Appendix — Blue Cross & Blue Shield of Kansas, Inc. v. Reazin

FEL

use 84 WR

«wg Ne, a OT oe aig

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

BLUE CROSS AND BLUE SHIELD OF

KANSAS, INC.

Petitioner,

VS.

WALTER L. REAZIN, M.D., et al.

Respondents.

AP"ENDIX VOLUME III

TO PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Gary D. McCallister Daniel R. Shulman*

Anne L. Baker GRAY, PLANT, MOOTY,

DAVIS, WRIGHT, UNREIN, MOOTY & BENNETT, PA

HUMMER & McCALLISTER 3400 City Center

3715 SW 29th Street 33 South Sixth Street

Topeka, Kansas 66604 Minneapolis, MN 55402

(913) 273-4220 (612) 343-2800

Joseph M. Alioto *Counsel of Record

ALIOTO & ALIOTO

23rd Floor

650 California Street

San Francisco, California 94108

(415) 434-2100 May, 1990)

Counsel for Petitioners

TABLE OF CONTENTS

FOR APPENDIX

Appendix Volume I

[bound following the

Petition for Writ of Certiorari]

Statutory Provisions Involved ..............:0+ la

Opinion of the United States Court of

Appeals for the Tenth Circuit

te ee | Ree entee manne enreneien Ib

Appendix Volume II

Memorandum and Order of United States

District Court for the District of

Kansas, filed May 22, 1987

CFE EF URe ID estore iirestttentianes lc

Appendix Volume III

Memorandum and Order of United States

District Court for the District of

Kansas, filed May 22, 1987

(Post Trial Motions) (continued) ............... 251¢

Memorandum and Order of United States

District Court for the District of

Kansas, filed May 23, 1986

(Motion for Summary Judgment)

App. 251c

Fed.R.Civ.P. 56(c) provides that summary

judgment "shall be rendered forthwith" if the record

shows "that there is no genuine issue of material fact

and that the moving party is entitled to judgment as

a matter of law." The plain language of Rule 56(c)

"mandates the entry of summary judgment" against

any party "who fails to establish the existence of an

element essential ‘9 that party’s case, and on which

that party will bear the burden of proof at trial."

Celotex Corp. v. Catrett, 477 US. , 91 L.Ed.2d

265, 273, 106 S.Ct. 2548, 2552-53 (1986). The Court

explained this holding in the following terms:

In such a situation, there can be "no genuine

issue as to any material fact," since a complete

failure of proof concerning an essential element

of the nonmoving party's case _ necessarily

renders all other facts immaterial. The moving

party is “entitled to judgment as a matter of

law" because the nonmoving party has failed to

make a sufficient showing on an_ essential

element of [its] case with respect to which [it]

has the burden of proof.

Celotex, 91 L.Ed.2d at 273, 106 S.Ct. at 2553.

Thus, a claimant must present affirmative

evidence as to each essential element of its claim to

defeat a properly supported motion for summary

judgment. Anderson v. Liberty Lobby, Inc., 477 U.S.

en g.emee goz, 217, 106 3.Ct. 2505, 2514

App. 252c

(1986). The mere existence of a scintilla of evidence

in support of plaintiff's position is insufficient; there

must be evidence on which a jury could reasonably

find for the plaintiff. Liberty Lobby, 91 L.Ed.2d at

213-14, 106 S.Ct. at 2512.

Neither the fact that the counterclaim raises

claims under the antitrust laws, nor my previous

denial of defendant’s motion for summary judgment

on plaintiffs’ complaint precludes summary

disposition of its counterclaim. The Supreme Court

expressly rejected the first proposition in First Nat’l

Bank v. Cities Service Co., 391 U.S. 253, 289-90

(1968):

To the extent that petitioner’s . . . argument can

be interpreted to suggest that [Rule 56] should,

in effect, be read out of antitrust cases and

permit plaintiffs to get to a jury on the basis of

the allegations in their complaints, coupled with

the hope that something can be developed at

trial in the way of evidence to support these

allegations, we decline to accept it. While we

recognize the importance of preserving litigants’

rights to a trial on their claims, we are not

prepared to extend those rights to the point of

requiring that anyone who files an antitrust

complaint . . . be entitled to a full-dress trial

notwithstanding the absence of any significant

probative evidence tending to support the

complaint.

App. 253c

See also Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. — , 89 L.Ed.2d 538, 106 S.Ct.

1348 (1986); Instructional Sys. Dev. Corp. v. Aetna

Cas. & Surety Co., No. 82-2105, slip op. at 8-9 (10th

Cir. Apr. 22, 1987).

The second proposition is equally unsound. In

essence, defendant claims that "consistency" alone

requires the denial of the present motion for

Summary judgment: "Simply stated, this Court

cannot grant summary judgment against the Blue

Cross counterclaim and be consistent with its prior

decision denying the Blue Cross motion for summary

judgment against the main claim." (Dkt. 266, Memo.

in Opp. to Pltfs.. Motion for Summ. Judg. on

Ctrelm., p. 121; see also pp. 2-3, 119, 156.) Summary

judgment jurisprudence has never been based on

such simplistic notions of "fairness", i.e., "you gave

them a trial, now you have to give us one also!"

Rather, true "consistency" requires careful application

of estabiished principles of law to the counterclaim,

to determine whether BCBSK and HMOK have

advanced significant probative evidence

demonstrating the existence of genuine issues of

material fact as to each of their claims.

A party resisting a motion for summary

judgment must do more than make conclusory

allegations; it "must set forth specific facts showing

that there is a genuine issue for trial." Dart

Industries, Inc. v. Plunkett Co. of Okla., 704 F.2d

App. 254c

496, 498 (10th Cir. 1983). To be considered

"genuine", a material issue must be established by

sufficient evidence supporting the claimed factual

dispute to require a jury or judge to resolve the

parties’ differing versions of truth at trial. White v.

Hearst Corp., 669 F.2d 14, 18 (1st Cir. 1982); see

also Durasteel Co. v. Great Lakes Steel Corp., 205

F.2d 438, 441 (8th Cir. 1953) ("An issue of fact is

not genuine unless it has legal probative force as to

a controlling issue.").

Under Rule 56, a party opposing summary

judgment must establish the existence of an issue of

fact which is both "genuine" and "material". A

"material" issue is one which affects the outcome of

the litigation. White, 669 F.2d at 18. A factual issue

that is not necessary to that decision is not material

within the meaning of Rule 56(c), and a motion for

summary judgment may be granted without regard to

whether it is in dispute. Cox v. Bell Helicopter

Internat'l, 425 F.Supp. 99, 102 (N.D. Tex. 1977)

(quoting 10 Wright & Miller, Federal Practice &

Procedure: Civil §2725).

In assessing whether a party opposing summary

judgment has raised a "genuine issue of material

fact," the court may only consider evidence that

would be admissible at trial. World of Sleep, Inc.

v. La-Z-Boy Chair Co., 756 F.2d 1467, 1474 (16th

Cir.), cert. denied 106 S.Ct. 77 (1985). The party

Opposing summary judgment must do more than

simply show that there is some "metaphysical doubt"

App. 255c

as to the material facts. Matsushita, 106 S.Ct. at

1357. Rather, it must adduce evidence that is

"significantly probative" of the disputed fact. Neely

v. St. Paul Fire & Marine Ins. Co., 584 F.2d 341,

344 (9th Cir. 1978) (citing First Nat’l Bank v. Cities

Service Co., 391 U.S. 253, 288-90 (1968)). Where

the record as a whole could not lead a rational trier

of fact to find for the nonmoving party, there is no

"genuine issue for trial." Matsushita, 106 S.Ct. at

1356.

It is clear now the counterclaim was a defensive

ploy, a maneuver, probably suggested and instigated

by defense counsel, to divert attention from

plaintiffs’ complaint. Even after the counterclaim

was filed, the principal responsible BCBSK

executives, including its president, Wayne Johnston,

the senior vice president for external affairs, Marlon

Dauner, and the vice president of marketing and

alternative delivery systems and chief executive

officer and executive director of HMOK, John

Knack, testified they were unaware of any facts

tending to support the counterclaim. (Johnston

Depo., pp. 293-94; Dauner Depo., pp. 95-98; Knack

Depo., pp. 131-32.) Elsewhere, one of BCBSK’s

lawyers forthrightly acknowledges he "alone, was

responsible for drafting Blue Cross’ answer to the

complaint and Blue Cross’ counterclaim in_ this

matter,” and he estimates "my... time expended for

these tasks [was] no more than 10 hours." (Dkt. 267,

Memo. in Opp. to Pltfs.’ App. for Attys’. Fees & Bill

App. 256c

of Costs, p. 17, and attached Aff. of Daniel R.

Shulman, 15.) I wholeheartedly agree with

defendant’s representation to the Tenth Circuit

Court of Appeals that this jury and I| heard "all the

evidence” related to the counterclaim. The 6-week

trial of "plaintiffs’ complaint" was focused largely on

BCBSK’s counterclaim as its "rule of reason defense."

With the benefit of that trial evidence, time, and my

study of the parties’ memoranda on the motion for

summary judgment, | am now inclined to agree with

the BCBSK officials’ assessment.

Thus, I address the motion for summary

judgment on the counterclaim in the extraordinary

posture of having received the documentary evidence

and having heard, firsthand, the live testimony of the

witnesses. Much of that evidence and testimony was

set forth at the outset of this opinion. In these

unique and unusual circumstances, having tried the

counterclaim in everything but its name, I grant

counterclaim defendants’ motion for summary

judgment.

The counterclaim defendants have prepared and

submitted a well-researched memorandum containing

proposed findings of fact and conclusions of law. I

adopt both, and, with some repetition of facts in the

interest of clarity, find as follows:

App. 257c

Facts.

-- Health Care Plus --

1. HCP was formed in October, 1977, under

the name of Community Health Care Association.

(Tran. 17, p. 2930.) Its founder, Garland Bugg, was

then employed at the Wichita Clinic, a

multi-specialty physician group practice located in

Wichita. (/d. p. 2925.) At the Wichita Clinic, Mr.

Bugg was responsible for the development and

administration of the Wichita Clinic health plan,

which on January 1, 1974, became the first

state-certified HMO in Kansas. (/d., pp. 2925-27.)

2. Participation in the Wichita Clinic HMO was

limited to physicians at the clinic, but the experiment

generated community-wide interest among other

Wichita physicians. (/d., p. 2927.) In January of

1977, the Wichita Clinic discontinued its own HMO

activities. (/d.) Mr. Bugg left the Wichita Clinic

one year later to work full-time in developing

Community Health Care Association, a nonprofit

HMO formed in the fall of 1977 in response to the

interest expressed by physicians throughout Wichita

in participating in a prepaid medical plan. /d., pp.

2927-28.)

3. On July 1, 1981, Community Health Care

Association received federal qualification and

changed its name to Health Care Plus. (Tran. 17,

p. 2931.) By obtaining federal qualification, HCP

achieved the ability to "mandate" employers, that is,

App. 258c

to require employers to offer an HMO option in

their employee health insurance benefits. (Tran. 4,

pp. 531-32.) An employer is not required to offer

more than one federally qualified HMO option of

the same type to its employees. However, if another

federally qualified HMO approaches an employer

with an HMO option different in structure and

benefit design, that HMO also can require the

employer to offer this second HMO option to its

employees. (Tran. 4, p. 532; Tran. 12, pp. 2022-23.)

4. When it obtained federal qualification, HCP

was the only HMO in Sedgwick County, which

conferred distinct marketing advantages upon HCP.

(Tran. 4, pp. 533-34; Tran. 27, pp. 4491-92, 4513-14.)

With federal qualification HCP was able to mandate

employers beginning in July, 1981. ‘his allowed

HCP to establish an HMO enrollment base, a factor

of critical importance in HMO development. (Tran.

6. p. 1038; Tran. 7, pp. 1194-05; Tran. 16, — pp.

2691-92; Tran. 21, pp. 3411-12; Def’s. Ex. 553.) HCP

worked _ hard to take full advantage of its priority in

the marketplace, employing between four to six

marketing representatives in Sedgwick County.

(Tran. 17, pp. 2932-33.) By 1983, it had enrolled

approximately 13,000 members (/d.) and had

established itself as one of the first successful HMOs

in Kansas. (Tran. 4, p. 531.)

3. In addition, HCP established good

relationships with its contracting providers during

this period, which also contributed to its long-term

success. (Tran. 17, p. 2932.) Because HCP was

=

App. 259c

successful enrolling subscribers, medical groups which

were initially unenthusiastic about prepaid medical

plans ultimately signed on with HCP to prevent

erosion of their patient base. (Tran. 16, pp.

2689-90.) HCP’s success enrolling members provided

its contracting physicians with increasing patient

bases and attractive compensation arrangements.

(Tran. 16, p. 2695; Tran. 26, p. 4195-97.)

6. HCP’s contracts with medical groups are

capitation contracts, under which physicians are paid

a set fee per month for each HCP member choosing

that physician as his or her primary care physician.

(See Tran. 17, pp. 2978-79.) Capitation contracts are

a prepayment mechanism which involved an element

of "risk bearing" in the sense the provider bears part

of the insurance risk under the arrangement. (Tran.

7, pp. 1246, 1257, 1259; Tran. 17, pp. 2979-81.) The

provider receives a set capitation amount per

member per month regardless of actual utilization by

his or her patients. If no patients require medical

attention in a given month, it results in a financial

benefit to the provider, who has been "paid" despite

the fact no services were performed. On the other

hand, a serious illness might quickly deplete the

entire capitation payment fund since the contracting

physician is required to finance his own services as

well as those of any referral specialists out of that

fund. (Tran. 16, pp. 2691-95; Tran. 17, pp. 2979-83.)

7. Capitation arrangements work well for a

primary care physician if there are a large number

of individuals who are enrolled in the program. The

App. 260c

concept behind paying so much per member per

month is that the physician will receive payment on

every individual patient who is enrolled in the

program even if they do not receive care. If there

are very few patients enrolled in the program, the

services the primary care physician provides would

not be covered by the amount of income he receives

through his capitation payment. (Tran. 7, p. 1104.)

8. In addition, an adequate level of enrollment

is essential to protect the primary care physician

from an unacceptable level of risk by participating

in the program. If enrollment is low, there is an

insufficient "risk pool" to protect the physician from

significant financial loss in the event one of his

HMO patients requires intensive medical treatment.

(Tran. 16, pp. 2691-95, 2701-02; Tran. 26, pp.

4197-98.)

9. In 1983 HCP decided to expand _ its

operations to areas outside Sedgwick County. It

planned to expand initially to Lawrence and Topeka,

and then to other cities in Kansas. HCP anticipated

this initial expansion would require approximately

$2 million, and it decided to raise capital by

converting to for profit status and issuing stock to

investors pursuant to a private placement. (Tran. 17,

pp. 2933-34, 2964-65.)

10. The HCP stock offering was formally made

pursuant to a prospectus issued in march, 1984.

(Tran. 16, p. 2708.) Stock was offered at $1.00 per

share to certain physicians who were under contract

with HCP as providers, in particular to those

App. 26lc

physicians who had been strong supporters of HCP.

(Tran. 17, p. 2936; Tran. 25, p. 4095.) Stock was

also offered to certain other physicians who were not

under contract with HCP, as well as to other private

investors in Wichita. (Tran. 17, pp. 2940-41; Tran.

25, p. 4095.) Investors who elected to purchase HCP

stock were required to make their decisions and

advance the requisite funds in early 1984. (Tran. 27,

pp. 4372, 4382.) The stock was actually issued the

following August. (Tran. 16, p. 2719; Tran. 26, p.

4183; Tran. 29, p. 4749.)

11. HCP’s principal reason for offering stock

to physicians and others was to raise capital to fund

its planned expansion of operations. (Tran. 17, pp.

2936, 2964-65.) HCP also perceived equity

involvement by physicians as a means of solidifying

its relationship with providers and fostering physician

involvement in the HCP program. (Tran. 17, p.

2937; Tran. 25, pp. 3986-87; Tran. 26, p. 4237.)

However, HCP placed no conditions on the

availability of its stock that the physician must do

business "exciusively" with HCP or refrain from doing

business with any other HMO. (Tran. 17, p. 2938;

Tran. 25, pp. 3977-80.)

12. In 1984, there were approximately 250

primary care physicians in Wichita. (Tran. 17, p.

2939; ‘Tran. 26, p. 4233.) Nineteen primary care

physicians, excluding the primary care physicians at

the Wichita Clinic, ultimately became HCP

shareholders. (Tran. 17, p. 2940.) The Wichita

Clinic purchased 100,000 shares of HCP stock as a

App. 262c

group through a subsidiary corporation, The Wichita

Clinic Building Company, Inc. (Tran. 17, p. 2940;

Tran. 26, p. 4151.) In 1984 there were approximately

80 physicians at the Wichita Clinic, approximately 20

of whom were primary care physicians. (Tran. 26, p.

4203.)

13. The Wichita Clinic was one of the groups

which had been under contract with HCP since its

inception. (Tran. 25, pp. 3984-85, 3987.) The

Wichita Clinic’s purchase of HCP stock was

approved by the Clinic’s Executive Committee after

substantial discussion on March 19, 1984, by a vote

of 4 to 3. (Tran. 26, pp. 4148, 4151; BC Ex. 452.)

14. HCP also offered stock to Hillside Medical

office, Dr. Reazin’s group practice, in March of 1984.

(Tran. 16, p. 2708.) At that time, five physicians

were associated with Hillside Medical Office. (Tran.

16, p. 2665.) The office declined to purchase HCP

stock as a group. (Tran. 16, p. 2708.) Subsequently,

Dr. Conrad Osborne, one of Dr. Reazin’s partners,

purchased HCP stock individually. (Tran. 16, p.

2709; ‘Tran. 27, p. 4372.) Thereafter, Dr. Reazin also

purchased a block of HCP shares. (Tran. 16, p.

2709.) Dr. Reazin decided to purchase HCP stock

as an investment, a decision which was unrelated to

his medical practice. (Tran. 16, p. 2710.) — Dr.

Reazin’s purchase of HCP stock was not conditioned

upon any commitment that Hillside Medical Office

would only do business with HCP. (Tran. 25, p.

4102.)

App. 263c

-- Competition --

15. Throughout its history, HCP has faced

intense competition in the private health care

financing market. (Tran. 25, pp. 4115-16.) This

market includes traditional indemnity insurance

products, HMOs, PPOs, and self-insurec programs.

(Tran. 6, p. 1013; Tran. 25, pp. 4115-16; Tran. 28, p.

4565.) ‘There are approximately 200 companies

offering traditional indemnity insurance products in

Kansas. (Tran. 6, p. 1013.) The largest of these is

BCBSK, which is also the largest provider of private

health care financing in Sedgwick County. (Stip. j.)

16. Approximately 37% of the total population

in Kansas has Blue Cross insurance coverage. (Tran.

21, p. 3394.) BCBSK therefore has between 47%

and 60% of the total insurable population in Kansas.

(Tran. 21, pp. 3393, 3395-96; Pltfs.” Ex. 41.) Based

on premium dollars, BCBSK has 62% of the private

health care financing market in Kansas. (Tran. 9, p.

1476.) Its next largest competitors, Bankers Life

and Aetna, have 4% and 3%, respectively. (/d.)

17. All but one hospital in Kansas (Memorial

Hospital in Topeka) are contracting hospitals with

BCBSK under its CAP program, BCBSK’s traditional

indemnity insurance program. (Tran. 4, pp. 558-59.)

Ninety percent of all physicians in Kansas are

contracting CAP providers. (/d., p. 559.) Under

these contracts, BCBSK is able to invoke the "most

favored nations clause", pursuant to which BCBSK is

entitled to the lowest prices for medical services

App. 264c

which a contracting provider makes available to any

other health care financing organization. (Tran. 4, p.

600; Pltfs.” Ex. 112.)

18. BCBSK reimburses CAP providers on the

basis of "maximum allowable payments", which are

set unilaterally by BCBSK each year. (Tran. 5, p.

717; Tran. 6, pp. 943-46; Tran. 12, p. 2068.) Since

BCBSK is the largest source of private revenues to

its contracting providers, it is able to command

considerable discounts from its providers’ normal

charges for medical services. (Tran. 9, pp. 1448-49,

1459-60; Tran. 1. pp. 26-27; Tran. 15, pp. 2639-40.)

19. HMOs also compete with PPOs in

providing private health care financing. (Tran. 6, p.

1013.) Several PPOs are doing business in Wichita

in direct competition with HCP. (Tran. 25, p. 4115.)

Recent PPO entrants in Wichita include Aetna

(Tran. 28, p. 4558) and two new PPOs formed by the

Sedgwick County Medical Society and St. Francis

Regional Medical Center. (Tran. 7, pp. 1104-05;

Tran. 26, pp. 4152-53, 4193; Def.’s Ex. 553.)

20. A large number of companies in Wichita

also provide health care financing benefits to their

employees through self insurance. Approximately

100,000) persons in greater Wichita, or roughly

one-third of the total population, are covered by

self-insured programs. (Tran. 28, pp. 4728-31.)

These programs also compete against. traditional

indemnity insurance products, HMOs and PPOs.

(Tran. 28, p. 4565.) |

21. Despite its progress, these alternative

App. 265c

products and programs placed competitive limitations

on HCP’s growth in the Wichita marketplace. In

1985, for example, HCP only had between 8% and

12% of the private health care financing market in

greater Sedgwick County. (Tran. 25, pp. 4041-42.)

-- HMO Kansas --

22. BCBSK, the largest private health care

financing organization in Kansas, established and

maintained its preeminent position through its

traditional indemnity insurance product. (Tran. 4,

pp. 534-35.) BCBSK currently offers HMO products

through HMO - Kansas, Inc. ("HMOK"), a

wholly-owned subsidiary. (Stip. h.) BCBSK’s HMO

effort is a relatively recent development, as BCBSK

was slow in developing alternative delivery systems

such as HMOs and PPOs. (Tran. 4, p. 574.)

23. In July of 1983, HMOK announced plans

to enter Wichita and other parts of Kansas with an

HMO product offering. (Tran. 6, pp. 1023-24.)

HMOK received state certification in February, 1984,

enabling it to commence marketing operations. (/d.,

pp. 1036-37.) As of that time, HMOK had secured

contracts with 73 primary care physicians and 201

specialists in Wichita in anticipation of beginning

marketing operations. (/d., pp. 1037-38; Det.’s Ex.

536.) Thirty-three primary care physicians and 103

specialists in Topeka had entered into contracts with

HMOK at that time. (/d.) By July of 1984, HMOK

App. 266c

had executed contracts with more than 100 primary

care physicians in Wichita. (Knack Depo., pp.

115-16.)

24. HCP was already well established in

Wichita by the time HMOK entered the market,

having begun operations in Sedgwick County some

three years earlier. (Tran. 12, p. 2027.) When

HMOK began marketing in Wichita, HCP already

had approximately 35,000 members in Sedgwick

County. (/d.) BCBSK recognized HCP’s head start

in Wichita would place HMOK at a considerable

disadvantage. (Tran. 4, pp. 533-34, 575; Tran. 6, p.

1038.)

25. From the outset, HMOK_ experienced

difficulty penetrating the Wichita market. (Tran. 6,

p. 1079-80; Def.’s Ex. 546.) HCP’s early presence in

the market had allowed it to capture a significant

membership base and to develop a better physician

list. (/d.) HMOK did not receive federal!

qualification in Wichita until July of 1984. (Knack

Depo., p. 110.) Further, it attempted to enter

Wichita with the same HMO model as HCP, and

offering substantially similar benefits. (Tran. 12, pp.

2027-28.) Even after receiving federal qualification,

HMOK was therefore unable to mandate employers

to offer the HMOK product side by side with HCP.

(See Statement of Material Fact (SMF) 93, supra.)

HMOK had other difficulties as well. HMOK’s

marketing personnel observed, for example, that

HMOK had inadequate staffing and an insufficient

App. 267c

advertising budget. (Pltfs.’ Ex. 51, at p. 6700.)

26. HMOK also experienced difficulties in

recruiting and retaining physicians in Wichita.

Certain groups declined to do business with HMOK

from the outset. HCP had a definite advantage over

HMOK because it offered higher capitation

payments to physicians than the BCBSK HMO.

(Tran. 8, p. 1348.) HMOK offered two different risk

packages which physicians could accept: full risk and

partial risk contracts. (Tran. 16, pp. 2702-03; Tran.

29, pp. 4762-63.) If a physician was under contract

with HCP, however, HMOK required that physician

to sign the full risk contract. (Tran. 29, pp.

4762-63.) Certain doctors objected to this

requirement and declined to participate in the

HMOK program on this basis. (/d.)

27. Doctors were also dissatisfied with other

aspects of the HMOK program. Family Physicians,

P.A., for example, a Wichita family practice group,

decided not to contract with HMOK in the summer

of 1983 (Tran. 26, pp. 4261-62) because HMOK’s

program involved participating in a community risk

pool which placed Family Physicians at risk based on

the performance of medical groups over which

Family Physicians had no control in terms of quality

assurance and cost effectiveness. (Tran. 26, p. 4283.)

HMOK’s low enrollment and inferior coverage were

also factors in Family Physicians’ decision not to

participate in the Blue Cross HMO. (Tran. 26, pp.

4282-84.) Other reasons why certain physicians

declined to contract with HMOK included lingering

App. 268c

philosophical reservations about prepaid medical

plans generally, and general disenchantment with

BCBSK. (Tran. 29, pp. 4762-63.)

28. Nevertheless, a substantial number of

primary care physicians and specialists in Wichita did

enter into contracts with HMOK in late 1983 and

early 1984 (see SMF 123, supra), including Hillside

Medical Office and the Wichita Clinic. (Tran. 16, p.

2688; Tran. 26, p. 4145.) Hillside Medical Office

signed its contract with HMOK in October of

November of 1983; the contract had an effective date

of march, 1984. (Tran. 16, p. 2688.) The Wichita

Clinic also decided to participate with HMOK in late

1983. (Tran. 26, p. 4145.) Both Hillside Medical

Office and the Wichita Clinic were under contract

with HCP when they entered into contracts with

HMOK. (Tran. 16, pp. 2688, 2706; Tran. 26, pp.

4144-45.) |

29. Despite HMOK’s initial success in securing

contracts with primary care physicians and specialists

in Wichita, it was unable to develop an adequate

membership base in Sedgwick County. By July of

1984, HMOK had enrolled only 1800 members in

Wichita. (Knack Depo., pp. 115-16.) By the end of

1984, its Wichita enrollment totaled just 2,000

members. (Tran. 12, p. 2027.) HCP, by comparison,

had approximately 35,000 members in 1984. (Tran.

17, p. 3025; Pltfs.” Ex. 65 at p. 9.)

30. By mid-1984, HMOK recognized it was

having difficulty penetrating the Wichita area,

particularly in view of HCP’s _ established

App. 269c

"predominance". (Def.’s Ex. 546 at p. 3.) This

difficulty was attributed to the fact HCP was in

Wichita prior to HMOK, resulting in predominant

enrollment numbers and a better Physician list.

(Tran. 6, pp. 1079-80.)

31. On September 5, 1984, the HMOK board

of directors decided to discontinue HMOK’s

activities in Sedgwick County. (Def.’s Ex. 553.) The

minutes of that board meeting explained the reasons

for that decision as follows:

Mr. Knack, at the request of Mr. Barnes,

reported that activity in Wichita was not as

promising as in other areas. The Wichita Clinic

and the Hillside Clinic are both dropping or

have dropped from the primary care physician

lists of HMO Kansas. Since the HMO Kansas

product is highly similar to that of Health Care

Plus, and since the prices are competitive for

both organizations, the only real arena for

competition is in the physicians list. With

Wichita and other large clinics affiliated with it,

Health Care Plus has a definite and probably

insurmountable marketing edge in Wichita. This

marketing edge results in HMO Kansas not

being able to enroll many persons. The lack of

a volume of enrollment through employer groups

results in the physicians who continue to

participate with HMO Kansas having too few

patients to provide them with a manageable risk.

That is, with only a few patients, the capitation

App. 270c

allowances are not large enough to provide

physicians with a margin of safety against very

ill cases among HMO enrollees. This causes

physicians to continue to be tempted to drop

out of the program and to have dissatisfaction

with the program|[;] even if they remain in, they

incur losses or do not experience any

distribution of surplus. The product, Mr. Knack

reported, appears less and less marketable in

Wichita because of this, and because of some

impending actions of Blue Cross and Blue

Shield. Preferred provider organizations are

gaining a foothold in Wichita, with both the

Sedgwick County Medical Society and St.

Francis announcing the development of PPOs.

In addition, there is a rumor that Health Care

Plus is about to establish a PPO. In response,

Blue Cross and Blue Shield intends to establish

a form of PPO, with highly competitive

reimbursement levels and rates, which will tend

to eat into the pricing advantage of HMOs.

While there are some adverse effects from

HMO Kansas ceasing operations in Wichita, Mr.

Knack indicated it was staff's consensus that

such was a proper step to take. That is, rather

than continue to shuttle patients from one

physician to another, and rather than see the

program, and relationships with providers,

destroyed by increasingly bad risks being taken

by providers and severely limited enrollment

opportunities causing a loss of morale in staff,

App. 271c

staff recommends that the program in Sedgwick

County be terminated.

(Def.’s Ex. 553.) Marlon Dauner, BCBSK’s senior

vice president for external affairs, testified these

minutes accurately set forth the reasons why HMOK

decided to discontinue operations in Wichita.

(Tran. 12, p. 2051.)

32. By letter dated March 27, 1985, HMOK

notified its Wichita area primary care physicians of

its decision to cease marketing activities in Sedgwick

County; that decision was explained as follows:

HMO Kansas became operational in Wichita on

April 1, 1984 with a product that featured a

broad base of quality-minded Primary Care

Physicians. Originally our major competitor

offered a few select groups of Primary Care

Physicians; however, they responded to our

market entry by increasing their physician base.

This resulted in little product differentiation

between the two Federally Qualified HMO’s in

the Wichita Service Area. Employer groups,

many of whom were mandated by our

competitor, were reluctant to offer both plans.

To date, HMO Kansas has 1800 members which

is not a sufficient number in the Wichita Area

to make the program feasible for the Primary

Care Physician.

We, therefore, have ceased marketing efforts of

our present model and will be moving in a new

4 , |

App. 272c

direction of delivering health care. HMO

Kansas is currently conducting feasibility studies

in alternatives to include possible group or staff

models and aligning with select hospitals in the

area.

(Plitfs.. Ex. 49.)

33. ‘Two months later, on May 22, 1985,

BCBSK staff explained HMOK’s withdrawal from

Wichita to its medical advisory committee as follows:

In Wichita, another situation is occurring.

HMO Kansas was three years late with the

major competitor being Health Care Plus with

about 35,000 members. HMO Kansas had about

2,000 members. These were two HMOs that

were almost identical in benefits. It was highly

unlikely that both programs would stay in

Kansas in identical form. HMO Kansas is now

phasing out of the Wichita area in its current

form. The program is being revitalized in

Wichita and will be either a staff or group

model HMO.... Staff thinks this will make

a difference in what an employer will offer...

The Plan has been approached by physicians

to be employed by HMO Kansas and several

physicians want to sell their offices to HMO

Kansas. All of these are alternatives and they

are being evaluated and are options that will

have to be considered in the future.

(Pitts.” Ex. 65 at p. 9.)

a a er ee ee ee

App. 273c

34. Garland Bugg, president of HCP, testified

he was surprised when he_ learned about

HMOK’s,decision to cease marketing operations in

Wichita, explaining he did not believe one year is a

sufficient period in which to assess a program’s

prospects for success. (Tran. 17, pp. 2962-63.)

Similarly, Marlon Dauner of BCBSK conceded that

HMOK was a relatively new product in Wichita and

that it was hard to assess its relative success or lack

of success in the short period of one year. (Tran. 7,

p. 1106; Tran. 8, pp. 1349-50.)

35. William Guy, a former Blue Cross executive

with 37 years’ experience with Blue Cross plans,

including experience as the top executive of four

different plans, assessed HMOK’s difficulty in

Wichita as follows:

[T]he problem with HMO Kansas in Wichita is

that they did not have the commitment to get

an HMO here. They did not know how to deal

with the doctors. They were unwilling,

unbending to do anything that it would take to

get the physicians in the community back of

them.

(Tran. 21, p. 3453.)

App. 274c

-- "Exclusivity"--

36. As a general business practice, HCP has

never sought exclusive contracts from its medical

groups. (Tran. 17, p. 2945.) HCP’s contracts with

physicians in Wichita are nonexclusive in the sense

that nothing in those contracts imposes any limitation

on the provider’s ability to contract with other

HMOs, PPOs, or other health care _ financing

programs. (Tran. 17, pp. 2957-61; Tran. 25, p. 3982;

Pitfs.. Ex. 307A.) With the exception of discussing

the possibility of an exclusive contract with the

Wichita Clinic (see SMF 9% 39-49, infra), HCP did

not formally seek exclusive arrangements with any

medical groups in Wichita. (Tran. 17, p. 2945; Tran.

25, pp. 3977-78, 3982; Tran. 26, p. 4244.) In

particular, HCP never discussed exclusive

arrangements with Hillside Medical Office (Tran. 16,

p. 2706; Tran. 17, pp. 2961-62; Tran. 27, pp. 4382-83)

or Family Physicians, P.A. (Tran. 26, p. 4261).

37. As HMOK and other competing prepaid

plans began seeking to contract with providers in

Wichita, HCP responded by increasing efforts to

‘sell" providers on the advantages of continuing to

participate with HCP. (Tran. 25, pp. 3983-85.) At

no time, however, did HCP tell medical groups that

they could not do business with other HMOs or

PPOs. (/d.; Tran. 26, p. 4239.)

38. Physicians under contract with HCP who

declined to contract with HMOK were offered

"exclusively" on HCP’s provider list in the sense

SS .0O— «=

App. 275c

those physicians were not marketed by any other

HMO. (Tran. 17, pp. 2957-58.) Such groups had an

"exclusive" arrangement with HCP only in the sense

they were dealing with HCP alone at the time.

(Tran. 25, pp. 4021-23.) However, there was no

limitation on those groups’ ability to contract with

another HMO, PPO, or any other competing system.

(Tran. 17, p. 2943.)

-- The Wichita Clinic --

39, In the summer of 1984, HCP became aware

that HMOK was attempting to create a stand-alone

HMO to market the Wichita Clinic on an exclusive

basis. (Tran. 17, pp. 2954-55.) During 1983, before

HMOK entered Wichita, HCP had discussed the

possibility of an exclusive contract with the Wichita

Clinic. (/d., p. 2947.) The Wichita Clinic did not

respond to this proposal (id., pp. 2943-44; Tran. 206.

pp. 4141-42), and as discussed, the Clinic

subsequently entered into a contract with HMOK.

(Tran. 26, pp. 4144-45.)

40. When the Wichita Clinic was approached

by HMOK concerning an exclusive arrangement in

the summer of 1984, HCP became concerned about

the possible loss of the clinic as a contracting HCP

provider. (Tran. 17, pp. 2954-55.) The Wichita

Clinic was also considering possible participation in

the new St. Francis Regional Medical Center PPO at

that time. (Tran. 26, pp. 4152, 4172.) HCP

responded to these developments by renewing

App. 276c

discussions concerning a_ possible — exclusive

arrangement between the Wichita Clinic and HCP.

(id.; Tran. 17, p. 2958; Def.’s Ex. 453.) HCP

officials made a presentation on this subject to the

Wichita Clinic executive committee on June 26, 1984.

(Def.’s Ex. 453.) The question under consideration

by the Wichita Clinic executive committee at that

time was whether the clinic would participate with

HCP, HMOK, or both, as well as new PPOs. (Tran.

26, p. 4172.)

41. At the June 26 meeting, it was stated HCP

would prefer that the Wichita Clinic not participate

in St. Francis Regional Medical Center’s PPO, but

that the clinic instead participate in a new HCP

program, "Health Options", a plan that would not

restrict the patient to a single hospital. (Tran. 26,

pp. 4152-53.) It was also indicated HCP "was

interested in the clinic participating exclusively with

HCP with HMO’s ... and that thie [sic] exclusive

arrangement could be broken at any time if the

clinic felt it was not advantageous to do so." (Def.’s

Fx. 453; emphasis added.)

42. The Wichita Clinic subsequently joined the

St. Francis PPO. (Tran. 26, pp. 4152, 4193.) On

July 10, 1984, however, the executive committee of

the Wichita Clinic voted to terminate its contract

with HMOK and to continue its HMO participation

only with HCP. (/d., p. 4173-75; Def.’s Ex. 455.)

43. Dr. Lloyd Hummer, a member of the

Wichita Clinic, explained the clinic’s reasons for

App. 277c

terminating its contract with HMOK as follows:

The reasons were several and all related to what

we felt was advantageous from a_ business

standpoint for the Wichita Clinic. The

capitation for Health Care Plus patients was

$20.29 per member per month. To provide

essentially the same services for Blue Cross-Blue

Shield would return $17.96 per patient per

month. So that we would be receiving, for

essentially the same work, a little over ten

percent less in payment, so that when the

numbers were run and advised the chief

financial officer, at that time had all of our

HMO, Health Care Plus patients switched to

HMO Kansas, our monthly revenue stream

would have been $20,000 a month less. HMO

Kansas had projected rapid growth of their

HMO by aggressive marketing, suggesting 6,000

patients at the end of the year. We had been

participants in HMO Kansas for several months

and at that time we had a hundred and

eighty-seven patients enrolled by HMO Kansas,

with a monthly revenue stream of $3,300. We

had ten thousand three hundred Heaith Care

Plus patients with a monthly capitation of over

$200,000. We had also engaged the services of

an outside consultant, Mr. DeMarco, to survey

the overall health market in Wichita. It was

additionally our consultant's advice, to whom we

App. 278c

paid the money, that at this time we remain

exclusive with Health Care Plus primarily

because of lesser return. He also made the

point that the most likely source for patients for

HMO Kansas would be conversion of our

current patients enrolled in Health Care Plus,

and if we were on the same provider list, there

would be no reasons for patients to choose one

or the other, and if they converted to HMO

Kansas, we again would get less return for

essentially the same services. So, it was a

decision of dollars and cents basically. Also,

with only a hundred and eighty-seven patients

in a particular plan, in prepayment modes of

health care, your greater risks were small

numbers of patients and the more patients you

have disseminate the risk out among the larger

population. So if there is a car wreck with six

people in it and you have a hundred and

eighty-seven, it’s different than if such a tragic

event would occur in a patient enrollment with

ten thousand. So, we were at risk. The

program had not grown as projected, capitation

was less, and our consultant’s recommendation

was that we stay at that point in time with

Health Care Plus.

(Tran. 26, pp. 4195-97; emphasis added.)

App. 279c

44. The Wichita Clinic advised HMOK of its

decision to terminate its HMOK primary care

physician contracts by letter dated July 19, 1984.

(Def.’s Ex. 456.) The letter stated the "decision was

made solely on the basis of our best business

judgment that a discontinuance of these primary care

contracts would be in the best interests of all

concerned." (/d.) The July 19 letter further advised

that the Wichita Clinic’s decision was not intended

to affect Referral Physician Agreements signed by

certain referral specialists at the clinic, indicating the

clinic's desire that those agreements continue in

effect. (/d.)

45. When the Wichita Clinic terminated its

contract with HMOK, the only HMO with whom the

clinic was then under contract was HCP. By letter

dated August 16, 1984, Ben Boldt (Wichita Clinic’s

business manager) indicated the clinic's interest in

pursuing a possible exclusive contractual relationship

with HCP. (Def.’s Ex. 392.) However, no such

contract was ever prepared or signed (Tran. 17, pp.

2958-59; Tran. 26, p. 4201), and the clinic has never

been party to an exclusive contract with HCP.

(Tran. 26, p. 4156.) The Wichita Clinic has

maintained an "exclusive" relationship with HCP

since 1984 solely by virtue of not having entered into

any contracts with other HMOs. (Tran. 26, p. 4201.)

But this relationship can be terminated by the clinic

at any time in the clinic’s sole discretion, and there

is no limitation whatsoever on the clinic’s ability to

contract with another HMO or other prepaid plans.

App. 280c

(/d.)

46. Dr. Hummer explained this variety of

"exclusivity" from the Wichita Clinic’s perspective as

follows:

It was never and still is not the intent of the

Wichita Clinic to commit themselves exclusively

to any particular product at any one point in

time. We may choose to participate with one

or more of similar plans, depending upon the

business sense of that decision. If it makes

business sense at one point in time to remain

with one plan for a period of time, then that’s

the decision that’s made based on the numbers

and the business judgment at the time. That

could be changed at any time should it be

Advantageous for the group to change.

Q. (By Mr. Shulman) You understand an

exclusive arrangement between a provider and

an HMO to be an arrangement where the

provider does business only with that HMO and

not with other HMOs?

A. As long as it’s to the Wichita Clinic’s

advantage from a business sense to do that, yes,

but not on a long term commitment.

Q. An exclusive arrangement or agreement

is an arrangement or agreement where a

provider does business only with one HMO and

not with others.

A. It’s a conscious choice of the provider

to do business with any of a number of

App. 28lc

competing plans according to what is best for

them at the time.

(Tran. 26, pp. 4165-66.)

47. HCP representatives had the same

understanding of the "exclusive" arrangement

between the Wichita Clinic and HCP, namely, that

it was an "exclusive" arrangement only in the sense

that, as a matter of fact, the Wichita Clinic had

decided to contract only with HCP, an arrangement

which could be terminated at any time if the clinic

decided to do so. (Tran. 17, p. 2958; Tran. 25, pp.

3981-82, 4021-23.)

48. The parties’ understanding of the nature of

their arrangement has been borne out in practice,

since the Wichita Clinic has continued to negotiate

with HMOK on various proposals since the summer

of 1984, including a February, 1985 HMOK proposal

regarding the formation of a group model HMO in

Wichita. (Tran. 7, pp. 1142-48; Tran. & p. 1372:

Tran. 25, p. 4056; Tran. 26, p. 4204; Def.’s Ex. 461;

Pitfs.. Ex. 490.) Similarly, the Wichita Clinic

subsequently signed with the St. Francis Regional

Medical Center’s PPO (Tran. 26, pp. 4152, 4193), the

Sedgwick County Medical Society PPO and the

Aetna PPO. (Dkt. 119, Hummer Depo., pp. 76-77.)

Throughout this period, physicians at the Wichita

Clinic have also continued as contracting providers

under the BCBSK CAP program, defendant's basic

indemnity insurance program. (/d.)

App. 282c

49. Marlon Dauner, BCBSK’s senior vice

president for external affairs, testified at trial he is

aware of no facts to suggest that the Wichita Clinic

would not be receptive to a good business proposal

from HMOK. (Tran. 8, p. 1392.) At the same time,

however, he also observed that HMOK’s capitation

rates are still lower than those of HCP. (/d., pp.

1390-91.)

-- Hillside Medical Office --

50. As discussed, Hillside Medical Office signed

a contract with HMOK in the fall of 1983. The

contract had an effective date of March, 1984.

(Tran. 16, p. 2688.) Similar to the Wichita Clinic,

Hillside Medical Office was under contract with HCP

at the time it entered into its contract with HMOK.

(Compare Tran. 16, p. 2688 with p. 2706.)

51. While it was under contract with HMOK,

Hillside Medical Office cooperated fully with the

BCBSK HMO. (Tran. 16, p. 2691.) At no time did

anyone from HCP seek to discourage Hillside

Medical Office from participating with HMOK. (/d.,

p. 2706.)

S52. In July of 1984, Hillside Medical Office

decided to terminate its contract with HMOK. At

that time, Hillside Medical Office had only 52

HMOK members among the five physicians in the

office. (Pltfs.. Ex. S511.) During its six month

participation with HMOK, Hillside’s capitation

payments from HMOK grew from $200 to just $550

App. 283c

per month, compared to a growth from $800 to

$14,000 per month during its first six months with

HCP. (Tran. 16, p. 2695.)

53. The extremely low level of capitation

payments received from HMOK was insufficient to

cover even a significant number of routine office

visits per month, much less a catastrophic illness.

(Tran. 16, pp. 2691-95; Tran. 27, pp. 4379-81; Pltfs.’

Ex. 511.) Nor did there seem to be any prospect of

improvement in HMOK’s performance, particularly

since HMOK had assigned oniy two marketing

representatives to the Wichita area, and its media

advertising was virtually nonexistent. (Tran. 16, pp.

2696-97; ‘Tran. 27, p. 4401; Pltfs.” Ex. 511.)

54. Hillside Medical Office therefore concluded

the financial risk associated with HMOK was too

great to justify continued participation. (Tran. 16, p.

2697.) By letter dated July 11, 1984, Hillside advised

HMOK as follows:

This letter is to inform you that the physicians

of Hillside Medical Office want to terminate

their agreement with HMO Kansas according to

Article V of the Agreement. it is our

understanding that this termination will be

effective 30 days from the date of this letter.

There are several reasons for requesting

termination, and we would briefly cite a couple.

The rate of growth for HMO Kansas is very

slow in Wichita, and it is our feeling that HMO

App. 284c

Kansas is not actively pursuing a marketing

program to help accelerate or stimulate the

growth. It is our understanding that only two

marketing people serve this area containing the

greatest concentration of people in the state.

Fifty-two members in 3-1/2 months for an office

of five physicians is not sufficient to establish a

workable base for this type program. As you

know, numbers are vital.

The low capitation rate under the Basic

Plan and the 25° withholding for the referral

fund does not leave an adequate compensation

for the primary provider to cover the most

meager in-house fee for services charged on the

HMO Kansas patient. On the other hand, the

larger capitation rate under the full risk plan is

more realistic but is immediately offset by the

cost of referrals, and certainly places the

primary care physician in a precarious financial

position with the low subscription level.

Rather than continue for an additional time,

and exposing ourselves to additional patient

encounters and referrals, we believe and feel

now is the time to terminate the agreement.

(Pltfs.’ Ex. 511.)

55. The Hillside physicians’ decision to

terminate the HMOK — contract was unanimous.

(Tran. 16, p. 2711; Tran. 27, p. 4399.) Dr. Reazin

App. 285c

testified the above-quoted letter accurately sets forth

Hillside Medical Office’s reasons for terminating that

contract. (Tran. 16, p. 2704; see also pp. 2691-95.)

His testimony was corroborated by Dr. Conrad

Osborne, another member of the Hillside group

(Tran. 27, pp. 4379-81), and by Paul Pfortmiller,

Hillside’s business manager, who authored the July

11 letter. (/d., pp. 4388, 4399-4402.)

56. After Hillside Medical Office terminated its

contract with HMQOK, it was an "exclusive" HCP

provider only in the sense it was not being marketed

by any other HMO. (Tran. 17, pp. 2961-62.)

However, there is no limitation on Hillside Medical

Office’s ability to enter into arrangements with

HMOK or any other prepaid health care financing

plans. (Tran. 27, p. 4383.) Al! physicians at Hillside

Medical Office are contracting providers under the

BCBSK CAP program. (Tran. 16, pp. 2671-72,

2705.) Additionally, the Hillside group, in early

1985, submitted a bid to participate in Choice Care.

BCBSK’s PPO. (/d., p. 2705; see also SMF 483.

infra.)

-- Unilateral Decisions --

57. There is no evidence any medical group in

Wichita agreed with any other group not to do

business with HMOK, nor that any groups reached

their respective decisions regarding HMOK_ in

consultation with or even with — information

App. 286c

concerning any other group. Dr. Hummer testified

that when the Wichita Clinic made its decision to

terminate its contract with HMOK, he was not aware

that Hillside Medical Office was also discontinuing

its contractual relationship with BCBSK’s HMO.

(Tran. 26, p. 4176.) He had never spoken to anyone

at Hillside regarding their intentions with respect to

HMOK, and he did not have any idea that Hillside

Medical Office had any intention to terminate its

contract with HMOK. (/d., p. 4202.) He was not

even aware that Hillside Medical Office had

terminated its contract with HMOK until the time of

his deposition in February, 1986. (/d., p. 4176.)

S58. Dr. Reazin of Hillside Medical Office

testified he had no knowledge concerning the

Wichita Clinic’s intentions regarding HMOK when

Hillside made its decision to terminate the HMOK

contract. He further testified he did not have any

information concerning what any other doctors in

Wichita were doing with respect to HMOK. (Tran

16, pp. 2704-05.) According to Dr. Reazin, the

actions or intentions of other groups with respect tc

HMOK "wouldn't have changed my mind a bit

because it wouldn't have changed my numbers here

We were looking at low enrollment and we

made our decision based on that." (/d.) He further

testified that if HMOK had been successful ir

attracting subscribers, "I'd still be with them today.’

(Id., pp. 2696-97.)

A]

App. 287c

59. Dr. Conrad Osborne, Dr. Reazin’s partner

at Hillside Medical Office, testified to the same

effect, stating that when Hillside made its decision

to terminate its HMOK contract in July, 1984, he

had no knowledge what the Wichita Clinic was doing

with respect to HMOK. (Tran. 27, pp. 4373-7382.)

He did not learn that the Wichita Clinic had

terminated its HMOK contract until long after the

fact. (/d., p. 4373.) Dr. Osborne further testified

that Hillside Medical Office’s decision was made

independently, without any input from anyone else.

(Id., p. 4382.)

60. Dr. Donald Ray Cook, a family practice

sole practitioner associated with Medical Arts Health

Care Associates, P.A., testified that he reached his

decision not to contract with HMOK without having

any knowledge regarding whether other physicians

were entering into contracts with the BCBSK HMO.

(Tran. 29, pp. 4744-45.) He testified he would have

considered signing with HMOK if it had been in his

own financial interest to do so. (/d., p. 4767.)

61. Dr. Stanley Mosier of Family Physicians,

P.A., a family practice group which decided against

participating with HMOK in the summer of 1983

(See SMF 927, supra), similarly testified that he did

not discuss HMOK with other medical groups in

Wichita (/d., pp. 4271, 4275), nor did he have any

knowledge as to the status or intentions of any other

group when Family Physicians, P.A. made _ its

decision. (Dkt. 118, Mosier Depo., pp. 28-29, 32,

App. 288c

60-65.)

-- HCP Stock --

62. As discussed, HCP offered stock to various

investors, including certain physicians, in March of

1984. This stock was actually issued to subscribing

investors in August of 1984. (See SMF 410, supra.)

Certain primary care physicians, including the

Wichita Clinic, Dr. Reazin, Dr. Osborne, Dr. Mosier,

and Dr. Cook, purchased HCP stock in connection

with this offering. (Tran. 17, p. 2940; Tran. 16, p.

2707; Tran. 27, p. 4372; Tran. 26, p. 4262; Tran. 29,

p. 4744.) Although these physicians hoped HCP

stock would be a good investment, it was generally

perceived as a risky investment. (Tran. 16, p. 2710:

Tran. 26, pp. 4150, 4233; Tran. 29, p. 4763.)

63. It was not required that physicians do

business with HCP, "exclusively" or otherwise, as a

condition to being allowed to purchase HCP stock.

(Tran. 17, p. 2938; Tran. 25, pp. 3977- 80; Tran. 26,

p. 4268; Tran. 29, p. 4763.) Those physicians and

groups who declined to participate with HMOK

and/or who discontinued such participation have

articulated independent business reasons for their

decisions, which were wholly unrelated to any

investment in HCP. (See SMF 4% 26-27, 43, 54-55,

supra.) There is no evidence that any physician's

investment in HCP influenced his decision regarding

whether to participate with HMOK. In fact, the

evidence of record conclusively establishes that HCP

App. 289c

stock holdings played no part in the respective

decisions of any groups at issue in this litigation.

64. For example, Family Physicians, P.A. decided

not to contract with HMOK in the summer of 1983.

(SMF 127, supra.) HCP stock was not even being

offered at that time. (SMF 110, supra.)

65. Dr. Reazin testified his investment in HCP

had no effect on his decision to discontinue his

affiliation with HMOK. (Tran. 16, p. 2710.) Dr.

Osborne also testified Hillside Medical Office's

decision regarding HMOK had nothing to do with

his HCP investment. (Tran. 27, p. 4381.) According

to Dr. Osborne, "those were totally independent

decisions." (/d.)

66. This direct testimony is corroborated by the

fact that as a group, Hillside Medical Office declined

to purchase HCP stock. (Tran. 16, p. 2708.)

Further, only Drs. Reazin and Osborne individually

decided to acquire HCP stock while their three

partners at Hillside declined to do so, yet the

decision to terminate the HMOK contract was

unanimous. (Id., p. 2711.)

67. Similarly, HCP’s stock offering to the

Wichita Clinic was unrelated to any notion of

exclusivity. (Tran. 25, pp. 3977-80.) Nor was the

Wichita Clinic’s purchase of HCP stock connected in

any fashion to the clinic’s consideration of possible

participation in other prepaid plans. (Tran. 26, p.

4152.) Rather, the HCP stock purchase was merely

viewed as an investment opportunity, the desirability

App. 290c i

of which was decided by a 4 to 3 vote by the clinic’s

executive committee. (Tran. 26, pp. 4148, 4151;

Def.’s Ex. 452.)

68 Dr. Donald Ray Cook was one of six

physicians associated with Medical Arts Health Care

Associates, P.A. (SMF 60, supra.) Within that

group, Dr. Cook alone purchased HCP stock. (Tran.

29, p. 4762.) Dr. Cook individually decided not to

contract with HMOK., and he did not know whether

any of the other physicians associated with his group

contracted with HMOK. (/d., p. 4744-45.) | Dr.

Cook’s individual reasons for deciding not to contract

with HMOK had nothing to do with his investment

in HCP. (/d., pp. 4762-63.)

-- Hospital Corporation of America --

69. On April 25, i985, HCA acquired New

Century from E. F. Hutton. (Stip. u.; Tran. 19, p.

3182.) Although New Century was licensed to do

business in over 30 states, including Kansas, it was

basically a "shell" corporation without any active

operations. (Stip. f.; Tran. 19, p. 3182.) New

Century is not yet actively engaged in health care

financing in Kansas. (Stip. f.)

70. In October of 1984, representatives from

Wesley contacted HCA and indicated Wesley's

potential interest in being acquired by HCA. (A. B.

Davis Depo., pp. 69-75.) Negotiations ensued, and

the sale was publicly announced in November of

App. 291c

1984. (Tran. 1, p. 36.) HCA acquired Wesley on

July 11, 1985. The acquisition was effected to HCA

Health Services of Kansas, Inc., a wholly-owned

subsidiary of HCA. (Stip. v.)

71. In late 1984, HCP began planning toward

national expansion of its HMO __ operations.

Recognizing that additional capital would be needed

to finance that expansion, HCP began talking to

investment bankers, venture capitalists, and other

institutional investors. (Tran. 17, pp. 2963-64.) In

the spring of 1985, HCP began discussing its plans

with HCA. (/d., pp. 2965-66.) Initial discussions

focused on the possibility of HCA making an

investment in HCP as opposed to purchasing the

company. (/d., pp. 2966-67.) Ultimately, it was

decided to sell HCP to HCA. (/d., p. 2967.) The

proposed transaction was publicly announced on May

30, 1985. (Def.’s Ex. 239.)

72. When HCA decided to acquire Wesley in

late 1984, HCA was not contemplating the possible

purchase of an HMO in Wichita. (Tran. 19, p. 3181.)

HCA was interested in acquiring HCP because its

management expertise and management systems

offered the potential for national expansion. (Tran.

19, p. 3181; Tran. 20, pp. 3263-64; Tran. 21, p. 3330;

Tran. 25, pp. 4084-85.) Neither HCP’s presence in

Wichita nor HCA’s pending acquisition of Wesley

were relevant to HCA’s decision to acquire HCP.

(Tran. 19, p. 3181.)

App. 292c

73. HCA did not examine HCP’s presence in

Wichita in any great detail, because HCA’s interest

in HCP was not focused on local considerations.

(Tran. 20, pp. 3263-64.) HCP’s local physician list

was discussed only in a limited fashion, and the

existence of "exclusive" arrangements with puiysicians

(or the lack thereof) played no role in the

negotiations between HCA and HCP. (Bugg Depo.,

pp. 116-18; Kardatzke Depo., p. 58.) Indeed, this

subject was not even discussed in connection with

the transaction. (Tran. 17, pp. 2967-68.) As a

result, none of the HCA representatives involved in

the negotiations had any knowledge concerning any

putative "exclusive" arrangements between HCP and

physicians’ groups. (Dkt. 118, Reeves Depo., pp.

3()-31.)

74. On August 14, 1985, HCA consummated its

acquisition of HCP. HCA acquired the stock of

HCP through a merger of HCA Acquisition Corp. of

Kansas, Inc. into HCP. (Dkt. 161, Memo. in Support

of Ctrclm. Defs.’ Motion for Summ. Judg. on Ctrelm.,

Attd Aff. of Charles L. Kown and Att’d Ex.,

"Agreement of Merger".)

Paragraph | of the Agreement of Merger provided

that HCP was the Surviving Corporation and that:

[t]he Surviving Corporation shall thereupon and

thereafter without other transfer succeed to all

the rights and property, subject to all debts and

liabilities, of Health [Care] Plus and [HCA

Acquisitions Corp. of Kansas, Inc.] in the same

App. 293c

manner as if the Surviving Corporation itself

had incurred them... .

(/d.)

75. Wesley has been under contract with HCP

since 1981. (Tran. 22, p. 3687.) In the fall of 1984,

prior to any contact between HCA and HCP

regarding a possible acquisition, HCP and Wesley

successfully negotiated a capitation contract with an

effective date of January 1, 1985. (Tran. 17, pp.

2976-78; Tran. 22, pp. 3687-88.) Although Wesley

was the first hospital in Wichita to enter into a

Capitation contract with HCP, HCP also had

fee-for-service contracts with the other hospitals in

Wichita at that time. (Tran. 17, pp. 2968-70.)

76. HCP’s existing relationship with Wesley had

no bearing on HCA’s decision to acquire HCP.

(Tran. 19, p. 3181.) In fact, HCP made it clear from

the outset that its existing model involved dealing

with all hospitals, and that HCP would not be

interested in pursuing discussions with HCA if HCA

might require HCP to deal exclusively with HCA

hospitals. (Tran. 17, pp. 2968-69.) HCA agreed that

HCP could continue to deal with any and_ all

hospitals in Wichita and elsewhere. (/d., p. 2969.)

77. From the time of its acquisition of HCP,

HCA has made no effort to require HCP to do

business only with Wesley, and HCP has continued

to do business with the other hospitals in Wichita.

(Tran. 17, pp. 2969-70.) HCP entered into capitation

contracts with St. Francis Regional Medical Center,

App. 294c

in Wichita, in July of 1985 (after the HCA letter of

intent had been executed), and with St. Joseph

Medical Center, in Wichita, in April of 1986 (after

HCP had been acquired by HCA). (Tran. 17, p.

2970.) Under these contracts, it may be more

advantageous for HCP to send members to St.

Francis or St. Joseph, rather than Wesley, under

certain circumstances, and HCP continues to desire

to have its members utilize all three hospitals. (/d.,

p. 2984.)

78. HCA adheres to a policy of decentralized

management with respect to its subsidiaries’

operations. (Tran. 19, pp. 3144-45.) Both HCP and

Wesley have continued to operate under the

direction of their local, preacquisition management

personnel, who operate autonomously in conducting

the day-to-day operations of their respective

organizations. (Tran. 1, p. 38; Tran. 17, p. 2971;

Tran. 19, p. 3175; Tran. 22, p. 3683.) Dealings with

HCA are limited mainly to budgetary approval.

(Tran. 17, p. 2971; Tran. 22, p.3684.)

79. HCA does not have any practice or policy

involving special arrangements between its subsidiary

hospitals and HMOs, leaving such matters to the

discretion of local management of the institutions

involved. (Tran. 19, pp. 3147-48.) This general

policy has been observed with respect to dealings

between HCP and Wesley. (/d., pp. 3146-47.) HCA

has not involved itself in dealings between HCP and

Wesley, requiring both firms to negotiate

App. 295c¢

arrangements satisfactory to each. (/d.)

80. There have been no changes in HCP’s

relationship with Wesley since the HCA acquisitions

-- a relationship which continues to be characterized

by arms-length negotiations. (Tran. 17, p. 2974;

Tran. 22, p. 3690.) There has been no discussion of

any type of "exclusive" arrangement between HCP

and Wesley, either before or after HCP’s acquisition

by HCA. (Tran. 22, pp. 3688-3692.)

81. Wesley has participated with BCBSK as a

contracting provider under its indemnity insurance

program since BCBSK’s inception. (Stip. q.; Tran. 4,

p. 630.) Wesley has always cooperated fully with

BCBSK, and Wesley has continued to do so after

being acquired by HCA. (Tran. 4, pp. 630, 640.)

82. Wesley entered into a provider contract

with HMOK in November, 1983. Wesley was already

under contract with HCP at that time. (Tran. 22,

pp. 3688-89.) Wesley's contract with HMOK is still

in effect (/d.), and HCP has never attempted to

interfere with Wesley’s contractual arrangement with

HMOK. (/d., pp. 3689-90.)

-- Post-Acquisition Developments --

83. In the spring of 1985, BCBSK began efforts

to establish a PPO in Wichita. This PPO was known

as "Choice Care". (Tran. 4, p. 631.) BCBSK

solicited bids from all four Wichita hospitals to

participate as preferred providers in the Choice Care

App. 296c

program, and in the summer of 1985 BCBSK

selected Wesley and St. Francis as Choice Care

hospitals based on this competitive bidding process.

(/d.) During this same period, BCBSK was

successful in securing contracts with Wichita area

physicians to participate in its new PPO. (Tran. 12,

pp. 2056-58; Pltfs.” Ex. 358.)

84. BCBSK decided to discontinue development

of Choice Care in Wichita in August, 1985. This

decision was prompted by BCBSK’s determination it

would seek to terminate Wesleys contracting

provider agreement under the CAP program. (Tran.

4, pp. 646-48; Pltfs.” Ex. 168.)

85. In the summer and fall of 1985, BCBSK

developed an arrangement with Kansas Health Plan,

a newly formed joint venture between St., Joseph

Medical Center and St. Francis Regional Medical

Center. Pursuant to this arrangement, BCBSK has

reintroduced HMO Kansas into Wichita, offering a

new HMO product in competition with HCP. (Tran.

8, p. 1336; Tran. 11, pp. 1907-08; Tran. 14, pp.

2316-17.)

6. More recently, BCBSK has renewed

development of its Choice Care PPO in Wichita.

BCBSK anticipates that Choice Care will offer lower

premiums to its subscribers. (Tran. & p. 1338.)

87. BCBSK continues to be the largest provider

of private health care financing in the State of

Kansas and in Sedgwick County. (Stip. j.) Between

1983 and 1984, BCBSK experienced a net gain of

10,000 insurance contracts. (Tran. 21, pp. 3378-80;

App. 297c

Def.’s Ex. 663.) Using a conservative estimate of

BCBSK’s market share of the insurable population in

Kansas, BCBSK’s market share increased from 43%

to 47% during the period 1983 to 1985. (Tran. 21,

pp. 3393-94.)

88. In 1986 HCA decided to withdraw from the

health care financing business. This withdrawal will

be effected through a joint venture with the

Equitable Insurance Company. HCA will contribute

all of its health care financing business, including

HCP, to the joint venture in return for an initial

50% stock interest in the newly formed company.

The joint venture corporation will have a separate

board of directors and separate management. The

corporation ultimately will be a_ publicly held

company, and HCA therefore anticipates that its

50% interest will be diluted rapidly. (Tran. 20, pp.

3203-04.)

Conclusions of Law.

-- §] Claims --

The counterclaim plaintiffs (hereinafter

"BCBSK") advance two principal claims under §1 of

the Sherman Act. First, BCBSK alleges a per se

violation of §1 stemming from an alleged conspiracy

with providers in 1984 to terminate contracts and

refuse to deal with HMO Kansas. Alternatively,

BCBSK alleges HCP entered into "exclusive dealing

arrangements” with various physician groups pursuant

App. 298c

to which those groups agreed not to do business with

HMOK.

These claims provide no basis for relief against

counterclaim defendants Wesley Medical Center or

New Century. There is no evidence that Wesley was

a participant in any such conspiracy or that it was a

party to any allegedly unlawful contract. Nor is

there any evidence linking New Century, which has

not yet even begun doing business in Kansas, to any

allegedly unlawful acts.

Nor do these allegations state any claim for

relief against HCA. HCA did not begin discussions

with HCP until the spring of 1985, long after the

activities alleged in the counterclaim had taken

place. The evidence further shows that HCA had no

knowledge of any purported conspiracy or "exclusive

dealing arrangements" between HCP and providers in

Wichita. The mere fact HCA subsequently acquired

HCP’s stock is not sufficient to render HCA liable

for the allegedly unlawful acts of its subsidiary.

Quarles v. Fuqua Industries, 504 F.2d 1358, 1362

(10th cir. 1974); Murphy Tugboat Co. v. Ship

Owners & Merchants Towboat Co., Ltd., 467

F.Supp. 841, 854 (N.D. Cal. 1979), affd 658 F.2d

1256 (1981), cert. denied 455 U.S. 1018 (1982); First

Stop Book Shop, Inc. v. Matthews Book Co., 476

F.Supp. 1054, 1056 (E.D. Mo. 1979), rev'd on other

grounds 634 F.2d 396 (8th Cir. 1981).

Counterclaim defendants HCP and Dr. Reazin

have denied BCBSK’s §1 claims and have offered

App. 299c

substantial evidence corroborating those denials. To

survive summary judgment, BCBSK must therefore

establish there is a genuine issue of material fact as

to whether HCP and/or Dr. Reazin entered into an

illegal conspiracy or agreement. If the record taken

as a whole could not lead a rational trier of fact to

find for BCBSK on this issue, HCP and Dr. Reazin

are entitled to summary judgment on the §1 claims.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 US. , 89 L.Ed.2d 538, 106 S.Ct. 1348, 1355-56

(1986).

No direct evidence implicates anyone in a

conspiracy to "boycott" HMOK, and BCBSK

therefore must rely on inferences from the evidence

to establish the existence of the alleged conspiracy.

In this case, Dr. Reazin and the other physicians

who allegedly participated in the conspiracy to

boycott HMOK have articulated independent

business justifications for their respective decisions

regarding dealings with HMOK. The _ reasons

advanced by these providers were uniformly

corroborated by contemporaneous documents,

including HMOK’s own internal memoranda and

minutes.

While true, on summary judgment the inferences

to be drawn from the underlying facts must be

viewed in the light most favorable to the party

opposing the motion, it is also true that antitrust law

limits the range of permissible inferences from

ambiguous evidence in a §1 case. Matsushita, 89

L.Fd.2d at 553, 106 S.Ct. at 1356.

App. 300c

[C]onduct as consistent with permissible

competition as with illegal conspiracy does not,

standing alone, support an inference of antitrust

conspiracy. .. . To survive a motion for

summary judgment or for a directed verdict, a

plaintiff seeking damages for violation of §1

must present evidence "that tends to exclude the

possibility" that the alleged conspirators acted

independently. ... [Plaintiffs], in other words,

must show that the inference of conspiracy is

reasonable in light of the competing inferences

of independent action or collusive action that

could not have harmed [them].

89 L.Ed.2d at 553, 106 S.Ct. at 1357 (citations

omitted; quoting Monsanto Co. v. Spray-Rite Service

Corp.. 465 U.S. 752, 764 (1984)). Matsushita

establishes a two-part inquiry for evaluating the

propriety of summary judgment in an_ antitrust

conspiracy case: (1) whether a plaintiff's evidence of

conspiracy is ambiguous, i.e., whether it is as

consistent with the defendants’ permissible

independent interests as with an illegal conspiracy:

and, if so, (2) whether there is any evidence tending

to exclude the possibility that the defendants were

pursuing these independent interests. Gibson v.

Greater Park City Co.. Nos. 84-1829, 84-2209, slip

op. at 3 (10th Cir. May 7, 1987).

App. 301c

BCBSK’s attempt to infer a conspiracy from the

terminations of HMOK’s contracts with Hillside and

Wichita Clinic does not survive the

Matsushita/Greater Park City Co. — standards.

Resolving all permissible inferences in favor of

BCBSK, the evidence is at best ambiguous because

those contract terminations are as consistent with

counterclaim defendants’ and_ the _ physicians’

permissible independent interests as with an illegal

conspiracy. But that ambiguity fails to create any

genuine issue of material fact because BCBSK

provides no evidence tending to exclude the

possibility counterclaim defendants and_ the

physicians were pursuing these independent interests.

First, the undisputed facts demonstrate both of these

physician groups made independent unilateral

decisions to terminate their respective relationships

with HMOK. Neither group was aware of the

other's decision to terminate until after the fact.

(SMF "4 57-59.) Second, the evidence establishes

the decision of each group was in its individual

financial interest because HMOK’s small subscriber

base subjected those groups to unacceptable financial

risks, particularly in light of HMOK’s unattractive

reimbursement provisions. (SMF 9% 43, 52-55.) The

foregoing facts are also true as to those groups

which declined to contract with HMOK from the

outset. (SMF {fl 26-28.) Indeed, BCBSK’s own

contemporaneous internal documents demonstrate

App. 302c

that HMOK’s difficulties in recruiting and retaining

physicians were due to the limitations in its own

program and the superiority of HCP’s program.

(SMF 99 30-33.)

The fact HCP sought to convince physicians that

it was in their best interests to continue to deal with

HCP does not support any inference of conspiracy.

An HMO'’s provider list is an integral part of the

HMO itself, and efforts to develop and maintain that

list are part and parcel of the normal competitive

process. (SMF {49 5, 31-33, 37, 40.) There is

absolutely no evidence any physician group made its

decision to deal with HCP, as opposed to HMOK,

on any basis other than the relative competitive

merits of the two programs. (SMF 9 26-27, 43-44,

52-55.)

Nor can a conspiracy be inferred from the fact

certain HCP providers were also shareholders of

HCP. It is not contradicted HCP offered stock to

contracting physicians, noncontracting physicians and

even nonphysicians. (SMF 110.) As to contracting

physicians, HCP placed no conditions on the

availability of its stock that the physician must do

business "exclusively" with HCP or refrain from doing

business with other HMOs. (SMF {fl 11, 14, 62-68.)

That a provider's financial interest in HCP might

have created an additional incentive to deal with

HCP -- or, conversely, not to deal with a competitor

of HCP -- is not sufficient to infer a conspiracy.

This is especially true here, since the unrebutted

App. 303c

testimony elicited at trial demonstrates HCP stock

played no part whatsoever in the decision of any

provider regarding HMOK. (SMF {1 62-68.)

Nor is there any genuine issue of material fact

regarding BCBSK’s "exclusive dealing" claim. First,

it is undisputed HCP did not impose any contractual

limitations upon any group’s ability to contract with

HMOK. Groups under contract with HCP, which

declined to contract with HMOK, were offered

"exclusively" by HCP only in the sense they had

independently decided not to be marketed by any

other HMO. Such arrangements were thus

"exclusive" only in the descriptive sense, not as

"exclusive dealing arrangements" designed, intended

and implemented as those for which the antitrust

laws provide relief. That the independent economic

self-interest of various medical groups dictated

participation with HMOK was not desirable does not

raise any inference of conspiracy or "exclusive

dealing" cognizable under the antitrust laws.

Thus, the evidence of record, viewed most

favorably to BCBSK, shows only that certain

physician groups in Wichita independently decided

not to do business with HMOK based on an

assessment of the acknowledged deficiencies of the

HMOK program. That those groups were therefore

dealing "exclusively" with HCP merely describes the

status quo: having decided not to contract with

HMOK, those groups’ HMO involvement was de

facto limited to their relationship with HCP. An

App. 304c

arrangement which is "exclusive" in the descriptive

sense, in that a company is only dealing with a single

firm, but is not restrictive in any way of the rights of

other buyers or sellers, is simply not an “exclusive

dealing arrangement” cognizable under the antitrust

laws.

Further, even if HCP’s relationships with certain

Wichita physician groups could be characterized as

"exclusive dealing arrangements", HCP would still be

entitled to summary judgment because the existence

of such arrangements does not raise a triable issue

under §1. The mere existence of an_ exclusive

dealing clause does not violate the antitrust laws.

See Bob Maxfield, Inc. v. American Motors Corp..

637 F.2d 1033, 1036 (Sth Cir.), cert. denied 454 US.

S60 (1981). An exclusive dealing claim does not

present a per se violation of $1. /nstructional Sys.

Dev. Corp. v. Aetna Cas. and Surety Co., No.

82-2105, slip op. at 7-8, 11 (10th Cir. Apr. 22, 1987).

Rather, "exclusive dealing arrangements” are analyzed

under the rule of reason, and thus condemned only

upon an affirmative showing that they restrain trade

unreasonably. Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 466 US. 2, 45 (1984) (O'Connor, J.

concurring); 7ampa Electric Co. v. Nashville Coal

Co., 365 U.S. 320, 329, 334 (1961); Roland

Machinery Co. v. Dresser Industries, 749 F.2d 380,

393 (7th Cir. 1984).

Among other things, this means a_ plaintiff

seeking to challenge an “exclusive dealing

App. 305c

arrangement" must demonstrate the defendant

possesses market power, as this is a prerequisite to

being able to restrain trade unreasonably. Westman

Com’n Co. v. Hobart Intern., Inc., 796 F.2d 1216,

1225 (10th Cir. 1986); Jack Walters & Sons Corp. v.

Morton Building, Inc., 737 F.2d 698, 702 (7th Cir.),

cert. denied 105 S.Ct. 432 (1984); Valley Liquors,

Inc. v. Renfield Importers, Ltd., 678 F.2d 742, 745

(7th Cir. 1982). Thus, to establish the existence of a

genuine issue of material fact as to its "exclusive

dealing" claim, BCBSK must produce evidence

tending to show HCP possesses "market power",

which the Tenth Circuit has defined as "the power to

control prices" or "the power to exclude competition.”

Hobart, 796 F.2d at 1225 n. 3; see also Board of

Regents of Univ. of Oklahoma v. NCAA, 707 F.2d

1147, 1158 (10th Cir. 1983), aff'd 468 U.S. 85 (1984).

The facts of record estabiish HCP lacks market

power, and HCP is therefore entitled to summary

judgment on BCBSK’s "exclusive dealing" claim even

if such arrangements, in the antitrust sense, could be

shown to exist. The evidence shows HCP competes

with well over 200 firms in this market. (SMF %{ 15,

19, 20.) HCP is a relatively minor player in the

private health care financing market in Kansas, with

a market share of less than 3% based on premium

dollars. (SMF 416.) Indeed, even within greater

Sedgwick County, its 1985 market share was only

between 8% and 12%. (SMF 1421.)

In an effort to avoid summary judgment on this

App. 306c

ground, BCBSK_ seeks to posit a _ separate

“submarket" consisting exclusively of HMOs wherein

HCP might be said to possess market power. In

support of the alleged existence of this "submarket",

BCBSK relies exclusively on the affidavit of its

expert, Peter R. Hamilton. (Dkt. 266, Memo. in Opp.

to Motion for Summ. Judg. on the Ctrelm., Att’d Aff.

of Peter R. Hamilton.) Dr. Hamilton’s affidavit,

however, is wholly inadequate to raise a genuine

issue of fact as to the existence of the insupportable

and unduly restrictive "submarket" alleged by

BCBSK.

Indeed, the affidavit does not even rise to the

level of admissible evidence as required by

Fed.R.Civ.P. 56. An expert’s affidavit submitted in

opposition to a motion for summary judgment must

set forth specific facts from the record to support its

conclusions. Evers v. General Motors Corp., 3

Fed.R.Serv. 3d 9-59, 962 (11th Cir. 1985); United

States v. Various Slot Machines, 658 F.2d 697,

700-01 (9th Cir. 1981); Merit Motors, Inc. v. Chrysler

Corp., 569 F.2d 666, 672-73 (D.C. Cir. 1977).

Theoretical speculation, unsupported assumptions

and conclusory allegations advanced by an expert are

neither admissible at trial, see, eg., American

Bearing Co. v. Litton Industries, Inc., 540 F.Supp.

1163, 1171-75 (E.D. Pa. 1982), cert. denied 469 U.S.

854 (1984), nor are they entitled to any weight when

raised in opposition to a motion for summary

judgment. See Evers, supra; Various Slot Machines,

App. 307c

supra; and Merit Motors, supra. As applied to Dr.

Hamilton’s affidavit, these principles demonstrate his

conclusory assertions respecting the alleged existence

of an "HMO submarket" are entitied to no weight.

It is undisputed HMOs compete with traditional

indemnity insurance products, PPOs and self-insured

programs. (SMF 121.) Nor is it disputed all of

these health care financing mechanisms are included

within the "private health care financing market"

(/d.), which BCBSK stipulated is the relevant market

in this case. Indeed, Dr. Hamilton himself testified

in deposition that "at the least," indemnity insurers,

PPOs, HMOs, other prepaid health plans and

self-insurance would be included in the relevant

market in this case. (Hamilton Depo., p. 84.)

Moreover, Dr. Hamilton's deposition testimony flatly

contradicts the theory he now postulates in his

affidavit:

Q. [By Mr. Rawson] [What is your, as an

economist. definition of a sub-market?

Q. Sub-market to me is some definition of

market which does not -- that if one firm

owned all of the products in that’ particular

market they still would not have the power to

raise prices over a competitive price. However,

| believe by [Brown Shoe Co. v. United States,

370 U.S. 294, 325 (1962)] [the] definition of a

sub-market is that it is some definition of

App. 308c

market more constrained than what economists

would call it but still has legal significance. So

to me a sub-market has no significance... .

Q. All right. Let me ask the question this way.

To you as an economist, are there any

significant sub-markets geographically for health

care financing in Kansas?

A. I believe we've got the same objection.

Sub-market can be anything we want to define

it, as that has no significance... .

Q. In your opinion is Wichita a geographic

sub-market in health care financing?

A. No, and | once again point out you have

used the term that at least economically

speaking is not well-defined, so my answers

always contingent on that. You have been

insisting On using the term sub-market even

though I haven't really defined it as anything

you want to define it as other than a definition

of market.

Q. Let me ask it this way: [s Wichita a market

for health care financing?

App. 309c

A. No.

Q. Are there any ambiguities in that question

as far as youre concerned as an economist?

A. No.

(Hamilton Depo., pp. 80-82; emphasis added. )

These undisputed facts are sufficient to dispose

of Dr. Hamilton’s conclusory affidavit and,

correspondingly, of BCBSK’s "HMO submarket"

argument. The evidence of record conclusively

establishes that HMOs are in direct competition with

other methods of private health care financing, and

that these alternative health care financing

mechanisms are reasonably interchangeable. Viewed

in light of the undisputed evidence of record, the

unrealistically narrow "submarket" posited by BCBSK

does not withstand scrutiny. See United States v. E.

!. du Pont de Nemours & Co., 351 U.S. 377, 395

(1956); Telex Corp. v. Internat'l Business Machines

Corp., 510 F.2d 894, 919 (10th Cir.), cert. dism’d 423

U.S. 802 (1975). See also BCBSK Preliminary Trial

Brief dated Feb. 28, 1986, at pp. 76-77 ("The

relevant market .. . is comprised of all third-party

financers of health care . . . indemnity-type

insurance, prepaid H1MO plans, ete. are reasonably

interchangeable health care products.") (citing du

Pont, supra, and Telex, supra).

App. 310c

Dr. Hamilton's affidavit neglects the facts of

record in’ favor of theory, and nothing contained

therein raises any genuine issue as to the alleged

existence of a separate HMO "submarket". His

"economic analysis" (Aff., 1{1 7-13) is a hypothetical

and circular exercise in which he attempts to

bootstrap HMOK’s lack of success in Wichita to the

conclusion there is an HMO_ sub-market, the

existence of which he "assumed" from the outset.

(Aff., 17.) His "legal analysis" (1914-18), for which

he is not qualified, is equally defective. In an effort

to make Brown Shoe Co. v. United States, 370 U.S.

294 (1962), fit this case, he argues HMOs are "a

separate economic entity," because inter alia they are

called "HMOs" (presumably calling for the same

conclusion as to "Fords"), and because BCBSK

"found it necessary" to separately incorporate HMOK

(overlooking the fact this was required due to

BCBSK’ special enabling legislation). (%15.) He

argues the HMQ_ "submarket" is served — by

"specialized vendors" (116), ignoring the fact both

BCBSK and HCA are fully integrated providers of

health care financing services, i.e., indemnity

programs, HMOs, PPOs, and ASO services.

Similarly, he disregards Aetna’s presence in Wichita

through indemnity insurance and a PPO product.

Indeed, Dr. Hamilton excludes PPOs altogether,

despite the facts they have many characteristics in

common with HMOs and that they are in direct

competition with HMOs and traditional indemnity

insurance,

App. 3ll1c

He goes on to assert that "/s/ome HMO’s have

‘distinct customers’ that prefer the HMO method of

delivery ..." (917, emphasis added), ignoring the

fact the actual "customers" consist primarily of

employers who offer their employees both HMO and

traditional indemnity programs, and who also have

the option of establishing their own self-insured

programs. Thus, Dr. Hamilton’s argument is

oblivious to the record as a whole, and additionally,

by his own admission in deposition, amounts to poor

economics. His affidavit is a classic example of why

Fed.R.Civ.P. 56, as interpreted by the courts,

requires an expert's opinions to be rooted in fact

before they will be considered in opposition to a

motion for summary judgment. See Merit Motors,

569 F.2d at 673 ("To hold that Rule 703 [regarding

admissibility of expert testimony] prevents a court

from granting summary judgment against a party who

relies solely on an expert’s opinion that has no basis

in or out of the record than [the expert’s] theoretical

speculations would seriously undermine the policies

of Rule 56.").

Under these circumstances, BCBSK cannot be

heard to argue HCP possesses market power in the

private health care financing market. BCBSK

successfully recruited physicians in Wichita to

participate in its Choice Care PPO during the period

the alleged "exclusive arrangements" were in effect,

and it has subsequently reintroduced HMOK in the

Wichita area. (SMF {fi 83, 85.) BCBSK anticipates

App. 312c

these competitive product offerings will reduce

premiums to Wichita area subscribers. (SMF {4

85-86.) HCP’s lack of market power is further

demonstrated by the fact Wichita’ is also

characterized by a large degree of competition in the

form of self-insured programs. (SMF 20.)

The evidence conclusively establishes HCP lacks

market power in the private health care financing

market. HCP is therefore entitled to summary

judgment on BCBSK’s "exclusive dealing" claim. See

Hobart, supra; Assam Drug Co. v. Miller Brewing

Co., Inc., 798 F.2d 311 (8th Cir. 1986) (applying

federal precedent to exclusive territorial assignments

challenged under South Dakota antitrust laws,

summary judgment granted because defendant lacked

market power); Barnosky Oils, Inc. v. Union Oil

Co. of Calif., 582 F.Supp. 1332 (E.D. Mich. 1984)

(summary judgment granted in exclusive dealing case

where defendant lacked substantial market share and

competition was vigorous).

BCBSK’s inability to establish HCP possesses

market power, in itself, entitles HCP to summary

judgment, see Celotex Corp. v. Catrett, supra, but

BCBSK’s "exclusive dealing" claim is deficient in

other respects as well. None of the factors which

courts have relied upon to invalidate exclusive

dealing arrangements -- such as_ unreasonable

duration, lack of business justification, or the risk

that entry will be deterred -- are present here. See

In re Beltone Electronics Corp., 100 FTC 68, 204

App. 313c

and n. 39 (1982). Even crediting Dr. Hamilton's

"HMO sub-market" hypothesis, BCBSK cannot avoid

summary judgment on its “exclusive dealing” claim.

The "exclusive" arrangements at issue constitute

at-will relationships which could be terminated at any

time in the sole discretion of the medical groups.

(SMF 4 36-38, 45-48, 56.) Thus, even assuming

such arrangements constitute "exclusive dealing"

agreements within the meaning of the antitrust laws,

the at-will nature of the arrangements would

preclude any finding of illegality as a matter of law,

even assuming HCP possesses market power in the

contrived submarket. See American Passage Media

Corp. v. Cass Communications, 750 F.2d 1470, 1473

(9th Cir. 1985) (market power alone is insufficient to

establish anticompetitive harm from exclusive dealing

contracts where contracts are terminable at will);

Roland machinery Co. v. Dresser industries, Inc.,

749 F.2d 380, 395 (7th Cir. 1984) (exclusive dealing

contracts terminable in less than one year are

presumptively lawful under Section 3 of the Clayton

Act, 15 U.S.C. §14); see also Tampa Electric Co. v.

Nashville Coal Co., 365 U.S. 320, 335 (1961)

(arrangements which do not violate the broader

proscription of Clayton Act §3 do not violate $1 of

the Sherman Act).

In support of its §1 claims, BCBSK contends

“there is both "direct and circumstantial evidence of

conspiracy.” Its "direct evidence” consists of the

deposition testimony of James Denman, the

App. 314c

deposition and trial testimony of Dr. Beth Alexander,

and the minutes of the Wichita Clinic. Its

"circumstantial evidence" includes "numerous

meetings between Dr. Kardatzke and the Wichita

physician groups, meetings of the Consortium, the

timing of the Wichita [Clinic] and Hillside contract

cancellations, the timing of the stock offers and

issuance, and the inability of HMOK to contract with

key physician groups in Wichita." The foregoing

"evidence" is insufficient to avoid summary judgment

on BCBSK’s §1 claims.

BCBSK seeks to use Mr. Denman’s testimony

to support its contention HCP, through its stock

offering and otherwise, elicited "exclusive dealing

arrangements" from Wichita area physician groups.

Mr. Denman’s deposition testimony reveals, however,

the proffered testimony is inadmissible because he is

incompetent to testify as to HCP’s dealing with

Wichita area physicians. He testified, for example: "|

did not work with the Wichita area physicians. I just

heard of names and groups from time to time but

was far too busy in other areas to work with

physicians." (Denman Depo., p. 50.) He did not

recall having any involvement whatsoever in

recruiting physicians in Wichita. (/d., p. 57.)

Further, he testified he "was not at any time in the

direct discussions with physicians leading to

allocating or promising, committing blocks of Health

Care Plus stock... ." (/d., p. 48.) Indeed, he

complained he was literally "locked out" of

negotiations with doctors relating to the possible

App. 315c

purchase of HCP stock because he was not a

member of HCP’s upper management. (/d., p. 19.)

Lacking any foundation in his personal knowledge,

Mr. Denman’s testimony is barred by Fed.R.Evid.

602 ("A witness may not testify unless evidence is

introduced sufficient to support a finding that he has

personal knowledge of the matter.").

BCBSK next cites Dr. Alexander’s testimony

regarding, first, alleged statements made by members

of Family Physicians, P.A., concerning contacts with

other Wichita physician groups about doing business

with HMOK. On this point, Dr. Alexander’s

~ testimony is inadmissible hearsay. Neither Family

Physicians nor any individual members of that group

are parties to this litigation. | Dr. Alexander's

testimony concerning alleged statements made by

other members of Family Physicians is flatly

prohibited by Fed.R.Evid. 802. BCBSK’s attempted

reliance on the "co-conspirator" proviso of Rule

S01(d)(2)(E) is fruitless. "[A]cts and declarations of

an alleged co-conspirator are admissible against

another only if the existence of the conspiracy is in

fact first established by independent evidence."

World of Sleep, Inc. v. La-Z-Boy Chair Co., 756

F.2d 1467, 1474 (10th Cir.), cert. denied 106 S.Ct. 77

(1985) (emphasis _ original). The required

independent evidence must show more likely than

not that "(1) the conspiracy existed; (2) the declarant

and the defendant against whom the conspirator’s

statement is offered were members of the conspiracy;

App. 316c

and (3) the statement was made during the course of

and in the furtherance of the objects of the

conspiracy." La-Z-Boy, 756 F.2d at 1474 (citing

United States v. Peterson, 611 F.2d 1313, 1330 (10th

Cir. 1979), cert. denied 447 U.S. 905 (1980)). These

criteria are not satisfied.

BCBSK also relies on Dr. Alexander's testimony

regarding alleged statements made by Dr. Stan

Kardatzke (an HCP representative) at a breakfast

meeting of Family Physicians sometime in 1984

relative to dealing exclusively with HCP. This

testimony, even if admissible, fails to raise a genuine

issue of material fact as to the existence of

conspiratorial conduct. The substance of her

testimony regarding Dr. Kardatzke’s remarks is:

[T]he content of what he said was at least

related to HMO Kansas and Health Care Plus

was to try to convince us that we should not

participate with Blue Cross-Blue Shield and my

understanding of that is because it was

financially advantageous for our group as well

as other groups to participate with only one

HMO and that if all of the groups, primary care

groups in Wichita, were to do that that the Blue

Cross-Blue Shield plan would not survive in the

Wichita market.

(Tran. 27, p. 4312.) This testimony, even if credited,

is not probative of the existence of the conspiratorial

App. 317c

conduct alleged by BCBSK. First, it lacks even a

hint of any "agreement" between Family Physicians

and any other physician group in Wichita supporting

BCBSK’s boycott claim. Further, the testimony is

not probative of any "agreement" by Family

Physicians to deal exclusively with HCP. Indeed,

even crediting Dr. Alexander's hazy recollection as to

the earliest date of the breakfast meeting (see Tran.

26, p. 4293; Tran. 27, p. 4357 ("early to mid-1984")),

the meeting occurred well after Family Physicians’

decision not to contract with HMOK, which was

reached in the summer of /983. (Tran. 26, pp.

4261-62.)

Further, even assuming contrary to the evidence

that Dr. Kardatzke’s alleged remarks played some

part in Family Physicians’ decision not to contract

with HMOK, Dr. Alexander’s testimony does not

"tend to exclude the possibility" that Family

Physicians acted independently in arriving at that

decision. To the contiary, the clear thrust of Dr.

Alexander's testimony concerning Dr. Kardatzke’s

remarks is that his presentation focused on why it

was to Family Physicians’ independent economic

advantage to deal with HCP as opposed to HMOK,

and the unrebutted evidence of record establishes

Family Physicians had earlier declined to participate

wih HMOK because it had reached the same

conclusion. (Tran. 26, pp. 4282-84.) Dr. Alexander

herself confirmed that Family Physicians’ decisions

regarding HCP and HMOK were based on Family

Physicians independent assessment of the relative

App. 318c

economic merits of the competing programs. (Tran.

27, pp. 4313, 4358-59.) Thus, Dr. Alexander’s

testimony concerning Dr. Kardatzke’s alleged

remarks at the Family Physicians’ breakfast meeting

sometime in 1984 suggest only an effort by Dr.

Kardatzke to emphasize the relative competitive

merits of HCP as opposed to HMOK. That Family

Physicians agreed with Dr. Kardatzke’s assessment as

to the competitive merits of the competing programs

and declined to participate with HMOK raises no

inference of conspiratorial conduct. Conduct that is

as consistent with permissible competition as with

illegal conspiracy does not, without more, support

even an inference of conspiracy. Matsushita, 106

S.Ct. at 1362 n. 21; Greater Park City Co., supra,

slip op. at 3.

Nor is it of any moment, even if true, that Dr.

Kardatzke opined HMOK might be "forced out" of

Wichita as a result of the competitive process. The

evidence is overwhelming that if HMOK was "forced

out" of Wichita, it was forced out because it was a

commercial failure. The antitrust laws are intended

to protect competition, not individual competitors.

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477, 488 (1977); Natrona Service, Inc. v.

Continental Oil Co., 598 F.2d 1294, 1297-98 (10th

Cir. 1979); see also Pac. Eng. & Prod. Co. of Nev.

v. Kerr-McGee Corp., 551 F.2d 790, 795 (10th Cir.),

cert. denied 434 US. 879 (1977) ("Antitrust

legislation is concerned primarily with the health of

App. 319c

the competitive process, not with the individual

competitor who must sink or swim in competitive

enterprise.”).

For these reasons, the proffered testimony of

Mr. Denman and Dr. Alexander, whether viewed

independently or in conjunction, is wholly insufficient

to raise a genuine issue of material fact regarding

BCBSK’s §1 claims. Mr. Denman lacks any

foundation to provide admissible testimony relating

to HCP’s dealings with Wichita physician groups.

Dr. Alexander’s testimony’ regarding alleged

statements regarding alleged statements made by

other members of Family Physicians, P.A. is

inadmissible hearsay. Her testimony relating to Dr.

Kardatzke’s alleged statements at the Family

Physicians breakfast meeting, even if considered

competent, is not probative of conspiratorial conduct.

The final category of "direct evidence" of

conspiracy cited by BCBSK is the Wichita Clinic

meetings. These "minutes" refer to the minutes of a

June 26, 1984 meeting of the Wichita Clinic

executive committee attended also by HCP

representatives. (ets Ex. 43.) HCP’s

presentation at this meeting was prompted by its

concern about the possible loss of the Wichita Clinic

as a contracting HCP provider. (Tran. 17, pp.

2954-55.) In particular, HCP had become aware

HMOK had approached the clini« concerning the

creation of a stand alone HMO ic -.arket the clinic

on an exclusive basis. (/d.) In addition, the clinic

was considering possible participation in a new St.

App. 320c

Francis PPO at that time. (Tran. 26, pp. 4152,

4172.) The question under consideration by the

Wichita Clinic executive committee at the June 26

meeting was whether the clinic would participate

with HCP, HMOK, or both, as well, as new PPOs.

(Tran. 26, p. 4172.) The Wichita Clinic subsequently

joined the St. Francis PPO. (/d., pp. 4152, 4193.)

On July 10, 1984, however, the clinic’s executive

committee voted to terminate its. contract with

HMOK and to continue its HMO participation only

with HCP. (/d., pp. 4173-4175; Def.’s Ex. 455.

In this context, the Wichita Clinic "minutes" are

not probative of conspiratorial conduct. The minutes

do not evidence any agreement between the Wichita

Clinic and any other physician group to "boycott"

HMOK. Nor do the minutes reflect any solicitation

by HCP of any binding commitment by the Wichita

Clinic to refrain from doing business with HMOK.

To the contrary, the minutes merely reflect HCP’s

effort to "sell" the clinic on the advantages of

participating with HCP, and HCP’s "interest" in

having the clinic "participating exclusively with HCP

with HMO’s," an "arrangement [which] could be

broken at any time if the clinic felt it was not

advantageous to do so." (Def.’s Ex. 453; emphasis

added.) This is nothing more than competition on

the merits, particularly in light of the fact HCP was

responding to HMOK’s own "exclusive" overtures to

the Wichita Clinic. Dr. Hummer gave detailed

testimony concerning the reasons why the Wichita

App. 32Ic

Clinic terminated its contract with HMOK. | In

essence, these reasons were: (1) HMOK paid the

clinic less than HCP for essentially the same work;

(2) to the extent HMOK was successful in attracting

patients from HCP, the clinic’s revenue stream would

be adversely affected; and (3) HMOK’s limited

enrollment base placed the Wichita Clinic at

considerable financial risk under its capitation

contract. (Tran. 26, pp. 4195-97.)

Thus, the evidence demonstrates that the

Wichita Clinic’s decision to discontinue _ its

contractual relationship with HMOK was based on

legitimate business reasons. relating to the

competitive merits of HCP versus HMOK from the

clinic's standpoint. Economics and common sense

led the Wichita Clinic to conclude that continued

participation with HMOK was a losing proposition.

Under these circumstances, the fact it decided to

terminate its contract With HMOK is simply no

evidence of conspiratorial conduct.

Nor does BCBSK advance any facts to challenge

the unrebutted testimony that the Wichita Clinic is

an “exclusive” HCP provider only in the sense it has

not entered into contract with any other HMOs.

(Tran. 26, p. 4201.) In particular, BCBSK has not

produced any evidence which calls into question the

fact there is no limitation whatsoever on the clinic’s

ability to contract with another HMO or any other

prepaid plans. (Tran. 26, p. 420!; Tran. 17, p. 2958;

Tran. 25, pp. 3981-82, 4021-23.) Indeed, the

unrebutted evidence shows the Wichita Clinic has

App. 322c

continued to negotiate with HMOK on various

_ proposals since the summer of 1984, including a

February, 1985 HMOK proposal regarding formation

of a group model HMO. (Tran. 7, pp. 1142-48;

Tran. 8, p. 1372; Tran. 25, p. 4056; Tran. 26, p. 4204;

Def.’s Ex. 461; Pltfs.’ Ex. 490.) There are simply no

facts to suggest the Wichita Clinic would not

presently be receptive to a good business proposal

from HMOK, as BCBSK’s Dauner conceded at trial

(Tran. 8, p. 1392), nor that the clinic would not have

continued its contractual relationship with HMOK in

1984 if the BCBSK HMO _ had offered an

economical, viable program. Thus, even assuming

the Wichita Clinic's decision to terminate its contract

with HCP evidences an "agreement" to deal

exclusively with HCP, the at-will nature of that

“agreement” does not raise a jury-submissible issue

under §1 of the Sherman Act. See Roland

Machinery Co. v. Dresser Industries, supra; Tampa

Electric Co. v. Nashville Coal Co., supra.

Nor does the "circumstantial evidence” cited by

BCBSK raise any genuine issue of material fact as

to its §1 claims. The mere opportunity to conspire

is not sufficient to support any inference of

conspiracy or of participation in a conspiracy. Weit

v. Continental Illinois Bank & Trust Co., 641 F.2d

457, 462 (7th cir. 1981), cert. denied 455 U.S. 988

(1982); Oreck Corp. v. Whirlpool Corp., 639 F.2d

75, 79 (2d Cir. 1980), cert. denied 454 U.S. 1083

({981). Thus, the mere existence of "numerous

App. 323c

meetings between Dr. Kardatzke and Wichita

physician groups" raises no genuine issue as to the

existence of the alleged conspiracy. In contrast to

the present situation, in opposition to defendant’s

motion for summary judgment on the complaint,

plaintiffs produced evidence showing BCBSK not

only met jointly with St. Francis and St. Joseph, but

that BCBSK discussed Wesley’s termination in

connection with the solicitation of discounts from the

Saints, the acceptance of which was contrary to their

economic self-interest. In other words, plaintiffs

produced evidence to show BCBSK actually seized

the opportunity to conspire in restraint of trade.

Reazin 1, 635 F.Supp. at 1303-08. BCBSK can point

to no such evidence in support of its counterclaim.

Likewise, the "timing of the Wichita [Clinic] and

Hillside contract cancellations, . . . and the inability

of HMOK to contract with key physician groups in

Wichita" failed to support any inference’ of

conspiracy. BCBSK seeks to invoke the "conscious

parallelism" or the narrower "hub and spoke" theory,

but the facts of record fail to support application of

that theory as a matter of law. ‘To successfully

invoke "conscious parallelism" BCBSK must produce

facts showing the physician groups’ conduct was_

indeed "conscious". That is, it must produce

evidence showing the medical groups were conscious

of each other's conduct and that such awareness

played a part in their decisionmaking process.

Theatre Enterprises v. Paramount, 346 U.S. 537, 541

App. 324c

(1954): Pan-Islamic Trade Corp. v. Exxon Corp.,

632 F.2d 539, 559 (Sth Cir. 1980). cert. denied 454

U.S. 927 (1981). There is no evidence that the

Wichita Clinic or Hillside were "conscious" of each

other's respective decision at the time of their own

decisions regarding HMOK. Indeed, the evidence is

to the contrary. (SMF 4% 57-59.) Nor is there any

evidence that such awareness, even if it existed,

played any part in their individual decisions. — Dr.

Reazin specifically testified that the actions or

intentions of other groups regarding HMOK

“wouldn't have changed my mind a bit because it

wouldn't have changed my numbers here .... We

were looking at low enrollment and we made our

decision based on that." (Tran. 16, pp. 2704-05.)

Nor is there any evidence supporting BCBSK’s

allegations as to those physician groups” which

declined to contract with HMOK from the outset.

(SMF 4" 60-61.)

Further, it is well settled that even consciously

parallel conduct, standing alone, will not support an

inference of conspiracy. Theatre Enterprises, 346

U.S. at 549; Consolidated Farmers Mut. Ins. Co. v.

Anchor Savings, 480 F.Supp. 640, 649 (D. Kan.

1979), aff'd 1980-2 Trade Cases (CCH) 963,530 (10th

Cir. 1980), cert. denied 449 U.S. 1080 (1981);

Schoenkopf v. Brown & — Williamson Tobacco

Corp., 637 F.2d 205, 208 (3d Cir. 1980); Modern

Home Institute, Inc. v. Hartford Accid. & Indem.

Co., 513 F.2d 102, 110 (2d Cir. 1975). Before

BCBSK can successfully invoke conscious parallelism,

it must produce additional facts, or "plus" factors

tending to show the actions of the medical groups

were interdependent or somehow concerted. Nat’/

Auto Brokers Corp. v. General Motors Corp., 572

F.2d 953, 959 (2d Cir. 1978), cert. denied 439 US.

1072 (1972); United States v. General Motors Corp..

1974-2 Trade Cases (CCH) 75,253 (E.D. Mich.

1974). At a minimum, BCBSK must also show (1)

the medical groups acted in contradiction of their

economic self-interest, and (2) they had a motive to

enter into the unlawful agreement. Schoenkopf, 637

P.2d at 208: Consolidated Farmers, 480 F.Supp. at

6049. Even assuming BCBSK could produce credible

evidence relating to the "motive" to conspire, the

unrebutted evidence demonstrates the medical

groups did not act in contradiction of their economic

self-interest. The evidence shows the exact opposite

is true. (SMF 4% 26-27, 43, 52-55.) Thus, BCBSK’s

attempt to invoke "conscious parallelism" fails as a

niatter of law to raise any genuine issue of material

fact.

BCBSK’s reliance on /nterstate Circuit, Inc. y.

United States, 306 U.S. 208 (1939), is misplaced.

Here, no evidence suggests knowledge among the

physician groups of a common scheme, or even that

others were asked to participate, or that each knew

that cooperation was essential to the plan, or that

the plan would unreasonably restrain trade. Nor is

there any evidence of “early awareness" or renewal.

App. 326c

See Interstate Circuit, 306 U.S. at 226-27. Although

parallel business behavior is admissible circumstantial

behavior from which the factfinder may infer

agreement, proof of parallel business behavior does

not conclusively establish agreement; "conscious

parallelism’ has not yet read conspiracy out of the

Sherman Act entirely." Theatre Enterprises, 346 U.S.

at 538-39.

The "timing of the [HCP] stock offers and

issuance" is equally devoid of any probative value as

to the existence of a conspiracy. As _ previously

discussed, even if HCP stock created an additional

financial incentive to deal with HCP as opposed to

HMOK, that is no more suggestive of conspiratorial

conduct than is reimbursing physicians at higher

capitation levels. Where, as here, two HMOs offer

the same model, any financial advantages offered by

one will inure to the detriment of the other relative

to provider participation because, from the provider's

perspective, supporting the success of the financially

inferior HMO ultimately will result in "less return for

essentially the same services." (See Tran. 26, pp.

4195-97.) HMOK did nothing to tip the economic

balance in its favor -- neither through its own

issuance of stock, higher capitation payments, or

offering an alternative HMO model -- and it was

therefore the loser in the competition for physician

support. In any event, the unrebutted testimony

elicited at trial demonstrates HCP stock played no

part whatsoever in the decision of any provider

regarding HMOK. (SMF {%fi 62-68.)

App. 327c

Finally, the activities of the physicians’

"Consortium" provide BCBSK no support. There is

no evidence the members of the Consortium actually

acted in concert to "boycott" HMOK. More

specifically, the Consortium did not begin meeting

until the fall of 1984 at the earliest, well after the

alleged events here in issue and subsequent to

HMOK’s September 5, 1984 decision to withdraw

from Wichita. (Tran. 26, p. 4285; Tran. 27, p. 4376;

SMF 431.)

Where a plaintiff's evidence of an agreement to

undertake joint activity violating $1 is not indirect or

ambiguous, and the evidence tends to exclude the

possibility the alleged conspirators acted

independently in pursuing the challenged conduct,

Matsushita and the cases upon which it relies

require defendants’ motion for summary judgment be

denied. /nstructional Sys. Dev. Corp. v. Aetna Cas.

and Surety Co., No. 82-2105, slip op. at 13-15 (10th

Cir. Apr. 22, 1987). But where a plaintiffs evidence

of an alleged conspiracy violative of §1 is met, as

here, with evidence of legitimate business reasons for

defendants conduct, that shifts to plaintiff the

burden of providing evidence which tends to exclude

the possibility the alleged conspirators acted

independently. Gibson v. Greater Park City Co..

Nos. 84-1829, 84-2209, slip op. at 3, 6 (10th Cir. May

7, 1987). Where the evidence put forth by plaintiff

in an attempt to meet that burden is equivocal,

supporting either a permissible or a conspiratorial

App. 328c

motive, that is not evidence tending to exclude the

possibility defendants were pursuing independent

interests, and defendants’ unrebutted independent

plausible explanations bring such a case within the

Matsushita test for awarding summary judgment.

Greater Park City Co., supra, slip op. at 6-7.

BCBSK has failed to provide, as Matsushita/Greater

Park City Co. require, evidence that tends to

exclude the possibility the alleged

provider-conspirators acted independently -- a

"possibility" which, as discussed above, direct

testimony as established as actual fact.

I conclude there is no significant probative

admissible evidence tending to support the §1

allegations of the counterclaim. Even resolving in

BCBSK’s favor the permissible inferences from its

admissible evidence, that evidence fails to raise a

genuine issue of material fact from which a jury

could find in favor of BCBSK and HMOK on all

elements of their §1 claims. Accordingly,

counterclaim detendants are granted summary

judgment on those claims. Greater Park City Co..,

supra.

-- §2 Claims --

BCBSK also claims counterclaim defendants

violated §2 of the Sherman Act, alleging the offenses

of monopolization, attempt to monopolize, and

conspiracy to monopolize. To establish the offense

App. 329c

of monopolization, a plaintiff must prove defendant

possesses "monopoly power" in a relevant market,

and that such power was willfully acquired or

maintained. J/nstructional Sys. Dev. Corp. v. Aetna

Cas. and Surety Co., supra, slip op. at 17-18

(quoting United States v. Grinnell Corp., 384 U.S.

563, 570-71 (1966)). "Monopoly power" is defined as

"the power to control prices in the relevant market

and exclude competition." Shoppin’ Bag of Pueblo,

Inc. v. Dillon Companies, 783 F.2d 159, 164 (10th

Cir. 1986) (emphasis added).

There is no evidence any counterclaim

defendant has monopoly power, thus detined, in any

relevant market. BCBSK’s §2 claims as to HCP rest

exclusively upon Dr. Hamilton’s inadmissible and

defective affidavit alleging the existence of a

"Wichita HMO submarket."” As previously discussed,

Dr. Hamilton's affidavit raises no genuine issue as to

this contrived "submarket". His affidavit is

inconsistent with his deposition testimony; he himself

has undercut the very foundation which would now

be necessary to support the allegations contained in

his affidavit. As counterclaim defendants point out,

the only "dispute" as to this issue, therefore, is

between Dr. Hamilton today and Dr. Hamilton

yesterday. As to HCP in particular, the evidence

shows it lacks either power over price or power to

exclude competition in the private health care

financing market. Further, even crediting Dr.

Hamiiton’s affidavit, and assuming HCP possesses

App. 330c

market power in this nonexistent "submarket", there

is no evidence HCP possessed any purpose or intent

to exercise monopoly power for anticompetitive or

exclusionary purposes, an essential element of

monopolization under §2. United States v. Griffith,

334 U.S. 100 (1948); Volasco Products Co. v. Lloyd

A. Fry Roofing Co., 308 F.2d 383 (6th Cir. 1962),

cert. denied 372 U.S. 907 (1963).

At a minimum, BCBSK must show -- and it

cannot -- HCP abused its monopoly power by acting

"in an unreasonably exclusionary manner" relative to

its competitors. See, eg., Berkey Photo, Inc. v.

Eastman Kodak Co., 603 F.2d 263, 276 (2d Cir.

1979), cert. denied 444 U.S. 1093 (1980); Mid-Texas

Communications Systems, Inc. v. American

Telephone & Telegraph Co., 615 F.2d 1372, 1387

(Sth Cir.), cert. denied 449 U.S. 912 (1980); Soo

Hardwoods, Inc. v. Universal Oil Products Co., 493

F.Supp. 76, 78 (W.D. Mich. 1980) ("It is a familiar

rule of antitrust law that a competitor, even one

with monopoly power, does not violate Section 2. .

. unless it engages in anticompetitive practices.").

With the exception of its defective §1 claims, BCBSK

can point to no allegedly exclusionary practices by

HCP. HCP has been no more than a vigorous and

effective competitor. BCBSK’s monopolization claim

as to HCP therefore fails as a matter of law, even

assuming contrary to fact, HCP possesses monopoly

power.

App. 33lc

Nor is there any genuine issue of material fact

jas to BCBSK’s remaining §2 claims. BCBSK’s

attempt to monopolize claim is defective because

BCBSK cannot show there is a "dangerous

probability" that HCP could succeed in achieving

monopoly power; nor is there any evidence of a

specific intent to monopolize by HCP. Shoppin’ Bag

of Pueblo, 783 F.2d at 161.

To establish a conspiracy to monopolize in

violation of $2, a plaintiff must show an agreement,

overt acts in furtherance of that agreement, and a

specific intent to monopolize any part of interstate

commerce. /nstructional Sys. Dev. Corp. v. Aetna,

supra, slip op. at 15. BCBSK’s failure of proof as to

its conspiracy claim under §1 precludes any issue of

fact as to its conspiracy to monopolize claim under

§2. United States v. Yellow Cab Co., 332 U.S. 218

(1947); Richter Concrete Corp. v. Hilltop Concrete

Corp., 691 F.2d 818, 827 (6th Cir. 1982). HCP’s

entitlement to summary judgment on this claim is

also established by the absence of any proof of a

specific intent to monopolize. Pac. Eng. & Prod. Co.

v. Kerr-McGee Corp., 551 F.2d 790 (10th Cir.), cert.

denied 434 U.S. 879 (1977)

The foregoing principles are also dispositive of

BCBSK’s §2 allegations against Wesley and HCA.

There is simply no evidence of any exclusionary

conduct or specific intent to monopolize on the part

of either Wesley or HCA. Thus, BCBSK’s §2 claims

against those parties fail as a matter of law, even

App. 332c

assuming, contrary to fact, that Wesley and/or HCA

are "dominant" factors in any relevant market. There

is no evidence either Wesley or HCA did anything

anticompetitive, exclusionary, or even remotely

Suspect with respect to BCBSK or anyone else.

BCBSK finds much comfort in the testimony of

its own employees that on July 24, 1985, at the

meeting regarding Wesley’s participation in the

Choice Care PPO, Edmund Berry allegedly stated

"it was HCA’s intention to put one of the other

large hospitals in Wichita out of business and then

work with the other hospital." (Tran. 7, pp. 1193-94.)

As evidence of allegedly unlawful specific intent,

however, this is inadequate to lend support to

BCBSK’s §2. claims. "Whether a_ particular

employee’s intent may be attributable to the

company [for these purposes] depends on_ the

employee's role in the decisional process of the

company." I/nstructional Sys. Dev. Corp. v. Aetna,

supra, slip op. at 16 n. 4 (citing VII P. Areeda,

Antitrust Law 91506 (1986)). In Aetna, defendant

Doron’s national sales manager stated "his goal" was

to put plaintiff ISDC out of business. The manager

reported to Doron’s president, and the Tenth Circuit

held "[t]his and other evidence clearly permits a

factfinder to infer that Doron and Aetna made joint

decisions, pursuant to the contract and outside it,

which furthered Doron’s goal of driving ISDC out of

business." /d., slip op. at 16. If a company can be

bound to statements of an employee’s personal intent

App. 333c

by virtue of his role in the decisionmaking process of

the company, it is equally appropriate to examine

that same relationship to determine whether a

company is bound to an employee’s statements

regarding company intent. Mr. Berry is a senior

vice president and financial officer of Wesley. (Tran.

2, p. 251.) He is responsible for preparing financial

statements and budgets, monitoring accounts

receivable and presenting financial information to the

hospital’s board of trustees. (Tran. 16, p. 2798.)

Mr. Berry’s responsibility in connection with Wesley’s

relations with third-party payors (insurance

companies) is to provide support to Senior Vice

President Robert O’Brien in O’Brien’s role as chief

negotiator of contracts. (/d.; Tran. 2, p. 251.) Mr.

Donald Stewart, Wesley's president, also participates

in these negotiations from his policy perspective as

chief operating officer. (Tran. 2, p. 252.) 9 Mr.

Berry's participation was limited to providing

supporting financial data; he lacked full negotiating

authority. (Tran. 2, pp. 252-53; Tran. 16, pp. 2798-99,

2817.) Mr. Berry's notes following the July 24

meeting and his observations and recommendations

on the Choice Care contract (Def.’s Ex. 272) were

circulated to Robert O’Brien and other Wesley

administrative officials, but were never acted upon

or implemented. (Tran. 17, pp. 2833-41.) Neither

Berry nor anyone else from Wesley discussed the

Choice Care contract with HCA officials in Nashville

or Dallas (the regional office), either before or after

App. 334c

the July 24 meeting. (/d., pp. 2843-44, 2845-46,

2849-50.) Mr. Berry was not involved in the earlier

decisionmaking process which led Wesley to contact

HCA about the possible sale of the hospital; he was

informed after the fact and simply provided financial

data for Wesley’s use in the negotiations. (Tran. 16,

pp. 2800-02.) Finally, Mr. Berry was not involved in

any way with HCA’s acquisition of HCP. (J/d., p.

2803.) Mr. Berry no doubt serves an important

function in the administration of Wesley, but in the

face of this evidence it cannot be argued he plays a

role in the policy decisionmaking processes of the

hospital, let alone those of HCA.

But even crediting BCBSK’s version of his

statement, it does not support any jury-submissible

issue regarding specific intent to monopolize.

Assuming arguendo it was HCA’s intention to "force"

another Wichita hospital out of business, Berry’s

alleged remark does not suggest the contemplated

use of anticompetitive means to achieve that result.

As the Tenth Circuit observed in Pac. Eng. & Prod.

Co., 551 F.2d at 795:

"[A] person does not have an exclusionary intent

merely because he foresees that a market is only

large enough to permit one _— successful

enterprise, and intends that his enterprise shall

be that one and that all other enterprises shall

fail.... To prove that a person has that type

of exclusionary intent which is condemned in

App. 335c

anti-trust cases, there must be evidence that the

person who foresees a fight to the death intends

to use or actually does use unfair weapons... ."

(quoting Union Leader Corp. v. Newspapers of New

England, Inc., 180 F.Supp. 125, 140 (D. Mass. 1959),

modified 284 F.2d 582 (1st Cir. 1960), cert. denied

365 U.S. 833 (1961)). Thus, Mr. Berry’s comment,

even assuming it was made, does not counter the

total absence of any anticompetitive conduct -- actual

or intended -- by Wesley or HCA, nor is it sufficient

to raise a genuine issue of fact as to specific intent

to monopolize.

Counterclaim defendants are granted summary

judgment on BCBSK’s §2 claims.

-- §7 of the Clayton Act --

BCBSK next alleges HCA’s acquisition of

Wesley, HCP and New Century violates §7 of the

Clayton Act, which prohibits acquisitions "the effect

of [which] may be substantially to lessen competition,

or tend to create a monopoly." 15 U.S.C. $18. On

its face, BCBSK’s §7 claim fails to state a cause of

action against counterclaim defendant Reazin. The

corporate counterclaim defendants are entitled to

summary judgment on the §7 claim because BCBSK

has advanced no evidence that HCA’s acquisitions of

Wesley, HCP or New Century, individually or as a

group, will "substantially lessen competition" in

App. 336c

violation of that statute.

Vertical integration is not an unlawful or even

suspect category under the antitrust laws. Jack

Walters & Sons Corp. v. Morton Building, Inc., 737

F.2d 698, 710 (7th Cir. 1984). Consequently, vertical

mergers will not be condemned under §7 in the

absence of facts tending to show the merger will

result in a foreclosure of access to sources of supply,

a significant increase in concentration in a relevant

market, or heightened barriers to entry in either

market. See Ford Motor Co. v. United States, 405

U.S. 562 (1972). The mere possibility a merger

might have anticompetitive effects does not satisfy

the statutory requirement of §7. United States v. E.

I. du Pont de Nemours & Co., 353 U.S. 586, 590-93

(1957). Rather, to avoid summary judgment it is a

plaintiffs burden to produce evidence which shows a

reasonable probability that anticompetitive effects

will, in fact, occur. Brown Shoe Co. v. United

States, 370 U.S. 294, 323 (1962); United States v.

First Nat'l Bank of Maryland, 310 F.Supp. 157, 161

(D. Md. 1970).

HCA’s acquisitions do not create any actual or

probable horizontal anticompetitive effects. The

undisputed facts demonstrate HCA’s acquisitions of

Wesley and HCP have resulted in no structural

changes in the hospital services or health care

financing markets in Wichita. Prior to Wesley's

acquisition, there were four independently owned

hospitals in Wichita: today all four of those hospitals

App. 337c

are still operating independently. If anything, Wesley

-- the largest hospital both before and after the

acquisition -- has lost market share following its

affiliation with HCA. (Tran. 23, pp. 3860-61; Pltfs.’

Fx. 507-A.) Similarly, the acquisition of HCP did

not result in a reduction in the number of health

care financing entities doing business in Wichita; in

fact, that number has increased since the acquisition

with the reintroduction of BCBSK’s HMO through

Kansas Health Plans, the reintroduction of Choice

Care, and the commencement of St. Francis’ PPO.

(Tran. 8, pp. 1336-38; Tran. 11, pp. 1907-08; Tran.

14, pp. 2316-17.) BCBSK’s own expert, Dr.

Christianson, conceded HCA’s acquisitions did not

change the structure of the market in Wichita: HCA

simply seized a unique opportunity. (Tran. 28, pp.

4605-06.) Thus, it is undisputed there has been no

increase in concentration in either market as a result

of HCA’s acquisitions.

BCBSK’s next suggestion, that HCA’s acquisition

of Wesley will somehow drive one of the other

hospitals in Wichita out of business, is rank

speculation. The excess capacity that exists in the

hospital services market in Wichita predated the

HCA acquisition by several years, as did the

speculation in the medical community that one of

the hospitals might not survive; neither says anything

about HCA’s intentions in entering the Wichita

market. There is no evidence in the record HCA’s

acquisition of Wesley has in any way exacerbated the

situation. That Wesley sought a buyer with

App. 338c

significant resources to ensure its future competitive

viability is not illegal. Wesley's competitors lacked

"the share, strength and resources of Wesley" prior

to the acquisition, not as a result of it. In fact,

Wesley's competitors have gained market share

vis-a-vis Wesley since the acquisition -- clear proof

the acquisition is not likely to have _ the

anticompetitive effects posited by BCBSK.

Equally lacking merit is BCBSK’s argument

HCA’s acquisitions eliminated a potential entrant.

There is no record evidence HCA had any

inclination to enter the Wichita hospital services or

health care’ financing markets until it was

approached by Wesley and HCP. (SMF 41 70, 71.)

HCA certainly did not abandon plans to construct a

new hospital or establish a new HMO in Wichita

when these opportunities arose. BCBSK’s references

to internal position papers prepared by Wesley prior

to its approach to HCA are not probative of H/CA’s

intent; even if they were, however, they establish

nothing more than the possibility an investor-owned

chain might enter the Wichita market by purchasing

a hospital. This is precisely the type of entry which

in fact occurred, but it does not demonstrate the

likelihood of de novo entry -- by constructing a

hospital -- which is required under the potential

entrant doctrine. FTC v. Atlantic Richfield Co., 549

F.2d 289, 294-95 (4th Cir. 1977) ("clear proof" that

acquiring firm would in fact have entered the

relevant market Is required).

App. 339c

Finally, the contention HCA’s acquisition of

HCP somehow "solidified" the alleged conspiracy to

boycott HMOK is clearly unfounded. Even if such

a conspiracy existed (contrary to the evidence),

HCA’s purchase of HCP dissipated rather than

"cemented" the ties between physicians and HCP by

eliminating the stock ownership which, according to

BCBSK itself, created the motivation for the

"boycott". There is no evidence in the record, then,

that even tends to suggest HCA’s acquisition of HCP

will make it more difficult for competing HMOs to

contract with providers, including Wesley. Indeed,

Wesley has had, and continues to have, a contract

with HMOK. (SMF 482.)

BCBSK has failed to present any evidence it has

suffered antitrust injury as a result of HCA’s

acquisitions of Wesley and HCP. That these

acquisitions may make Wesley and HCP more

formidable competitors does not constitute antitrust

injury to BCBSK. See Brunswick Corp. v. Pueblo

Bowl-O-Mat, Inc., 429 U.S. 477 (1977).

BCBSK’s argument regarding the likely

anticompetitive effects of HCA’s vertical integration

in the Wichita market is premised on the notion

HCA’s purchases of Wesley and HCP created a

"closed, fully integrated system." This argument is

contrary to the evidence, and the law.

The undisputed evidence shows Wesley is still

a participant (and wishes to continue to participate)

in BCBSK’s CAP program and HMOK. (SMF

81-82.) Similarly, HCP maintains contracts with all

App. 340c

of the hospitals in Wichita. In fact, prior to HCP’s

sale to HCA, HCP sought and received assurances

from HCA that it would not be required to deal

solely with Wesley after the acquisition, and the

evidence conclusively demonstrates this has been the

case. (Tran. 17, pp. 2968-70.) Thus, there is no

evidence of the actual or probable’ market

foreclosure that is the harm which Dr. Christianson

imagined could possibly occur from the creation of a

closed system. The capitation agreement between

Wesley and HCP was signed long before the

integrated system allegedly created by HCA’s

acquisitions was even conceived. (SMF 475.) The

purported "channeling mechanisms" of HCA were

fully explored at trial, and it is clear on the record

no such mechanisms are in place, or are even under

consideration, in Wichita. (SMF {1 79-80.)

The absence of any actual or probable market

foreclosure also distinguishes this case from the

vertical integration cases relied upon by BCBSK.

As BCBSK concedes, vertically integrated systems

are not a concern per se; it is only when the vertical

integration produces’ probable or actual

anticompetitive effects of a substantial nature that

§7 is implicated. In this case, despite HCA’s "track

record" of almost two years, BCBSK is unable to

identify any such actual or probable anticompetitive

effects, much less any injury to BCBSK, arising out

of HCA’s acquisitions.

The contention these acquisitions somehow

raised the barriers to entry in the health care

App. 34l1c

services or health care financing markets is similarly

without foundation. The only evidence in the record

-- other than Dr. Christianson’s speculation -- is that

at least three vertically integrated competitors have

entered the market since the acquisition: HMO

Kansas re-entered the market through Kansas Health

Plans; BCBSK has reestablished its Choice Care

PPO; and St. Francis established its own PPO.

(SMF 499 85-86.) Not only is there no evidence that

entry barriers have been raised, but Dr.

Christianson’s assumption the payment of "premium

prices" for Wesley and HCP will deter entry by

vertically integrated competitors is legally and

logically suspect. As the Court noted in Missouri

Portland Cement Co. v. Cargill, Inc., 498 F.2d 851,

866 n. 32 (2d Cir.), cert. denied 419 U.S. 883 (1974),

“mere recitation of the ‘deep pocket’ shibboleth [is]

not enough" to establish a §7 violation. BCBSK tails

to produce any evidence demonstrating low the

presence of a "deep pocket" company in the Wichita

market will increase barriers to entry. This failure of

- proof distinguishes the instant case from Kennecott

Copper Corp. v. FTC, 467 F.2d 67 (10th Cir. 1972),

cert. denied 419 U.S. 909 (1974), where the Court

approved the FTC's finding Kennecott would use its

"deep pocket" to acquire vast coal reserves and

compete for long-term utility supply contracts, thus

gaining new market share and __ increasing

concentration in the market. ven assuming

arguendo HCA did pay substantially more for Wesley

App. 342c

and HCP than their "true values", that would not

increase the cost of entry for an_ integrated

competitor. BCBSK’s” speculation that other

vertically integrated competitors might view

Opportunities in other geographical markets to be

more attractive than Wichita, does not demonstrate

that HCA’s acquisitions have had, or will have, any

anticompetitive effects in Wichita; to the contrary, it

demonstrates the highly competitive nature of the

hospital services market in Wichita.

In conclusion, the undisputed _ record

demonstrates nothing more than that HCA

purchased the largest hospital and the only existing

HMO in Wichita in 1985, and since that time Wesley

has lost market share and BCBSK has introduced

new programs in Wichita in competition with HCP to

Choice Care and Kansas Health Plans. Lacking any

evidence of actual or probable anticompetitive effects

(or antitrust injury), BCBSK has utterly failed to

Sustain its burden of proof under §7. In fact, the

evidence of record demonstrates, with the exception

of BCBSK’s own unlawful conduct, that the

acquisitions in question have neither occasioned nor

threatened any anticompetitive consequences.

Counterclaim defendants are therefore entitled

to summary judgment on BCBSK’s §7 claims.

App. 343c

-- State Tort Claims --

The last two counts of BCBSK’s counterclaim

allege HCP interfered with BCBSK’s prospective

advantage and contractual relations by causing

Hillside Medical Office and Wichita Clinic to

terminate their agreements with HMOK.

Counterclaim (I 31, 32. There is no_ issue

whatsoever as to these claims as they relate to

Hillside Medical Office, because the evidence

demonstrates HCP did not interfere with Hillside’s

relations with HMOK in any manner. — Hillside’s

decision to terminate its contract with HMOK was

made independently, without any input from HCP or

any other third party. Nor can BCBSK’s tort claims

relating to the Wichita Clinic survive this motion for

summary judgment.

It is fundamental that the tort of interference

with contractual relations requires proof HCP

induced Wichita Clinic to breach its contract with

HMOK. — Professional Investors Life Ins. Co. v.

Rousse’, 528 F.Supp. 391, 397 (D. Kan. 1981); see

also Prudential Ins. Co. of Amer. v. Sipula, 776 F.2d

157, 162 (7th Cir. 1985). The contract between

Wichita Clinic and HMOK, however, was terminable

at will upon 30 days’ notice, and the Wichita Clinic

therefore committed no breach by terminating the

contract in accordance with its terms.

Further, it is well settled under Kansas law that

not all interference in present or future contractual

App. 344c

aad is tortious. Turner v. Halliburton Co., 240

Kan. 1, 12, 722 P.2d 1106, 1115 (1986). Rather, a

ipsa iad for both causes of action is

"malice". Turner, 240 Kan. at 12-13. Malice is

defined as "intentional interference without

justification." Restatement (Second) of Torts $766

comment s (1979); see also May v. Santa Fe Trail

Transp. Co., 189 Kan. 419, 370 P.2d 390 (1962)

("While it is true that an action will lie for

unjustifiably inducing a breach of contract by a party

thereto, the inducement must be wrongful and not

privileged.").

One's privilege to engage in business and to

compete with others implies a privilege to induce

third persons to do their business with him rather

than with his competitors. Restatement (Second) of

Torts $768 comment b (1979); see also Prudential

Ins. Co., 776 F.2d at 162-63 ("lawful competition .

constitutes a privileged interference with another's

business"). Consequently, no tort is committed by a

competitor who causes a third person not to enter

into a prospective contractual relation, or not to

continue in existing contracts terminable at will, so

long as the actor does not employ improper means

and his purpose is at least in part to advance his

Interest In competing with the other. Restatement

(Second) of Torts $768 (1979).

It is clear HCP’s discussions with the Wichita

Clinic regarding a possible “exclusive arrangement"

were made to advance HCP’s competitive interests

App. 345c

vis-a-vis HMOK; indeed, the discussions in 1984

were prompted by HMOK’s own overtures regarding

an exclusive arrangement with that group.

Nor is there any evidence to suggest HCP

engaged in fraud, coercion, or any other arguably

wrongful or illegal means in an effort to convince

the Wichita Clinic (or any other group for that

matter) to deal "exclusively" with HCP -- yet another

failure of proof distinguishing BCBSK’s claims of

tortious interference from those of plaintiff Wesley.

At most, the evidence shows HCP sought to

persuade the Wichita Clinic that it was in the clinic’s

best interest to continue to deal with HCP.

Persuasion, however, is not wrongful, and = such

efforts do not suppert a claim for tortious

interference. Restatement (Second) of Torts §770

comment d (1979).

Counterclaim defendant HCP is granted

summary judgment on BCBSK’s claims of tortious

interference with prospective advantage and

contractual relations.

-- Counterclaim --

To avoid summary judgment under Rule 56

requires the nonmoving party to demonstrate the

existence of genuine issues of material fact. The

massive record before the court portrays not

anticompetitive conduct by counterclaim defendants,

but competition and BCBSK’s fear of competition.

In 1984, HMOK lost the competitive contest to HCP;

App. 346c

HCP was able to persuade medical groups to do

business with it, often at the expense of HMOK, by

offering a better product: more patients, an

acceptable risk level, more profits, and the possibility

of future equity returns as to the limited number of

physicians who purchased the stock. HMOK failed

to respond effectively and voluntarily decided to

withdraw from the marketplace. In 1985, HCA

acquired Wesley and HCP, acquisitions which left

the number of Wichita hospitals and health care

financing organizations unchanged. The structure of

neither market was altered. BCBSK, however,

became frightened because it perceived the arrival

of even more effective competition.

BCBSK’s litany of "conspiracy", "force-out",

"lock-up", "payoff", and the like, unsupported by

probative admissible evidence does not alter these

truths. [| read the Tenth Circuit’s recent decision

in Gibson vy. Greater Park City Co., supra, with no

small sense of déja vu. Plaintiffs Gibson, et al.,

pursued an approach to their antitrust allegations

striking in its similarity to the approach undertaken

by BCBSK in this case. BCBSK has seized on a

plethora of "facts", isolating and attributing to each

a conspiratorial motive, as did plaintiff Gibson.

Gibson’s evidence was ambiguous — because

respondents Greater Park City Co., et al., offered

plausible nonconspiratorial explanations for each

action about which he complained. BCBSK’s

evidence in this case is, at best, equally ambiguous

because the counterclaim defendants have done the

App. 347c

same. Plaintiff Gibson was unable tu respond wiih

evidence tending to exclude the possibility the

alleged conspirators acted independently, and his

antitrust complaint was summarily judged and

dismissed. Greater Park City Co., supra, slip op. at

6-7. BCBSK has likewise failed in this case, and

summary judgment is, for the same reasons, r__uired.

Counterclaim defendants’ motion for su..imary

judgment is sustained in its entirety.

EPILOGUE

Reviewing the evidence and testimony relating

to both the complaint and counterclaim, the

quintessence is this: for the first time in its corporate

existence Blue Cross and Blue Shield of Kansas

faces vigorous, efficient, well-managed, and effective

price and product competition, attracting the

attention and business of Kansas consumers of health

care financing products. The allegations in the

counterclaim are unsupported; Blue Cross and Blue

Shield of Kansas, and HMO Kansas, suffered no

anticompetitive, illegal or remotely impermissible

competition from Hospital Corporation of America,

Health Care Plus, or Wesley Medical Center. After

hearing the evidence on plaintiffs’ complaint, the jury

found Blue Cross and Blue Shield chose to react to

this competition not on the merits of its own

products but in a manner violating federal antitrust

and state laws, injuring the very consumers

defendant professes to serve, competition in the

App. 348c

market for health care financing products, and

plaintiff Wesley Medical Center. That verdict is

supported by prevailing law and abundant evidence,

and will not be disturbed. Therefore, in order to

restore the rights of Kansas consumers, the

competition in the relevant market, and the

respective positions of the parties required by law:

IT IS ACCORDINGLY ORDERED this 22 day

of May, 1987, the motion of defendant Blue Cross

and Blue Shield of Kansas, Inc., to set aside the

jurv’s verdict and dismiss this case for lack of

jurisdiction under the McCarran-Ferguson Act is

overruled.

IT IS FURTHER ORDERED defendant's

motions for directed verdict, taken under advisement

during trial and at the close of evidence, are

overruled.

IT IS FURTHER ORDERED defendant's

motion for judgment notwithstanding the verdict or

alternatively for a new trial is overruled.

I'l. IS FURTHER ORDERED that judgment

this day is entered upon the jury’ verdict of

September 30, 1986, in favor of plaintiff HCA Health

Services of Kansas, Inc., d/b/a Wesley Medical

Center, against defendant Blue Cross and Blue

Shield of Kansas, Inc.. in the amount. of

$5,378,941.00, representing trebled actual antitrust

damages in the amount of $4,628,940.00, actual

nominal damages of $1.00, and punitive damages of

$750,000.00. Interest thereon shall be calculated

App. 349c

from May 22, 1987, the date of the entry of

judgment. 28 U.S.C. $1961.

I’ IS FURTHER ORDERED the motion of

plaintiffs Walter L. Reazin, M.D., HCA Heaith

Services of Kansas, Inc., d/b/a Wesley Medical

Center, Health Care Plus, Inc., and New Century

Life Insurance Company for injunctive relief against

defendant Blue Cross and Blue Shield of Kansas,

Inc., is overruled.

IT [S FURTHER ORDERED | plaintiffs’

application for an award of attorneys’ fees and costs

through September 30, 1986, in the combined

amount of $2,423,828.74, consisting of attorneys’ fees

of $2,176,983.75, expert witness fees and other

reimbursable items of $209,767.77, and allowable

costs of $37,077.22, is granted against defendant Blue

Cross and Blue Shield of Kansas, Inc.

Il’ IS FURTHER ORDERED plaintiffs are

hereby granted 30 days to file application, with

supporting records and affidavits, for an award of

attorneys’ fees and costs representing services

associated with their complaint provided after

September 30, 1986. Defendant is provided !(0 days

thereafter to respond in writing.

ily IS FURTHER ORDERED the motion of

counterclaim defendants Walter L. Reazin, M.D..,

HCA Health Services of Kansas, Inc., d/b/a Wesley

Medical Center, Health Care Plus, Inc., New Century

Life Insurance Company, and Hospital Corporation

of America for summary judgment on_ the

counterclaim of Blue Cross and Blue Shield of

App. 350c

Kansas, Inc., and HMO Kansas, Inc., is sustained.

The counterclaim is dismissed with prejudice in its

entirety.

Patrick F. Kelly, Judge

App. 351c

FOOTNOTE REFERENCES

l/ Section 1 of the Sherman Antitrust Act, 15

U.S.C. $1, provides:

Every contract, combination in the form of

trust or otherwise, or conspiracy, in restraint of

trade among the several States . . . is declared

to be illegal ....

Section 2 of the Act, 15 U.S.C. §2, states:

Every person who shall monopolize, or

attempt to monopolize, or combine or conspire

with any other person or persons, to monopolize

any part of the trade or commerce among the

several States, . . . shall be deemed [to have

violated the law]... .

Section 4 of the Clayton Act authorizes civil antitrust

suits:

Any person who shall be injured in his

business or property by reason of anything

forbidden in the antitrust laws may sue

therefor in any district court of the United

States in the district in which defendant

resides .. . without respect to the amount

in controversy, and shall recover threefold

the damages by him sustained, and the cost

App. 352c

of the suit, including a reasonable attorney's

fee.

Section i6 of the Clayton Act, 15 U.S.C. §26,

authorizes private suits for injunctive relief:

Any person, firm, corporation, or association

shall be entitled to sue for and have injunctive

relief, in any court of the United States having

jurisdiction over the parties, against threatened

loss or damage by a violation of the antitrust

laws. .

2/ Hereafter "Tran. [x]" refers to the record and

voiume number of the proceedings during trial;

transcripts of all other proceedings will be specifically

identified.

3/_ Interwoven among a number of BCBSK’s present

arguments is the assertion this court somehow

"coerced" defendant into suspending Wesley’s

termination pending trial. The transcript of the

November 21, 1985 proceeding belies this accusation:

THE COURT: ...[W]hat is your suggestion as

to what we might do between now and the first of

the year? You agree that you might be well advised

to have the issue adjudicated in advance of January

1 and if you're wrong, at least know it first or up

front?

MR. SHULMAN: Your Honor, we are pleased

App. 353c

to have the issue adjudicated whenever it Is

convenient for the Court. Our concerns -- and

whether that is before the first of the year or after,

we'll defer to the Court on that.

THE COURT: Would you sit still to maintain

your present status until it is adjudicated?

MR. SHULMAN: We have discussed that, Your

Honor, and I believe we would be willing to do that

because we are -- assuming, as I’m sure the Court is

interested in doing, that the matter is adjudicated

promptly. We have two real concerns procedural

[sic], Your Honor: First is that we have an

opportunity to present as fully as possible our side of

the matter.

THE COURT: You will have that. You may

be assured of it.

MR. SHULMAN: Okay.

THE COURT: Im giving credence to the

plaintiffs’ claim. If I gave them full credence and

acquiesced in what they said, seems to me that Blue

Cross is in some trouble if that’s what they are going

to do and they did violate the [Sherman] Act. That's

not to acquiesce in a thing they have said.

MR. SHULMAN: If we violated the Act, Your

Honor, | agree with you.

App. 354c

THE COURT: ... What they have asked is

some kind of preliminary injunction. Would it make

more sense that if we agree in principle to the

substantive issues here, that perhaps Blue Cross

would continue as _ presently operating pending full

hearing on the issue as if we could take all the time

we need on it and get an opinion out and then one

side or the other can take me to the Circuit and see

where we are. Would that make more sense?

MR. SHULMAN: I think we would be willing

to do that, Your Honor, assuming that the matter

does move ahead reasonably promptly.

THE COURT: If we agree to that in principle,

| can put you on stream to the satisfaction of

everybody what time you might need for what

discovery you need, but sounds to me you pretty

much would agree in principle at least to what the

issues are.

MR. SHULMAN: Yes.

THE COURT: Be more of a legal argument as

to where we are, wouldn't it?

MR. SHULMAN: Yes. There are some factual

issues, Your Honor. .

App. 355c

MR. DUNCAN: I don’t have any problem with

that, Your Honor. Sounds like a good solution to

re

THE COURT: [It] makes sense to me that both

sides would be wel! advised to proceed this way. |

don’t see any harm done to Blue Cross to [have the

contract] remain in effect and I would be happy to

take the blame in the sense that I could enter some

Kind of a brief order that we have conferred, this is

in the best interest of the parties that the present

contract remain in effect pending hearing on the

issue and give you assurance I will do it as readily as

we can and you guys tells me what that time should

be. What do you think?

MR. SHULMAN: 7 think that ts fine as long as

it’s clear that it is a matter of voluntary agreement

of the parties.

THE COURT: Sure. Sure. Wouldn't be as if

| put it on you....

(Dkt. 274, Tran. of In-Chambers Proceeding Nov. 21,

L985, pp. 9-13;,.emphasis added.)

App. 356c

4/ Section 7 of the Clayton Antitrust Act, 15 U.S.C.

§18, provides in pertinent part:

No corporation engaged in commerce shall

acquire, directly or indirectly, the whole or any

part of the stock or other share capital and no

corporation subject to the jurisdiction of the

Federal Trade Commission shall acquire the

whole or any part of the assets of another

corporation engaged also in commerce, where in

any line of commerce in any section of the

country, the effect of such acquisition may be

substantially to lessen competition, or to tend to

create a monopoly.

Violation of this statute supports a private cause of

action for money damages. Gottesman v. General

Motors Corp.. 414 F.2d 956 (2d Cir. 1969); see also

Highland Supply Corp. v. Reynolds Metals Co., 327

F.2d 725 (&th Cir. 1964) (private right of action exists

only where acquisition has demonstrable

anticompetitive effects).

S/ In addressing the issues of standing at the

summary judgment stage, I noted the following:

Particular attention must be given to

defendant's argument HCP’s damages, as well as

those of New Century and = Reazin, are

"speculative". The case is presently before the

Court in a unique posture because of the

App. 357c

parties’ voluntary agreement to preserve the

status quo, continuing to abide by the terms of

the Wesley/BCBSK — contracting — provider

agreement pending the outcome of this suit.

The Court perceives the case as primarily a

declaratory judgment action which will be tried

to the jury to determine whether what is now

the proposed termination of Wesley's contract,

along with the formation and effect of the

revised BCBSK contracting provider agreements

with the remaining Wichita hospitals, would

violate the antitrust laws if carried out. To that

extent all plaintiffs’ claimed injuries and

damages are "speculative", but of course BCBSK

cannot make any such argument. Consistent

with the manner in which this case [is postured

and] will be presented to the jury, the Court

looks not to the existing situation to determine

the merit of plaintiffs’ claimed damages, but to

their merit if BCBSK were to carry out its

allegedly anticompetitive conduct.

Reazin v. Blue Cross & Blue Shield of Kansas, Inc..

635 F.Supp. 1287, 1316-17 (D. Kan. 1986).

Recognizing the procedural impact of the unusual

posture of this case is critical, as will be discussed

infra, because one of defendant's present challenges

to the verdict is the alleged impropriety of the jury

basing its decision in part upon "likely future

App. 358c

competitive effects" of defendant’s activities in the

market.

6/ 15 U.S.C. §1011 states:

Congress declares that the continued

regulation and taxation by the several States

of the business of insurance is in the public

interest, and that silence on the part of the

Congress shall not be construed to impose

any barrier to the regulation or taxation of

such business by the several States.

15 U.S.C. $1012 states:

(a) The business of insurance, and

every person engaged therein, shall be

subject to the laws of the several States

which relate to the regulation or taxation of

such business.

(b) No Act of Congress shall be construed

to invalidate, impair, or supersede any law

enacted by any State for the purpose of

regulating the business of insurance, or which

imposes a fee or tax upon such business, unless

such Act specifically relates to the business of

insurance: Provided, That after June 30, 1948,

... the Sherman Act, and... the Clayton Act.

and... the Federal Trade Commission Act, as

amended, shall be applicable to the business of

App. 359c

insurance to the extent that such business is not

regulated by State law.

8/ 15 U.S.C. §1013(b) states:

Nothing contained in this chapter shall

render the said Sherman Act inapplicable to

any agreement to boycott, coerce or

intimidate, or act of boycott, coercion or

intimidation.

9/ Jury Instruction No. 37 stated:

The second component of the relevant

market, the product market, includes

reasonably interchangeable services or

products, that is, products or services which

may be substitutes for the identical products

or services in question, but only if such

substitutes are actually competitive with the

products or services in question. You are

instructed that the relevant product market

in this case is private health care financing,

within the relevant geographic market as

you define it according to the previous

instruction.

10/ See also SEC v. Variable Annuity Life Ins. Co.

of America, 359 U.S. 65 (1969) (variable annuity

App. 360c

contracts sold by life insurance companies are not

"insurance" under the McCarran Act because the

insurance companies do not underwrite risks); U.S.

v. Title Insurance Rating Bureau of Arizona, 700

F.2d 1247 (9th Cir. 1983), cert. denied 467 U.S. 1240

(1984) (escrow services by insurers not the "business

of insurance").

11/ The Ray court went on to note defendant

insurance company’s threat to terminate plaintiff's

agency constituted "coercion" under §3(b). 430

F.Supp. at 1358. This was simply an additional

observation by the court, unnecessary to its actual

holding in light of defendant's failure to prove the

conduct at issue was the "business of insurance"

under §2(b).

12/ See also Malley-Duff & Associates v. Crown

Life Ins. Co., 734 F.2d 133, 144 (3d Cir.), cert.

denied 469 U.S. 1072 (1984); Professional Adjusting

Systems of America, Inc. v. General Adjustment

Bureau, Inc... 64 F.R.D. 35 (S.D. N.Y. 1974);

Monarch Life Ins. Co. v. Loyal Protective Life Ins.

Co., 326 F.2d 841 (2d. Cir. 1963), cert. denied 376

U.S. 952 (1964); California League of Independent

Ins. Producers v. Aetna Cas. & Sur. Co., 179

F.Supp. 65 (N.D. Cal. 1959); and Professional &

Business men’s Life Ins. Co. v. Bankers Life Co..

163 F.Supp. 274 (D. Mont. 1958).

App. 361c

Even before the Supreme Court’s decision in

Barry, those courts which narrowly construed the

§3(b) exception recognized restraints of trade in an

insurance market were actionable under federal

antitrust laws by injured competitors in that market.

See Addrisi v. Equitable Life Assur. Society of U.S.,

503 F.2d 725 (9th Cir. 1974), cert. denied 420 US.

929 (1975); Mcllhenny v. American Title Ins. Co.,

418 F.Supp. 364 E.D. Pa. 1976), Meicler v. Aetna

Cas. & Sur. Co., 372 F.Supp. 509 (S.D. Tex. 1974),

aff'd 506 F.2d 732 (Sth Cir. 1975); and Transnational

Ins. Co. v. Rosenlund, 261 F.Supp. 12 (D. Ore.

1966). Barry rejected this narrow "blacklisting"

interpretation of §3(b), holding the protections

atforded by that exception are not limited solely to

companies or persons engaged in insurance. 438 U.S.

at 550-52. The Court thus expanded the class of

potential plaintiffs entitled to recover for

anticompetitive activities affecting an insurance

market; nowhere has the Court ever intimated that

federal preservation of competition in an insurance

market is foreclosed by the McCarran-Ferguson Act.

13/ One of these communications from defense

counsel submits, for my consideration, a self-serving

denigration of Reazin [ by a lawyer representing

another Blue Cross and Blue Shield plan _ not

involved in this case. This person concludes his

"analysis" by suggesting (or hoping) “it is doubtful

that many courts will cite Reazin [I] for its legal

App. 362c

analysis .... Of course, how my opinions

applying the law to the facts of this case are treated

by courts addressing different facts in other cases is

not my immediate concern.

14 See n. 3, supra.

15/ See n. 5, supra.

16/ The additional factual distinctions between this

case and Ball Memorial cannot be overemphasized.

BCI kept its traditional indemnity insurance plan on

the market, and simply attempted to introduce a new

PPO, making it available to a/l competing providers

on a bid basis. 784 F.2d at 1331, 1341. Plaintiffs in

that case were attempting to prevent this from

coming about. The district court’s conclusion BCI

possessed no market power was based in part on its

finding Indiana hospitals “are vertically integrating

into the health care financing market." 748 F.2d at

1332 (quoting 603 F.Supp. at 1082 (emphasis added)).

"[T]he Blues have not insisted that hospitals in the

Blues’ PPO refrain from joining other PPOs, so rivals

have access to the hospitals on the same basis as

the Blues." 748 F.2d at 1339 (emphasis added). By

distinct contrast, this case concerns BCBSK’s

attempts to prevent vertical integration in Kansas;

plaintiffs alleged and the jury found, that as a direct

consequence, rivals do not have access to Kansas

hospitals on the same basis as BCBSK.

App. 363c

One frightening aspect of Ball Memorial, as |

view the facts of this case, is that in selecting

providers for its PPO (which, again, was open to all

hospitals on a bid basis), BCI unequivocally rejected

one hospital’s bid of a 20% discount from its normal

charges:

The Blues excluded St. Joseph’s Hospital of Ft.

Wayne for two reasons -- they deemed its bid of

80% of prior prices a "low-ball" that was sure to

be increased, and they concluded that it was not

as conveniently located as Parkview Hospital in

the same city.

748 F.2d at 1342. The Seventh Circuit interpreted

the state enabling act to deny any right to

discriminate on the basis of geography, but to require

simply that any PPO "must not ‘unreasonably

discriminate’ among hospitals." /d. The court then

found there had been no unreasonable discrimination

on price:

The Hospitals do not disagree with the

Blues’ contention that they determined St.

Joseph's bid to be a low-ball quote, too low

to be justified by its costs (on which the

Blues had data) and therefore too low to

be sustained. One witness testified without

contradiction that St. Joseph’s bid was well

App. 364c

below that of any other hospital, and

another testified that the Blues feared that

"at the first opportune time [St. Joseph's]

would be asking for an unreasonably high

increase." ...

748 F.2d at 1343.

BCI’s determination, in the exercise of its sound

business judgment, that a 20% discount was

economically unsound and unsustainable, casts a

disturbing light on BCBSK’s eager request for a 25%

discount from the Saints in Wichita, the hospitals’

willing agreement to a 20% discount (see, e.g., Pltfs.’

Ex. 4, infra), and defendant's pious assertion this

"new PPO" operates to the unqualified benefit of

Kansas consumers of health care financing products.

17/ On its merits, defendant’s contention Wesley

lacks §1 standing must be rejected out of hand.

Reazin I analyzed and applied antitrust standing

concepts to HCP, New Century and Dr. Reazin,

concluding HCP was the only one of those three

plaintiffs with standing to pursue actual antitrust

damages under §4 of the Clayton Act. 635 F.Supp.

at 1310-18. Wesley is certainly the "victim of the

forbidden practices" by detendant, suffering tangible

economic injury as a consequence. Blue Shield of

Virginia v. McCready, 457 U.S. 465, 472, 475 n. 11

(1982). BCBSK recognized Wesley as a "competitor"

App. 365c

by virtue of its association with HCA and HCP; that

is the precise reason defendant undertook the

conduct at issue in this case. The harm to Wesley

"was Clearly foreseeable; indeed, it was a necessary

step in effecting the ends of the .. . illegal

conspiracy." McCready, 457 U.S. at 479. In fact,

BCBSK’s specific intent

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