is more than one of professional pride.

State law recognizes the psychologist as an independent

economic entity as it does the physician. The Blue Shield

policy forces the two independent economic entities to act

as one, with the necessary result of diminished competition

in the health care field. The subscriber who has a need for

psychotherapy must choose a psychologist who will work

as an employee of a physician; a psychologist who main-

tains his economic independence may well lose his patient.

In either case, the psychologist ceases to be a competitor.

Forewarned by the decision in National Society of

Professional Engineers, supra, that it is not the function

of a group of professionals to decide that competition is

not beneficial in their line of work, we are not inclined to

condone anticompetitive conduct upon an incantation of

“good medical practice.” Moreover, we fail to see how the

policy in question fulfills that goal. Any assertion that

a physician must actually supervise the psychologist to as-

sure the quality of the psychotherapy treatment admin-

istered is refuted by the policy itself. The Blue Shield

policy provides for payment to psychologists for psycho-

therapy if billed through any physician—not just those who

regularly treat mental and nervous disorders. It defies

logic to assume that the average family practitioner can

supervise a licensed psychologist in psychotherapy, and

there is no basis in the record for such an assumption.

There are, of course, procompetitive reasons for re-

quiring examination and consultation by a physician in

order to assure that psychotherapy is not needlessly per-

A49

formed to treat a problem with physical etiology, but

such safeguards must be accomplished in ways which do

not sacrifice the economic independence of the psychologist.

The elimination of the bill-through provision does not

preclude a variety of other cost control and quality control

measures by Blue Shield. It does, however, expand con-

sumer and provider alternatives. In addition, competition

from licensed non-M.D. providers is likely to result in lower

costs and the elimination of needless duplication of admin-

istrative costs created by the bill-through requirement.

For the reasons stated above, we affirm the judgment

in favor of defendant NSV and reverse the judgment for

the Blue Shield defendants. The case is remanded to the

district court for appropriate relief.

AFFIRMED IN PART, VACATED AND REMANDED

IN PART.

A50

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 79-1345

Virginia Academy of Clinical Psychologists, and

Robert J. Resnick, Ph.D.,

Appellants,

versus

Blue Shield of Virginia, Blue Shield of Southwestern

Virginia, and Neuropsychiatric Society of

Virginia, Inc.,

Appellees.

American Psychological Association,

Amicus Curiae.

Blue Shield Association,

Amicus Curiae.

Virginia Farm Bureau Federation,

Amicus Curiae.

ORDER

(Filed September 9, 1980)

Upon consideration of the petitions for rehearing, and

suggestion for rehearing en banc, by Blue Shield of Vir-

ginia, and Blue Shield of Southwestern Virginia, and a

request for a poll on the suggestion for rehearing en banc

was made but the poll failed for lack of majority support,

It is ADJUDGED and ORDERED that the petitions

for rehearing are denied.

Entered at the direction of Judge Hall, with the con-

currence of Judge Phillips and Judge Howard, U.S.D.J.

For the Court,

/s/ William K. Slate, II

Clerk

A51

APPENDIX D

RELEVANT STATUTES

The Sherman Act: Section 1 of the Sherman Act, 15

U.S.C. § 1, provides in relevant part as follows:

Sec. 1 Every contract, combination in the form

of trust or otherwise, or conspiracy, in restraint of

trade or commerce among the several States, or with

foreign nations, is declared to be illegal.

The McCarran-Ferguson Act: Sections 2 and 3(b) of the

McCarran-Ferguson Act, 15 U.S.C. §§ 1012(a), (b) and

1013, provide as follows:

Sec. 2(a) The business of insurance, and every

person engaged therein, shall be subject to the laws of

the several States which relate to the regulation or

taxation of such business. |

(b) No Act of Congress shall be construed to

invalidate, impair, or supersede any law enacted by

any State for the purpose of regulating the business

of insurance, or which imposes a fee or tax upon such

business, unless such Act specifically relates to the

business of insurance: Provided, That after June 30,

1948, the Act of July 2, 1890, as amended, known as

the Sherman Act, and the Act of October 15, 1914,

as amended, known as the Clayton Act, and the Act

of September 26, 1914, known as the Federal Trade

Commission Act, as amended, shall be applicable to

the business of insurance to the extent that such busi-

ness is not regulated by State law.

Sec. 3(b) Nothing contained in this Act shall

render the said Sherman Act inapplicable to any

A52

agreement to boycott, coerce, or iitimidate, or act of

boycott, coercion, or intimidation.

Virginia Statutes

Va.

Code § 38.1-811 (former § 32-195.2):

Medical and surgical plans.—A group of phy-

sicians may conduct through a nonstock corporation as

agent for them a plan or plans for furnishing prepaid

medical or surgical services, or both, and similar or

Va.

related services.

Code § 38.1-814 (former § 32-195.4):

Liability of participants.—All hospitals, persons,

nonstock corporations and physicians participating in

a plan shall be jointly and severally liable on all con-

tracts made for the purposes of the plan by the non-

stock corporation as agent for them. Each such con-

tract executed by their agent on their behalf may be

signed by the agent alone; and a contract so signed

shall be binding on the principals and not on the

agent. Actions for breach of such contracts may be

brought against the principals by naming the agent

as the sole defendant, and a judgment in favor of the

plaintiff may be satisfied out of the assets of the plan

in the custody of the agent or out of the assets of

each and all of the principals. Each participant shall

be liable for his own torts and not for the torts of any

other participant or of the agent.

Code § 38.1-817 (former § 32-195.5:2):

Board of directors of plan created under § 38.1-811.

—Notwithstanding the provisions of § 13.1-220 of the

Code of Virginia to the contrary, any plan created

pursuant to § 38.1-811 shall have a board of directors

consisting of not more than fifteen members; provided

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that, when the geographical area to be served by a

plan is increased after January one, nineteen hundred

seventy-four, by the [State Corporate] Commission,

the board of directors may consist of not more than

twenty members. A majority of the members shall be

providers of health care services.

Va. Code § 38.1-822.1 (former § 32-195.9):

Geographical area.—Every plan seeking to be li-

censed by the Commission shall specify the geograph-

ical area it desires to serve and shall satisfy the Com-

mission that it is able to render the services of the

plan.

The Commission may, after notice and hearing,

license more than one plan for the same geographical

area unless the Commission finds that (i) the plan’s

proposed method of operation or manner of doing busi-

ness is not satisfactory or (ii) licensing more than one

plan for the same geographical area will not promote

the public welfare. If more than one plan is licensed

in a geographical area, the plans in such area shall

be obligated to make arrangements among themselves

to see that any claim filed with the wrong plan in

such area be promptly forwarded to the proper plan

where the proper plan can be determined.

Subscription contracts shall not be sold to per-

sons residing outside the area of the plan unless they

are regularly employed within the area. The sub-

scription contract of a subscriber who neither lives

nor is employed within the area shall be cancelled by

notice given in accordance with the terms of the sub-

scription contract.

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Va. Code § 38.1-824 (former § 32-195.10: 1):

Services of certain practitioners other than physi-

cians to be covered.—No plan for furnishing prepaid

medical and surgical, and similar or related services, or

any of such services, shall fail or refuse, either directly

or indirectly, to allow or to pay for such services, or

any part thereof, rendered by any doctor of podiatry,

doctor of chiropody, optometrist, optician, psychologist,

or clinical social worker duly licensed to practice in

Virginia, to the holder of any contract or subscription

contract issued under or pursuant to such plan if the

services rendered (i) are services provided for by

such contract or subscription contract and, in the case

of services by a clinical social worker, have been spe-

cifically contracted for by the holder of any such con-

tract or subscription contract, which coverage must

be made available to the holder of such contract, and

(ii) are services which the doctor of podiatry, doctor

of chiropody, optometrist, optician, psychologist, or

clinical social worker is licensed to render in Virginia.

Va. Code § 38.1-347.1:

(This statute applies to commercial health insurers.)

Policy providing for reimbursement for services

that may be performed by certain practitioners other

than physicians.—Notwithstanding any provision of

any policy of insurance, when such policy provides for

reimbursement for any service which may be legally

performed by a person licensed in this State for the

practice of chiropractic, optometry, optician, psy-

chology, clinical social work, podiatry or chiropody,

reimbursement under such policy shall not be denied

because such service is rendered by a person so li-

censed; provided, that the provisions of this section re-

lating to chiropractic shall not apply to contracts issued

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by plans organized pursuant to chapter 11 (§ 32-195.1

et seq.) of Title 32; and provided further, that the pro-

visions of this section relating to clinical social work

services shall not apply unless insurance coverage for

such services has been specifically contracted for under

the policy, which coverage must be made available to

the purchaser of such policy. Nothing in the provisions

of this sectioi shall apply to Medicaid, or any State

fund.

(Chapter 11 of Title 32, which is referenced in this statute,

formerly contained the statutes governing non-profit, pre-

paid medical plans, such as the Richmond and Roanoke

Plans. These statutes are now contained in Title 38.1.

Va, Code § 38.1-360, as amended in 1979:

Nonapplication to certain policies.—Nothing in this

article shall apply to or affect (1) any policy of work-

men’s compensation insurance or any policy of liability

insurance with or without supplementary expense cov-

erage therein or when issued with or supplemental to

a policy of motor vehicle lial ity insurance, as provided

for in § 38.1-21(2) to a coverage providing weekly

indemnity or other specific benefits to persons who are

injured and specific death benefits to dependents, bene-

ficiaries or personal representatives of persons who are

killed, provided such benefits are irrespective of legal

liability of the insured or any other person, if such

injury or death is caused by accident and sustained

while in or upon, entering or alighting from, or

through being struck by a motor vehicle; or (2) any

policy or contract of reinsurance; or (3) any blanket or

group policy of insurance, except that the provisions

of §§ 38.1-347.1, 38.1-348.1, 38.1-348.6, 38.1-348.7, 38.1-

348.8, 38.1-348.10, 38.1-348.11 and 38.1-348.12 shall be

applicable to such policies of insurance; or (4) life in-

A56

surance, endowment or annuity contracts, or contracts

supplemental thereto which contain only such pro-

visions relating to accident and sickness insurance as

(a) provide additional benefits in case of death or

dismemberment or loss of sight by accident or as (b)

operate to safeguard such contracts against lapse, or to

give a special surrender value or special benefit or an

annuity in the event that the insured or annuitant

shall become totally and permanently disabled, as de-

fined by the contract or supplemental contract, or (5)

any policy of industrial sick benefit insurance. (Em-

phasis added)

NOTE: Before the 1979 amendment, Va. Code § 38.1-360

provided as follows:

Nonapplication to certain policies.—Nothing in this

article shall apply to or affect (1) any policy of work-

men’s compensation insurance or any policy of lia-

bility insurance with or without supplementary ex-

pense coverage therein or when issued with or sup-

plemental to a policy of motor vehicle liability insur-

ance, as provided for in § 38.1-21(2) to a coverage pro-

viding weekly indemnity or other specific benefits to

persons who are injured and specific death benefits

to dependents, beneficiaries or personal representatives

of persons who are killed, provided such benefits are

irrespective of legal liability of the insured or any

other person, if such injury or death is caused by

accident and sustained while in or upon, entering or

alighting from, or through being struck by a motor

vehicle; or (2) any policy or contract of reinsurance;

or (3) any blanket or group policy of insurance, except

that the provisions of §§ 38.1-348.1, 38.1-348.6 and 38.1-

348.7 shall be applicable to such policies of insurance;

or (4) life insurance, endowment or annuity contracts,

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or contracts supplemental thereto which contain only

such provisions relating to accident and sickness in-

surance as (a) provide additional benefits in case of

death or dismemberment or loss of sight by accident or

as (b) operate to safeguard such contracts against

lapse, or to give a special surrender value or special

benefit or an annuity in the event that the insured

or annuitant shall become totally and permanently

disabled, as defined by the contract or supplemental

contract, or (5) any policy of industrial sick benefit

insurance,

(Emphasis added) Thus before the 1979 amendment, the

proivsions of § 38.1-347.1, which requires commercial health

insurers to reimburse psychologists, did not apply to group

health insurance carried by commercial health insurers.)

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APPENDIX E

(This letter was introduced into evidence at trial and

appears at page 322 of the Appendix filed in

the Fourth Circuit.)

BLUE CROSS

BLUE SHIELD

of Virginia

M. Roy Battista 2015 Staples Mill Road

Vice President, Provider Post Office Box 27401

Relations Richmond, Virginia 23279

703/359-7718

May 25, 1973

TO PSYCHOLOGISTS WHOSE NAMES APPEAR ON

MAILING LISTS OF BLUE SHIELD OF VIRGINIA

Gentlemen:

For some time Blue Shield of Virginia has been con-

sidering the impact of the 1973 legislative amendment to

Section 32-195.10:1 of the Code of Virginia regarding pay-

ment to psychologists, optometrists and opticians. The

decision has been made that Blue Shield of Virginia has

considerable doubt as to the enforceability of the provision

and will take appropriate legal steps to resolve this doubt

and determine the enforceability of the provision as soon

as possible.

Until such time as the enforceability has been deter-

mined, claims billed directly by psychologists, optometrists

and opticians will be denied, but an appropriate reserve

will be maintained to cover such claims if the matter is

legally resolved in such a manner as to require such pay-

ment.

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There will be no change in Blue Shield of Virginia’s

existing policy regarding the payment of claims for psy-

chologists when billed by a physician.

Very truly yours,

BLUE SHIELD OF VIRGINIA

By /s/ M. Roy Battista

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APPENDIX F

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF VIRGINIA

Alexandria Division

(Transferred to Richmond Division)

CIVIL ACTION NO. 78-496-A

VIRGINIA ACADEMY OF CLINICAL

PSYCHOLOGISTS, et al.,

Plaintiffs,

Vv.

BLUE SHIELD OF VIRGINIA, et al.,

Defendants.

SUPPLEMENTAL STIPULATION BETWEEN

PLAINTIFFS AND DEFENDANT

BLUE SHIELD OF VIRGINIA

Plaintiffs and defendant Blue Shield of Virginia (“Blue

Shield”) supplement their earlier stipulations as follows:

1, Beginning in the fall of 1973, attorneys from Mc-

Guire, Woods & Battle, counsel for Blue Shield, and attor-

neys from Mays, Valentine, Davenport & Moore, counsel

for the Virginia Psychological Association (“VPA”), began

discussions regarding the constitutionality of Virginia Code

§ 32-195.10:1. Counsel for Blue Shield and counsel for

VPA expressed their respective clients’ interest in obtain-

ing a judicial determination of the constitutionality of

§ 32-195.10: 1.

2. Counsel for Blue Shield and VPA discussed litiga-

tion between their clients to test the constitutionality of

the statute and determined that a declaratory judgment

proceeding in a Circuit Court pursuant to Virginia Code

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§ 8-578 (now § 8.01-184) would be a suitable vehicle.

It was eventually determined that the plaintiffs in such

a suit should be a subscriber whose claims had been re-

jected by Blue Shield, and the psychologist who had ren-

dered the subject services, together with VPA. VPA

agreed to take the necessary steps to initiate the litigation.

3. Counsel for Blue Shield and VPA cooperated in

ensuring that the test case was jurisdictionally proper.

They were in communication, both written and oral, with

one another over a period of several months, on the subject

of locating a proper and willing subscriber and psycholo-

gist.

4. In late summer of 1974, VPA had obtained the

necessary parties and facts to raise the legal issues. On

August 16, 1974, counsel for VPA sent to counsel for Blue

Shield a draft petition for declaratory judgment.

5. On December 26, 1974, a Petition for Declaratory

Judgment (BSV Ex. 261) was filed in the Circuit Court

of the City of Richmond, Division I, naming Mary Frances

Donahoe (a Blue Shield subscriber), Theodore F. Grant

(now Vice President of plaintiff Virginia Academy of Clin-

ical Psychologists) and VPA as plaintiffs.

6. Blue Shield raised no objection it might have had

to the standing of VPA as a party plaintiff.

7. Blue Shield’s Answer (BSV Ex. 262) and Amended

Answer (BSV Ex. 263) to the Petition for Declaratory

Judgment raised the same constitutional defenses to § 32-

195,10: 1 that Blue Shield has raised in this action.

8. Discovery (except for depositions) was almost con-

cluded in the Donahoe case when in March of 1976, plain-

tiffs filed a Motion for Summary Judgment (BSV Ex.

510), which was denied by Judge James E. Sheffield by

letter Order dated June 24, 1976 (BSV Ex. 264).

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9. Subsequently, VPA took a voluntary nonsuit,

which was confirmed by Judge Sheffield’s Order dated

April 13, 1977 (BSV Ex. 266). McGuire, Woods & Battle,

as counsel for Blue Shield, expressed disappointment over

the nonsuit privately with Mr. Kay but was powerless

to prevent it under Virginia law.

10. BSV Exs. 450, 452, 453, 461, 508 and 509 are

true, exact and authentic copies of part of the correspon-

dence between counsel for Blue Shield and counsel for

VPA regarding matters leading to the commencement of

the Donahoe suit.

/s/ Gilbert E Schill

Richard L. Williams

R. Gordon Smith

Gilbert E. Schill, Jr.

James H. Walsh

Patricia M. Schwarzschild

Jack M. Ross

McGuire, Woods & Battle

1400 Ross Building

Richmond, Virginia 23219

Counsel for defendant

Blue Shield of Virginia

/s/ Warwick R. Furr II/TMR

Warwick R. Furr, II

Lewis, Mitchell & Moore

8320 Old Courthouse Road

Vienna, Virginia 22180

Timothy J. Bloomfield

Dunnells, Duvall & Porter

1220 19th Street, N.W.

Washington, D.C. 20036

Co-counsel for plaintiffs

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.