Opposition Brief — Pennsylvania Dental Ass'n v. Medical Ass'n

“Supreme Court, U.S.

FILED

MAR 14 1985

»

No. 84-1296

ALEXANDE™ L. STEVAS

CLERK

IN THE

Supreme Court of the United States

October Term, 1984

PENNSYLVANIA DENTAL ASSOCIATION;

DELAWARE VALLEY DENTAL SOCIETY; ERIE

COUNTY DENTAL ASSOCIATION, INC.;

HARRISBURG AREA DENTAL SOCIETY; LUZERNE

COUNTY DENTAL SOCIETY; MONTGOMERY-

BUCKS DENTAL SOCIETY; ODONTOLOGICAL

SOCIETY OF WESTERN PENNSYLVANIA;

SCRANTON DENTAL SOCIETY; YORK COUNTY

DENTAL SOCIETY; DENNIS W. KING, D.D.S.;

CHARLES M. LUDWIG, D.D.S.;

THEODORE R. PALADINO, D.D.S.; and

THOMAS L. PERKINS, D.M.D.,

Petitioners,

v.

MEDICAL SERVICE ASSOCIATION OF

PENNSYLVANIA, d/b/a PENNSYLVANIA BLUE

SHIELD, and DONALD S. MAYES, D.D.S., IN HIS

INDIVIDUAL CAPACITY,

Respondents.

BriEF IN OpposiTION TO PETITION For A Writ OF

CERTIORARI TO THE UNITED STATES Court OF APPEALS

For THE THIRD CIRCUIT

WILLIAM H. Woop JOSEPH FRIEDMAN

WiLuaM E. MILLER, JR. Counsel of Record

Tuomas E. Woop STEPHEN F. Ban

KEEFER. WOOD. ALLEN MICHAEL J. HENNESSY

& RAHAL SPRINGER & PERRY

A Professional Corporation

ca 2300-301 Fifth Ave. Bldg.

Harrisburg, PA 17108 Pittsburgh, PA 15222

(717) 255-8000 (412) 566-1351

Counsel for Respondents

>

=

1

QUESTION PRESENTED

Whether this Court should decline to review the Third

Circuit’s afirmance of summary judgment as to Section |

Sherman Act price-fixing claims regarding Pennsylvania

Blue Shield’s prepaid dental program where (i) the Peti-

tioners have presented purely fact-bound issues without

any significant supporting evidence and (ii) the Third Cir-

cuit’s decision is in complete conformity with the applica-

ble decisions of this Court and with the decisions of the

other United States Courts of Appeals.

il

TABLE OF CONTENTS

Page

QUESTION PRESENTED ................000 02. ai

TABLE OF CONTENTS. ............002c0cceeeee. i

TABLE OF AUTHORITIES.................00--. ii

I. STATUTORY PROVISIONS ................ 2

Il. COUNTERSTATEMENT OF THE CASE...... 2

III. REASONS FOR DENYING THE WRIT ....... 6

1. The Issue Of Provider Control Presents

A Question Of Fact Which Was Fully

Analyzed And Correctly Decided By

Tea Se kv iccce ee esasuna ets 6

2. The Decision Of The Third Circuit Is

Consistent With The Decisions Of This

Court And Of The Circuit Courts

Ge PD 6 vs sa nwkeaebectinwuueeenc ann 16

Fv: MEY saw ces cada nedeuedeeesusetawes 22

See Gee CUUEIED 4. wk sk cae nase cueueueeree cu 22

=

ill

TABLE OF AUTHORITIES

CASES

Page

Arizona v. Maricopa County Medical Society,

re 7, 10

Blue Cross and Blue Shield of Michigan v.

Michigan Association of Psychotherapy Clinics,

1980-2 Trade Cases 9 63,351 (E.D.Mich. 1980)... 19

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

Eg gE A 18

Davidowitz v. San Diego County Dental Society,

1983-1 Trade Cases § 65,231 (S.D.Cal. 1983),

denying reconsideration, 1984-1 Trade

Cases 9 65,988 (S.D. Cal. 1984) ............... 19

Glen Eden Hospital, Inc. v. Blue Cross and Blue

Shield of Michigan, Inc., 740 F.2d 423

EE 20, 21

Human Resource Institute of Norfolk, Inc. v.

Blue Cross of Virginia, 498 F.Supp. 63

EE a 19, 20

Kartell v. Blue Shield of Massachusetts, Inc.,

I 18

Klamath-Lake Pharmaceutical Association v.

Klamath Medical Service Bureau,

701 F.2d 1276 (9th Cir.), cert. denied,

———_ a |, oe ft, 18, 19

Medical Arts Pharmacy of Stamford, Inc. v.

Blue Cross & Blue Shield of Connecticut, Inc.,

518 F.Supp. 1100 (D.Conn. 1981), affirmed,

ee ae ee Ce Ge, EGER) 2... ace ccc essss 18, 19

iv

Page

Monsanto Co. v. Spray-Rite Service Corp.,

USS. , 104 S.Ct. 1464 (1984),

rehearing denied, ___. U.S. _____ , 104

eR: a ee eae eae 16

Poller v. Columbia Broadcasting System, Inc.,

ee EE wie vier cede edhenwannewsss 19

Quality Auto Body, Inc. v. Allstate Insurance Co.,

660 F.2d 1195 (7th Cir. 1981), cert. denied,

a a cee a ea ee 18, 19

Ratino v. Medical Service of D.C., 718 F.2d 1260

a Keka ee euae Oas 14, 20, 21

Sausalito Pharmacy, Inc. v. Blue Shield of

California, 544 F.Supp. 230 (N.D.Cai. 1981),

aff'd per curiam, 677 F.2d 47 (9th Cir.),

cert. denied, 459 U.S. 1016 (1982) ............. 19

St. Bernard General Hospital v. Hospital Service

Association of New Orleans, Inc., 712 F.2d 978

(Sth Cir. 1983), cert. denied, ___. U.S. ___.

Se ek Cs ok kk occ cnccewus@xnnn 20, 21

Travelers Insurance Co. v. Blue Cross of Western

Pennsylvania, 481 F.2d 80 (3d Cir.),

cert. denied, 414 U.S. 1093 (1973) ............. 18

Virginia Academy of Clinical Psychologists v.

Blue Shield of Virginia, 624 F.2d

476 (4th Cir. 1980), cert. denied,

aio 55 N ewice dec anees¥ensss 20

OTHER AUTHORITIES

SPEED Skkbenehendaknchdnhenewen as passim

STORING 4 «

idee)

Page

Act of Nov. 15, 1972, P.L. 1063, No. 271,

§ 6328, formerly codified at 40 P.S.

BNE va kakccav cs ceksces Sassdken se beeeaeas 16

Advance Notice of Proposed Rulemaking,

4S Ped.Rem. 17OID (ISSO) 2... ncn cceccccccess 17

Federal Trade Commission, Enforcement Policy

with Respect to Physician Agreements to

Control Medical Prepayment Plans (1981)..... 7, 18

No. 84-1296

IN THE

Supreme Court of the Linited States

October Term, 1984

PENNSYLVANIA DENTAL ASSOCIATION;

DELAWARE VALLEY DENTAL SOCIETY; ERIE

COUNTY DENTAL ASSOCIATION, INC.;

HARRISBURG AREA DENTAL SOCIETY; LUZERNE

COUNTY DENTAL SOCIETY; MONTGOMERY-

BUCKS DENTAL SOCIETY; ODONTOLOGICAL

SOCIETY OF WESTERN PENNSYLVANIA;

SCRANTON DENTAL SOCIETY; YORK COUNTY

DENTAL SOCIETY; DENNIS W. KING, D.D.S.;

CHARLES M. LUDWIG, D.D.S.;

THEODORE R. PALADINO, D.D.S.; and

THOMAS L. PERKINS, D.M.D.,

Petitioners,

v.

MEDICAL SERVICE ASSOCIATION OF

PENNSYLVANIA, d/b/a PENNSYLVANIA BLUE

SHIELD, and DONALD S. MAYES, D.D.S., IN HIS

INDIVIDUAL CAPACITY,

Respondents.

Brief IN Opposition To PETITION For A Writ OF

CERTIORARI TO THE UNITED States Court OF APPEALS

For THE THIRD CirRCUIT

Pursuant to the authority of Rule 22 and in the man-

ner provided by Rules 33 and 34 of the Supreme Court

Rules, Medical Service Association of Pennsylvania, d/b/a

Pennsylvania Blue Shield, and Donald S. Mayes, D.D.S.,

in his individual capacity, respond to the Petition of the

Pennsylvania Dental Association, et al., and request that

this Court deny the Petition on the basis of the facts and

authorities hereinafter set forth for this Court’s considera-

tion.

2

I. STATUTORY PROVISIONS

Section | of the Sherman Act, 15 U.S.C. § 1, states in

relevant part:

“Every contract, combination... or conspiracy, in

restraint of trade or commerce among the several

States ... is hereby declared to be illegal.”

Il. COUNTERSTATEMENT OF THE CASE

The Petition for a Writ of Certiorari requests a third

judicial analysis of the fact-bound issue of whether partici-

pating dentists, through majority membership on two

advisory committees of Pennsylvania Blue Shield (PBS),

have conspired to control aspects of PBS’ dental insurance

program to the competitive disadvantage of dentists who

do not participate with PBS. Neither the United States

Court of Appeals for the Third Circuit, in its opinion by

Chief Judge Aldisert, nor the District Court found any

factual basis to infer the existence of such a conspiracy.

Furthermore, the Third Circuit’s decision does not conflict

with the decisions of this Court or any federal court of

appeals, nor does this case present an important question

of federal antitrust law not yet settled by this Court.

The fact-bound nature of the conspiracy issue

presented by the Petitioners (PDA) is evident in the Third

Circuit’s holding that “[w]e reject appellants’ theory of

structural horizontal conspiracy because the uncontro-

verted facts furnish no support for it.” Pet. App. 16a. The

District Court’s rejection of PDA’s horizontal conspiracy

argument was even more pointed: “The plaintiffs generally

claim to be aggrieved and aver that foul play is afoot, but

they have failed to present facts and a cogent theory which

demonstrate these claims.” Pet. App. 43a.

3

Because the principal issue presented in PDA’s Peti-

tion is one of fact and because PBS believes that PDA’s

Statement does not adequately describe the facts relevant

to the issue presented, the following undisputed facts con-

cerning PBS’ UCR dental program are presented.

PBS’ prepaid UCR dental program at issue began in

1971 and involves contracts with participating dentists

(pars) who agree to accept PBS’ UCR payment allowance

as payment in full for services to PBS subscribers. PBS also

covers services provided by dentists who do not choose to

contract with PBS (nonpars). Nonpars are free to “balance

bill” their PBS subscriber patients for any difference

between the UCR allowance and their own charges. PBS

pays pars directly; payment for nonpar services is made to

the subscriber, not to the nonpar.

Both PBS’ provider and subscriber contracts provide

that PBS’ allowance for covered services shall be deter-

mined based upon a “usual, customary and reasonable”

system which is commonly referred to as UCR. Under the

UCR system every charge submitted by each dentist for

services to PBS’ subscribers is stored on a computer.

PBS’ UCR payment allowance is determined in the

same manner for all dentists regardless of participation

status. Under UCR an individual “usual” charge (some-

times referred to as a “profile’’) is calculated by PBS for

each dentist, for each procedure he performs, based on the

actual charges he submits. PBS also calculates a “custom-

ary” charge for each procedure, for various specialty classi-

fications of dentists, based upon the “usual” charges calcu-

lated by PBS for the dentists within the specialty grouping.

PBS’ payment allowance for each procedure submitted is

4

the lesser of the actual submitted charge, the dentist’s indi-

viduai “usual” charge or the applicable customary charge.'

Individual dentists’ profiles and customary levels are gen-

erally updated annually, except in those few instances

where dentists have refused to verify their usual! charges.

PBS’ UCR system does not set “a maximum fee, min-

imum fee or any fee at all.”” Pet. App. 40a. PBS’ reimburse-

ment to a dentist is based on the fee actually and indepen-

dently charged by the dentist. The dentist, not PBS,

determines his fee. PBS’ UCR system is predicated on the

assumption that individual dentists do not vary their fees

depending on whether the patient has insurance coverage

and PBS requires that dentists certify on claim forms sub-

mitted to PBS that the fees listed thereon are the fees the

dentist usually charges to his private, non-insured patients

for the same services. J.A. 317, 320, 321, 372; D. Jones,

M.D. Depo. at 156, Dist. Ct. Doc. No. 619. Obviously, if a

dentist submits inflated fees to PBS, his usual charge will

be inflated. Likewise, since customary charges are based on

the “usual” charges calculated by PBS, the submission of

inflated fees artificially increases PBS’ customary charge

allowance cap.

PBS’ staff performs a variety of pre-treatment and

post-treatment utilization review functions concerning ser-

vices to its subscribers. One function particularly relevant

to the instant issue is the in-office review (IOR). During

the course of an IOR, PBS seeks to verify accuracy of

'If unique or complex circumstances are involved in a particular

situation, PBS may allow a charge in excess of the dentist's usual charge

or the applicable customary charge. Such reasonability allowances are

determined by PBS-employed dental advisors and are not at issue

herein.

5

reporting and questions of over-utilization and mis-utiliza-

tion of procedures. Also during an IOR, PBS seeks to ver-

ify the dentist’s usual charge certifications to assure that

the dentist has not charged inflated fees due to the presence

of insurance coverage.”

PBS conducts IORs of both par and nonpar dentists in

a uniform manner? and does not discriminate between par

and nonpar dentists in selecting dentists to be reviewed or

in acting upon its findings. IORs are conducted by mem-

bers of PBS’ staff.

If an IOR indicates a refund is due to PBS and if the

dentist participates, PBS can collect the amount overpaid

by offsetting against payments due to the dentist for other

services. If the dentist is a nonpar, PBS cannot offset any

amounts overpaid because nonpars do not receive direct

payment from PBS. Since many dentists have vigorously

resisted IORs it has not been uncommon for dentists to

resign their participation status to thwart the conduct of an

IOR or to effectively prevent PBS from recouping overpay-

ments.*

From 1975 through the first hal: of 1982, PBS sought

to verify the usual charges of 374 dentists by means of

?PBS’ subscriber agreements permit PBS to confirm all matters

concerning covered care regardless of the participation status of the

provider. Furthermore, PBS’ Regulations for Participating Doctors per-

mit PBS to examine par dentists’ records. J.A. 320.

*The decision to conduct an IOR is made by PBS’ staff. Such

decision may result from subscriber complaints that a dentist's charge(s)

increased when the subscriber first obtained PBS dental coverage. J.A.

1306-09.

4As described by the Third Circuit, Pet. App. Sa. there remains

pending in the District Court PBS’ Counterclaim against Petitioners

which alleges, inter alia, a conspiracy in violation of Section | of the

Sherman Act concerning departicipation with PBS and impeding PBS’

conduct of IORs.

6

IORs. During that period 32% of the dentists contacted

refused to verify their usual charges and/or refused to per-

mit PBS access to their offices. Of the dentists contacted

who agreed to verify their usual charges, approximately

one-half were found to have submitted inflated fees to

PBS. J.A. 1351.

PBS’ By-Laws provide that its business and affairs

shall be managed by its Board of Directors and that one-

half of its Board shall be lay persons. J.A. 1331. PBS’

Board consists of 32 members: 16 lay persons and 16 doc-

tors (only two of whom are dentists). Within PBS’ corpo-

rate structure various standing committees of various

composition exist to consider matters referred to them by

the Board or management of PBS. The two committees at

issue herein, the Dental Policy Committee and the Dental

Review Committee, each have a majority of participating

dentists as members. Committee members are appointed

by the Chairman of PBS’ Board in accordance with PBS’

By-Laws. J.A. 1341-42. There is no basis for PDA’s asser-

tion that committee members are elected to represent “‘fel-

low par dentists”.

III. REASONS FOR DENYING THE WRIT

1. The Issue Of Provider Control Presents A Question

Of Fact Which Was Fully Analyzez Aud Correctly

Decided By The Courts Below.

Each argument made by PDA in its Reasons For

Granting the Writ assumes the existence of a factual predi-

cate. i.e.. provider control, contrary to the facts found by

the courts below. Both the Third Circuit and the District

Court specifically held that PDA presented no facts to sup-

port its horizontal conspiracy argument. Pet. App. 16a,

7

43a. Nonetheless, PDA mischaracterizes the Third Cir-

cuit’s opinion as holding that “even where there is strong

evidence that de facto control rests with the provider com-

mittees, the requirement of board ratification is sufficient

to terminate any claim under section | of a conspiracy to

restrain trade by injuring a competing group of providers.”

PDA Pet. 8.

The legai issue presented by PDA’s Petition is a sim-

ple one and is clearly fact-bound: whether PBS’ dental

reimbursement system constitutes unilateral action or,

instead, is the product of a conspiracy of par dentists who

serve on certain PBS committees.’ Chief Judge Aldisert’s

opinion clearly shows that the Third Circuit made a com-

plete analysis of the committee actions at issue and cor-

rectly held that “(t)o give advice when asked by the deci-

sionmaker is not equivalent to being the decisionmaker

itself.” Pet. App. 18a.°

‘The Federal Trade Commission recognizes that the ultimate issue

of provider control “will be a question of fact in each particular case.”

Federal Trade Commission, Enforcement Policy with Respect to Physi-

cian Agreements to Control Medical Prepayment Plans (1981), 3 n.3

(1981).

6The Third Circuit noted that PDA’s provider control argument “is

dependent upon proof that participating dentists, through their majority

membership on the two Blue Shield committees, actually controlled the

establishment of the UCR system implemented by Blue Shield.” Pet.

App. 12a. Furthermore, the Third Circuit, after distinguishing the

instant facts from those present in 4rizona y. Maricopa County Medical

Society, 457 U.S. 332 (1982), recognized that “(t)o the extent that Blue

Shield’s establishment of the UCR reimbursement system might dis-

guise or embody an agreement among competing providers, its actions

would come within the purview of § |.” Pet. App. 14a. However, con-

trary to PDA’s assertions, the Third Circuit rejected PDA’s provider

control argument “because the uncontroverted facts furnish no support

for it.” (Emphasis added.) Pet. App. 16a.

8

A. The Advisory Function of the Dental

Policy Committee.

PDA’s provider control argument about the Dental

Policy Committee (DPC) is based on the undisputed fact

that the DPC recommended to PBS’ Board that PBS seek

to allow at least 90% of aggregate charges submitted by all

dentists. However, the undisputed facts surrounding the

DPC’s recommendation belie PDA’s argument of delega-

tion of pricing authority to the DPC. Moreover, there are

no facts of record to support PDA’s theory that the DPC

was attempting to improve “the competitive position of

pars vis-a-vis non-pars...by setting the differential at a

figure large enough to create a significant incentive for

patients to choose pars over non-pars” but not so large as

to deprive pars of a profit for their services.’ PDA Pet. 12.

PDA acknowledges that recommendations to an

insurer by a group of providers concerning the insurer’s

treatment of competitors do ot constitute a conspiracy

with the insurer, PDA Pet. 14, and that technically the

DPC “does not approve policies for the board, but merely

makes recommendations to it.” Pet. App. 16a. Further-

more, as noted by the Third Circuit, Pet. App. 17a, the

DPC’s recommendation that PBS seek “to allow at least

90% of aggregate charges” in the dental program was a goal

“developed and urged by management.” J.A. 1362. The

minutes of the meeting of PBS’ Board where it approved

the DPC’s recommendation as to allowing at least 90% of

’The minutes of the 1975 DPC meeting at issue clearly reflect that

the DPC recommendation that a statewide geographic customary allow-

ance charge class be retained in the dental program was management-

inspired and premised on the lack of sufficient charge data to create

additional valid geographic charge classes. The minutes do not mention

participation status and no inference of a par dentist conspiracy can be

reasonably drawn therefrom. J.A. 1280-84.

9

aggregate charges state that “this is the same position as

taken by Management; the Dental Policy Committee is

only agreeing to that position.”” Armitage Depo. Ex. 5 at p.

11, Dist. Ct. Doc. No. 898. No other evidence of DPC

recommendations concerning payment allowances or

treatment of dentists by participation status is cited by

PDA in its Petition.

The Third Circuit’s conclusion that the DPC’s func-

tion was advisory only and was merely constituted and

utilized as a resource to the Board is fully supported by

uncontroverted facts of record. In light of the lack of a par

dentist majority on the Board (out of 32 directors, only

two are dentists), the Third Circuit correctly concluded

’Other adjustments to PBS’ UCR system which had an effect on its

dental program payout and which were neither recommended nor voied

upon by the DPC include: (i) creation of an interim profile adjustment

system which enables both pars and nonpars to obtain an interim

update of “usual” charges if there had not been an increase in the prior

two years, J.A. 1182-87; (ii) a change of the “usual” charge percentile

from the 50th to the 75th percentile, which occurred in 1979, D. Jones,

M.D. Depo. Ex. 14 at p. 348656-57, Dist. Ct. Doc. No. 619; R. Edmis-

ton, M.D. Depo. Ex. 38 at p. 348557, Dist. Ct. Doc. No. 770; and (iii)

use of charges reported in the first quarter of the current calendar year to

determine “usual” charges, which occurred in 1981, J.A. 1210.

Furthermore, despite PDA’s erroneous assertion, PDA Pet. 14-15,

that the Board has “invariably” approved DPC recommendations, the

uncontroverted facts prove otherwise. For example, nothing ever hap-

pened to the DPC’s suggestion that the 90th percentile of a dentist's

reported charges be used to calculate his “usual” charge for a specific

procedure or that usual charges be updated every six months. J.A. 1282-

84. Likewise, it is undisputed that the Board did not approve DPC’s

recommendation that payment be made for services to immediate fam-

ily members under the dental program, Mann Depo. Ex. 36 at p. 13, Ex.

35 at p. 352281, Ex. 32 at p. 351821-351822, Dist. Ct. Doc. No. 736, and

did not approve DPC’s recommendation as to anesthesia coverage.

Armitage Depo. Ex. 7, 16, 17, 18, Dist. Ct. Doc. No. 898.

10

that the 90% differential goal was not the product of a

conspiracy of par dentists.

The Third Circuit’s factual holding that PBS’ Board,

and not the DPC, controlled PBS’ dental program and its

holding that “[a]ction taken to find a market price so that a

purchaser-insurer does not overpay does not constitute

price-fixing’, Pet. App. 17a, are consistent with traditional

antitrust analysis and this Court’s recognition in Maricopa,

supra, that for an insurer to offer paid-in-full service bene-

fit coverage someone must canvass providers “to deter-

mine what maximum prices would be high enough to

attract sufficient numbers of individual doctors to sign up

but low enough to make the insurance plan competitive.”

457 US. at 353-54, n. 28. The facts that the 90% allowance

goal was management-inspired and that the DPC only rec-

ommended the goal to PBS’ Board show both the advisory

nature of the recommendation and that such action was

consistent with this Court’s admonition in Maricopa that

the insurer, and not the affected providers, should perform

the canvassing.?

PDA quarrels with the Third Circuit’s conclusion as to

the DPC but offers no evidence, much less “strong” evi-

dence, of de facto control by the DPC. Instead, PDA

merely offers a conjectural theory unsupported by fact as to

the asserted par dentist conspiracy. It is absolutely clear

that the Third Circuit correctly determined the issue of

DPC provider control and fully analyzed the DPC’s role in

rejecting PDA’s par dentist conspiracy theory.

%It should also be noted that PBS’ UCR system does not involve

any agreement by providers to charge a set fee. as was the case in

Maricopa. The UCR system is based on providers’ personally deter-

mined charges and the effect thereof is that a dentist is paid his person-

ally determined, most frequently submitted charge for his services

unless that charge exceeds the applicable customary level.

11

B. The Dental Review Committee And The Withhola-

ing Of Profile Updates Of Dentists Who Are Sus-

pected Of Improperly Overcharging Blue Shield.

PDA’s argument about the Dental Review Committee

(DRC) consists of unsupported supposition and irrelevant

references to “peer review” functions of professional socie-

ties. At issue is the authority of the DRC to prohibit profile

updates of dentists who are reasonably suspected of

improperly overcharging PBS by the submission of inflated

charges because of the presence of insurance coverage.

Although the DRC initially recommended such sanction,

the record is clear that the authority to prohibit profile

updates was not granted to the DRC, nor were profile

updates withheld, until the authority was recommended by

another PBS non-dentist committee and conferred upon

the DRC by PBS’ Board.'°

As early as 1976, PBS’ in-office review (IOR) experi-

ence had demonstrated that many dentists were charging

their PBS subscriber patients higher rates than their non-

insured patients. Such activity threatened the integrity of

PBS’ UCR system, which is predicated on the assumption

that providers do not increase their fees because of the

presence of insurance. By 1979 it was apparent that the

magnitude of the problem could not be ascertained

because PBS could not compel nonpars to verify their

usual charges and because many pars resigned their par

status to thwart PBS’ verification process. Furthermore, it

'0Such fact clearly refutes PDA’s assertion that it is an open ques-

tion whether PBS’ Board made an independeni decision with respect to

the DRC’s profile update recommendation. (PDA Pet. 19).

12

was apparent that in many instances PBS could not recoup

overpayments cost-effectively.''

The members of the DRC became aware of the

inflated fee verification problem during DRC meetings.'?

In November, 1979 the DRC recommended that PBS con-

sider withholding profile updates of dentists who refused

to verify their usual charges and asked\that the matter be

referred to “the appropriate Committee of the Board of

Directors for policy consideration.” J.A. 1461. Ultimately,

after the recommendation was approved by PBS’ eleven

member Professional Relations Committee (only one of

whom was a dentist), J.A. 1316; D. Jones, M.D. Depo. Ex.

18, 19, Dist. Ct. Doc. No. 620, on May 2, 1980 PBS’ Board

authorized the DRC to prohibit the update of profiles of

dentists who refuse to verify that their fees to PBS are the

fees they usually charge to non-insured patients. H. Armit-

age, M.D. Depo. Ex. 14 at p. 348842, Dist. Ct. Doc. No.

898.

Contrary to PDA’s erroneous suggestion, no profile

updates were withheld by PBS until the Board authorized

''\From 1975 through the first half of 1982, PBS sought to verify the

usual charges of 374 dentists by means of IORs. During that period, !19

(31.8%) of the dentists contacted refused to verify their usual charges

and/or refused to permit PBS access to their offices, 121 (32.4%) of the

dentists contacted agreed to the verification and inflated charge

problems in their billing practices were found, and 134 (35.8%) of the

dentists contacted agreed to the verification and no inflated charge

problems were found. J.A. 1351. PBS’ difficulty in recouping overpay-

ments was caused by the facts that many par dentists resigned their

status when presented with an IOR or refund request, many nonpar

dentists refused IOR requests and PBS is unable to offset overpayments

as to nonpar dentists.

The result of each IOR conducted and the status of each IOR

requested by PBS’ staff are presented to the DRC. Furthermore, the

ethics of the dental profession condemn the charging of inflated fees

because of insurance coverage. J.A. 773-75, 718, 722.

-

13

such action. J.A. 1311-12, 1347. Furthermore, the author-

ity granted to the DRC was limited to the specific situation

where a dentist refused to verify his usual charges, rather

than “whenever the committee deemed it appropriate”, as

erroneously represented by PDA. PDA Pet. 18-19. Follow-

ing Board authorization, the DRC has consistently prohib-

ited profile updates of dentists who refuse to verify their

usual charges.'?

Four undisputed facts surrounding the grant of

authority to the DRC to prohibit profile updates convinced

the Third Circuit, Pet. App. 17a, that the DRC did not

participate in price-fixing and readily demonstrate that the

DRC’s activity does not create a factual issue as to § |

Sherman Act concerted action: (i) PBS’ requirement that

dentists not inflate their charges to PBS is consistent with

the ethics of the dental profession, J.A. 773-75, 718, 722:

(ii) PBS’ IOR experience showed that about one-half of the

dentists who agreed to verification had charged inflated

fees and that about one-third of the dentists contacted

refused to verify their usual charges, J.A. 1354; (iii) the

Pennsylvania Department of Health approved the concept

of PBS verifying dentists’ usual charges by means of IORs,

J.A. 1320-22;'4 and (iv) profile updates were not withheld

'’Through the end of 1982 only approximately 85 dentists had been

denied profile updates and subsequent to their agreement to verify usual

charges, profile updates have been granted to 15 out of the 85 dentists.

All of such profile update denials have occurred because of a refusal to

verify usual charges. Furthermore, PBS’ withholding of profile updates

does not “freeze the fees” of the affected dentists but merely affects PBS’

payment allowance. J.A. 1317-18, 1584.

'4PDA erroneously suggests that the Third Circuit’s holding as to

the DRC is based in part on “state action” grounds. PDA Pet. 21.

However, state approval of PBS’ efforts to assure that its payments for

dental services do not exceed its contractual obligations undercuts

PDA's specious argument that denial of profile updates was motivated

(Continued on next page)

14

until both a non-dentist committee and PBS’ Board

authorized such action. J.A. 1311-12, 1347. In light of the

foregoing, there is no basis for an inference that action

taken to preclude fraudulent billing practices, which inures

to the benefit of PBS (and therefore ultimately to its con-

sumers) and which was authorized by PBS’ Board demon-

strates either provider control or price fixing.

The undisputed facts also belie PDA’s transparent

assertions as to the possible competitive consequences of

DRC’s denial of profile updates. The sanction has not been

imposed because the DRC believes any dentist's fees are

too high, as was alleged in Ratino vy. Medical Service of

D.C., 718 F.2d 1260 (4th Cir. 1983) or too low, but ts

imposed only if a dentist refuses to substantiate that he has

not been improperly overcharging PBS. Any dentist who is

being denied a profile update can obtain one simply by

substantiating his usual charges. Furthermore, contrary to

PDA’s assertions, there is no evidence of record that any

dentist who has been denied a profile update competes

with any member, past or present, of the DRC.

Likewise, the fact that profile updates have been

denied to both par and nonpar dentists, J.A. 769-70, ren-

ders nugatory PDA’s theory that the alleged conspiracy is

one of par dentists to obtain a competitive advantage over

nonpar dentists. Similarly, the fact that authority to deny

profile updates only concerned dentists and that corre-

sponding authority to prohibit profile updates of physi-

cians was not granted to PBS’ Medical Review Committee

(Continued)

by a desire to confer a competitive advantage on any category of den-

tists.

15

militates against PDA’s vague reference to an overall par-

ticipating provider conspiracy against nonparticipating

providers.'®

Finally, PDA’s assertion that the Third Circuit's anal-

ysis of the DRC would undermine any criterion proposed

by the FTC to ensure that anticompetitive risks do not

arise in peer review activities is irrelevant to the instant

issue. The DRC’s activities constitute “peer review” in

only the broadest sense of the term and are inapposite to

the peer review functions addressed by the FTC in its

advisory opinions cited by PDA. The DRC does not

address the reasonableness of any dentist's fee, nor is the

sanction of denial of profile updates imposed because any

fee or fees are considered to be too high or too low. Fur-

thermore, the DRC only considers matters concerning a

dentist’s relations with PBS. J.A. 1335-38.

The orderly corporate process by which PBS’ Board

authorized the DRC to deny profile updates clearly shows

that the DRC’s authorization is not the product of a con-

spiracy of par dentists. The fact that the DRC’s power is

limited to the specific situation where a dentist refuses to

substantiate that he is not improperly overcharging PBS

demonstrates the legitimacy of the sanction. The sanction

imposed only affects what PBS will pay for services, not

what any dentist may charge. Therefore, the Third Circuit

correctly held that the DRC has not “engaged in conduct

that runs afoul of the antitrust laws.” PDA App. 18a.

'SCorresponding power was not granted to PBS’ Medical Review

Committee because the problem of usual charge verification appeared

to be limited to the dental area. J.A. 1236.

16

2. The Decision of the Third Circuit is Consistent

with the Decisions of this Court and of the Circuit

Courts of Appeats.

PDA’s Petition alleges the existence of a conspiracy of

par dentists to effect and enforce a 10% differential

between aggregate charges submitted in PBS’ dental pro-

gram and PBS’ aggregate payment for dental services.'®

The conspiracy is unsupported by the facts of record.

Moreover, analysis of PDA’s illusory assertions of the

anticompetitive effects that are “very likely” to be caused

thereby demonstrates that the Third Circuit’s decision

does not conflict with any decision of this Court or of any

federal court of appeals.

PDA’s argument that the cap on the UCR allowance

may injure PBS by causing subscribers who are loyal to

nonpars to switch dental insurers, PDA Pet. 13 n. 14,

presents a practical impossibility because, as PDA

acknowledges, PBS only markets group dental coverage

‘*PDA vaguely suggests two other possible conspiracy theories: (1) a

conspiracy of DRC members to obtain a competitive advantage over

those few dentists who have been denied profile updates because they

refuse to substantiate that they are not improperly overcharging PBS

because of the presence of insurance coverage, PDA Pet. 19-20, and (11)

an overall conspiracy of all participating providers. The DRC theory

fails because there is no proof of a competitive relationship between any

DRC member and any dentist denied a profile update and by the cir-

cumstances surrounding profile update denials. The ovcrall participat-

ing provider theory is an obvious afterthought. The PDA did not raise

such a conspiracy theory before the Third Circuit and the Third Circuit

did not address it. For this reason alone this Court should decline to

address it. Monsanto Co. v. Spray-Rite Service Corp., US. ,

104 S.Ct. 1464, 1468-69, n.6 (1984). In any event, there is no evidence

of record of such a conspiracy and there is no dispute that during the

time period in question (1975) PBS was compelled by state statute to

have a provider majority on its Board. Act of Nov. 15, 1972, P.L. 1063.

No. 271, § 6328, formerly codified at 40 P.S. § 63.8.

17

and individual subscribers lack the prerogative of choosing

a dental insurer. Likewise, PDA’s assertion that if PBS

paid 100% of dentists’ charges, patients would have no

incentive to choose pars over nonpars directly contradicts

PDA’s repeated assertions in the courts below that PBS’

policy of making direct payment to only pars causes PBS

subscribers to boycott nonpar dentists. PDA Reply Brief to

Third Circuit, 16, 17; PDA Brief to Third Circuit 38-40:

PDA Brief in Opposition to Summary Judgment 17, 72.

The undisputed fact that the DRC’s denial of profile

updates affects both pars and nonpars directly contradicts

PDA’s explanation of the DRC’s role in its par dentist

conspiracy theory as “improving the competitive position

of par dentists.”” PDA Pet. 19.

When PDA’s illusory conspiracy assertions are com-

pared to the undisputed facts of record it is clear that the

courts below correctly determined that PDA’s par dentist

conspiracy theory is purely speculative and without factual

support.'’ Furthermore, it is clear that the true nature of

PDA’s complaints is about the pro-competitive pressures

presented by PBS’ dental program. As noted by PDA, PDA

Pet. 7-8, the FTC has conducted investigations of the ques-

tion of physician (not dentist) control of Blue Shield plans

which culminated in staff reports recommending industry-

wide rulemaking by the FTC. However, the FTC rejected

the need for industry-wide rulemaking, see Advance

Notice of Proposed Rulemaking, 45 Fed. Reg. 17,019,

17,022-23 n.2 (1980), and instead determined to approach

'? It should be noted that, as found by the District Court: “it is not

testimonial evidence that PDA relies upon to establish and advance its

‘conspiracy mechanism’ argument. PDA does not point to conspirato-

rial conversations, the testimony of Blue Shield insiders or participating

dentists to establish its conspiracy theory.” Pet. App. 40a-41a.

18

the issue on a case-by-case basis to avoid discouraging pro-

competitive prepayment programs. Federal Trade Com-

mission, Enforcement Policy with Respect to Physician

Agreements to Control Medical Prepayment Plans (1981),

p. 3-4.

To paraphrase the Seventh Circuit’s opinion in Qual-

ity Auto Body, Inc. v. Allstate Insurance Co., 660 F.2d

1195, at 1206 (7th Cir. 1981), cert. denied, 455 U.S. 1020

(1982), the gravamen of PDA’s complaint is PBS’ refusal

to pay more than a competitive price for dental services.

The pro-competitive aspects of a Blue Shield or Blue Cross

plan computing its reimbursement allowance based upon

the prevailing competitive price in the marketplace have

been recognized by numerous courts. Kartell v. Blue Shield

of Massachusetts, Inc., 749 F.2d 922 (1st Cir. 1984); Medi-

cal Arts Pharmacy of Stamford, Inc. v. Blue Cross & Blue

Shield of Connecticut, Inc., 675 F.2d 502 (2d Cir. 1982);

Travelers Insurance Co. v. Blue Cross of Western Pennsyl-

vania, 481 F.2d 80 (3d Cir.), cert. denied, 414 U.S. 1093

(1973).

There is no dispute that PBS’ UCR dental program

creates an incentive for subscribers to patronize par den-

tists and that all Pennsylvania dentists are free to partici-

pate with PBS. Therefore, if a nonpar dentist refuses to

meet the price competition created by PBS and thereby

loses patients, whatever injury he suffers is not cognizable

under the antitrust laws because the injury results from

increased rather than reduced competition. Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489

(1977); Travelers Ins. Co., supra.; Klamath-Lake Pharma-

ceutical Association v. Klamath Medical Service Bureau,

701 F.2d 1276 (9th Cir.), cert. denied, ___ U.S. ___., 104

S.Ct. 88 (1983). Likewise, dentists, par or nonpar, who

19

receive less for services to PBS subscribers than they do

from their non-insured patients do not suffer antitrust

injury. Medical Arts Pharmacy, supra, 675 F.2d at 507 (“A

low profit margin on sales to Blue Cross subscribers could

not, however, establish an antitrust violation under the

rule of reason.”); Sausalito Pharmacy, Inc. v. Blue Shield of

California, 544 F.Supp. 230, 235 (N.D.Cal. 1981), aff'd per

curiam, 677 F.2d 47 (9th Cir.), cert. denied, 459 U.S. 1016

(1982) (“The failure to make more money . . . is simply not

the kind of problem which the antitrust laws address.”’).

It is clear that the courts below did not ignore this

Court’s cautionary language about use of summary proce-

dures in antitrust litigation in Poller v. Columbia Broad-

casting System, Inc., 368 U.S. 464, at 473 (1962)!8 and that

the Third Circuit’s decision does not conflict with the deci-

sions of any federal court of appeals.

‘Although antitrust attacks on contracts between insurers and

providers have intensified in recent years, numerous courts have upheld

the legality of such provider agreements on motions for summary judg-

ment. Klamath-Lake Pharmaceutical Association v. Klamath Medical

Service Bureau, 701 F.2d 1276 (9th Cir.) cert. denied, US.

104 S.Ct. 88 (1983); Sausalito Pharmacy, Inc. v. Blue Shield of Califor-

nia, 544 F.Supp. 230 (N.D.Cal. 1981), aff'd per curiam, 677 F.2d 47 (9th

Cir.), cert. denied, 459 U.S. 1016 (1982); Quality Auto Body, Inc. y.

Allstate Insurance Co., 660 F.2d 1195 (7th Cir. 1981), cert. denied, 455

U.S. 1020 (1982); Medical Arts Pharmacy of Stamford. Inc. v. Blue Cross

& Blue Shield of Connecticut, Inc., 518 F.Supp. 1100 (D.Conn. 1981),

aff'd, 675 F.2d 502 (2d Cir. 1982), Human Resource Institute of Norfolk,

Inc. v. Blue Cross of Virginia, 498 F.Supp. 63 (E.D.Va. 1980); Blue Cross

and Blue Shield of Michigan v. Michigan Association of Psychotherapy

Clinics, 1980-2 Trade Cases 9 63,351 (E.D.Mich. 1980); Davidowitz y.

San Diego County Dental Society, 1983-1 Trade Cases q@ 65,231

(S.D.Cal. 1983), denying reconsideration, 1984-1 Trade Cases 9 65,988

(S.D.Cal. 1984).

These cases indicate a judicial consensus that antitrust challenges to

provider agreements do not ordinarily present genuine issues of mate-

rial fact which would preciude a grant of summary judgment.

20

The foregoing discussion of the pro-competitive

effects of PBS’ dental program dispels any notion that the

Third Circuit failed to analyze PDA’s complaints under

the rule of reason. Furthermore, PDA’s references to Vir-

ginia Academy of Clinical Psychologists v. Blue Shield of

Virginia, 624 F.2d 476 (4th Cir. 1980), cert. denied, 450

U.S. 916 (1981); Glen Eden Hospital, Inc. v. Blue Cross

and Blue Shield of Michigan, Inc., 740 F.2d 423 (6th Cir.

1984); St. Bernard General Hospital v. Hospital Service

Association of New Orleans, Inc., 712 F.2d 978 (Sth Cir.

1983), cert. denied, U.S. ____, 104 S.Ct. 2342 (1984);

and Ratino v. Medical Service of D.C., 718 F.2d 1260 (4th

Cir. 1983) do not demonstrate a split in circuits on the

provider control issue because those cases are both legally

and factually distinguishable from the instant case.

The PDA Petition does not allege a conspiracy by one

discipline of provider to preclude another discipline from

obtaining reimbursement from an insurer, as was

presented in Virginia Academy. Furthermore, Virginia

Academy is aiso distinguishable because therein provider

control was based on board composition plus abundant

other evidence.'®

St. Bernard Hospital and Glen Eden are also clearly

distinguishable because in both cases the alleged conspira-

cies consisted of participating providers causing insurers to

reimburse all non-participating providers at lesser rates. In

the instant case the conspiracy alleged by PDA is one to

lower PBS’ payment allowance to both par and nonpar

'9Virginia Academy should be contrasted with Human Resource

Institute of Norfolk, Inc. y. Blue Cross of Virginia, 498 F.Supp. 63

(E.D.Va. 1980) wherein the court applied the Fourth Circuit's “walking

conspiracy” theory and found no provider control because the insurer’s

board did not consist of a provider majority and no direct evidence of

provider control of the insurer by other means was presented.

21

dentists. In St. Bernard Hospital, representatives of partici-

pating hospitals comprised a super-majority of the

insurer’s board of directors as distinguished from the

instant case where only two members of PBS’ 32-member

board are dentists. Glen Eden is also further distinguisha-

ble, as recognized by the Third Circuit, Pet. App. 15a,

because the plaintiff was allowed only severely limited dis-

covery on the provider control issue.

Ratino is similarly distinguishable because the Fourth

Circuit merely reversed the district court’s grant of sum-

mary judgment on the, by then, eroded grounds of the

McCarran-Ferguson Act business of insurance exemption.

Moreover, PDA’s reference to Ratino’s discussion of the

peer review function is factually inapposite because in

Ratino a binding peer review determination of the reason-

ableness of an individual doctor’s fees was at issue.

In the final analysis, PDA seeks this Court’s review of

the factual determination of two fact finders which both

reached the same conclusion that PDA’s provider control

conspiracy argument is without factual support. There is

no reason for this Court to review the fact-bound decision

of the Third Circuit. PDA’s Petition is without merit and it

is Clear that PDA is merely seeking, in the words of the

District Court, “the opportunity... to pursue their case in

search of its existence.” Pet. App. 56a.

22

IV. CONCLUSION

The Petition For A Writ of Certiorari should be

denied.

Respectfully submitted,

WILLIAM H. Woop JOSEPH FRIEDMAN

WILLIAM E. MILLER, JR. Counsel of Record

THOomMas E. Woop STEPHEN F. BAN

KEEFER, WOOD, ALLEN MICHAEL J. HENNESSY

& RAHAL SPRINGER & PERRY

210 Walnut Street A Professional Corporation

P.O. Box 1226 2300-301 Fifth Avenue Bldg.

Harrisburg, PA 17108 Pittsburgh, PA 15222

(717) 255-8000 (412) 566-1351

Counsel for Respondents

Dated: March 14, 1985

RULE 28.1 CERTIFICATE

Respondent Medical Service Association of Pennsyl-

vania d/b/a Pennsylvania Blue Shield respectfully advises

the Court pursuant to Rule 28.1 of the Rules of this Court

that it has no parent and that it owns stock in the following

subsidiaries (except wholly-owned subsidiaries) or affili-

ates: Camp Hill Insurance Company.