# Appendix — Marrese v. Interqual, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1985
- **Citation:** 472 U.S. 1027

## Text

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

A

B

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

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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

la

| 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.

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No. 83-1581

I

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.

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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

4a

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).

Sa

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

(c) cross-examine any witness on any matter
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

(c) Suspension of staff membership

(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.

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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.

7a

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.

8a

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 |.”

9a

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.

II

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 |

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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.

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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

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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.

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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.

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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

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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

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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.”

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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...

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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).

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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) ).

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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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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).

a

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
register and qualify for licensure by the Board. 844 Ind.
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... .”

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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.

4

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.

i

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.

(c) All of DR. MARRESE’S lumbar laminectomies
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2492%3A2. Public record. Not legal advice.