Appendix — Marrese v. Interqual, Inc.

Supreme Court brief1985

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IN THE

Supreme Court of the United States

OcToser Term, 1984

R. ANTHONY MARRESE M.D. and BONE

AND JOINT SURGEONS, INC.

Petitioners,

Vv.

INTERQUAL INC. et aL,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

JOHN J. Casey, Jr.

(Counsel of Record for

Petitioner R. Anthony Marrese)

GLENN A. SCHWARTZ

LANDESMAN & SCHWARTZ

111 West Washington Street

Chicago, Illinois 60602

(312) 346-6650

(312) 726-4534

Pandick Midwest, Inc., Chicago * 454-7600

APPENDIX

ITEM

TABLE OF CONTENTS

Seventh Circuit’s November 6, 1984 Deci-

Rh ER

Seventh Circuit’s August 10, 1984 Order

Requesting Supplemental Briefs on

State Action Immunity Doctrine ............

Seventh Circuit’s December 27, 1984 Or-

der Denying Petitioners Request for

tied isceiinieeictntinabtnccentoniinte

Petitioners’ First Amended Complaint,

with Notice of Filing.................cccccscsscsses

The Deaconess Hospital Fair Hearing

TI ccictiissidlintiiaitetnnsiintiinlesaarnitnenaanbbiigedeingse

District Court’s Minute Order of February

28, 1983 Dismissing Petitioners’ Second

Amended Complaint .................:cc0seeeeees

District Court’s Memorandum Opinion of

NN ai ciciniatninnitiassconenssaapens

Petitioners’ Second Amended Complaint..

District Court’s Order of March 18, 1983

Denying Petitioners’ Request to File

Second Amended Complaint .................

Notice of Motion and Motion of Petition-

ers to Amend Appellant Court Record

to Include Second Amended Complaint

and Petitioners’ Motion for Leave to

File a Third Amended Complaint in

gE ee IEE NE

State of Indiana Applicable Statutes and

Administrative Code..............:ccccccseeseeeees

PAGE

45a

47a

48a

73a

92a

93a

98a

I2la

APPENDIX

ITEM PAGE

a Appellant, R. Anthony Marrese’s Brief in

. Indiana Court of Appeals containing

Issues Presented and Statement of the

COU wicisntesbitiiiaiipiitnsinesaiieaa aa eeia eae 146a

M State of Indiana, Court of Appeals, First

District’s Order Dismissing the Appeal

| ae

United States Court of Appeals

Hor the Seventh Cirrnit

No. 83-1581

R. ANTHONY MARRESE, M.D., and

BONE & JOINT SURGEONS, INC.,

Plaintiffs- Appellants,

INTERQUAL, INC., et al.,

Defendants- Appellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 82 C 4296—George N. Leighton, Judge.

ARGUED MARCH 29, 1984—DECIDED NOVEMBER 6, 1984

Before BAUER, COFFEY, Circuit Judges, and

FAIRCHILD, Senior Circuit Judge.

CoFFEY, Circuit Judge. Plaintiffs-Appellants, R.

Anthony Marrese, M.D., and Bone & Joint Surgeons, Inc.,

appeal the judgment of the United States District Court

for the Northern District of Illinois dismissing the plain-

tiffs’ claims under of the Sherman Act §§ 1, 2, 15 U.S.C.

§§ 1, 2, for lack of subject matter jurisdiction. We conclude

that the defendants’ conduct in reviewing Dr. Marrese’s

surgical procedures and recommending that his clinical

privileges at Deaconess Hospital, in Evansville, Indiana, be

revoked, is exempt from the Federal antitrust laws under

the doctrine of “state action,” and thus we affirm the

dismissal of the plaintiffs’ claims under the Sherman Act

§§ 1, 2.

No. 83-1581

The record reveals that Dr. R. Anthony Marrese, is a

Board certified orthopedic surgeon who specializes in the

treatment of spinal disorders. Dr. Marrese is the sole

shareholder of Bone & Joint Surgeons, Inc., an Indiana

corporation with its principal office in Evansville, Indiana.

He is licensed to practice medicine in the states of Illinois

and Indiana and, at the commencement of this lawsuit,

had clinical privileges to practice at Deaconess Hospital, a

non-profit corporation located in Evansville, Indiana.’

In February 1978, a Special Ad Hoc Committee

(“SAHC”) comprised of selected members of the medical

staff at Deaconess Hospital conducted an audit of the

surgical “back” procedures performed at Deaconess.? The

results of that audit raised questions concerning the

“appropriateness of the surgeries performed by Dr.

Marrese.” Accordingly, the SAHC recommended to the

medical staff at Deaconess that all of Dr. Marrese’s lumbar

laminectomy and spinal fusion cases be monitored, and

that any case without a positive radiological finding be

subjected to a mandatory second opinion. In August 1980,

the SAHC retained Interqual, Inc., an independent, non-

affiliated company engaged in the business of performing

medical audits, to conduct a further audit of Dr. Marrese’s

lumbar and cervical surgical procedures. Based upon the

findings of the Interqual audit, the SAHC recommended

' At oral argument the plaintiffs’ counsel informed this court

that Dr. Marrese “is no longer practicing in Evansville,” but

counsel failed to provide this court with any information con-

cerning Dr. Marrese’s status at Deaconess Hospital, much less

his underlying reason for no longer practicing in Evansville,

Indiana. It is clear from the plaintiffs’ first amended complaint

that.Dr. Marrese’s clinical privileges at Deaconess had not been

revoked prior to the filing of this lawsuit in July 1982.

* According to the plaintiffs’ first amended complaint, the

“back” procedures audited by the SAHC included, inter alia,

fifty lumbar laminectomies and forty spinal fusions performed

by orthopedic surgeons on the staff at Deaconess Hospital.

No. 83-1581

tc the Medical Staff Executive Council at Deaconess that

Dr. Marrese’s clinical privileges be revoked. On April 28,

1982, the Medical Staff Executive Council adopted the

recommendation of the SAHC but stayed implementation

of Dr. Marrese’s clinical privilege revocation, pending a

hearing as required by the hospital’s Fair Hearing Plan.

The Fair Hearing Plan at Deaconess was adopted by

the medical staff in June 1979 “to provide every prac-

titioner with one evidentiary hearing and with one appel-

late hearing in the event that any action is taken [in-

cluding revocation of clinical privileges] by the Medical

Staff Executive Council ... or the Boarée of Directors of the

Hospital.” The medical staff’s authority to review profes-

sional practices within its hospital is provided for in the

State of Indiana statutory code:

“The governing board of the hospital shall be the

supreme authority in the hospital

* * *

The medical staff of a hospital shall be an organized

group which shall be responsible to the governing

board ... and shall have the responsibility of review-

ing the professional practices in the hospital for the

purpose of reducing morbidity and mortality, and for

the improvement of the care of patients in the hospi-

tal. This review shall include, but shall not be limited

to, the quality and necessity of the care provided

patients....”

Ind. Code § 16-10-1-6.5 (1982) (emphasis added). The

Indiana statutory scheme for quality control of the medi-

cal profession further provides that the personnel of:

“a committee having the responsibility of evaluation

of qualifications of professional health care providers,

or of patient care rendered by professional health care

providers, or of the merits of a complaint against a

professional health care provider that includes a

determination or recommendation concerning the

complaint

No. 83-1581

x * *

shall be immune from any civil action arising from

any determination made in good faith in regard to

evaluation of patient care... .’”

Ind. Code §§ 34-4-12.6-1(c), 34-4-12.6-3(c) (1982).‘ The

procedure to be followed in reviewing professional prac-

tices within a hospital is set forth in Ind. Code § 34-4-

12.6-2(b):

“Any professional health care provider under

investigation shall be permitted at any time to see

any records accumulated by a peer review committee

pertaining to his personal practice and shall be of-

fered the opportunity to appear before the peer re-

view committee with adequate representation to hear

all charges and findings concerning his practice and

to offer rebuttal information, which shall be a part of

the record before any disclosure of the charges and

findings hereunder.”

The Fair Hearing Plan adopted by the medical staff at

Deaconess affords any practitioner adversely affected by a

recommendation or action of the Medical Staff Executive

* The Indiana legislature defines good faith as “an act taken

without malice after a reasonable effort to obtain the facts of

the matter and in the reasonable belief that the action taken is

warranted by the facts known.” Ind. Code § 34-4-12.6-1(f)

(1982).

‘ Effective April 1983, the Indiana legislature amended Ind.

Code. § 16-10-1-6.5 to provide in pertinent part:

“The governing board and its employees, agents, con-

sultants, and attorneys have absolute immunity from civil

liability for communications, discussions, actions taken, and

reports made concerning disciplinary action or in-

vestigation taken or contemplated, if such reports or ac-

tions are made in good faith and without malice.”

Ind. Code Ann. § 16-10-1-6.5(b) (Burns Supp. 1983).

Ne. 83-1581

Council or the Board of Directors, the right to an eviden-

tiary hearing.’ The hearing is conducted before an eviden-

tiary hearing committee, comprised of five members of the

senior or active medical staff." The practitioner may

request to be represented by an attorney and/or may be

accompanied by a member of the medical staff, and shall

also be allowed to:

“(a) call and examine witnesses

(b) introduce exhibits

relevant to the issues

(d) question the qualifications of any witness

5 According to the Fair Hearing Plan at Deaconess, a prac-

titioner is entitled to an evidentiary hearing for the following

recommendations or actions:

“(a) Denial of initial staff appointment

(b) Denial of reappointment

(d) Revocation of staff membership

(e) Denial of requested advancement in staff category

(f) A change in staff category not acceptable to the prac-

titioner

(g) Limitation of the right to admit patients

(h) Denial of requested department/service/section affilia-

tion

(i) Denial of requested clinical privileges

(j) Reduction of clinical privileges

(k) Suspension of clinical privileges

(1) Revocation of clinical privileges

(m) Terms of probation :

(n) Individual requirement of consultation

* The five hearing committee members are appointed by the

president of the medical staff when the hearing is occasioned by

an adverse recommendation of the Medical Staff Executive

Council. On the other hand, when the hearing is occasioned by

an adverse recommendation of the governing hospital board,

the board president appoints the five members of the hearing

committee.

No. 83-1581

(e) rebut any evidence

(f) request that the record of the hearing be

made by use of a court reporter or an electronic

recording unit.”

At a hearing to review the revocation of a prac-

titioner’s clinical privileges, “the body whose adverse

recommendation or action occasioned the hearing shall

have the initial obligation to present evidence” in support

of its recommendation. According to the Fair Hearing

Plan at Deaconess, the burden then shifts to the prac-

titioner to show “by a preponderance of the evidence that

the grounds {for revocation] lack any substantial basis or

that such basis or the conclusions drawn therefrom are

either arbitrary, unreasonable, or capricious.” Following

this hearing, the committee compiles its findings and

submits them along with a recommendation to either the

Medical Staff Executive Council or the Board of Directors,

depending upon which body initiated the adverse recom-

mendation or action. After reviewing the committee’s

findings and recommendation, the council or hospital

board affirms, modifies, or reverses the recommendation.

If the decision is adverse to the practitioner, he has a right

of review before the joint conference committee of the

hospital. The Fair Hearing Plan at Deaconess provides

that “[t]he practitioner seeking the review may submit a

written statement detailing the findings of fact, con-

clusions and procedural matters with which he disagrees,

and his reasons for disagreement.” Following submission

of the practitioner’s statement, the joint conference com-

mittee conducts a review hearing and based upon its

findings, recommends to the hospital board that the ad-

verse decision be affirmed, modified, or reversed. The

board issues a final written decision and if the prac-

titioner’s hospital staff privileges are, in fact, revoked, he

is entitled to appeal that decision through the Indiana

state court system and challenge the “good faith” of the

hospital staff members in reaching their conclusion. See,

e.g., Kiracofe v. Reid Memorial Hosp.., Ind. App. ,

461 N.E.2d 1134, 1139-41 (1984); Yarnell v. Sisters of St.

No. 83-1581

Francis Hlth. Serv., __—. Ind. App. ___.,, 446 N.E.2d 359,

361-63 (1983).’

In July 1982, before the Board of Directors at Deaco-

ness had issued their final decision revoking Dr. Marrese’s

clinical privileges, the plaintiffs (Dr. Marrese and his

solely owned company, Bone & Joint Sur zeons, Inc.) filed

suit in the United States District Court for the Northern

District of Illinois against Interqual, Inc., Deaconess Hos-

pital and its Board of Directors in their individual capa-

city, and members of the SAHC and Executive Committee

at Deaconess, including seven doctors, one hospital admin-

istrator, and one attorney.’ The suit alleged that the

defendants had conspired to restrain trade in violation of

the Sherman Act § 1, had monopolized the market for

orthopedic and neurological spinal surgical procedures in

Evansville, Indiana in violation of the Sherman Act § 2,

and had violated 42 U.S.C. $1983 by adopting an

anticompetitive, unfair, and unconstitutional Fair Hear-

ing Plan under color of the Indiana medical peer review

statute, Ind. Code § 34-4-12.6-1 et seg.? According to the

plaintiffs’ first amended complaint, “[b]eginning in early

1978 and continuing thereafter to the present, the De-

fendants have engaged in an unlawful conspiracy to

exclude DR. MARRESE from the Evansville, Indiana

marketing area by falsely charging that he is unqualified

to practice and compete therein.” The complaint alleged

that the defendants “formulat[ed] and effectuat/ed]”’

this conspiracy through their actions as members of or

consultants to the hospital board, the SAHC, and the

" We express no view concerning the defendants’ “good faith”

and/or “bad faith” in the present case, as that issue is not

presently before the court.

* The record reveals that the plaintiffs filed their initial com-

plaint in this action on July 12, 1982. Some two weeks later, on

July 27, 1982, the plaintiffs filed their first amended complaint.

* The plaintiffs’ first amended complaint also included a pen-

dent state claim, alleging that the defendants’ actions con-

stituted a tortious interference with business relations.

No. 83-1581

Medical Staff Executive Council at Deaconess. The plain-

tiffs sought money damages for the alleged Federal anti-

trust violations and, pursuant to the Clayton Act § 16, 15

U.S.C. § 26, a permanent injunction restraining defend-

ants from continuing to engage in Federal antitrust

violations. In addition, the plaintiffs requested a per-

manent injunction “enjoining the President of the Medi-

cal Staff... from naming a committee tw sit in review of

the recommendation of the Executive Committee of the

Medical Staff.”

For purposes of establishing the district court’s sub-

ject matter jurisdiction over the alleged violations of the

Sherman Act §&§ 1, 2, the plaintiffs claimed that the

defendants’ activities had a substantial and adverse effect

upon interstate commerce. In support of this position, the

plaintiffs alleged that:

“Approximately 45% of the patients treated by

DR. MARRESE travel from Western Kentucky and

Southern Illinois into the State of Indiana and the

vast majority of these patients are treated by DR.

MARRESE at DEACONESS HOSPITAL. ... In addi-

tion, DR. MARRESE is a team surgeon for an Illinois

high school, and in this capacity has occasion to travel

into the State of Illinois, treat injured athletes and

when necessary brings them back to the DEACO-

NESS HOSPITAL for the purpose of providing medi-

cal treatment for them. In the regular course of his

treatment of both his interstate and in-state

patients, Plaintiff, DR. MARRESE, through Plain-

tiff’s Bone and Joint Surgeons, Inc. purchases medi-

cine, equipment and related supplies from out-of-

state purveyors, derives revenues from the Federal

Health Care Program commonly known as Medicare

and Medicaid as well as from private out-of-state

insurance companies and pays management and ac-

counting fees to various out-of-state consultants. The

total amount of said out-of-state purchases, revenues,

and fees exceed the sum of $500,000.00 {annually |.”

No. 83-1581

If Defendants’ conspiracy is successful in its ulti-

mate objective of driving DR. MARRESE from the

Evansville, Indiana marketing area, he will... be

unable to practice orthopedic medicine anywhere in

the continental United States because of the cost of

medical malpractice insurance, and because no other

hospital could afford the risk of accepting DR.

MARRESE on its staff.”

The plaintiffs further alleged that:

“Approximately 25% of the HOSPITAL’S patients

travel from Kentucky and Illinois to the HOSPITAL

for the purpose of receiving medical and surgical care

from its professional staff.

The HOSPITAL’S regular billings with respect to

said out-of-state patients are not less than TEN

MILLION DOLLARS ($10,000,000.00) per year.

The HOSPITAL also purchases medical supplies

and equipment in an amount not less than FIVE

MILLION DOLLARS ($5,000,000.00) per year from

various out-of-state sources.”

In February 1983, the district court dismissed the

plaintiffs’ first amended complaint in its entirety. The

court found that:

“With respect to interstate commerce, plaintiffs have

alleged that Dr. Marrese treats people who travel in

interstate commerce; that they purchase medicine

and related supplies from out-of-state; that Dr.

Marrese travels in interstate commerce as part of his

business; and that they receive revenues from out-of-

state sources such as insurance companies and Medi-

”

care.

“ The record before this court reveals that the plaintiffs’

allegation of out-of-state purchases, revenues, and fees in

excess of $500,000 refers to an annual sum.

10a

No. 83-1581

Based upon these findings, the court ruled, inter alia, that:

“Plaintiffs have not alleged what effect the de-

fendants attempts to revoke Dr. Marrese’s clinical

privileges have had on the aspects of interstate com-

merce alleged. Other than generalized, conclusory

allegations plaintiffs have failed to allege any

substantial effect on interstate commerce.... Thus,

because the court concludes that defendants’ allegedly

unlawful actions do not have a substantial effect on

interstate commerce, {the plaintiffs’ claims under the

Sherman Act ,; 1, 2] must be dismissed for lack of

subject matter jurisdiction.”

In March 1983, the plaintiffs filed a motion for

reconsideration of the district court’s order dismissing the

first amended complaint and also filed a motion for leave

to file a second amended complaint. The court denied both

motions ruling that, “{mJjany of the allegations in the

Second Amended Complaint are identical to paragraphs

in the First Amended Complaint. To the extent that

there are differences between the to complaints, they are

differences merely of degree not of substance.” On ap-

'' The court ruled that the plaintiffs’ claim of an anticompeti-

tive, unfair, and unconstitutional Fair Hearing Plan at

Deaconess Hospital failed to allege sufficient “state action” to

state a claim under 42 U.S.C. § 1983. The court further ruled

that because the federal claims were dismissed, it no longer

retained jurisdiction over the pendent state law claim. The

plaintiffs do not appeal! these decisions.

' The district court denied the plaintiffs’ motion for leave to

file a second amended complaint and thus that complaint was

never made a part of the district court record. It is clear,

however, that the judge received and reviewed a copy of the

second amended complaint as did the defendants who filed a

memorandum in opposition to the plaintiffs’ motion for leave to

file an amended complaint. On appeal, the plaintiffs have

presented this court with a copy of the second amended com-

plaint which alleges, in addition to the allegations of the first

(Footnote continued on following page)

lla

No. 83-1581

peal, the plaintiffs contend that the district court erred in

dismissing the plaintiffs claims under the Sherman Act

§§ 1, 2, for failure to allege a substantial and adverse

effect upon interstate commerce.

The Sherman Act prohibits “[e|very contract, com-

bination ...or conspiracy, in restraint of trade or com-

' continued

amended complaint, that:

“Approximately 300 patients per year travel from

Western Kentucky and Southern Illinois into the State of

Indiana for treatment by DR. MARRESE. Each patient is

seen by DR. MARRESE on six separate occasions for a total

of approximately 1,800 visits per year by out-of-state

patients into the State of Indiana from DR. MARRESE.

These patients are billed approximately $),000,000.00 per

year by DR. MARRESE and approximately 310,000,000.00

by the HOSPITAL. . . . The vast majority of these patients

are treated by DR. MARRESE at least once at the HOSPI-

TAL and a large percentage of these cases involve complex

spinal surgery. If DR. MARRESE’s privileges at the

HOSPITAL are terminated, these patients will not cross

state lines into the State of Indiana for their medical

treatment for they come to DR. MARRESE because of his

superior expertise in spinal diagnosis and treatment.”

The second amended complaint also alleges that Dr. Marrese had

contracted to purchase a $500,000 computerized tomography

body scanner from a New Jersey firm. Specifically, Dr. Marrese

alleges that he had made a down payment on the machine, had

arranged financing with a Missouri firm, and had entered into

an agreement with an out-of-state physician, a “national ex-

pert in the field of computerized tomagraphy scanning,” to read

and interpret the specialized x-rays. Dr. Marrese claims that as

a result of the defendants’ alleged illegal conduct, he was forced

to cancel the agreement to purchase the scanner, the financing

arrangement, and the x-ray reading agreement with the out-

of-state physician.

ee |

12a

No. 83-1581

merce among the several States,” 15 U.S.C. § 1 (1982), and

also prohibits ‘“monopoliz[ing] any part of the trade vu.

commerce among the several States.” 15 U.S.C. § 2 (1982).

It is axiomatic that in pleading a cause of action under the

Sherman Act §§ 1, 2, the plaintiff must adequately allege

the jurisdictional requirement of interstate commerce.

See McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232,

241-42 (1980) (“McClain”); Hospital Building Co. v. Rex

Hospital Trustees, 425 U.S. 738, 743 (1976) (“Hospital

Building Co.” ). Thus, the plaintiff’s complaint must allege

sufficient facts to establish that the defendant’s alleged

illegai conduct is “in interstate commerce” or has a

“substantial and adverse effect” upon interstate com-

merce. McLain, 444 U.S. at 241-42; Hospital Building Co.,

425 U.S. at 743. One of the two threshold issues before this

court is whether the plaintiffs in the instant case have

alleged facts sufficient at the pleading stage of the pro-

ceeding to satisfy the jurisdictional requirement of inter-

state commerce under the Sherman Act.”

We note at the outset that “[iJn reviewing the

dismissal of a complaint, ‘the... factual allegations of the

complaint are taken as true.’” Mid-America Reg. Bar. v.

Will Cty. Carpenters, 675 F.2d 881, 883 (7th Cir.), cert.

denied, 459 U.S. 860 (1982) (quoting Ashbrook v. Hoffman,

617 F.2d 474, 475 (7th Cir. 1980)). According to the

plaintiffs’ first amended complaint, approximately forty-

'* The record reveals that at the pleading stage of this pro-

ceeding the defendants filed a motion to dismiss the plaintiffs’

complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a

claim upon which relief could be granted. For purposes of the

Sherman Act claims, the district court treated the defendants’

motion as a motion to dismiss for lack of subject matter

jurisdiction under Fed. R. Civ. P. 12(b)(1), and dismissed the

claims. According to the Supreme Court in Hospital Building

Co., the jurisdictional requirement of interstate commerce may

be analyzed under Fed. R. Civ. P. 12(b)(1) or 12(b)(6), “the

critical inquiry is into the adequacy of the nexus between

[defendants’] conduct and interstate commerce that is alleged

in the complaint.” 425 U.S. at 742 n.1.

No. 83-1581

five percent of Dr. Marrese’s patients travel from Illinois

and Kentucky into Indiana for treatment.‘ The complaint

alleges that the vast majority of these patients are treated

at Deaconess Hospital in Evansville, Indiana. In addition,

Dr. Marrese claims that he travels into Illinois to treat

injured athletes, and when necessary, brings them to

Deaconess Hospital for medical treatment. Dr. Marrese

further claims that he purchases medicine, equipment,

and related supplies from out-of-state purveyors, derives

revenues from Medicare, Medicaid, and private out-of-

state insurance companies, and pays management and

accounting fees to out-of-state consultants. These out-of-

state purchases, revenues, and fees allegedly exceed

$500,000 annually. Moreover, according to the plaintiffs’

first amended complaint, approximately twenty-five per-

cent of the patients receiving medical and surgical care at

Deaconess Hospital travel from Illinois and Kentucky,

accounting for $10,000,000 in annual hospital billings. The

complaint alleges that the hospitai purchases approxi-

mately $5,000,000 in medical supplies and equipment an-

nually, from out-of-state sources. Finally, Dr. Marrese

claims that upon revocation of his clinical privileges at

Deaconess, he will no longer be able to practice orthopedic

medicine in Evansville, Indiana or anywhere in the

United States because no hospital will be able to afford the

risk of granting Dr. Marrese staff privileges. It is the

plaintiffs’ position that these allegations are sufficient, at

the pleading stage of the proceeding, to establish a

“substantial and adverse effect” upon interstate com-

merce, and thus satisfy the jurisdictional requirement of

interstate commerce under the Sherman Act.

In Williams v. St. Joseph Hospital, 629 F.2d 448 (7th

Cir. 1980), this court set forth the general rule that

“medical practice per se and without more is a Jocal

activity. To bring it within reach of the [Federal]

antitrust laws a substantial and adverse effect upon inter-

'‘* Due to the fact that the plaintiffs’ second amended com-

plaint was never made a part of the district court record, this

court limits its review to the plaintiffs’ first amended complaint.

14a

No. 83-1581

state commerce is requisite.” 629 F.2d at 454 (citing

Polhemus v. American Medical Assn., 145 F.2d 357, 359

(10th Cir. 1944)). “As long as the restraint in question

‘substantially and adversely affects interstate commerce,’

the interstate commerce nexus required for Sherman Act

coverage is established.” Hospital Building Co., 425 USS.

at 743 (citations omitted). According to the Supreme

Court in McLain, the defendant’s activities must “be

shown ‘as a matter of practical economics’ to have a not

insubstantial effect on the interstate commerce involved.”

444 U.S. at 246 (citing Hospital Building Co., 425 U.S. at

745). Though each case involves a unique set of facts, “[i]f

it is interstate commerce that feels the pinch, it does not

matter how local the operation which applies the squeeze.”

Hospital Building Co., 425 U.S. at 743 (quoting Gulf Oil

Corp. v. Copp Paving Co., 419 U.S. 186, 195 (1974));

Williams v. St. Joseph Hospital, 629 F.2d at 453 n.11; Tiger

Trash v. Browning-Ferris Industries, Inc., 560 F.2d 818,

825-26 (7th Cir. 1977), cert. denied, 434 U.S. 1034 (1978)

(quoting United States v. Women’s Sportswear Assn., 336

U.S. 460, 464 (1949)).

In Hospital Building Co., the Supreme Court stated

that “[a]n effect can be ‘substantial’ under the Sherman

Act even if its impact on interstate commerce falls far

short of causing enterprises to fold or affecting market

price.” 425 U.S. at 745. According to the Court, if the

allegations of the plaintiff’s complaint “fairly claim that

the alleged conspiracy, to the extent it is successful, will

place ‘unreasonable burdens on the free and uninter-

rupted flow’ of interstate commerce,” that is sufficient, at

the pleading stage of a proceeding, to establish a substan-

tial effect upon interstate commerce under the Sherman

Act. Id. at 746. This court has added that under the

“substantial effect” test, “it is unnecessary for an anti-

trust plaintiff to allege the defendant ‘had the purposeful

goal of affecting interstate commerce’...or that ‘the

conspiracy threaten[s] the demise of out-of-state busi-

nesses or that the conspiracy affect{s] market prices.”

Tiger Trash v. Browning-Ferris Industries, Inc., 560 F.2d

1Sa

No. 83-1581

at 826 (brackets original) {quoting Hospital Building Co.,

425 US. at 745, 746) (“Tiger Trash” ).

Indeed, in Tiger Trash, the plaintiff alleged that the

defendant, Browning-Ferris Industries (“BFI”), was

attempting to monopolize the solid waste collection service

of Evansville, Indiana and Henderson, Kentucky, in viola-

tion of the Sherman Act § 2. According to the undisputed

facts, BFI was an Indiana corporation with twenty cus-

tomer accounts in Henderson, Kentucky, comprising ap-

proximately five percent of BFI’s total accounts. The

Kentucky accounts produced annual revenues of $30,000

amounting to approximately three to four percent of the

annual revenues produced by BFI’s Evansville, Indiana

accounts. In addition, BFI maintained $6,000 worth of

equipment in Kentucky on a permanent basis and used

another $100,000 worth of equipment within the state. On

the issue of whether or not these facts were sufficient to

satisfy the test of “substantial and adverse effect” upon

interstate commerce, at the pleading stage of the pro-

ceeding, this court ruled that:

“Plaintiff Tiger Trash may be able to prove that

defendants’ moncpolization caused an effect on inter-

state commerce ‘that is more than merely in-

consequential.’ Woods Exploration & Producing Co. v.

Aluminum Co. of America, 438 F.2d 1286, 1303 (5th

Cir. 1971), cert. denied, 404 U.S. 1047 (1972). Since

the relation of the alleged restraints to interstate

commerce and their effect upon it are not ‘clearly

nonexistent’ summary judgment “or BFI Indiana was

inappropriate.

*-_ * *

What the proofs will show is another matter, but at

_least plaintiff must be permitted to show (if it can)

that an interstate market, the Henderson- Evansville

area, was being monopolized by defendants. Hospital

Building, supra, 425 U.S. at 747 n.5”

Id. at 826. Similarly, the Supreme Court has stated that at

the pleading stage of a proceeding:

l6a

No. 83-1581

“{A] complaint should not be dismissed unless ‘it

appears beyond doubt that the plaintiff can prove no

set of facts in support of his claim which would entitle

him to relief.’ Conley v. Gibson, 355 U.S. 41, 45-46

(1957); see 5 C. Wright & A. Miller, Federal Practice

and Procedure §§ 1202, 1205-1207, 1215-1224, 1228

(1969). This rule applies with no less force to a

Sherman Act claim, where one of the requisites of a

cause of action is the existence of a demonstrable

nexus between the defendants’ activity and inter-

state commerce.”

McLain, 444 U.S. at 246. See also Bunker Ramo Corp. v.

United Business Forms, Inc., 713 F.2d 1272, 1282 (7th Cir.

1983); Williams v. St. Joseph Hospital, 629 F.2d at 453-54.

Since the decisions in Hospital Building Co. and

McLain, the Federal courts have embarked upon a new

and vastly expanded interpretation of the interstate com-

merce requirement under the Sherman Act. As a result,

the courts have been deluged with complaints alleging

that a hospital’s denial or revocation of a doctor’s staff

privileges constitutes a restraint of trade and/or an

attempt to monopolize trade in violation of the Sherman

Act §§ 1,2. See Pontius v. Children’s Hospital, 552 F. Supp.

1352, 1362-63 (W.D. Pa. 1982); Kissam, Webber, Bigus &

Holzgraefe, Antitrust and Hospital Privileges: Testing the

Conventional Wisdom, 70 Cal. L. Rev. 595 (1982). A

common element in these hospital staff denial or revoca-

tion cases is a threshold determination by the court of

whether or not the doctor’s complaint alleges facts

sufficient to satisfy the jurisdictional requirement ef in-

terstate commerce under the Sherman Act. For example,

in Cardio- Medical Assoc. v. Crozer-Chester Med. Ctr., 721

F.2d 68 (3rd Cir. 1983) (“Cardio- Medical” ), four cardiolo-

gists claimed that their denial of specialized staff privi-

leges, preventing them from using advanced equipment

at the defendant hospital, violated the Sherman Act §§ 1,

2. The plaintiffs alleged that twelve to fifteen percent of

their patients were from out-of-state, and that these

patients accounted for $100,000 in annual revenues. The

17a

No. 83-1581

plaintiffs further alleged that in the absence of the de-

fendant’s illegal activity, they would have another twelve

to fifteen percent interstate patients, additional inter-

state revenues, and additional purchases of out-of-state

medicatiens. The court held that:

“Interferences with the interstate travel of patients,

the interstate payment of fees, and the interstate

purchase of medication are well-recognized methods

for demonstrating an effect on interstate commerce

in antitrust litigation. We therefore conclude that

plaintiffs’ pleadings meet the jurisdictional require-

ments of the Sherman Act....”

721 F.2d at 76 (citations omitted). In accord with the

court’s broad language in Cardio- Medical, Federal courts

have relied upon the treatment of out-of-state patients,

the receipt of Medicare, Medicaid, and out-of-state insur-

ance funds, and the purchase of medicine, equipment, and

medical supplies from out-of-state purveyors by the

plaintiff doctor and/or the defendant hospital, to rule that

the doctor’s complaint satisfies the jurisdictional require-

ment of interstate commerce under the Sherman Act. See,

e.g., Weiss v. York Hospital, Nos. 82-3507, 82-3580 &

82-3581, slip op. at 79-82, n.63 (3d Cir. September 27,

1984) (osteopath denied staff privileges); Mishler v.

St. Anthony’s Hosp. Systems, 694 F.2d 1225, 1227-28 (10th

Cir. 1981) (neurosurgeon excluded from emergency room

referral list); Crane v. Intermountain Health Care, Inc.,

637 F.2d 715, 725 (10th Cir. 1981) (en banc) (pathologist

denied staff privileges); Stone v. William Beaumont Hos-

pital, 1983-2 Trade Cases 69,475, 69,479 (E.D. Mich. 1983)

(cardiologist denied staff privileges); Konik v. Champlain

Val. Physicians Hosp. Med. Ctr., 561 F. Supp. 700, 709-10

(N.D.N.Y. 1983), affd, 733 F.2d 1007 (2nd Cir. 1984)

(anesthesiologist denied use of hospital facilities); Pontius

v. Children’s Hospital, 552 F. Supp. at 1861-62; (cardiovas-

cular surgeon denied reappointment to staff); McElhinney

v. Medical Protective Co., 549 F. Supp. 121, 127-28 (E.D.

Ky. 1982) (surgeon denied reappointment to staff); Pao v.

Holy Redeemer Hospital, 547 F. Supp. 484, 489-90 (E.D. Pa.

18a

No. 83-1581

1982) (opthalmologist denied staff privileges); Everhart v.

Jane C. Stormont Hospital, 1982-1 Trade Cases 73,895,

73,896 (D. Kan. 1982) (cardiovascular surgeon denied

staff privileges); Williams v. Kleaveland, 534 F. Supp. 912,

918 (W.D. Mich. 1981) (doctor denied reappointment to

staff); McDonald v. St. Joseph's Hospital of Atlanta, 524 F.

Supp. 122, 126-30 (N.D. Ga. 1981) (urological surgeon

denied staff privileges); Robinson v. Magovern, 521 F.

Supp. 842, 876 (W.D. Pa. 1981), affd without opinion, 688

F.2d 824 (3rd Cir.), cert. denied, 103 S. Ct. 302 (1982)

(thoracic surgeon denied staff privileges); Malini v.

Singleton & Associates, 516 F. Supp. 440, 442-48 (S.D. Tex.

1981) (radiologist denied staff privileges); Feldman v.

Jackson Memorial Hospital, 509 F. Supp. 815, 819-21 (S.D.

Fla. 1981) (podiatrist denied membership on medical

staff).’°

In the instant case, the plaintiffs’ first amended

complaint alleges that Dr. Marrese treats out-of-state

patients; purchases medicine, equipment, and medical

supplies from out-of-state purveyors; derives revenues

from Medicare, Medicaid, and out-of-state private insur-

ance companies; and pays management and accounting

fees to out-of-state consultants. The plaintiffs’ complaint

further alleges that the impending revocation of Dr.

Marrese’s clinical privileges at Deaconness will prevent

him from practicing orthopedic medicine in Evansville,

Indiana or anywhere in the United States. Based upon

's We note thax courts have also dismissed doctors’ claims under

the Sherman Act, for the denial or revocation of hospital staff

privileges, due to the plaintiff doctors’ failure to allege a

sufficient interstate commerce nexus. See Hayden v. Bracy, No.

83-2401, slip op. at 8-9 (8th Cir. September 27, 1984); Furlong v.

Long Island College Hosp., 710 F.2d 922, 927-28 (2d Cir. 1983);

Capili v. Shott, 620 F.2d 438, 439 (4th Cir. 1980) (per curiam);

Wolf v. Jane Phillips Episcopal-Memorial Med. Ctr., 513 F.2d

684, 687-88 (10th Cir. 1975); Moles v. Morton F. Plant Hospital,

Inc., 1980-1 Trade Cases 77,186, 77,189-90 (M.D. Fla. 1978), affd

without opinion, 617 F.2d 293 (5th Cir.), cert. denied, 449 US.

919 (1980).

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No. 83-1581

these allegations, and the Federal courts’ expansive inter-

pretation of the interstate commerce requirement under

the Sherman Act, it may be that the plaintiffs can

demonstrate a substantial and adverse effect upon inter-

state commerce as a matter of practical economics. At this

point we cannot say beyond doubt that the plaintiffs will

be unable to prove a set of facts that will establish this

required effect upon interstate commerce." It is true that

at the time the plaintiffs filed their first amended com-

plaint, Dr. Marrese’s clinical privileges at Deaconess had

not yet been revoked and thus, no substantial and adverse

impact upon interstate commerce had yet occurred. The

Supreme Court has stated, however, that jurisdiction is

not defeated “by plaintiff’s failure to quantify the adverse

impact of defendant’s conduct.” McLain, 444 U.S. at 243.

‘© In Western Waste Service v. Universal Waste Control, 616

F.2d 1094 (9th Cir.), cert. denied, 449 U.S. 869 (1980), the Ninth

Circuit interpreted McLain to mean “that it was not necessary

for the alleged antitrust violations complained of to have affect-

ed interstate commerce as long as defendants’ business activi-

ties, independent of the violations, affected interstate com-

merce.” 616 F.2d at 1097 (emphasis added). In Crane v.

Intermountain Health Care, 637 F.2d at 724, the Tenth Circuit

stated that “we do not believe McLain signals a shift in

analytical focus away from the challenged activity and towards

the defendant’s general or overall business. The analytical focus

continues to be on the nexus, assessed in practical terms,

between interstate commerce and the challenged activity.” In

the instant case, we need not reach the issue of whether the

plaintiffs could rely upon the interstate business activities of

defendant, Deaconess Hospital, to satisfy the jurisdictional

requirement of interstate commerce under the Sherman Act.

See Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d

at 1282 (this court does not find it necessary to choose between

the various interpretations of McLain). Based upon the plain-

tiffs’ allegations that Dr. Marrese treats out-of-state patients

and has interstate purchases, revenues, and fees in excess of

$500,000 annually, it may well be that the plaintiffs can demon-

strate a substantial and adverse impact upon interstate com-

merce. Accord Cardio- Medical Associates, 721 F.2d at 76.

20a

No. 83-1581

According to the Court, “[e]ven where there is an in-

ability to prove that concerted activity has resulted in

legally cognizable damages, jurisdiction need not be im-

paired, though such a failure may confine the available

remedies to injunctive relief.” Jd. In light of the ex-

pansive interpretation of the interstate commerce

requirement under the Sherman Act, and the fact that

the plaintiffs seek injunctive relief under the Clayton Act

§ 16, we hold that the plaintiffs’ first amended complaint

alleges facts sufficient at the pleading stage of the pro-

ceeding to establish the jurisdictional requirement of

interstate commerce under the Sherman Act, thus satis-

fying one of the two threshold issues before this court.

We hasten to note that our analysis of the plaintiffs’

first amended complaint does not end with a determina-

tion of this jurisdictional issue of interstate commerce

under the Federal antitrust laws. Rather a thorough

reading of the plaintiffs’ complaint reveals that the de-

fendants’ alleged conspiracy to “exclude DR. MARRESE

from the Evansville, Indiana marketing area” was formu-

lated and effectuated through the defendants’ actions as

members of or consultants to the hospital board, the

SAHC, and the Medical Staff Executive Council at

Deaconess. Indeed, the complaint alleges that “[i]n

formulating and effectuating their...conspiracy to

eliminate plaintiffs as competitors in the relevant market

and particularly for patients treated at the HOSPITAL,

defendants further specifically agreed and conspired” in

February 1978, to conduct an internal audit of the “back”

procedures, including lumbar laminectomies and spinal

fusions, performed at Deaconess; in August 1980, to retain

Interqual, Inc. to conduct an independent audit of Dr.

Marrese’s surgical “back” procedures; to recommend,

based upon the findings of the Interqual audit, that Dr.

Marrese’s clinical privileges be revoked; and in April 1982,

on behalf of the Medical Staff Executive Council, to adopt

the recommendation that Dr. Marrese’s clinical privileges

at Deaconess be revoked. Thus, according to the plaintiffs’

first amended complaint, the defendants’ alleged illegal

21a

No. 83-1581

conduct under the Sherman Act consists of their actions as

members of or consultants to the hospital board, the

SAHC, and the Medical Staff Executive Council, in

reviewing Dr. Marrese’s surgical procedures and recom-

mending that his clinical privileges at Deaconess be re-

voked. In effect, the plaintiffs’ Federal antitrust lawsuit is

an attack upon the defendants’ overall conduct as partici-

pants in the medical peer review process at Deaconess

Hospital and their motives in recommending that Dr.

Marrese’s clinical privileges be revoked.

In response to the allegations contained within the

plaintiffs’ first amended complaint, the focus of our anai-

ysis shifts to a review of the defendants’ conduct in

recommending that Dr. Marrese’s clinical privileges be

revol.ed. The plaintiffs’ first amended complaint, dis-

missed in its entirety by the district court, clearly states

that:

“The professional staff of any hospital in the State of

Indiana is authorized, pursuant to 31 [sic] Burns

Indiana Statute 4-12-6(2)(c)(B) [Ind. Code 34-4-

12.6-1(c)(2)] to establich a ‘Peer Review Committee’,

which is a committee charged with the responsibility

of evaluating the qualifications of professional health

care providers at a hospital DR. MARRESE is a

‘professional health care provider’ within the mean-

ing of said statute.

Defendant HOSPITAL attempted to implement the

provisions of that statute on June 2, 1980 [sic] by

adopting a ‘Fair Hearing Plan’... .”

(Emphasis added). As a result of the plaintiffs’ factual

assertions that Ind. Code § 34-4-12.6-1 authorizes hospi-

tals to establish peer review committees to evaluate staff

members’ qualifications and that Deaconess Hospital acted

to implement the provisions of that statute, we must

consider the second threshold issue; whether the defend-

ants’ conduct is “clearly articulated and affirmatively

expressed as [Indiana] state policy” and “actively super-

vised” by the State so as to be exempt from the Federal

22a

No. 83-1581

antitrust laws under the doctrine of state action. See

Hoover v. Ronwin, 104 S. Ct. 1989, 1995 (1984); California

Liquor Dealers v. Midcal Aluminum, 445 US. 97, 105

(1980) (“California Liquor Dealers”). Such an analysis at

the pleading stage of the proceeding is proper because the

state action doctrine provides an exemption from the

Federal antitrust laws and, if applicable, allows for dis-

missal of the complaint. See, e.g., Hoover v. Ronwin, 104 S.

Ct. at 1994; Gambrel v. Kentucky Board of Dentistry, 689

F.2d 612, 613-21 (6th Cir. 1982), cert. denied, 103 S. Ct.

1198 (1983); Benson v. Arizuna State Bd. of Dentai Exam-

iners, 673 F.2d 272, 274-76 (9th Cir. 1982).

We initially note that the district court, in dismissing

the plaintiffs’ first amended complaint, did not address

the issue of state action. The general rule is that “a

federal appellate court does not consider an issue not

passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120

(1976); Sharp v. Ford Motor Credit Co., 615 F.2d 423, 424

n.1 (7th Cir. 1980). It is clear, however, that the issue of

state action has been addressed in the parties’ briefs

before this court and that “[t]he matter of what questions

may be taken up and resolved for the first time on appeal

is one left primarily to the discretion of the courts of

appeals, to be exercised on the facts of individual cases.”

Singleton v. Wulff, 428 U.S. at 121." In the instant case the

plaintiffs challenge the defendants’ conduct and motives

as participants in the medical peer review process at

Deaconess Hospital. A review of the plaintiffs’ complaint

along with the parties’ briefs and the relevant Indiana

statutory law reveals that the medical peer review process

in the State of Indiana was developed and enacted by the

Indiana legislature to regulate and improve the quality of

medical care within the state. See Ind. Code. §§ 16-10-1-1

et seq., 25-22.5-2-1 et seq., 34-4-12.6-1 ef seg. This com-

* On August 10, 1984, the parties were ordered to furnish the

court with supplemental briefs, analyzing the applicability of

the “state action” doctrine in the present case. The plaintiffs

and defendants each submitted a supplemental and a reply brief

on this issue.

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No. 83-1581

prehensive statutory scheme mandates hospital medical

staffs to review the professional practices and procedures

of hospital staff members, see Ind. Code § 16-10-1-6.5, and

authorizes the formation of peer review committees

to perform this review process, see Ind. Code § 34-4-

12.61(c). In light of this comprehensive statutory scheme

in the State of Indiana, the plaintiffs’ allegation that

Deaconess Hospital acted to implement the provisions of

this statutory scheme, and the fact that the state action

doctrine exempts conduct that is “clearly articulated and

affirmatively expressed as state policy” and “actively

supervised” by the State from the Federal antitrust laws,

this court is “justified in resolving [the state action] issue

= passed on below... .” Singleton v. Wulff, 428 US. at

121.

The doctrine of state action originated in Parker v.

Brown, 217 U.S. 341 (1943) (“Parker” ), where a raisin

producer in the State of California challenged a state

statute that authorized “programs for the marketing of

agricultural commodities produced in the state, so as to

restrict competition among the growers and maintain

prices in the distribution of their commodities to packers.”

317 U.S. at 346. According to the Supreme Court, the

program restricting the marketing of raisins in

“derive{d] its authority and its efficacy from the

legislative command of the state and was not in-

tended to operate or become effective without that

command. We find nothing in the language of the

Sherman Act or in its history which suggests that its

purpose was to restrain a state or its officers or agents

from activities directed by its legislature. In a dual

system of government in which, under the Con-

stitution, the states are sovereign, save only as Con-

gress may constitutionally subtract from their au-

thority, an unexpressed purpose to nullify a state’s

control over its officers and agents is not lightly to be

attributed to Congress.”

24a

No. 83-1581

Id. at 350-51 (emphasis added). See also Hoover v. Ron-

win, 104 S. Ct. at 1995.

Since the seminal decision in Parker, the Supreme

Court has further refined the doctrine of “state action.”

See, e.g., Goldfarb v. Virginia State Bar, 421 U.S. 773, 791

(1975) (state bar association’s enforcement of a minimum

legal fee schedule not exempt under Parker because not

compelled by state); Cantor v. Detroit Edison Co., 428 US.

579, 591-92 (1976) (opinion of Stevens, J.) (private utility

company’s regulation of light bulbs, approved by state and

required to be continued until new tariff is filed, not

exempt under Parker); Bates v. State Bar of Arizona, 433

U.S. 350, 362-63 (1977) (enforcement of clearly arti-

culated disciplinary rules by state supreme court, acting in

its legislative capacity, exempt under Parker); Lafayette v.

Louisiana Power & Light Co., 435 U.S. 389, 415 (1978)

(opinion of Brennan, J.) (city’s operation of electrical

utility system exempt under Parker if state contemplated

the action complained of when it authorized city to oper-

ate in that area); New Motor Vehicle Bd. of Cal. v. Orrin W.

Foz Co., 439 U.S. 96, 109 (1978) (state board’s enforcement

of a clearly articulated, affirmatively expressed state

regulation of automobile dealerships is exempt under

Parker); California Liquor Dealers, 445 US. at 105-06

(wine wholesaler’s enforcement of a clearly articulated

state system for wine pricing is not exempt under Parker

because the state neither establishes nor reviews the price

schedules, nor regulates the terms of fair trade contracts);

Community Communications Co. v. Boulder, 455 U.S. 40, 55

(1982) (municipality’s enforcement of ii. cable television

ordinance is not exempt under Parker because the state’s

position is one of mere neutrality respecting the munici-

pality’s actions). Most recently, the Court in Hoover v.

Ronwin, reaffirmed its rationale in Parker that “when a

state legislature adopts legislation, its actions constitute

those of the State... and ipso facto are exempt from the

operation of the antitrust laws.” 104 S. Ct. at 1995. The

Court added that a “[{c]loser analysis is required when the

activity at issue is not directly that of the legislature...

25a

No. 83-1581

but is carried out by others pursuant to state author-

ization.” Jd. It is “important to ensure that the anti-

competitive conduct of the State’s representative was

contemplated by the State.” Jd. See also Lafayette v.

Louisiana Power & Light Co., 435 U.S. at 413-15 (opinion

of Brennan, J.); P. Areeda, Antitrust Law { 212.3 at 53-54

(Supp. 1982). According to the Court:

“If the replacing of entirely free competition with

some form of regulation or restraint was not author-

ized or approved by the State then the rationale of

Parker is inapposite. As a result, in cases involving

the anti-competitive conduct of a nonsovereign state

representative the Court has required a showing that

the conduct is pursuant to a ‘clearly articulated and

affirmatively expressed state policy’ to replace com-

petition with regulation. The Court also has found the

degree to which the state legislature . . . supervises its

representative to be relevant to the inquiry.”

Hoover v. Ronwin, 104 S. Ct. at 1995 (citations omitted).”

Thus, our review of the defendants’ conduct in reviewing

Dr. Marrese’s surgical procedures and recommending that

his clinical privileges at Deaconess be revoked is guided by

the Supreme Court decisions, which “establish two stan-

dards for antitrust immunity under Parker v. Brown.

First, the challenged restraint must be ‘one clearly arti-

culated and affirmatively expressed as state policy’; sec-

" To satisfy the “clearly articulated and affirmatively ex-

pressed state policy” element of the state action doctrine, the

state legislature must authorize the challenged activity and the

legislature must intend to displace the Federal antitrust laws.

See P. Areeda, Antitrust Law 4 212.3 at 53 (Supp. 1982). See also

Community Communications Co. v. Boulder, 455 U.S. at 51-52;

Lafayette v. Louisiana Power & Light Co., 485 US. at 415

(opinion of Brennan, J.). The state legislature’s intent to

displace the federal antitrust laws exists if the challenged

restraint is a necessary consequence of engaging in the author-

ized activity. P. Areeda, Antitrust Law, supra, at 54. See also

HyBud Equip. Corp. v. City of Akron, No. 83-3306, slip op. at 19

(6th Cir. August 24, 1984).

26a

No. 83-1581

ond, the policy must be ‘actively supervised’ by the State

itself.” California Liquor Dealers, 445 U.S. at 105 (quoting

City of Lafayette v. Louisianna Power & Light Co., 435 U.S.

at 410 (opinion of Brennan, J.) ).

At the outset, we note the underlying rationale of

Parker that “the state action doctrine is grounded in

concepts of federalism and state sovereignty.” Hoover v.

Ronwin, 104 S. Ct. at 1998 n.24 (citing Community Com-

munications Co. v. Boulder, 455 U.S. at 54). Indeed, “the

Parker exemption reflects the federalism principle that we

are a Nation of States,” Community Communications Co. v.

Boulder, 455 U.S. at 50 (emphasis original), and “under

the Constitution, the states are sovereign, save only as

Congress may constitutionally subtract from their author-

ity,” Parker, 317 U.S. at 351. This court’s concern in

resolving the state action issue is to preserve the prin-

ciples of state sovereignty and federalism without dis-

regarding the procompetitive, free enterprise values em-

bodied in the Federal antitrust laws.'’* The presence of a

clearly articulated and affirmatively expressed state pol-

icy, as well as active state supervision, reduces the “con-

cern that federal policy is being unnecessarily and in-

appropriately subordinated to state policy.” Bates v. State

Bar of Arizona, 433 U.S. at 362. Moreover, the active

supervision requirement “ensures that state-federal con-

flict will be avoided in those areas in which the state has

demonstrated its commitment to a program through its

exercise of regulatory oversight.” 1 P. Areeda &

D. Turner, Antitrust Law § 213a at 73 (1978). We add that

in the instant case, a further concern of this court is to

promote the intended purpose of the Sherman Act as a

“consumer welfare prescription.” NCAA v. Board of Re-

'% See, e.g.,S. Sachs, Antitrust, The States, and The Professions,

52 Antitrust L.J. 189, 191-92 (1983) (professional areas create a

potential tension between Federal antitrust laws and states’

legitimate interest in regulation); D. Smith, Antitrust Immu-

nity for State Action: A Functional Approach, 31 Baylor L. R. 263,

289-92 (1979) (state action doctrine is an accommodation of

potentially competing sovereigns).

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No. 83-1581

gents of Univ. of Okla., 104 S. Ct. 2948, 2964 (1984).

(quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343

(1979)). See also Indiana Federation of Dentists v. F.T.C.,

No. 83-1700, slip op. at 30 (October 11, 1984); R. Bork, The

Antitrust Paradox 66 (1978); 21 Cong. Rec. 2455, 2456-63

(March 21, 1890) (statement of Sen. Sherman). The State

of Indiana has developed and enacted a comprehensive

statutory scheme of medical peer review to protect con-

sumer welfare. Indeed, the State’s medical peer review

process ensures Indiana citizens of the highest quality of

medical care, while protecting them from incompetent,

unqualified medical treatment. It is within this frame-

work that we analyze the comprehensive statutory scheme

developed and enacted by the Indiana legislature to es-

tablish, regulate, and supervise the medical peer review

process within the State.”

Our initial inquiry is whether the defendants’ review

of Dr. Marrese’s surgical “back” procedures at Deaconess

and the recommendation that his clinical privileges be

revoked is conduct “clearly articulated and affirmatively

* In the instant case, our state action analysis is, by necessity,

limited to a review of the Indiana statutory scheme regulating

the medical peer review process. We note, however, that peer

review is mandated by Congress when medical services are paid

for with Medicare, see 42 U.S.C. § 1395x(k),(r),(s) (1982),

and/or Medicaid, see 42 U.S.C. § 1396a(a)(19),(26) (1982),

funds, and also when hospitals seek certification for participa-

tion in the Medicare program by obtaining accreditation from

the Joint Commission for the Accreditation of Hospitals, see 42

U.S.C. § 13895bb(a) (1982). It is clear that Congress, by man-

dating hospital staff members or members of the local medical

society to participate in the peer review process, see 42 U.S.C.

§ 1395x(k)(2), accepts the potential anticompetitive effects of

the medical peer review process in favor of quality medical care.

See 49 Fed. Reg. 14977 (1984) (proposed rules to protect infor-

mation of Peer Review Organizations); 49 Fed. Reg. 29026

(1984) (revised rules for Peer Review Organizations). (Cf.

Pontius v. Children’s Hospital, 552 F. Supp. at 1376 (Congress

has attempted to improve the process of peer review through

the Peer Review Improvement Act, 42 U.S.C. §§ 1320c-1 ef seq.

(1984) ).

28a

No. 83-1581

expressed as [Indiana] state policy.” The Indiana statu-

tory scheme clearly mandates that:

“The governing board of the hospital shall be the

supreme authority in the hospital, responsible for...

the appointment of members of the medical staff and

the assignment of privileges to members of the medi-

cal staff with the advice and recommendations of the

medical staff consistent with their individual train-

ing, experience, and other qualifications. The medical

staff of a hospital shall be an organized group which

... Shall have the responsibility of reviewing the

professional practices in the hospital for the purpose

of reducing morbidity and mortality, and for the

improvement of the care of patients in the hospital.

This review shall include, but shall not be limited to,

the quality and necessity of the care provided

patients....”

Ind. Code § 16-10-1-6.5 (emphasis added).” To implement

this review process, the statutory scheme provides that

* Similarly, the administrative regulations of the Indiana

Hospital Licensing Board provide that:

“THE GOVERNING BODY. The governing board of

the hospital shall be the supreme authority in the hospital,

responsible for the management, operation, functioning,

and control of the hospital. The Governing Body shall:

(g) Approve the bylaws, rules, and regulations of the

Medical Staff and audit procedures or other measures used

to assure quality of care.

(h) Appoint members of the Medical Staff and assign

privileges consistent with their individuai training, ex-

perience, and other qualifications on a periodic basis (at

least every two (2) years) with the advice and recommen-

dations of the organizec “edical Staff.”

410 Ind. Adm. Code 15-1-5 (Cumm. Supp. 1983). Furthermore:

(Footnote continued on following page)

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No. 83-1581

hospitals establish a peer review committee that shall have

“the responsibility of evaluation of qualifications of pro-

fessional health care providers, or of patient care rendered

by professional health care providers, or of the merits of a

complaint against a professional health care provider that

includes a determination or recommendation concerning

the complaint.” Ind. Code § 34-4-12.6-1. The peer review

committee must be organized, inter alia, “ by the profes-

sional staff of a hospital” and a “majority of the members

{must be] professional health care providers holding

licenses in the stated profession of the committee.” Jd.

The plaintiffs admit that Deaconess Hospital has “‘at-

tempted to implement the provisions” of Ind. Code 34-4-

12.6-1 et seq. Additionally, the plaintiffs allege that the

SAHC and the Executive Council at Deaconess were or-

ganized by the hospital and consisted of a majority of

licensed doctors (seven doctors, one hospital adminis-

2! continued

“THE MEDICAL STAFF. (1) The Medical Staff of a

hospital composed of two (2) or more physicians shall be an

organized group which shal! be responsible to the governing

board for the clinical and scientific work of the hospital,

advise regarding professional matters and policies to the

governing board, or the board’s designee, and shall have the

responsibility of reviewing the professional practices in the

hospital for the purpose of reducing morbidity and mor-

tality, and for the improvement of the care of patients in

the hospital. This review shall include, but shall not be

limited to, the quality and necessity of the care provided

patients and the preventability of complications and deaths

occurring in the hospital.

(2) The medical staff shall initiate and, with the

approval of the Governing Body, adopt and periodically

amend bylaws, rules, regulations, and policies which shall

include, but need not be limited to, provisions for:

(a) Qualificatinns to be met for appointment to staff

membership and for delineation of privileges.

(Footnote continued on following page)

30a

No. 83-1581

trator, and one attorney). The record reveals that the

medical staff at Deaconess Hospital has acted pursuant to

Ind. Code § 34-4-12.6-1, to establish a peer review process

that complies with the requirements of Ind. Code § 34-4-

12.6-1(c). The State of Indiana has “clearly articulated

and affirmatively expressed as state policy” that hospital

medical staffs are to form peer review committees and

that such committees are to review the quality and neces-

sity of the care provided patients, to evaluate the quali-

fications of staff members, and review the merits of any

recommendation against a staff member. Ind. Code §§ 16-

10-1-6.5, 34-4-12.6-1. As a necessary and reasonable

consequence of this state mandated medical peer review

process, hospital staff members must review the medical

treatments, diagnostic procedures, and surgical proce-

dures of competing staff members and, when required,

recommend the revocation of staff privileges. Thus, the

defendants’ conduct, as members of or consultants to the

hospital board, the SAHC, and the Medical Staff Executive

Council, in reviewing Dr. Marrese’s surgical procedures

and recommending that his staff privileges be revoked,

satisfies the first element of the Parker test. See Borsody

& Tiano, Peer Review and the Anti-Trust Laws: An Anal-

ysis and a Proposal, 26 St. Louis U.L.J. 511, 514-15 (1982).

21 continued

-_* *

(d)(1) Review of applications for staff membership, delin-

eation of privileges, and recommendations on appointment to

the Governing Body.

(2) Appeal of decisions regarding Medical Staff

membership and privileges.

(3) Review and analysis, at regular stated intervals, of

clinical performance, pathological reports, the com-

pleteness of medical records and of the enforcement of

requirements related thereto, of infection control, of

use of blood and blood-related elements, and of total

patient care.

410 Ind. Adm. Code 15-1-7 (Cumm. Supp. 1983).

3la

No. 83-1581

We turn our attention to the second element of the

Parker test, whether the State of Indiana “actively super-

vises” the medical peer review process. The Indiana

statutory scheme provides that the Indiana Medical Li-

censing Board shall, inter alia, promulgate rules and

regulations necessary for the licensing of doctors within

the state and also “{a]dopt rules establishing standards

for the competent practice of medicine or osteopathic

medicine, or any other form of practice regulated by a

limited license or permit issued [by the Board ].” Ind. Code

§ 25-22.5-2-7(h) (1982). The Medical Licensing Board,

created by the Indiana legislature, consists of five physi-

cians, one osteopathic physician, and one lay member of

the general public, all appointed by the Governor. The

Board closely supervises the Indiana medical profession by

requiring that every physician within the state biennially

Adm. Code 4-6-1 et seg. (Cumm. Supp. 1983). Pursuant to

Ind. Code § 25-22.5-6-2.1, the Board is authorized to

commence revocation proceedings to revoke or suspend

the medical license of any practitioner who knowingly

violates the rules of competent medical practice estab-

lished and promulgated by the Board. In furtherance of

this duty to regulate the Indiana medical profession, the

Board reviews the communications, records, and determi-

nations of hospital peer review committees. According to

the Indiana statutory scheme:

“Communications to, and the records and determina-

tions of, a peer review committee may only be dis-

closed to the specific credentials committee of a hospi-

tal or other health facility, the disciplinary authority

of the professional organization of which the profes-

sional health care provider under question is a mem-

ber, or the appropriate state board of registration and

licensure which the committee deems necessary for

recommended disciplinary action... .”

32a

No. 83-1581

Ind. Code § 34-4-12.6-2(b) (emphasis added).” Thus, the

Indiana legislature has created the Indiana Medical Li-

censing Board as an official body of the State to promul-

gate and enforce standards of competent medical practice,

regulate the licensing of doctors within the State, and

review the confidential communications, records, and

determinations of medical peer review committees. The

examination of confidential peer review data and records

is an essential element of the Board’s function in regu-

lating the medical profession and in assuring that the

citizens of Indiana receive the highest quality of medical

care.

In addition, the Indiana statutory scheme provides

that the State Board of Health shall license and regulate

hospitals within the State through the Hospital Licensing

Council. Ind. Code §§ 16-10-1-1, 16-10-1-3. Pursuant to

Ind. Code § 6-10-1-12, the Council shall promulgate rules

and regulations pertaining to the proper operation and

management of hospitals within the State, amend rules

and regulations “for the establishment and maintenance

of standards of hospitalization required for the efficient

care of patients,” and prescribe, through rules and regu-

lations, “the minimum standards as to equipment and

provision for the care of patients to which an institution

must conform in order to operate lawfully as a hospital”

within the State. The Hospital Licensing Council. just as

the Medical Licensing Board, is a creature of the Indiana

* Similarly, the Indiana legislature amended Ind. Code § 16-

10-1-6.5, effective April 22, 1983, to require that:

“The governing board shall report, in writing, to the

Indiana medica! licensing board the results and circum-

stances of any final, substantive, and adverse disciplinary

action taken by the governing board regarding a physician

on the medical staff, or an applicant for the medical staff, if

the action results in voluntary or involuntary resignation,

termination, nonappointment, revocation, or significant

reduction of clinical privileges or staff membership.”

Ind. Code Ann. § 16-10-1-6.5(b) (Burns Supp. 1983).

33a

No. 83-1581

legislature and consists of one physician, one registered

nurse, four hospital administrators, one member of the

Indiana Department of Public Welfare, and one member

of the State Board of Health, all appointed by the Gover-

nor. Ind. Code § 16-10-1-3. The Council continually

reviews the operation of hospitals within the State and,

based upon its compiled data, recommends to the State

Board of Health whether or not a hospital! qualifies for

annual license renewal. Ind. Code § 16-10-1-9. According

to the Indiana statutory scheme, representatives of the

State Board of Health are required to review all

hospitals within the state on a periodic basis, Ind. Code

§ 16-10-1-13, and the Hospital Licensing Council is au-

thorized to employ field inspectors to inspect hospitals and

“give advice, aid, and encouragement to such institutions,

in maintaining high professional ideals and good care of

patients.” Ind. Code § 16-10-1-17. Pursuant to 410 Ind.

Adm. Code 15-1-8(1)(c) (1979), these field inspectors are

entitled to review the confidential minutes of meetings of

the hospital board, the medical staff, and the medical staff

peer review committees. Included within the confidential

minutes of peer review meetings are records of staff

membership applications, delineations of staff privileges,

appeals of decisions regarding medical staff membership

and privileges, and records of clinical performance and

total patient care within the hospital. 410 Ind. Adm. Code

15-1-7(d), (f). Thus, the Hospital Licensing Council of

the Indiana State Board of Health is an official body

created by the Indiana legislature to promulgate and

enforce the proper standards of hospital care and regulate

the licensing and operation of hospitals within the State.

As an integral part of its hospital inspection program, the

Council reviews the confidential communications, records,

and determinations of medical peer review committees,

assuring Indiana citizens that hospital medica! staffs are

providing quality medical care while acting in accordance

with approved medical standards.

In California Liquor Dealers, the Supreme Court ana-

lyzed the nature of the supervision that a state must

34a

No. 83-1581

exercise over a nonsovereign state representative to satis-

fy the second element of the Parker test. In that case the

State of California had a plan for wine pricing that

constituted resale price maintenance in violation of the

Sherman Act. The defendant, a wholesaler of California

wines, argued that his enforcement of the wine pricing

system was exempt from the Federal antitrust laws under

the doctrine of state action. The Supreme Court held that

the resale plan was “clearly articulated and affirmatively

expressed as state policy” because “[t |he legislative policy

is forthrightly stated and clear in its purpose to permit

resale price maintenance.” California Liquor Dealers, 445

U.S. at 105. The Court added, however, that the plan “does

not meet the second requirement for Parker in.munity.

The State simply authorizes pri e setting and enforces the

prices establishec by private parties. The State neither

establishes prices nor reviews the reasonableness of the

price schedules; nor does it regulate the terms of fair trade

contracts.” Jd. at 105-06.

As contrasted to the facts in California Liquor Deal-

ers, the State of Indiana, through the Indiana Medical

Licensing Board, enacts, promulgates, and enforces rules

of competent medical practice within the State and re-

views the confidential records of medical peer review

committees to determine if further action is required.

This Medical Licensing Board, acting on behalf of the

State’s interest in protecting the health and ensuring the

safety of Indiana citizens, closely supervises the Indiana

medical profession and with the assistance of medical peer

review committees, regulates the licensing of physicians

within the State. Moreover, the State of Indiana, through

the Hospital Licensing Council, promulgates standards of

proper hospital care, regulates the licensing of hospitals

within the State, and, as an integral part of its hospital

inspection program, reviews the confidential records of

medical peer review committees. In light of the Medical

Licensing Board’s active supervision of the medical pro-

fession and the Hospital Licensing Council’s active super-

vision of hospitals and their medical staffs, it is clear that

the State of Indiana ensures its citizens of quality medical

35a

No. 83-1581

care and “actively supervises” the medical peer review

process within the State. Thus, the defendants’ conduct,

as members of ur consultants to the hospital board, the

SAHC, and the Medical Staff Executive Council, in

reviewing Dr. Marrese’s surgical procedures and recom-

mending that his staff privileges be revoked satisfies the

second element of the Parker test.

Furthermore, the Indiana statutory scheme provides

that:

“The members of any medical staff committee or-

ganized for the purpose of conducting medical review,

being retrospective and not a part of current patient

care, shall have an absolute immunity from civil

liability for communications made in committee

meetings, and reports and recommendations made by

the committee arising from deliberations by the com-

mittee to the governing board of the hospital or

another duly authorized medical staff committee.”

Ind. Code § 16-10-1-6.5." Similarly, Ind. Code. § 34-4-

12.6-3 provides that:

“There shall be no liability on the part of, and no

action of any nature shall arise against, the personnel

of a peer review committee for any act, statement

made in the confines of the committee, or proceeding

thereof made in good faith in regard to evaluation of

patient care

* The Indiana legislature amended § 16-10-1-6.5, effective

April 22, 1983, to provide that:

“The governing board and its employees, agents, con-

sultants, and attorneys have absolute immunity from civil

liability for communications, discussions, actions taken, and

reports made concerning disciplinary action or in-

vestigation taken or contemplated, if such reports or ac-

tions are made in good faith and without malice.”

Ind. Code Ann. § 16-10-1-6.5 (Burns Supp. 1983).

36a

No. 83-1581

The personne! of a peer review committee shall be

immune from any civil action arising from any

determination made in — faith in regard to eval-

uation of patient care.

This immunity from civil liability afforded members of the

medical peer review process is in accord with the court’s

reasoning in Pontius v. Children's Hospital, that subject-

ing members of the peer review process to a Federal

antitrust lawsuit will “chill the rights and obligations of

physicians to participate in peer review.” 552 F. Supp. at

1376. According to that court:

“if individual physicians, who manage to overcome

their traditional reluctance to testify about the pro-

fessional conduct of a colleague, know that by so doing

they risk incurring legal fees running into six figures

and a trial of a duration measured in months, on the

mere allegation that they have conspired to restrain

trade, the discovery of incompetent physicians will be

rendered extraordinarily difficult.”

Id. at 13862 (emphasis original).

It is only logical that physicians within the State of

Indiana, when presented with allegations of Federal

antitrust violations and the threat of treble damages, will

either dilute their peer review reports and cease recom-

mending the revocation of a hospital staff member’s

privileges or will discontinue their participation in the

state mandated and supervised peer review process. Asa

resuit, the very lifeline of the medical peer review process

will be severed. Indeed, as the Supreme Court observed in

Hoover v. Ronwin, with regard to the legal profession and

a committee of State Bar Examiners, “({t]here can be no

question that the threat of being sued for [treble] dam-

ages {under the Sherman Act] particularly where the

issue turns on subjective intent or motive—will deter ‘able

citizens’ from performing [an] essential public service.”

104 S. Ct. at 2002 n.34. Similarly in the medical profession,

the threat of a Federal antitrust lawsuit will compel able

37a

No. 83-1581

and qualified physicians, with particular expertise in com-

plex areas of medicine, to abdicate their participation in

the medical peer review process. The overall effect will be

to destroy the intended purpose of medical peer review; to

assure Indiana citizens of quality medical care and protect

them from incompetent, unqualified medical treatment.

In the context of an academic setting this court

recently stated that:

“the peer review process is essential to the very

lifeblood and heartbeat of academic excellence and

plays a most vital role in the proper and efficient

functioning of our nation’s colleges and universities.

The process of peer evaluation has evolved as the best

and most reliable method of promoting academic

excellence and freedom by assuring that faculty ten-

ure decisions will be made objectively on the basis of

frank and unrestrained critiques and discussions of a

candidate’s academic qualifications.”

E.E.0.C. v. University of Notre Dame Du Lac, 715 F.2d 331,

336 (7th Cir. 1983). So too, peer review is essential to the

very lifeblood and heartbeat of medical competency and

quality medical care in the State of Indiana and through-

out the nation. In furtherance of this policy, the Indiana

statutory scheme provides that “a committee having the

responsibility of evaluation of qualifications of profes-

sional health care providers, or of patient care rendered by

professional health care providers, or of the merits of a

complaint against a professional health care provider”

shall be immune from any civil action arising

from a determination made in good faith. Ind. Code

8§ 34-4-12.6-1, 34-4-12.6-3. Though this immunity at-

taches only after a finding that the committee’s determi-

nations were made in good faith, the concept to be

gleaned from Ind. Code §§ 16-10-1-6.5 et seq., 34-4-12.6-1

et seq. is that the State of Indiana realizes the real threat

of lawsuits arising from the revocation of hospital staff

privileges and has acted to protect the personnel involved

in the medical peer review process. This protection en-

courages competent and qualified physicians to participate

in the medical peer review process, thus assuring the

38a

No. 83-1581

citizens of Indiana that hospital medical staffs are com-

petent, qualified, and practicing in accord with approved

medical standards. The “good faith” immunity provision

is an essential element of the state mandated and super-

vised peer review process in the State and, in conjunction

with the other provisions of the comprehensive statutory

scheme, it furthers the underlying policy of the Sherman

Act to protect consumer welfare.

We further note that under the Indiana statutory

scheme any practitioner investigated by a medical peer

review committee shall receive the due process safeguard

of an evidentiary hearing before any disclosure

of the committee’s findings. Pursuant to Ind. Code

§ 34-4-12.6-2:

“Any professional health care provider under

investigation shall be permitted at any time to see

any records accumulated by a peer review committee

pertaining to his personal practice and shall be of-

fered the opportunity to appear before the peer re-

view committee with adequate representation to hear

all charges and findings concerning his practice and

to offer rebuttal information, which shall be a part of

psa record before any disclosure of the charges and

ndings ....”

According to the Fair Hearing Plan at Deaconess, any

practitioner adversely affected by a recommendation of

the Medical Staff Executive Council has a right to an

evidentiary hearing and, if necessary, a review before the

joint conference committee of the hospital. The prac-

titioner may request to be represented by an attorney

and/or be accompanied by a member of the medical staff.

In addition he shall be allowed to introduce evidence,

examine witnesses, and be on record throughout the

entire hearing process. Moreover, if the hospital board,

upon completion of the hospital- hearings, adopts the

Medical Staff Executive Council’s recommendation of

suspension or revocation, the practitioner may appeal that

final decision, challenge the hospita! staff members’ “good

39a

No. 83-1581

faith” in reaching that decision, and challenge the Fair

Hearing Plan on constitutional grounds, through the

Indiana state court system. See Kiracofe v. Reid Memorial

Hosp., ___ Ind. App. ____, 461 N.E.2d at 1139-41; Yarnell

v. Sisters of St. Francis Hith. Serv., ___ Ind. App. ~~,

446 N.E.2d at 361-63. See also, Renforth v. Fayette Me-

morial Hospital Ass'n., 178 Ind. 475, 489, 383 N.E.2d 368,

377 (1978) (en banc), cert. denied, 444 U.S. 930 (1979). In

the instant case, it is clear that before his clinical privi-

leges at Deaconess hospital are revoked, Dr. Marrese is

entitled to the due process safeguards of a hearing and a

review before the joint conference committee of the hospi-

tal. In the event that the hospital board adopts the

recommendation of the Medical Staff Executive Council

and revokes Dr. Marrese’s clinical privileges, he is entitled

to a complete review of that decision and all its proceed-

ings within the Indiana state court system.

In light of the hearings provided by the Fair Hearing

Plan at Deaconess, and the availability of the Indiana

state courts to appeal an adverse decision of the hospital

board, it is clear that the plaintiffs have a more than

adequate forum to challenge the defendants’ conduct and

motives in reviewing Dr. Marrese’s surgical procedures

and in recommending that his clinical privileges at

Deaconess be revoked. The plaintiffs’ Federal antitrust

lawsuit, attacking the defendants’ conduct as members of

the peer review process at Deaconess and challenging

their motives in recommending that Dr. Marrese’s clinical

privileges be revoked, circumvents the hospital hearings

and the state court review process in favor of a Federal

forum. It is well recognized that “federal courts... are

now straining under excessive caseloads.” Patsy v. Florida

Board of Regents, 457 U.S. 496, 517 (1982) (O’Connor, J.,

concurring). As a matter of judicial economy,” the

* We here note Judge Fairchild’s separate view that judicial

economy is irrelevant in this context. As he sees it, our decision

(Footnote continued on following page)

No. 83-1581

Federal courts must not be further burdened by complex

antitrust litigation when the alleged illegal conduct is

mandated and supervised by the state and, furthermore,

the plaintiff is afforded the due process safeguards of

hearings and state court review. Common sense dictates

that a cause of action under the Sherman Act is not

created every time a lawyer, accountant, or architect is

denied partnership status in a national firm, a business

executive is fired or denied a promotion by a national

corporation, or a physician, surgeon, or specialist has

hospital staff privileges denied or revoked. In the instant

case, Dr. Marrese is entitled to challenge the defendants’

motives and conduct in a hearing before the Deaconess

medical staff, a review hearing before the joint conference

committee of the hospital, and finally through proceedings

in the Indiana state court system. Just as a disgruntled

state bar applicant who is denied admission to a state bar

has no cause of action under the Sherman Act against a

state mandated and supervised bar review committee,

Hoover v. Ronwin, 104 S. Ct. at 2001, Dr. Marrese has no

cause of action under the Sherman Act against the de-

fendants as participants in the state mandated and su-

pervised medical peer review process. Instead, Dr.

Marrese must challenge the defendants’ conduct and

motives through the proper forums; the hospital hearing

committees and the Indiana state court system.

Finally, we note the proviso of the court in Pontius v.

Children’s Hospital, that:

“If a physician, terminated from hospital privileges

after receiving due process, is able to force the hospital to

assume the burdens of an antitrust trial on the mere

* continued

is an interpretation of the state action doctrine of Federal

antitrust law. Our conclusion that the doctrine applies to the

present situation does, of course, result in relieving the district

court of this lawsuit, but in his view achievement of that result

is not an appropriate consideration in reaching our conclusion.

4la

No. 83-1581

allegation that the hospital’s decision was grounded on

reasons violative of the Sherman Act, the ability of hospi-

tals to regulate their medical staffs will be seriously im-

paired.”

552 F. Supp. at 1362. The evident trend among an

increasing number of state supreme courts is to find that a

hospital’s “failure to investigate a medical staff applicant’s

qualifications for the privileges requested gives rise to a

foreseeable risk of unreasonable harm and [thus] a hospi-

tal has a duty to exercise due care in the selection of its

medical staff.” Johnson v. Misericordia Community Hosp.,

99 Wis.2d 708, 723, 301 N.W.2d 156, 164 (Wis. 1981) and

cases cited therein. See also Vuciecevic v. MacNeal Me-

morial Hosp., 572 F. Supp. 1424, 1428 (N.D. Ill. 1983);

Annot., 51 A.L.R. 3d 981 (1973). Indeed, according to the

court in Johnson v. Misericordia Community Hosp.:

“*One of the hospital’s primary functions is to

screen its staff of physicians to “insure” that only

competent physicians are allowed to practice in the

hospital.’

Obviously, the promotion of quality care and treat-

ment of patients requires hospitals to perform a

thorough evaluation of medical staff applicants from

the standpoint of professional competence, ethics,

established reputation, and further, to periodically

review the qualifications of its staff through a peer

review or medical audit mechanism. Hospitals, like

doctors, must, above all else, be concerned with the

welfare of their patients and must establish basic

procedures to prevent subjecting them to harm and

injury by physicians and surgeons who fail to possess

an adequate level of technical skill, competence and

ethical principles.”

99 Wis.2d at 732, 734-35, 301 N.W.2d at 168-70 (quoting

Ferguson v. Gonyaw, 64 Mich. App. 685, 697, 236 N.W.2d

548, 550 (1976)). Cf. Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 104 S. Ct. 1551, 1568 (1984) (“hospital’s unquestion-

ed right to exercise some control over the identity and the

42a

No. 83-1581

number of doctors to whom it accords staff privileges”).

In the instant case, the State of Indiana’s com-

prehensive statutory scheme, mandating and supervising

the medical peer review process, enables the hospitals to

fulfill their common law duty of exercising due care in

selecting and maintaining a qualified and competent

medical staff and, as a result, assures Indiana citizens that

medical practices and procedures within the State are

being closely monitored and reviewed. An attack upon

this state mandated and supervised peer review process,

through the Federal antitrust laws, will compel able and

qualified physicians to abdicate their participation in the

review of hospital staff members. This, in turn, will

destroy the medical peer review process and prevent

hospitals from fulfilling their duty to provide patients

with a competent medical staff. In addition, the expenses

in time and money, incurred by hospitals and physicians

in defending their actions, as members of the state

mandated and supervised medical peer review process,

against the Federal antitrust laws, will eventually be

reflected in increased medical costs to the consumer.

Accordingly, we are reluctant to further burden the

Federal courts with a greater influx of complex antitrust

litigation, when a state such as Indiana in the instant

case, clearly articulates and affirmatively expresses a state

policy mandating medical peer review; actively supervises

peer review committees’ communications, records, and

determinations through the Medical Council; enacts legis-

lation to assure an adversely affected practitioner that he

will receive the due process safeguard of an evidentiary

hearing within the hospital; and provides the adversely

affected practitioner with a state court forum to challenge

the conduct and motives of participants in the peer review

process.

Based upon the foregoing analysis it is apparent that

the State of Indiana has established a thorough peer

review process to assure the citizens of Indiana that only

competent and qualified physicians, who practice only

approved methods of medical care, are licensed within the

state. True, the members of a peer review committee, as

trained experts in highly specialized fields of medicine, are

oe ee

ee a ee

43a

No. 83-1581

often in direct competition with the practitioner whom

they are reviewing, and the committee’s decision to re-

voke hospital staff privileges may conceivably have a

“substantial and adverse effect” upon _ interstate

commerce. Nonetheless, “we are a Nation of States”

Community Communications Co. v. Boulder, 455 U.S. at 50

(emphasis original), and “under the Constitution, the

states are sovereign, save only as Congress may con-

stitutionally subtract from their authority,” Parker, 317

U.S. at 351. “The Sherman Act... gives no hint that it

was intended to restrain .. . official action directed by a

state.” Parker, 317 U.S. at 351. There is “nothing in the

language of the Sherman Act or in its history which

suggests that its purpose was to restrain a state or [its

nonsovereign representatives] from activities directed by

its legislature.” Jd. at 350-51. In fact, the purpose of the

Sherman Act is to protect consumer welfare.

The State of Indiana has made a policy decision that

the peer review process is necessary to protect the citizens

of Indiana and promote consumer welfare. It runs con-

trary to the very concepts of state sovereignty and feder-

alism for a Federal court to review the conduct of a peer

review committee, under the guise of the Sherman Act,

when the State of Indiana: mandates that hospital medi-

cal staffs review the quality and necessity of care provided

patients; establishes a peer review process to assure for a

competent medical staff throughout the State; immunizes

members of a peer review committee, who act in good

faith, from civil liability; creates a Medical Licensing

Board and a Hospital Licensing Council to enforce rules of

medical competence and review the actions of medical

peer review committees; provides adversely affected prac-

titioners with the due process safeguards of an eviden-

tiary hearing; and provides adversely affected prac-

titioners with a state court forum to challenge the conduct

and motives of participants in the peer review process. In

the instant case, the defendants’ actions in reviewing Dr.

Marrese’s surgical procedures and in recommending that

his clinical privileges be revoked are “clearly articulated

and affirmatively expressed as state policy” and are “‘ac-

No. 83-1581

tively supervised” by the State. Thus, in light of the

plaintiffs’ allegations that the defendants alleged illegal

conduct consists solely of their actions as members of or

consultants to the hospital board, the SAHC, and the

Medical Staff Executive Council, acting within the In-

diana medical peer review process, we hold that the

defendants’ actions are exempt from the Federal antit-

rust iaws under the doctrine of state action.”

Accordingly, we affirm the district court’s dismissal of

the plaintiffs’ complaint.

Clerk of the United States Court of

Appeals for the Seventh Circuit

* We are cognizant of the district court’s ruling that the

plaintiffs did not allege sufficient “state action” to state a cause

of action under 42 U.S.C. § 1983. The plaintiffs did not appeal

the district court’s dismissal of their claim under 42 U.S.C.

§ 1983 nor was this court presented with any argument on the

issue. We note that the elements required for a cause of action

under 42 U.S.C. § 1983, a “deprivation . . . caused by the exercise

of some right or privilege created by the State” and “the party

charged with the deprivation must be a person who may fairly

be said to be a state actor,” Lugar v. Edmondson Oil Co., 457 U.S.

922, 937 (1982) differ from the elements required for state

action under Parker. We further note that the Fair Hearing

Plan at Deaconess Hospital provides Dr. Marrese with the due

process safeguard of an evidentiary hearing and, if necessary, a

review hearing before the joint conference committee of the

hospital. Moreover, if Dr. Maresse’s clinical privileges at

Deaconess are, in fact, revoked, the hospital’s decision can be

appealed through the Indiana state court system.

USCA 50234—Pandick Midwest, Inc., Chicago—11-6-84—450

45a

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

(Argued March 29, 1984)

August 10, 1984

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. JOHN L. Corey, Circuit Judge

Hon. Tuomas E. FAIRCHILD, Senior Circuit Judge

, Appeal from the

R. ANTHONY Marre_sE, M.D. niet Giate be.

and BONE & JOINT SURGEONS, INC., trict Court for the

Plaintiffs-Appellants, Northern District of

No. 83-1581 oi | Illinois, Eastern Di-

: : vision.

INTERQUAL, INC., et al., No. 82 C 4296

Defendants-Appellees.| George N. Leighton,

/ Judge.

ORDER

The parties have adequately briefed the issue of whether

the plaintiffs’ complaint alleged sufficient facts to satisfy the

jurisdictional requirement of interstate commerce under the

Sherman Act. A second issue of law has been addressed in the

briefs as to whether the defendants’ conduct, as members of the

medical peer review process in Indiana, is exempt from the

Federal antitrust laws under the doctrine of state action. A

majority of this panel has decided that additional briefing of

this state action issue would be beneficial before a final decision

is rendered.

Accordingly, IT IS ORDERED that the parties shall have

30 days from the date of this order to simultaneously submit

their respective supplemental brief on the state action issue.

Thereafter the parties shall have 15 days to simultaneously

46a

submit a reply brief if they so desire. There will be no oral

argumen: unless requested by the court.

The supplemental briefs shall address the issue of whether

revocation of hospital staff privileges gives rise to a cause of

action under the Sherman Act in light of Indiana’s com-

prehensive statutory scheme regulating the medical peer review

process. See Ind. Code §§ 16-10-1-1 et seg. 25-22.5-2-1 et seq.

and 34-412.6-1 et seg. The briefs shall also fully discuss the

issue Of whether anticompetitive or other invidious motivation,

as alleged in the plaintiffs’ complaint, is relevant to the estab-

lishment of a Sherman Act cause of action in this case.

47a

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

December 27, 1984

Before

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. JOHN L. CorFey, Circuit Judge

Hon. THOMAS E. FAIRCHILD, Senior Circuit Judge

Appeal from _ the

United States Dis-

R. ANTHONY MarresE, M.D., and

trict Court for the

BonE & JOINT SURGEONS, INC.,

Plaintiffs-Appellanis, Northern Cinies of

No. 83-1581 - ‘ Illinois Eastern Di-

vision.

INTERQUAL, INC., et al., No. 82 C 4296

Defendants-Appellees. | George N. Leighton,

; Judge.

ORDER

On consideration of the petition for rehearing and sugges-

tion for rehearing en banc filed in the above-entitled cause by

the plaintiffs-appellants, no judge in active service has re-

quested a vote thereon, and all of the judges on the original

panel have voted to deny a rehearing. Accordingly,

IT IS ORDERED that the aforesaid petition for rehearing

be, and the same is hereby, DENIED.

48a

Received

July 29, 1982

N. Stuart Cunningham

United States District Court

IN THE UNITED STATES DistrRicT COURT

For the Northern District of Illinois

Eastern Division

R. ANTHONY Marrese, M.D., et al,

Plaintiffs,

v. | No. 82 C 4296

INTERQUAL, INC., et al,

Defendants.

NOTICE OF FILING

PLEASE TAKE NOTICE that, pursuant to Rule 15(a),

Federal Rules of Civil Procedure, we caused to be filed with the

Clerk of the United States District Court, for the Northern

District of Illinois, Eastern Division, this 26th day of July, 1982,

the attached First Amended Complaint.

R. ANTHONY MarreseE, M.D. and

BONE & JOINT SURGEONS, INC.

By: /s/_ LANDESMAN & SCHWARTZ,

Landesman & Schwartz,

Their Attorneys

JOHN * CASEY

LANDESMAN & SCHWARTZ

111 W. Washington St.

Suite 1025

Chicago, IL 60602

(312) 346-6650

49a

IN THE UNITED STATES DistRicT COURT |

For the Northern District of Illinois

Eastern Division

R. ANTHONY Marrese, M.D. and

BONE & JOINT SURGEONS, INC., —

an Indiana corporation

Plaintiffs,

vs.

INTERQUAL, INCORPORATED,

a Delaware corporation,

and

DEACONESS HospiTaL, an Indiana

not-for-profit corporation,

and

WILLIAM H. ALLEN, M.D.,

BRYANT A. BLoss, M.D.

THOMAS Evans, M.D..,

AHMET K. PERCINEL, M.D.,

PEDRO DoMINQUEZ, M.D.,

SaM B. Baker, M.D., KENNETH

NACHTNEBEL, M.D., Davin A.

JOHNSON and JOHN RENDER,

and

C. Le Roy ANDERSON, DAVID L.

BARNING, C. JACKSON BUSCHKILL,

Mrs. JEAN G. DREMSTEDT,

GERALD M. FINNEY, PHILLIP J.

GEIER, MELVIN L. KALLENBACH,

WILLIAM L. KECK, ROBEP. KOCH,

WILLIAM D. POWELL, DONa..D A.

RAUSCH, BERNARD E. SCHNACKE,

DONALD E. STEEDLY, D. W. VAUGHN,

and JAMES W. VOGEL,

Defendar ts.

Civil Action

No. 82 C 4296

JURY DEMANDED

Action under Sherman

Anti-Trust Act and Clay-

ton Anti-Trust Act (15

U.S.C. § 1 et seq. and 15

U.S.C. § 15 et seq. ), under

The Civil Rights Act of

1871 (42 U.S.C. § 1982),

and Pendant Jurisdic-

tion— Tortious

Interference with Business

Relations.

50a

FIRST AMENDED COMPLAINT

JURISDICTION, VENUE, PARTIES

1. This Court has jurisdiction over the subject matter of

Counts I through IV of this suit under 28 U.S.C. § 1337(a).

This suit is brought under §§ 4 and 16 of the Clayton Act (15

U.S.C. §§ 15, 26) to recover treble damages and plaintiff's cost

of suit, including reasonable attorney fees, and to obtain

injunctive relief for defendant’s continuing violation of §§ | and

2 of the Sherman Act (15 U.S.C. §§ 1, 2).

2. This Court has jurisdiction over the subject matter of

Count V of this suit under 28 U.S.C. §§ 1331 and 1343 and the

Constitution of the United States. Count V is brought to redress

the deprivation under color of state statutes, ordinances, regu-

lations, custom or usage of rights, privileges and imn:unities

secured by the Fourteenth Amendment to the United States

Constitution, and by the Civil Rights Act of 1871, 42 U.S.C.

§ 1983 in that defendants have lately adopted an anticompeti-

tive, unfair and unconstitutional so-called “Fair Hearing Plan”

under color of the State of Indiana’s peer review statute (34

Burns Ind. Stat. Ann. 4-12-6), which plan is designed to

exclude plaintiff, DR. MARRESE, from the relevant local

surgical market, and thus to deprive him of his constitutional

and statutory right to pursue his licensed profession, by ex-

pelling him unless he can satisfy a panel selected by one of the

conspirators that the charges against him lack any substantial

factual basis.

3. Venue is properly laid in the Northern District of

Illinois under 28 U.S.C. § 1391 in that Defendant, INTER-

QUAL, has its principal place of business in this District,

conducted its audit with employees and independent con-

tractors doing business in this District, communicated in and

from this District with a number of other Defendants and

otherwise performed various acts which lead to the recommen-

dation to terminate DR. MARRESE’S clinical privileges at the

HOSPITAL.

Sla

4. Plaintiff, BONE & JOINT SURGEONS, INC., is an

Indiana corporation with its main office in Evansville, Indiana.

5. Plaintiff, R. ANTHONY MARRESE, M.D. hereinafter

referred to as “DR. MARRESE”) graduated first in his class

from Loyola Stritch School of Medicine, and at the same time

received a Masters of Science Degree in physiology from the

Graduate School of Loyola University. He interned at The

John Hopkins Hospital and did his residency in orthopedic

surgery at the Northwestern University Group Hospitals. He is

a Board-c-rtified orthopedic surgeon residing in Evansville,

Indiana, licensed to practice medicine in that state, as well as in

the State of Illinois. He practices in all areas of orthopedic

surgery and specializes in disorders of the spine as an employee

of Plaintiff, BONE & JOINT SURGEONS, INC.

6. Approximately 45% of the patients treated by DR.

MARRESE travel from Western Kentucky and Southern II-

linois into the State of Indiana; and the vast majority of these

patients are treated by DR. MARRESE at DEACONESS

HOSPITAL. As part of his regular treatment of these out-of-

state patients, DR. MARRESE has regular telephonic and

other communications across state lines with these patients,

their pharmacists and x-ray technicians. In addition, DR.

MARRESE is a team surgeon for an Illinois high school, and in

this capacity has occasion to travel into the State of Illinois,

treat injured athletes and, when necessary, brings them back to

the DEACONESS HOSPITAL for the purpose of providing

medical treatment for them. In the regular course of his

treatment of both his interstate and in-state patients, Plaintiff,

DR. MARRESE, through Plaintiff's Bone and Joint Surgeons

Inc. purchases medicine, equipment and related supplies from

out-of-state purveyors, derives revenues from the Federal

Health Care Program commonly known as Medicare and

Medicaid as well as from private out-of-state insurance com-

panies and pays management and accounting fees to various

out-of-state consultants. The total amount of said out-of-state

purchases, revenues, and fees exceed the summ of $500,000.00.

52a

7. In addition to the medical procedures usually per-

formed by orthopedic surgeons, DR. MARRESE, in the last

five years, has performed a large number of complex spinal

operations (including radiological, diagnostic and follow-up

treatment) most of which he performed by using the operating

room facilities of the DEACONESS HOSPITAL. In those

situations where the patient had a previous lumbar procedure

those operations can only be performed at the DEACONESS

HOSPITAL since that HOSPITAL is the only one in Evansville

with a “cell saver.”

8. The Defendant, INTERQUAL, INC. (hereinafter

referred to as “INTERQUAL” ) is a Delaware corporation with

its principal place of business within the State of Illinois. It

purports to offer expert inpartial medical audit services to

various hospitals and other medical institutions throughout the

United States. It falsely purported to perform such an audit of

the medical procedures of Plaintiff, DR. MARRESE, as here-

inafter described.

9. Defendant, DEACONESS HOSPITAL, (hereinafter

referred to as the “HOSPITAL” ) is a not-for-profit health care

facility incorporated in the State of Indiana and located in

Evansville, Indiana. Evansville is at the apex of the so-called

“tri-state area” where the HOSPITAL regularly serves patients

from Southern Indiana, Western Kentucky and Southern II-

linois. Approximately 25% o- the HOSPITAL'S patients travel

from Kentucky and Illinois to the HOSPITAL for the purpose

of receiving medical and surgical care from its professional

staff.

10. The HOSPITAL'S regular billings with respect to said

out-of-state patients are not less than TEN MILLION DOL-

LARS ($10,000,000.00) per year.

11. The HOSPITAL also purchases medical supplies and

equipment in an amount not less than FIVE MILLION DOL-

LARS ($5,000,000.00) per year from various out-of-state

sources.

53a

12. At all times herein concerned, there existed at

Defendant HOSPITAL, two committees which undertook deal-

ings with Plaintiff, DR. MARRESE; for purposes of clarity,

these committees are herein described as follows:

(a) Special Ad Hoc Committee of the Medical Staff

(hereinafter referred to as “SAHC”); and

(b) Executive Committee of the Medical Staff ( hereinafter

referred to as the “Executive Committee”’).

13. Defendant, WILLIAM H. ALLEN, M.D. (hereinafter

referred to as “DR. ALLEN”) is a resident of Evansville,

Indiana, is a neurosurgeon on the staff of the HOSP'TAL and

as such is a competitor of Plaintiff, DR. MARKESE, for

surgical spine patients in the Evansville, Indiana, marketing

area. Since February, 1978, he has been either a member or

chairman of the SAHC.

14. Defendant, BRYANT A. BLOSS, M.D. (hereinafter

referred to as “DR. BLOSS”) is a resident of Evansville,

Indiana, is an orthopedic surgeon on the staff of the HOSPI-

TAL, and as such is a competitor of Plaintiff, DR. MARRESE,

for surgical spine and other patients in the Evansville, Indiana

marketing area. In addition, since May, 1980, he has been a

member of the SAHC.

15. Defendant, THOMAS EVANS, M.D. (hereinafter

referred to as “DR. EVANS”) is a resident of Henderson,

Kentucky, is an orthopedic surgeon on the staff of the HOSPI-

TAL and as such is a competitor of Plaintiff, DR. MARRESE,

for surgical spine and other patients from the Evansville,

Indiana marketing area. In addition, since August, 1978, he

has been a member of the SAHC.

16. Defendant, AHMET K. PERCINEL, M.D. (here-

inafter referred to as “DR. PERCINEL”) is a resident of

Evansville, Indiana, is an orthopedic surgeon on the staff of the

HOSPITAL and as such is a competitor of Plaintiff, DR.

MARRESE, for surgical spine and other patients from the

54a

Evansville, Indiana, marketing area. In addition, since August

1978, he has been a member of the SAHC.

17. Defendant, PEDRO DOMINQUEZ, M.D., (here-

inafter referred tc as “DR. DOMINQUEZ?”) is a resident of

Evansville, Ind’ .a, is a neurological surgeon on the staff of the

HOSPITAL aad as such is a competitor of Plaintiff, DR.

MARRESE, for surgical spine patients from the Evansville,

Indiana marketing area. In addition, since May, 1980, he has

been a member of the SAHC.

18. Defendant, SAM B. BAKER, M.D. (hereinafter

referred to as “DR. BAKER”) is a resident of Evansville,

Indiana, a Director of the HOSPITAL where he was until

recently Chief of Radiology and President of the Medical Staff.

In addition, at all times herein alleged, he has been a member

of the SAHC and the Executive Committee. Furthermore, DR.

BAKER attended SAHC meetings of February 1982 and

March 22, 1982, and is a competitor of Plaintiff, DR. MAR-

RESE for the delivery of radiological services in the Evansville,

Indiana marketing area.

19. Defendant, DAVID A. JOHNSON, hereinafter re-

ferred to as “JOHNSON”’) is Administrator of the HOSPITAL

and a member of SAHC and Executive Committee and attend-

ed the meetings of those committees in 1982.

20. Defendant, JOHN C. RENDER, (hereinafter referred

to as “RENDER”’), is a resident of Indianoplis, Indiana, and is

the attorney for and a member of the SAHC and the Executive

Committee.

21. Defendant, KENNETH NACHTNEBEL, M.D.,

(hereinafter referred to as “DR. NACHTNEBEL”’) is a resi-

dent of Evansville, Indiana and as of May 1, 1982, was

President of the Medical Staff, a Director of the HOSPITAL,

and a member of the Executive Committee.

_ 22. Defendants, C. LEROY ANDERSON, DAVID L.

BARNING, C. JACK BUSCHKILL, MRS. JEAN G. DREM-

55a

STEDT, GERALD M. FINNEY, PHILLIP J. GEIER, ROB-

ERT L. KOCH, WILLIAM D. POWELL, DONALD A.

RAUSCH, BERNARD E. SCHNACKE, D. W. VAUGHN and

JAMES W. VOGEL, are all residents of Evansville, Indiana,

and are members of the Board of Directors of Defendant

HOSPITAL.

23. Defendants, MELVIN L. KALLENBACH and DON-

ALD E. STEEDLY, are residents of Newberg, Indiana, and

Defendant, WILLIAM L. KECK, is a resident of Mr. Vernon,

Indiana, and are also members of the Board of Directors of the

HOSPITAL.

24. All of the Directors named herein have directly

assisted and promoted the alleged conspiracy of the other

Defendants by declining to take reasonable precautions to

prevent the anti-competitive practices hereinafter enumerated.

25. As a result of defendants’ continuing conspiracy and

other action in violation of the federal antitrust as hereinafter

fully described, interstate commerce relative to the providing of

orthopedic, neurological spine surgical services at the HOSPI-

TAL and in the HOSPITAL’S marketing area, has been and

will continue to be substantially adversely affected in that,

among other things, Defendants would perpetuate and rein-

force a variety of restrictive, anti-competitive practices in the

relevant market. DR. MARRESE is and has been the major

opponent of such practices and defendants now seek to exclude

him from the relevant market for that reason and because of

the serious competition threat that he poses to them.

RELEVANT MARKET

26. The relevant market for purposes of the anti-trust

counts of this Complaint is the market for orthopedic and

neurological spinal surgical procedures performed in Evans-

ville, Indiana.

56a

COUNT I

1.-26. The allegations of paragraph | through 26 are

hereby incorporated by reference.

27. Beginning in early 1978 and continuing thereafter to

the present, the Defendants have engaged in ar unlawful

conspiracy to exclude DR. MARRESE from the Evansville,

Indiana marketing area by falsely charging that he is unquali-

fied to practice and compete therein.

‘ 28. Said conspiracy has consisted of, among other things, a

continuing course of action among the individual medical

defendants, ALLEN, BLOSS, EVANS, PERCINEL, DOMIN-

QUEZ, BAKER, NACHTNEBEL, and the Defendant HOSPI-

TAL, and its Administrator, Defendant JOHNSON, its at-

torney, Defendant RENDER and Defenda :t INTERQUAL, in

attributing DR. MARRESE’S success in his medical practice to

his willingness to perform large numbers of “inappropriate and

unwarranted surgical procedures.”

29. Said conspiracy was undertaken not only because of

DR. MARRESE’S aforesaid success in attracting a number of

patients that greatly exceeded the number attracted to any

other orthopedic surgeons on the HOSPITAL'’S staff, but also

because DR. MARRESE refused to abide by a number of long-

entrenced, anti-competitive trade practices within the aforesaid

market.

30. One such practice is an apprenticeship system imposed

upon all orthopedic surgeons first entering the Evansville,

Indiana marketing area, but expecially upon those who enter

from outside of the State of Indiana. In order to become a

member of the Medical Staff at the HOSPITAL, this system

dictates that an orthopedic surgeon first become “apprenticed”

to an orthopedic surgeon on the staff of the HOSPITAL and

57a

thereafter remain in his employ for an extended but undefined

period of time without becoming a professional challenge to the

employer.

31. DR. MARRESE was formerly thus “apprenticed” to

Defendant BLOSS, but was discharged as soon as he showed

signs of a willingness to compete with him.

32. Upon leaving the employ of DR. BLOSS, DR.

MARRESE refused to withdraw as a staff member at the

HOSPITAL and refused to become employed by or associated

with another member of the medical staff of the HOSPITAL.

Instead he went directly into competition with them, thus

further offending the anticompetitive local tradition.

33. Another such anti-competitive trade practice is the

refusal of orthopedic and neurological surgeons to accept

patients who have been treated by other orthopedic surgeons in

the market area, without specific approval! and referral from

those surgeons.

34. DR. MARRESE has also refused to conform to this

trade practice and has, in fact, attracted considerable patient

business from his competitors at the HOSPITAL in particular

and in the relevant market in general.

35. Another such anti-competitive practice is the opposi-

tion of staff orthopedic and neurological surgeons and the

HOSPITAL to the introduction of advanced, highly sophis-

ticated diagnostic equipment by any orthopedic surgeon in his

own Office for his own use.

36. DR. MARRESE’S active competition also offended

this practice when he made an initial deposit of $10,000.00 for

the purchase of a $500,000.00 advanced computerized Tomog-

raphy Body Scanner (known as “C. T. Scanner”) for his

exclusive office use which was perceived by defendants to be a

serious threat to their own trade practice. This purchase has not

been completed as of the date of this Complaint, due to the

threatened termination of DR. MARRESE’S staff privileges.

58a

37. The private acquisition of such an advanced diagnostic

tool in conjunction with the continuation of his staff privileges,

would automatically have placed DR. MARRESE at an even

greater competitive advantage over the other members of the

orthopedic, neurological and radiological staff of the HOSPI-

TAL, as well as causing substantial loss of revenue to the

HOSPITAL.

38. Another such anti-competitive trade practice has been

the refusal of all orthopedic surgeons on the HOSPITAL'S staff

to treat a patient of DR. MARRESE’S when DR. MARRESE

was out of town even when the patient was in critical need of

orthopedic services.

39. On information and belief, DR. MARRESE states that

he has been attacked for doing “‘to may backs”, and because his

patients occupy a relatively large number of beds at the

HOSPITAL, thus making it more difficult for Defendants’

orthopedic and neurological surgeons to hospitalize their

patients. He has also been attacked because of his diagnostic

and surgical ability to correct a variety of complex spinal

conditions that loca! competitor surgeons are unable to per-

form. Still another reason for the attack on DR. MARRESE is

that he is in direct competition with local neurological surgeons

for the performance of certain spinal procedures.

40. In formulating and effectuating their resulting con-

spiracy to eliminate plaintiffs as competitors in the relevant

market and particularly for patients treated at the HOSPITAL,

defendants further specifically agreed and conspired to perform

the following acts:

(a) In February, 1978, defendant, ALLEN, a mem-

ber of the Medical Staff of the HOSPITAL, recommended

that an audit be conducted of “back” procedures per-

formed at the HOSPITAL. It had previously been the

practice at the HOSPITAL to have audits of this general

sort performed by the Medical Audit Committee, and the

59a

Executive Committee initially recommended that this audit

be conducted by this Committee, of which DR. MAR-

RESE was a member. However, subsequently, the audit

was instead aksigned to SAHC, a Committee headed by a

urologist, Dr. Rabin. Dr. Rabin Immediately named

defendants, ALLEN, EVANS and PERCINEL to that

Committee.

(b) Although Plaintiffs are not now aware of the exact

numbers involved, there were approximately three times as

many lumbar laminectomies as spinal fusions performed at

the HOSPITAL during the period in question. Never-

theless, the members of SAHC, knowing full well that DR.

MARRESE performed the vast majority of spinal fusions,

audited 50 lumbar laminectomies and 40 spinal fusions.

Of the 40 spinal fusions audited, 32 were performed by

DR. MARRESE and 8 by six other orthopedic surgeons.

were found to have been performed in accordance with the

nationwide and areawide quality criteria. Notwithstanding

that DR. MARRESE’S spinal fusions also met all nation-

wide and areawide quality criteria, SAHC, then consisting

of defendants, ALLEN, BLOSS, EVANS and PERCINEL,

elected to examine those audited cases by the arbitrary and

restrictive criteria of what they considered to be “reason-

able” grounds for performing such surgery and “reason-

able” extents or levels of such surgery. Thus in 24 of DR.

MARRESE’S 32 spinal fusions audited, the Committee

questioned the appropriateness, but not the results of DR.

MARRESE’S surgery.

(d) There was no objective basis for such findings;

indeed in various of the cases that were audited, DR.

MARRESE undertook the surgery because of continuing

severe spinal problems experienced by patients, some of

whom had been under the care of other competing

60a

orthopedic and enurological surgeons, but had not had

those problems corrected.

(e) During the course of the aforesaid audit, defend-

ants concealed its existence from DR. MARRESE. Subse-

quently, upon its conclusion and without affording him an

opportunity to respond, defendant, ALLEN, the then

acting Chairman of the SAHC, officially recommended to

the full medical staff that all of DR. MARRESE’S lumbar

laminectomies and spinal fusion cases should be moni-

tored, and all his cases which did not have a positive

radiological finding should be subjected to a mandatory

second opinion.

(f) In making this recommendation to the full medical

staff, defendant, ALLEN, violated the provisions of the

Indiana Peer Review Statute which provides that any

health care provider under investigation be allowed to

review all the data collected by the relevant committee and

to offer rebuttal data before any outside disclosure or

making of recommendations by the Committee.

(g) Following the aforesaid publication and negative

recommendations by the SAHC, DR. MARRESE met with

defendants, PERCINEL, ALLEN and EVANS on or

about January 31, 1980, to discuss 24 of the 32 cases

audited which had been criticized. At that meeting, only

one case was reviewed and the records in that case

themselves disclosed that it met all areawide and nation-

wide criteria.

(h) This discovery so angered the SAHC that defend-

ant, ALLEN, appointed new members to that Committee

including defendants, BLOSS and DOMINQUEZ. The

SAHC then sent 8 of the 32 cases to an outside auditor for

review. After reviewing these cases, the outside auditor

stated that he could form no conclusion about DR. MAR-

RESE, but instead recommended that not only DR. MAR-

6la

RESE’S but all other orthopedic and neurological proce-

dures performed at the HOSPITAL be sent for an outside

audit for review by two auditors, one to be selected by DR.

MARRESE and one to he selected by the HOSPITAL.

(i) However because of its desire to single out DR.

MARRESE for punishment for his departures from the

aforesaid anti-competitive practices, the HOSPITAL failed

to act upon this recommendation.

41. Thereafter, in August, 1980, a proposal was made to

require each staff member at the HOSPITAL to provide two

alternate physicians in that member’s sub-specialty, to attend a

doctor’s patients in the event of that doctor’s absence. In

immediate succession, at the end of the same month, every

member of the orthopedic staff either resigned or refused DR.

MARRESE’S request to serve as his alternate.

42. At approximately the same time that it became general

knowledge that Plaintiffs intended to purchase a C. T. Scanner,

the HOSPITAL, at the instigation of, and in conspiratorial

combination with the individual members of the medical staff,

instructed a member of the SAHC and the Medical Staff

Executive Committee, Attorney John Render, a defendant

herein, to contact defendant, INTERQUAL, a company en-

gaged in ihe business of performing medical audits, with the

express purpose of conducting a second audit on certain of

plaintiff MARRESE’S lumbar laminectomies and spinal fu-

sions, not previously subjected to audit.

43. Defendant, INTERQUAL, conducted an audit of 93

of DR. MARRESE’S procedures, 70 of which were lumbar

procedures and 23 of which were cervical procedures.

44. In conducting this audit, defendant, INTERQUAL,

reviewed only the facesheets, the history and physical exam-

ination, a limited number of x-ray reports, laboratory test

results and discharge summaries. When the record reflected the

62a

existence of other materials bearing upon the conclusions that

had been drawn, defendant, INTERQUAL, did not request this

material. When abnormalities were noted in the body of an x-

ray report, INTERQUAL disregarded that information. When

additional x-rays and diagnostic tests were performed outside

of the hospital and this was reflected in the material in their

posse ion, defendant, INTERQUAL, did not request an

opportunity to review that information. Defendant, INTER-

QUAL, made no attempt to read myleograms, misread myleo-

gram reports, failed to secure other report: “uggested “Fourth

Generation C. T. scans when such procedures were not techni-

cally available during the time period in question, and sub-

mitted a report that contained so many clerical and inter-

pretative errors that it reflects a total lack of good faith and

malice towards Plaintiffs.

45. Defendants, ALLEN, BLOSS, EVANS, PERCINEL,

DOMINQUEZ, BAKER, RENDER, and JOHNSON, as mem-

bers of the SAHC, have now made the finding of INTER-

QUAL the basis for their recommendation to the Executive

Committee of the medical staff to revoke the clinical privileges

of DR. MARRESE at the HOSPITAL. This unquestioned

adoption of the INTERQUAL report by the Executive Com-

mittee in conjunction with the other conduct enumerated herein

exhibits a complete lack of good faith on the part of the

Committee members and malice towards the Plaintiffs.

46. On April 28, 1982, the Executive Committee adopted

the recommendation of the SAHC but stayed the termination of

DR. MARRESE’S clinical privileges pending the hearing called

for in the HOSPITAL’S “Fair Hearing Plan.”

47. The attempt to exclude DR. MARRESE from staff

privileges at the HOSPITAL and from providing medical

services to his patients in the Evansville, Indiana marketing

area, has been motived by his competitors’ malice directed

toward his aggressive competitive actions, his treatment of

former patients of other staff members without prior referral

63a

from them, his development of a successful independent medi-

cal practice, his refusal to remain employed by or associated

with other area orthopedic surgeons, his refusal to resigh his

staff privileges, and his refusal to abide by various other anti-

competitive trade practices at the HOSPITAL.

48. On information and belief, some of those same

competitors, the defendant doctors, have likewise conspired to

exclude DR. MARRESE from the American Academy of

Orthopedic Surgeons, thus further injuring him and impairing

his practice.

DAMAGES

49. As a direct and proximate result of defendants’

conspiracy, DR. MARRESE has suffered a severe professional

stigma accompanied by a loss in patient referrals from other

physicians and the nursing staff at the HOSPITAL. This total

loss of profits from these sources alone over the past four years

has been not less than $1,500,000.00.

50. If Defendants’ conspiracy is successful in its ultimate

objective of driving DR. MARRESE from the Evansville,

Indiana marketing area, he will lose the entire accumulated

good will of his present practice, his recognition as an able

orthopedic surgeon and in his sub-specialty of spinal surgery,

and be unable to practice orthopedic medicine anywhere else in

the United States because of the cost of medical malpractice

insurance, and because no other hospital could afford the risk of

accepting DR. MARRESE on its staff. The damage to DR.

MARRESE, therefore, will represent not less than

$15,000,000.00 over the estimated remainder of his professional

career.

WHEREFORE, Plaintiffs, DR. MARRESE and BONE &

JOINT SURGEONS, INC., pray that this Court enter judg-

ment against all of the Defendants and each of them, for three

64a

times the total of the above amounts together wih all costs of

this action, including reasonable attorney’s fees.

COUNT Il

1.-50. The allegations of Paragraphs | through 5v are

hereby incorporated by reference.

51. The exact amount of DR. MARRESSE’S future

damages in the event that the aforesaid conspiracy is fully

successful cannot presently be determined. However, his injury

will be grave and irreparable. No money damages can ever

fully compensate him for this threatened, lifelong professional

disgrace.

WHEREFORE, pursuant to § 16 of the Clayton Act

(12 U.S.C. § 26) Plaintiffs, DR. MARRESE and BONE & Joint

SURGEONS, INC., pray that this Court enter a permanent

injunction restraining defendants and each of them from all of

the aforesaid continuing anti-trust violations, and that it grant

them such other and further relief as it may deem just and

proper, together with all costs of this action, including reason-

able attorney’: fees.

COUNT III

1.-50. The allegations of Paragraphs | through 50 of

Couut II are hereby incorporated by reference.

52. Defendants’ acts and conspiracy as above described

have constituted an attempt and conspiracy to monopolize the

aforesaid market for the delivery of orthopedic and neurologi-

cal spinal surgical procedures. They have done so by taking,

threatening to take, condoning and assisting the taking of

exclusionary action against all competitors who are seen as

competitively “agressive”.

65a

53. More than 40% of all the orthopedic and neurological

surgical operations performed in Evansville during each of the

past four years were performed at the HOSPITAL by member

of its professional staff.

54. The HOSPITAL possesses unique and indispensable

facilities for the sorts of complex, specialized operations that

comprise the relevant service market as above defined. It is,

therefore, a distinct submarket within that market and an

“essential” facility to which every competitor must have fair

and equal access in order to compete effectively.

55. Moreover, immediately upon the termination of his

clinical privileges at defendant HOSPITAL, all other hospitals

in the Evansville, Indiana marketing area at which DR. MAR-

RESE is presently affiliated, will also be required to terminate

his staff privileges since their malpractice carriers will provide

no coverage for DR. MARRESE’S procedures.

56. The intent and natural effect of the aforesaid

anticompetitive practices directed against any competitor who,

like DR. MARRESE, is seen as “aggressive” in seeking to take

professional business from any other competitors is to reduce -

the overall level of output of the relevant services in the

relevant market.

WHEREFORE, pursuant t §4 of the Clayton Act (15

U.S.C. § 15) Plaintiffs, DR. MARRESE and BONE & JOINT

SURGEONS, INC., pray for the same relief sought with

respect to Count I.

COUNT IV

1.-51. Plaintiff hereby realleges Paragraphs | through 51

of Count II as Paragraphs | through 54 of this Count IV.

WHEREFORE, pursuant to Section 16 of the Clayton Act

(15 U.S.C. §26) Plaintiffs; DR. MARRESE and BONE &

66a

JOINT SURGEONS, INC., pray that this Court enter a

Permanent Injunction and restraining defendants and each of

them from all of the aforesaid continuing antitrust violations,

and that it grant them such other and further relief as it may

deem just and proper, together with all costs of this action

including reasonable attorney's fees.

COUNT V

(CIVIL RIGHTS ACTION)

. 1.-50. The allegations of Paragraphs | through 50 of

Count II are hereby incorporated by reference.

;

(

51. The professional staff of any hospital in the State of

Indiana is authorized, pursuant to 31 Burns Indiana Statute

4-12-6(2) (c) (B) to establish a “Peer Review Committee”,

which is a committee charged with the responsibility of eval-

uating the qualifications of professional health care providers at

a hospital DR. MARRESE is a “professional health care

provider” within the meaning of said statute.

52. Defendant HOSPITAL attempted to implement the

provisions of that statute on June 2, 1980 by adopting a “Fair

Hearing Plan”, a copy of which is attached hereto as Exhibit

sad ag

53. The plan adopted calls for two hearings, one being an

Evidentiary hearing and one being an Appellate hearing in the

event that any adverse action is taken by recommendation of

the Medical Staff Executive Committee.

54. To date there has been no evidentiary hearing, but

under the Fair Hearing Plan of defendant HOSPITAL, the

President of the medical staff, after an adverse recommendation

by the Executive Committee of the medical staff, is to appoint a

hearing committee consisting of five (5) members of the senior

or active medical staff of said hospital and to appoint a

chairman of this hearing committee.

67a \

55. The President of the medical staff of defendant

HOSPITAL is presently defendant NACHTNEBEL, who was a

member of the Executive Committee of the medical staff, and

voted in accordance with the actions of said Committee.

56. The Fair Hearing Plan adopted by defendant HOSPI-

TAL provides, in part, as follows:

“...the body whose adverse recommendation or action

occasioned the hearing, shall have the initial obligation to

present evidence in support thereof; but the practitioner

shall thereafter be responsible for supporting his challenge

to the adverse recommendation or action by pre-

ponderance of the evidence that the grounds therefore lack

any substantial factual basis or that such basis or that the

conclusions drawn therefrom are either arbitrary, unrea-

sonable or capricious.”

57. The “Fair Hearing Plan” adopted by defendant

HOSPITAL is violative of plaintiff DR. MARRESE’S right to

due process of law in that those judging his medical quali-

fications are selected by one who participated in the adverse

recommendation in the first instance, thereby violating plain-

tiffs rights to procedural due process of law in violation of the

Fourteenth Amendment of the Constitution of the United

States.

58. The “Fair Hearing Plan” adopted by defendant

HOSPTIAL also denied plaintiffs right to substinative due

process of law in that the burden imposed upon him of showing

a lack of “any substantial factual basis” for the Executive

Committee of the Medical Staff’s recommendation or that such

basis or the conclusions drawn therefrom are either arbitrary,

unreasonable or capricious, creates a presumption strongly in

favor of the recommendations of the medical staff, and one

which creates a strong presumption of guilt in violation of the

Fourteenth Amendment of the United States Constitution.

59. In addition to the Constitutional Violations enum-

berated above, the Fair Hearing Plan adopted by the HOSPI-

TAL does not comply with the Indiana Peer Review Act.

68a

WHEREFORE, Plaintiffs, R. ANTHONY MARRESE

and BONE & JOINT SURGEONS, INC., pray:

1. That the Court declare the procedure whereby the

President of the Medical Staff of defendant HOSPITAL is

authorized to appoint a Hearing Committee, when the Presi-

dent of the Medical Staff has served on the Medical Executive

Committee making the adverse recommendation, to be a

violation of plaintiffs’ constitutional rights and therefore void

and of no effect.

2. That this Court declare the action of defendant

HOSPITAL, wherein the burden of proof is being placed upon

plaintiffs to show by a preponderance of the evidence that the

recommendation of the Medical Executive Committee lacked

any substantial factual basis, or that such basis or the con-

clusions drawn therefrom were either arbitrary, unreasonable

or capricious, is violative of plaintiffs’ constitutional rights, and

therefore void and of no effect.

3. That a permanent injunction issue enjoining the Presi-

dent of the Medical Staff of the HOSPITAL from naming a

committee to sit in review of the recommendation of the

Executive Committee of the Medical Staff.

4. That a Preliminary Injunction issue restraining and

enjoining defendant HOSPITAL from proceeding to a hearing

on the issues raised by the Medical Executive Committee for so

long as the burden of proof remains upon DR. MARRESE to

show by a preponderance of the evidence that the grounds for

that recommendation lack any substantial factual basis or that

such basis or the conclusions drawn therefrom are either

arbitrary, unreasonable or capricious.

5. That plaintiffs be granted a judgment in money

damages against defendant HOSPITAL for the loss of income

tht they may suffer as a result of defendant’s unconstitutional

action towards them.

69a

6. That plaintiffs, be awarded reasonable at’ »rney’s fees

and cost of suit to be assessed against defendant HOSPITAL as

required by law.

7. That plaintiffs be awarded such other and further

equitable and legal relief as may be deemed just under the

circumstances.

COUNT Vi

PENDENT JURISDICTION —TORTIOUS

INTERFERENCE WITH BUSINESS RELATIONS

1.-49. The allegations of Paragraphs | through 49 of

Count II are hereby incorporated by reference.

50. Beginning at the time of their involvement as here-

inbefore alleged, defendants, ALLEN, BLOSS, EVANS, PER-

CINEL, DOMINQUEZ, BAKER, NACHTNEBEL, JOHN-

SON, RENDER, INTERQUAL, INC. and the HOSPITAL,

with full knowledge that plaintiff MARRESE’S staff privileges

at defendant HOSPITAL constituted the foundation for both

plaintiffs success in the business of delivering orthopedic,

neurological and radiological medical services, did wrongfully

and maliciously endeavor to cause plaintiff MARRESE’S staff

privileges at the HOSPITAL to be terminated and did by their

acts, as above enumerated, attempt to force plaintiff MAR-

RESE to leave the town of Evansvill, Indiana.

$1. That all of the acts alleged above were performed by

these defendants with the sole design of injuring plaintiffs and

destroying their business and not for the purpose of serving any

legitimate interest.

52. As a direct and proximate result of defendants’

conduct, DR. MARRESE has suffered a severe professional

stigma accompanied by a loss in patient referrals from other

physicians as well as the nursing staff of the HOSPITAL. This

70a

total loss of profit from these sources alone over the past four

years has been no less than $1,500,000.00.

53. If defendants’ efforts are successful in their ultimate

objective of causing plaintiff MARRESE’S staff privileges at the

HOSPITAL to be terminated and in forcing DR. MARRESE to

leave the Evansville, Indiana marketing area, he will lose the

emtire accumulated goodwill of his present practice, his recogni-

tion as a competent orthopedic surgeon in all areas of that

practice, and particularly in his subspecialty of spinal surgery,

and be unable to practice orthopedic medicine anywhere in the

United States because of the cost of medical malpractice

insurance and because no other hospital could afford the risk of

accepting DR. MARRESE on its staff. The damage to DR.

MARRESE, therefore, would represent no less than

$15,000,000.00 over the estimated remainder of his professional

career.

WHEREFORE, piaintiffs, DR. MARRESE and BONE &

JOINT SURGEONS, INC., pray that this Court enter judg-

ment against defendants, ALLEN, BLOSS, EVANS, PER-

CINEL, DOMINQUEZ, BAKER, NACHTNEBEL, JOHN-

SON, RENDER, INTERQUAL, INC. and HOSPITAL and

each of them for $16,500,000.00 together with costs of this

action.

COUNT VII

1.-53. The allegations of Paragraphs | through 53 of

Count VI are hereby incorporated by reference.

54. The exact amount of plaintiffs’ future damages in the

event that the acts enumberated above performed by defend-

ants are fully successful, cannot presently be determined.

However, his injury will be grave and irreparable. No money

damages can ever fully compensate him for his threatened

termination of his clinical privileges and his lifelong profes-

sional disgrace.

i a as an men ts Se i x

Tla

WHEREFORE, plaintiffs: DR. MARRESE and BONE &

JOINT SURGEONS, INC., pray that this Court enter a

Permanent Injunction restraining said defendants and each of

them from all of the aforesaid acts and that it grant them such

other and further relief as it may deem just and proper, together

with all costs of this action.

R. ANTHONY MarresE, M.D. and

BONE & JOINT SURGEONS, INC.

By: /s/ JOHN J. CASEY

John J. Casey

One of Their Attorneys

JOHN J. CASEY

LANDESMAN & SCHWARTZ

111 W. Washington Street

Suite 1025

Chicago, Illinois 60602

(312) 346-6650

JURY DEMAND

I, John J. Casey, one of the attorneys for plaintiffs, R.

ANTHONY MARRESE, M.D. and BONE & JOINT SUR-

GEONS, INC., hereby demand a trial by jury on the issues

listed in this Complaint.

/s/ JOHN J. CASEY

John J. Casey

JOHN J. CASEY

LANDSMAN & SCHWARTZ

Attorneys for Plaintiffs

111 W. Washington St.

Suite 1025

Chicago, Illinois 60602

(312) 346-6650

72a

AFFIDAVIT OF SERVICE

STATE OF ILLINOIS ;

COUNTY OF COOK

JOHN J. CASEY, being first duly sworn on oath, deposes

and says that he served the foregoing instrument upon:

SEE ATTACHED LIST

by mailing true and correct copies of the same this 26th day of

July, 1982 and by depositing the said copies in the United

States Mail at 111 W. Washington Street, Chicago, Iliinois,

60602, postage prepaid, addressed as above shown.

/s/ JOHN J. CASEY

John J. Casey

SUBSCRIBED and SWORN to before me this 26th day of

July, 1982.

/s/ Donna V. Sigma

Notary Public

JOHN J. CASEY

LANDESMAN & SCHWARTZ

111 West Washington Street

Suite 1025

Chicago, Illinois 60602

(312) 346-6650

73a

EXHIBIT NO. A

FAIR HEARING PLAN

INTRODUCTION

It is the intent of the Medical Staff, by the adoption of this

Fair Hearing Plan, to provide every practitioner with one

evidentiary hearing and with one appellate hearing in the event

that any action is taken by the Medical Staff Executive Council

(hereafter MEC) or the Board of Directors of the Hospital. It

is further the intention of the Medical Staff in adopting the Fair

Hearing Plan that the practitioner be granted only one eviden-

tiary hearing and one appellate hearing. It is intended that the

provisions of the Plan following shall be initiated upon an

adverse action of the MEC or the Board of Directors as the

term adverse action is hereinafter defined. With respect to

initial appointment, limitation of staff priviliges, revocation of

staff privileges, or suspension or revocation of clinical privileges,

as hereinafter specified, the MEC shall give the appropriate

notice as hereinafter required to the practitioner. If, however,

the adverse action is an action of the Board of Directors taken

contrary to a favorable recommendation of the MEC, it is

intended that the right to a fair hearing shall be enjoyed by an

practitioner in the same manner as if such unfavorable or

adverse action had been taken initially by the MEC.

ARTICLE I—INITIATION OF HEARING

1.1 RECOMMENDATIONS OR ACTIONS

The following recommendations or actions shall, if deemed

adverse pursuant to Section 1.2 of this Plan, entitle the

practitioner affected thereby to a hearing:

(a) Denial of initial staff appointment

(b) Denial of reappointment

74a

(d) Revocation of staff membership

(e) Denial of requested advancement in staff cate-

gory

(f) A change in staff category not acceptable to the

practitioner

(g) Limitation of the right to admit patients

(h) Denial of requested department/service/section

affiliation

(i) Denial of requested clinical privileges

(j) Reduction in clinical privileges

(k) Suspension of clinical privileges

(1) Revocation of clinical privileges

(m) Terms of probation

(n) Individual requirement of consultation

1.2 WHEN DEEMED ADVERSE

A recommendation or action listed in Section 1.1 of this

Plan shall be deemed adverse only when it has been:

(a) recommended by the medical executive com-

mittee (MEC); or

(b) taken by the board contrary to a favorable rec-

ommendation by the MEC under circumstances

where no right to hearing existed; or

benefits of a prior recommendation by the MEC.

1.3 NOTICE OF ADVERSE RECOMMENDATION OR

ACTION

A practitioner against whom an adverse recommendation

of action has been taken pursuant to Section 1.2 of this

75a

Plan shall promptly be given special notice by certified

mail of such action. Such notice shall:

(a) advise the practitioner of his right to a hearing

pursuant to the provisions of the medical staff

bylaws and of this Fair Hearing Plan.

(b) specify the number of days following the date of

receipt of notice within. which a request for a

hearing must be submitted.

specified time period shall constitute a waiver of

rights to a hearing and to an appellate review on

the matter.

(d) state that upon receipt of his hearing request, the

practitioner will be notified of the date, time, and

place of the hearing and the grounds upon which

the adverse acticn is based.

1.4 REQUEST FOR HEARING

A practitioner shall have ten (10) days following his

receipt of a notice pursuant to Section 1.3 to file a written

request for a hearing. Such request shall be delivered to

the chief executive officer either in person or by certified or

registered mail.

1.5 WAIVER BY FAILURE TO REQUEST A HEARING

A practitioner who faiis to request a hearing within the

time and in the manner specified in Section 1.4 waives any

right to such hearing and to any appellate review to which

he might otherwise have been entitled. Such waiver in

connection with:

(a) An adverse action by the board shall constitute

acceptance of that action, which shall thereupon

become effective as the final decision of the

board.

‘

76a

(b) An adverse recommendation by the MEC shall

constitute acceptance of that recommendation,

which shall thereupon become and remain effec-

tive pending the final decision of the board. The

board shall consider the committee’s recommen-

dation at its next regular meeting following waiv-

er. In its deliberations, the board shall review all

the information and material considered by the

committee and may consider all other relevant

information received from any source. If the

board’s action on the matter is in accord with the

MEC’s recommendation, such action shall con-

stitute a final decision of the board. If the board’s

actions as the effect of changing the MEC’s

recommendation, the matter sh ll be submitted

to the joint conference committee of the hospital

for recommendation. The board’s action on the

matter following receipt of the jcint conference

recommendation shall constitute its final decision.

The chief executive officer shall promptly send

the practitioner special notice informing him of

each action taken pursuant to this Section 1.5(b)

and shall notify the president of the staff and the

chairman of the MEC of each such action.

ARTICLE II—HEARING PREREQUISITES

2.1 NOTICE OF TIME AND PLACE FOR HEARING

Upon receipt of a timely request for hearing, the chief

executive Officer shall deliver such request to the president

of the medical staff or to the board, depending on whose

recommendation or action prompted the request for hear-

ing. Within fifteen (15) days after receipt of such request,

the president of the staff or the board shall schedule and

arrange for a hearing. At least fifteen (15) days prior to

the hearing, the chief executive officer shall send the

tl cee ial Kt: ht Sie Bie ei atte th ABT

inhi thcy i

aber

edits adn tt

2.2

2.3

77a

practitioner special notice of the time, place, and date of

the hearing. The hearing date shall be not less than fifteen

(15) days nor more than forty-five (45) days from the

date of receipt of the request for hearing; provided,

however, that a hearing *>r a practitioner who is under

suspension then in effect shall be held as soon as the

arrangements for it may reasonably be made, but not later

than thirty (30) days from the date of receipt of the

request for hearing.

STATEMENT OF ISSUES

The notice of the hearing required by Section 2.1 shall

contain a concise statement of the reasons for the adverse

action of the MEC or the board, whichever the case may

be. It is intended that the practitioner shall be provided in

reasonable detail with the underlying reasons and causes

for the adverse action and that the notice of the hearing

will contain specific enough reference to such reasons to

permit the practitioner to adequately prepare for the

evidentiary hearing.

APPOINTMENT OF HEARING COMMITTEE

2.3-1 BY MEDICAL STAFF

A hearing occasioned by an adverse MEC recom-

mendation pursuant to Section 1.2(a) shall be

conducted by a hearing committee appointed by the

president of the medical staff and composed of five

(5) members of the senior or active medical staff.

One of the members so appointed shall be desig-

nated as chairman.

2.3-2 BY BOARD

A hearing occasioned by an adverse action of the

board pursuant to Section 1.2(b) or (c) shall be

conducted by a hearing committee appointed by the

3.1

2.3-3

78a

president of the board and composed of five (5)

members, all of whom shall be members of the

senior or active medical staff of the Hospital. One of

the appointees to the committee shall be designated

as chairman.

SERVICE ON HEARING COMMITTEE

Whenever possible the members of the hearing

committee selected either by the president of the

medical staff or the president of the board, as

aforesaid, shall be persons who have not partici-

pated in initiating or investigating the underlying

matter at issue; and wherever possible, such persons

shall not have been a member of any body whose

adverse recommendation or action occasioned the

hearing. It is recognized, however, that it is desir-

able that persons with particular knowledge of the

general subject matter in issue be appointed to the

hearing committee; for example, if the matter in

issue relates to clinical performance, it is deemed

advisable that the hearing committee at least to

some extent be comprised of persons knowledgable

in the clinical area involved in the particular hea-

nng.

ARTICLE III—HEARING PROCEDURE

PERSONAL PRESENCE

The personal presence of the practitioner wno requested

the hearing shall be required. A practitioner who fails

without good cause to appear and proceed at such hearing

shall be deemed to have waived his rights in the same

manner and with the same consequence as provided in

Section 1.5.

3.2

3.3

3.4

79a

PRESIDING OFFICER

The chairman of the hearing committee shall preside as the

presiding officer at the hearing. The presiding officer shall

act to maintain decorum and to assure that all participants

in the hearing have a reasonable opportunity to present

relevant oral and documentary evidence. He shall be

entitled to determine the order of procedure and the

admissability of evidence.

REPRESENTATION

The practitioner who requested the hearing shall be en-

titled to be accompanied and represented at the hearing by

a member of the medical staff in good standing or by a

member of his local medical society. The MEC or the

board, depending on whose recommendation or action

prompted the hearing, shall appoint an individual to

present the facts in support of its adverse recommendation

or action, and to examine witnesses. Representation of

either party by an attorney at law shall be governed by the

provisions of Section 8.1 of this Plan.

RIGHTS OF PARTIES

During a hearing, each of the parties shall have the right

to:

(a) call and examine witnesses

(b) introduce exhibits

to the issues

(d) question the qualifications of any witness

(e) rebut any evidence

3.5

3.6

80a

(f) request that the record of the hearing be made by

use of a court reporter or an electronic recording

unit

The practitioner who requested the hearing may be called

and examined as if under cross-examination.

PROCEDURE AND EVIDENCE

The hearing need not be conducted strictly according to

rules of law relating to the examination of witnesses or

presentation of evidence. Any relevant matter upon which

responsible persons customarily rely in the conduct of

serious affairs shall be admitted, regardless of the

admissibility of such evidence in a court of law. Each party

shall, prior to or during the hearing, be entitled to submit

memoranda concerning any issue of law or fact, and such

memoranda shall become part of the hearing record. The

presiding officer may, but shall not be required to, order

that oral evidence be taken only on oath or affirmation

administered by any person designated by him and en-

titled to notarize documents in the state where the hearing

is held.

OFFICIAL NOTICE

In reaching a decision, the hearing committee may take

Official notice, either before or after submission of the

matter for decision, of any generally accepted technical or

scientific matter relating to the issues under consideration

and of any facts that may be judicially noticed by the

courts of the state where the hearing is held. Parties

present at the hearing shall be informed of the matters to

be noticed and those matters shall be noted in the hearing

record. Any party shall be givex opportunity, on timely

request, to request that a matter be officially noticed and to

refute the officially noticed matters by evidence or by

written or oral presentation of authority, the manner of

3.7

3.8

3.9

8la

such refutation to be determined by the hearing committee.

The committee shall also be entitled to consider all other

information that can be considered, pursuant to the medi-

cal staff bylaws, in connection with applications for

appointment or reappointment to the medical staff and for

clinical privileges.

BURDEN OF PROOF

When a hearing relates to Section 1.1(a), (e), (h), or (1),

the practitioner who requested the hearing shall have the

burden of proving, by clear and convincing evidence, that

the adverse recommendation or action lacks any substan-

tial factual basis or that such basis or the conclusions

drawn therefrom are either arbitrary, unreasonable, or

capricious. Otherwise, the body whose adverse recommen-

dation or action occasioned the hearing shall have the

initial obligation to present evidence in support thereof;

but the practitioner shall thereafter be responsible for

supporting his challenge to the adverse recommendation or

action by preponderance of the evidence that the grounds

therefor lack any substantial factual basis or that such basis

or the conclusions drawn therefrom are either arbitrary,

unreasonable, or capricious.

RECORD OF HEARING

A record of the hearing shall be kept that is of sufficient

accuracy to permit an informed and valid judgment to be

made by any group that may later be called upon to review

the record and render a recommendation or decision in the

matter. The hearing committee may select the method to

be used for making the record, such as court reporter,

electronic recording unit, detailed transcription, or minutes

of the proceedings.

POSTPONENT

Requests for postponement of a hearing shall be granted

by the chairman of the hearing committee only upon a

82a

showing of good cause and only if the written request

therefor is made as soon as is reasonably practical.

3.10 PRESENCE OF HEARING COMMITTEE MEMBERS

AND VOTE

A majority of the hearing committee must be present

throughout the hearing and deliberations. If a committee

member is absent from substantial any part of the proceed-

ings, he shall not be permitted to participate in the

deliberations or the decision.

3.11 RECESSES AND ADJOURNMENT

4.1

The hearing committee may recess the hearing and re-

covene the same without additional notice for the con-

venience of the participants or for the purpose of obtaining

new or additional evidence or consultation. Upon con-

clusion of the presentation of oral and written evidence, the

hearing shall be closed. The hearing committee shall

thereupon, at a time convenient to itself, conduct its

deliberations outside the presence of the parties. Upon

conclusion of its deliberations, the hearing shall be de-

clared finally adjourned.

ARTICLE IV—HEARING COMMITTEE REPORT

AND FURTHER ACTION

HEARINGS COMMITTEE REPORT

Within fifteen (15) days after final adjournment of the

hearing, the hearing committee shall make a written report

of its findings and recommendations in the matter and

shall forward the same, together with the hearing record

and all other documentation considered by it, to the body

whose adverse recommendation or action occasioned the

hearing. All findings and recommendations by the hearing

4.2

4.3

83a

committee shall be supported by reference to the hearing

record and the other docun.entation considered by it.

ACTION ON HEARING COMMITTEE REPORT

Within thirty (30) days after receipt of the report of the

hearing committee, the MEC or the board, as the case may

be, shall consider the same and affirm, modify, or reverse

its recommendation or action in the matter. It shall

transmit the result, together with the hearing record, the

report of the hearing committee and all other documenta-

tion considered, to the chief executive officer.

NOTICE AND EFFECT OF RESULT

4.3-1 NOTICE

The chief executive officer shall promptly send a

notice by certified mail to the practitioner informing

him of the result of the action of the MEC and shall

also send such notice to the president of the medical

staff, chairman of the MEC, and the board.

4.:-2 EFFECT OF FAVORABLE RESULT

(a) Adopted by the Board: If the board’s result

pursuant to Section 4.2 is favorable to the

practitioner, such result shall become the final

decision of the board and the matter shall be

considered finally closed.

(b) Adopted by the MEC: If the MEC’s result is

favorable to the practitioner, the chief execu-

tion officer shall promptly forward it, together

with all supporting documentation, to the

board for its final action. The board shall take

action thereon by adopting or rejecting the

MEC’s result in whole or in part, or by referring

the matter back to the MEC for further

reconsideration. Any such referral back shall

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state the reasons therefor, set a reasonable time

limit within which a subsequent recommenda-

tion to the board must be made, and may

include a directive that an additional hearing

be conducted to clarify issues that are in doubt.

After receipt of such subsequent recommenda-

tion and any new evidence in the matter, the

board shall take final action. The chief execu-

tive officer shall promptly send the practitioner

notice by certified mail informing him of each

action taken pursuant to this section 4.3(b).

Favorable action shall become the final deci-

sion of the board, and the matter shall be

considered finally closed. If the board’s action

is adverse in any of the respects listed in Section

1.1 of this Plan, the special notice shall inform

the practitioner of his right to request an appel-

late review by the board as provided in Section

5.1 of this Plan.

4.3-3 EFFECT OF ADVERSE RESULT

If the result of the MEC or of the board continues to

be adverse to the practitioner in any of the respects

listed in Section 1.1 of this Plan, the special notice

required by Section 4.3-1 shall inform the prac-

titioner of his right to request an appellate review by

the board as provided in Section 5.1 of this Plan.

ARTICLE V—INITIATION AND PREREQUISITES

OF APPELLATE REVIEW

5.1 REQUEST FOR APPELLATE REVIEW

A practitioner shall have ten (10) days following his

receipt of a notice pursuant to Section 4.3-2(b) or 4.3-3 to

file a written request for an appellate review. Such request

5.2

5.3

5.4

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shall be delivered to the chief executive officer either in

person or by certified or registered mail and may include a

request for a copy of the report and record of the hearing

committee and all other material, favorable or unfavor-

able, if not previously forwarded, that was considered in

making the adverse action or result.

WAVIER BY FAILURE TO REQUEST APPELLATE

REVIEW

A practitioner who fails to request an appellate review

within the time and in the manner specified in Section 5.1

above waives any right to such review. Such waiver shall

have the same force and effect as that provided in Section

1.5 of this plan.

NOTICE OF TIME AND PLACE FOR APPELLATE

REVIEW

Upon receipt of a timely request for appellate review, the

chief executive officer shall deliver such request to the

chairman of the board. As soon as practicable, the

chairman of the board shall schedule and arrange for an

appellate review request; provided, however, that an

appellate review for a practitioner who is under a suspen-

sion then in effect shall be held as soon as the arrange-

ments for it may reasonably be made, but not later than

fifteen (15) days from the date of receipt of the request for

review. At least ten (10) days prior to the appellate

review, the chief executive officer shall send the prac-

titioner special notice of the time, place, and date of the

review. The time for the appellate review may be extend-

ed by the appellate review body for good cause and if the

written request therefor is made as soon as is reasonably

practical.

APPELLATE REVIEW BODY

The appellate review body shall consist of the joint

conference committee of the hospitai as it is constituted at

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the time of the request for the appellate review. If any of

the physician members of the appellate review body shall

have been members of the hearing committee, such person

shall not be eligible to serve on the appeliate review

committee. In such case, the president of the medical staff

shall designate another member of the medical staff to

serve on the appellate review body in place of the individ-

ual who was disqualified by reason of serving on the

hearing committee. The person so selected by the presi-

dent of the medical staff shall not have been a member of

the hearing committee.

ARTICLE VI—APPELLATE REVIEW PROCEDURE

6.1 NATURE OF PROCEEDINGS

The proceedings by the review body shall be in the nature

of an appellate review based upon the record of the

hearing before the hearing committee, that committee’s

report, and all subsequent results and actions thereon. The

appellate review body shall also consider the written

statements, if any, submitted pursuant to Section 6.2 of this

Plan and such other material as may be presented and

accepted under Sections 6.4 and 6.5 of this Plan.

6.2 WRITTEN STATEMENTS

The practitioner sceking the review may submit a writter.

statement detailing the findings of fact, conclusions ana

procedural matters wit

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