Opposition Brief — Levine v. Central Florida Medical Affiliates, Inc.

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No. 95-2000 | AUG 9 1996

In The ee ee ° = = — —

Supreme Court of the United States

October Term, 1995

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SCOTT D. LEVINE, M.D.,

Petitioner,

VS. '

CENTRAL FLORIDA MEDICAL AFFILIATES, INC.;

HEALTHCHOICE, INC.; SAND LAKE HOSPITAL;

ORLANDO REGIONAL HEALTHCARE SYSTEM, INC.,

f/k/a ORLANDO REGIONAL MEDICAL CENTER,

Respondents.

+

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Eleventh Circuit

ew

BRIEF OF RESPONDENTS HEALTHCHOICE, INC.

AND ORLANDO REGIONAL HEALTHCARE

SYSTEM, INC. IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

¢

Davip L. Evans

(Counsel of Record)

THOMAS R. HARBERT

MatTeerR & Harsert, P.A.

Post Office Box 2854

Orlando, Florida 32802

407 / 425-9044

407/423-2016 (Fax)

Attorneys for Respondents,

Orlando Regional Healthcare System, Inc.,

and Healthchoice, Inc.

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

fh r\ °

LIST OF PARENT COMPANIES A™D

NONWHOLLY OWNED SUBSIDIARIES

Pursuant to Supreme Court Rule 29(6), the following

constitutes a list of all parent companies and nonwholly

owned subsidiaries of Orlando Regional Healthcare Sys-

tem, Inc. and Healthchoice, Inc.:

1. Healthnet Services, Inc. is the parent company of

Healthchoice, Inc. and a wholly-owned subsidiary of

Orlando Regional Healthcare System, Inc. (“ORHS”).

2. ORHS is a 50% owner of M.D. Anderson Cancer

Center oi Orlando, Inc.

3. ORHS is a 50% owner of South Lake Hospital,

Inc.

4. ORHS is a limited partner in Orlando Institute for

Cardiac Care, Ltd., d/b/a Outpatient Cardiovascular

Center of Orlando.

5. ORHS has numerous other wholly owned subsid-

iaries.

ii

TABLE OF CONTENTS

Page

LIST OF PARENT COMPANIES AND NON-

WHOLLY-OWNED SUBSIDIARIES ...............

Thies AF CUNT cock ic ere ee ees yee

ARGUMENT AND CITATION OF AUTHORITY

A. Dr. Levine Has Not Shown Any Grounds

For This Court To Grant His Petition For

Writ Of Certiorari In This Matter .........

There Is No Conflict Among This Court's

Decisions Reviewing Alleged Sherman Act

Violations Which Justifies The Exercise Of

This Court’s Certiorari Jurisdiction In This

it PETE Tere re or er ie

The Eleventh Circuit Court of Appeals Prop-

erly Decided That Dr. Levine’s Antitrust

Claims Were Meritless Under The Rule of

WOGHON 64's fs vs cu Sev ies dpe

(i) Group Boycott Claims Against Health-

chon. ae CPM vive dacs puck ncecen

(ii) Price-Fixing Claim Against Health-

cnolee and CEMA os iosiccouasnseaees

(iii) Group Boycott Claims Against ORHS ..

FR) Re ad wccns works saa bee cane eee

CUING TAs cok sus cc eveweseua eee

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TABLE OF CITATIONS

Page

SUPREME Court Cases

Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S.

UE RENE D phe se 65 Vos Oden beWees socks ceskckcse 25

Arizona v. Maricopa County Medical Society, 457

MRT Dahesh ry ee Oe ss 20

Braxton v. United States, 500 U.S. 344, 111 S.Ct.

CRUE ha Sob p0e 54 Kda du ves dmwd os bbs vaws 10

Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979)....... 12

F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447

Ta SEY Ca is ahd eso Cond Sens ot 12, 14, 16, 26, 27

F.T.C. v. Superior Court Trial Lawyers Association,

SUR Es 5 6 i 655s na bs u dibiy das ew aaveses 17, 18

Jefferson Parish Hospital District 2 v. Hyde, 466 US.

EES ENTE Ghee ww th kn caw ceed bnescievasvinsva 14

Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S.

Oye OTOL. CVS tii paws 88 i ecrune soo ek we o's 17

National Society of Professional Engineers v. United

OE GO REN GPP CESTO) oo occ ic cececcvcccccccns 13

Northern Pacific R. Co. v. United States, 356 U.S. 1

NS GREG rg belongs coed sicciccsses cece 14

Northwest Wholesale Stationers, Inc. v. Pacific Sta-

tionery & Printing Co., 472 U.S. 284 (1985)...... 13, 14

Standard Oil Co. v. United States, 221 U.S. 1 (1911) .... 12

Summit Health, Ltd. v. Pinhas, 111 S.Ct. 1842 (1991) .... 26

iv

TABLE OF CITATIONS - Continued

Page

FEDERAL CASES

Bolt v. Halifax Medical Center, 891 F.2d 810 (11th

Cir. 1990), cert. denied, 495 U.S. 924 SOWIE. bir bs bu 24

Capital Imaging Associates, P.C. v. Mohawk Valley

Medical Association, Inc., 996 F.2d 537 (2d Cir.

i Re Pee yea, Fee a ewe onrin~eitnae aig 16

Forbus v. Sears Robuck & Company, 30 F.3d 1402,

(11th Cir. 1994), cert. denied, 115 S.Ct. 906 (1995) ..... 2

Levine v. Central Florida Medical Affiliates, Inc. et al.,

72 F.3d 1538 (11th Cir. 1996).................. passim

Lie v. St. Joseph Hospital of Mt. Clemmons, Michigan,

OR Va SOF Cee Ce 190). soe. 24

Oksanen v. Page Memorial Hospital, 945 F.2d 696 (4th

Cir. 1991), cert. denied, 112 S.Ct. 1972 C3992)... <.% 24, 25

United States v. Health Choice of Northwest Missouri,

Inc., No. 95-6171-CV-5]-6 (W.D.Mo.), reprinted

in, 60 Fed.Reg. 51,808 (Oct. 4, 1995) .............. 22

United States v. HealthCare Partners, Inc., No. 395-

CV-01946-RNC (D.Conn.), reprinted in, 60

Fed.Reg. 52,014 (Oct. 4, Pr ese cet oo be 22

STATUTE

I.

STATEMENT OF THE CASE

This is a case about one highly successful physician,

Petitioner Scott D. Levine, who was denied membership

in one managed health care plan with a market share of

less than 6%, and whose medical staff privileges were

temporarily suspended by a non-profit hospital system

with 29% of the hospital beds in the Orlando, Florida

area. It is a case in which the plaintiff physician was

highly successful prior to the events giving rise to this

litigation, and even more successful following the actions

alleged by the plaintiff physician to constitute antitrust

violations. It is not a case about injury to competition. It

is not a case brought by the government to challenge the

validity of a managed care plan, nor is it a challenge to a

managed care plan by a purchaser of managed care. It is

an attempt by a single competitor to create a federal

antitrust suit for the purposes of recovering treble daimn-

ages. The U.S. District Court for the Middle District of

Florida, and the Eleventh Circuit Court of Appeals, in a

well reasoned opinion, both soundly rejected the Peti-

tioner’s antitrust claims. For the reasons set forth below,

these Respondents respectfully submit that the Peti-

tioner’s Petition for Writ of Certiorari should be denied.

Orlando Regional Healthcare System, Inc. f/k/a

Orlando Regional Medical Center (“ORHS”) is a not for

profit corporation which operates a hospital network in

the metropolitan Orlando area. Healthchoice, Inc.

(“Healthchoice”) operates a preferred provider organiza-

tion (“PPO”) in the same area and is owned by Healthnet

Services, Inc., a wholly owned for-profit subsidiary of

ES Eee era ed ene a eT a

ORHS. Dr. Levine filed the antitrust claims in question

against ORHS, Sand Lake Hospital (a division of ORHS),

Healthchoice, and Central Florida Medical Affiliates, Inc.

(“CFMA”).

Part of Petitioner’s claim relates to an administrative

decision made by Healthchoice staff to deny Dr Levine’s

request for membership in the Healthchoice Preferred

Provider Organization. The decision was made based on

the fact that there were already an adequate number of

internal medicine physicians practicing in Dr. Levine’s

geographical area. Later, in an unrelated action, Dr.

Levine’s medical staff privileges were temporarily sus-

pended by ORHS because of concerns regarding the qual-

ity of his patient care. Dr. Levine also asserted an

antitrust claim against ORHS relating to that temporary

suspension.

Following the grant of summary judgment in favor of

Respondents on Petitioner’s antitrust claims, Petitioner

appealed to the Eleventh Circuit Court of Appeals. The

Eleventh Circuit affirmed the District Court’s order

granting summary judgment (see Levine v. Central Florida

Medical Affiliates, Inc. et al., 72 F.3d 1538 (11th Cir. 1996))

and Petitioner seeks review of that Order.

Dr. Levine, in his Statement of the Case, omitted

several relevant facts from his Petition. Specifically, the

following uncontroverted facts were presented to the U.S.

District Court and the Eleventh Circuit Court of Appeals:

1. Dr. Levine has enjoyed great financial suc-

cess in the practice of medicine. Dr. Levine’s

pre-tax net earnings from the practice of

medicine from 1990 through 1992 is summa-

rized in the following table:

1990 $553,176.00

1991 $724,722.00

1992 $692,079.00

In the year during which Dr. Levine alleges

that he was the victim of an antitrust con-

spiracy (1991), he actually increased his

income by thirty-one percent ($171,546.00)

over the preceding year. (R2-53-466-485).

According to the Center for Health Policy

Research of the American Medical Associa-

tion, the average pre-tax net earnings for

self-employed Florida internists in 1991 was

$191,200.00, and the 75th percentile pre-tax

net earnings for Florida internists in 1991

was $240,000.00. (R2-49-¥ 37).

2. During the relevant time period, Dr. Levine

was one of approximately 2,200 licensed

physicians practicing in the Orlando Area.

Records of managed care plans in the

Orlando Area indicated that over 400

Orlando Area internists participate in man-

aged care plans. (R2-49-¥ 15; R3-80-] 16). At

the time that Dr. Levine’s privileges were

temporarily suspended by ORHS in 1991

there were 163 members of the Department

of Medicine at ORHS, and there were 236

such members as of 1994. (R3-65-{ 2).

3. The market for health care insurance in the

Orlando Area is highly competitive. In 1994,

there were at least 38 PPOs and 11 Health

Maintenance Organizations (“HMOs”) oper-

ating in the Orlando Area, and a vast array

of traditional comprehensive insurance cov-

erage (“TCIC”) companies. (R3-80, Exh.A.)

TCIC’s pay health care providers on a fee-

for-service basis. Payors in PPOs and in

some HMOs also pay providers on a fee-for-

service basis. However, such fees are negoti-

ated in advance, at a discounted rate. Pro-

viders are compensated for their discounted

rate because the PPO and/or HMO provides

them with an increased patient base. HMOs

generally restrict their enrollees solely to use

of Network providers. PPOs do not prohibit

enrollees from utilizing non-Network pro-

viders; however, economic incentives are

usually provided to the enrollee if Network

providers are used. (R3-80-{ 4.)

Market studies prepared by Healthchoice

indicated that of an Orlando Area popula-

tion of approximately 1,137,000, 69% were

covered under HMO or PPO plans, with the

remainder having TCIC or no coverage at

all. No single PPO or HMO covered more

than 7.5% of the population. In 1994, Health-

choice had approximately 68,000 enrollees,

representing less than 6% of the Orlando

health care market.

At the time in question, Healthchoice had 863

physicians in its Network in Orange, Seminole,

ana Osceola Counties, eighty (80) of whom

indicated their specialty area as internal medi-

cine, the area in which Dr. Levine practices.

There were approximately 2,200 licensed phy-

sicians in the Orlando Area, and over 400 inter-

nists in the Orlando Area participate in

managed care plans. (R3-49-{ 15; R3-80-] 16.)

There were twenty-one (21) hospitals in the

a aes <a a,

Orlando Area, nine (9) of which were in the

Healthchoice Network. Four (4) of those hospi-

tals had no affiliation with ORHS, including

Health Central and Winter Park Hospital,

two of ORHS’s significant competitors.

(R3-80-] 22.)

6. CFMA is a for-profit corporation. It is not nec-

essary to be a member of CFMA to be a partici-

pating physician in the Healthchoice Network,

and numerous physician members of Health-

choice are not members of CFMA. CFMA pri-

marily acts as a physician advocacy group.

(R3-80-{ 10.) Initially, CFMA was responsible

for credentialing physicians for membership in

Healthchoice; i.e. determining their compe-

tency as physicians. This is a separate and

distinct issue from determining the need for

additional physicians in the Network. Health-

choice was always responsible for determining

the need for additional physicians in the Net-

work. Since 1991, Healthchoice has also taken

over responsibility for credentialing decisions.

(R3-80-¥ 10.)

7. The hospital services market in the Orlando

Area, defined as Orange, Seminole, and

Osceola Counties, has approximately 4,446

licensed hospital beds. The hospital market

in the Orlando Area has three major compet-

itors, ORHS, Florida Hospital, and Columbia

Park Healthcare, along with a number of

smaller hospitals. At all times relevant to

this action, the largest of these competitors

was Florida Hospital, which had 33% of the

licensed beds in the Orlando Area. ORHS

had 29% of the licensed beds. (R2-49-] 20

Exh. “I”; R3-68-{ 3).

8. Dr. Levine’s ability to compete in the internal

medicine market in Orlando was never

affected by any of the Respondents’ actions in

this matter. He held medical staff privileges at

Florida Hospital’s several campuses, Health

Central, Charter Hospital, and Glenbeigh Hos-

pital throughout the ORHS disciplinary pro-

cess. (R2-52-126, 138). Thus, even during his

temporary suspension at ORHS, Dr. Levine

had access to several other hospitals with 1,623

licensed beds. Accordingly, Dr. Levine, and his

patients, could access 37% of the licensed hos-

pital beds in the Orlando Area even during the

period of his temporary suspension.

(R2-49-] 20 Exh. “I”). The inference of Dr.

Levine’s continued successful presence in the

market and continued access to hospital facili-

ties is that no patient was deprived of the

opportunity to choose Dr. Levine as his or her

physician for internal medicine services.

Although the review of the factual record in this case is

arguably outside the scope of this Court’s review on a

petition for writ of certiorari, these Respondents felt that it

was necessary to provide some of the relevant facts which

were reviewed by the courts below in arriving at their

decisions.

Dr. Levine also misstated several material facts in

this matter. Specifically, Dr. Levine has attempted to por-

tray CFMA as the alter ego of Healthchoice. These

Respondents would suggest that the factual findings of

the Eleventh Circuit Court of Appeals, set forth in its

Opinion dated January 23, 1996, accurately depict the

relationship of the parties and the relevant facts in this

matter. Nevertheless, these Respondents feel compelled

to correct specific misstatements of fact made by Dr.

Levine in his Petition:

1.

Dr. Levine states that CFMA requires adher-

ence by its members to the Master Payor

Rate Schedule as a condition of membership

in CFMA. However, the Master Payor Rate

Schedule is developed by the non-physician

board members of Healthchoice for the pur-

pose of providing a means of compensation

to be negotiated with third-party payors.

CFMA has absolutely no input or direction

in determining the amounts set forth in the

Master Payor Rate Schedule and individual

member physicians are free to opt out of any

contract if they are unhappy with the fees.

Moreover, the Master Payor Rate Schedule

simply establishes the maximum amount

that Healthchoice-contracted payors are

required to pay physicians for services ren-

dered to that payor’s covered persons. Phy-

sicians are paid the lesser of their usual and

customary charges or the amount calculated

from the Master Payor Rate Schedule.

Dr. Levine also states that there are “68,000

CFMA patients”. Dr. Levine is clearly aware

that, at all times relevant to this action, there

were approximately 68,000 Healthchoice

enrollees. There are no “CFMA patients”.

Dr. Levine asserts that CFMA promulgated

the Rule of Necessity “by which physician

participation in CFMA was closed to new

applications unless an internally determined

need existed for certain specialties” (Levine

Petition, p. 3). The Rule of Necessity, as it

currently exists and as it existed at all times

relevant to this action, was promulgated by

Healthchoice as a means to provide the

proper number of physicians in various sub-

specialties to cover the geoyraphical territo-

ries served by the Health:»oice Preferred

Provider Organization. The Rule of Neces-

sity is administered by the staff of Health-

choice without input from CFMA members

or other physician providers (R3-82-{ 8).

Dr. Levine states that CFMA membership is

closed to assure each CFMA doctor a sufficient

number of patients to equal 15 to 20% of his

respective practice and that CFMA members

are required to do in-hospital rather than out-

patient procedures. It has been well established

that the Healthchoice provider panel is closed

for the sole reason of providing provider phy-

sicians with the prospect of increased numbers

of patients. In return, the physicians agree to

accept set fees for their services and agree to

submit themselves to rigorous quality control

and utilization review by Healthchoice. The

closed panel is required by many third-party

payors.

Dr. Levine states that the Boards of Directors

of CFMA and Healthchoice are “interlock-

ing” (Levine Petition, p.6). The Board of

Directors of Healthchoice is comprised of

eight individuals, four of whom are physi-

cians appointed by CFMA. The remaining

four members are unrelated to CFMA. The

Board of Directors of CFMA may or may not

be limited to Healthchoice physicians and is

not comprised at all of any members of the

administration or staff of Healthchoice.

The statements described above are contrary to the

facts that have been revealed in the this case. The U.S.

District Court and the Eleventh Circuit Court of Appeals,

upon reviewing the actual factual record in this case,

determined that Dr. Levine’s antitrust claims were merit-

less. These Respondents respectfully suggest that this

Court follow the factual findings set forth in the Eleventh

Circuit opinion.!

Il.

ARGUMENT AND CITATION OF AUTHORITY

A. Dr. Levine Has Not Shown Any Grounds For This

Court To Grant His Petition For Writ Of Certiorari

In This Matter.

Supreme Court Rule 10 provides that review on a

Writ of Certiorari is a matter of judicial discretion. The

Rule goes on to provide, in relevant part, that the factors

to be considered by the Court in granting certiorari

include the following:

(a) the United States Court of Appeals has

entered a decision in conflict with the decision

of another United States Court of Appeals on

the same important matter; . . . or has so far

departed from the accepted and usual course of

judicial proceedings, . . . as to call for an exercise

of this Court’s supervisory power;

(c) . . . a United States Court of Appeals has

decided an important question of federal law

that has not been, but should be, settled by this

' Because this case went to the Eleventh Circuit on Appeal

of Summary Judgment, it was required to construe the facts in

the light most favorable to Dr. Levine. Forbus v. Sears Roebuck &

Company, 30 F.3d 1402, (11th Cir. 1994), cert. denied, 115 S.Ct. 906

(1995).

10

Court, or has decided an important federal

question in a way that conflicts with relevant

decisions of this Court (Supreme Court Rule 10).

The principal purpose for which the U.S. Supreme Court

uses certiorari jurisdiction is to resolve conflicts among

circuit courts of appeals concerning the meaning of a

provision of federal law. Braxton v. United States, 500 U.S.

344, 111 S.Ct. 1854 (1991).

Dr. Levine has alleged that this Court should exercise

its certiorari jurisdiction in this matter to clarify three

conflicting standards for analyzing claims under Section

1 of the Sherman Act.? Dr. Levine also asserts that the

Eleventh Circuit's failure to find a per se violation in this

case violates prior Supreme Court precedent, thus justify-

ing the grant of his Petition. However, as shown by its

opinion and as more fully discussed below, the Eleventh

Circuit reviewed each of the existing standards in review-

ing Dr. Levine’s Section 1 claims, and properly deter-

mined that his claims failed under the Rule of Reason.

The Eleventh Circuit’s decision was supported by prior

decisions of this Court and by numerous other relevant

Circuit Court decisions.

The Court’s decision is also supported by public

policy. This case involves a very successful physician who

is aggrieved because he was denied admission to a partic-

ular managed care plan. Dr. Levine’s only interest in

becoming a Healthchoice provider was to increase his

personal income. For example, he has never been inter-

ested in challenging the methods by which provider fees

215US.C.§1

11

are set by Healthchoice, and, although he may argue to

the contrary, has never been interested in changing the

way that providers are admitted to the network. The

Petitioner simply wants to become part of the network

because he has heard it “pays well” (R2-54-65). There has

been absolutely no evidence presented of any harm or the

potential for future harm to competition in this matter. To

the contrary, the uncontradicted evidence shows that no

patient has been deprived of the use of the Petitioner’s

services and that Petitioner’s medical practice thrived

despite his exclusion from the Healthchoice provider

panel and the temporary suspension of his medical staff

privileges at ORHS. The facts of this case, including the

competitive status of the relevant markets and the phe-

nomenal success of the Petitioner’s medical practice,

make it a particularly poor vehicle to be used to review

existing antitrust law. Therefore, this court should not

accept certiorari jurisdiction in this matter and Dr.

Levine’s Petition should be denied.

B. There Is No Conflict Among This Court’s Decisions

Reviewing Alleged Sherman Act Violations Which

Justifies The Exercise Of This Court’s Certiorari

Jurisdiction In This Matter.

Dr. Levine alleges in his Petition that this Court has

allowed three conflicting legal standards for boycotts to

“uneasily co-exist” (Levine Petition, p.11). Although the

precise application of the Court’s standards of review of

antitrust cases is often not easily applied, the standards

have developed over time in response to complicated fact

patterns which demand sophisticated analysis. However,

the facts of this case do not demand such analysis and do

12

not lend themselves to a meaningful review of the three

legal standards.

This Court has historically provided that alleged

combinations in violation of the Sherman Act should be

reviewed as either per se violations or under the Rule of

Reason. Per se violations have been found in situations

where the defendants’ actions are so plainly harmful to

competition and so obviously lacking in any redeeming

pro-competitive values that any alleged restraint is pre-

sumptively unreasonable. Broadcast Music, Inc. v. CBS, 441

U.S. 1, 8 (1979). The types of cases deemed per se viola-

tions are very limited. Such cases have generally been

limited to those in which firms with market power boy-

cott suppliers or customers in order to discourage them

from doing business with a competitor. F.T.C v. Indiana

Federation of Dentists, 476 U.S. 447, 458 (1986). In the vast

majority of cases, the courts apply the Rule of Reason. In

order to establish an antitrust violation under the Rule of

Reason, the plaintiff must establish that the defendants

have market power in the relevant product and geo-

graphic markets; and that the challenged combination or

agreement constitutes an unreasonable restraint on com-

petition. Standard Oil Co. v. United States, 221 U.S. 1

(1911).

A third standard of analysis was created by this

Court in 1986 in its decision in the case of F.T.C. v. Indiana

Federation of Dentists, supra. In Indiana Federation of Den-

tists, this Court, while specifically declining to classify

the defendant’s actions as a per se violation, held that the

need to establish market power could be obviated where

there was proof of “actual detrimental effects” on compe-

tition. Id. at 460-461. The Court held that the withholding

13

of dental x-rays from insurance companies by a majority

of dentists in particular areas, thus eliminating price com-

petition among the dentists, resulted in “actual, sustained

adverse effects on competition . . . sufficient to support a

finding that the challenged restraint was unreasonable

even in the absence of elaborate market analysis”. Id. at

461. It is within the framework of these three standards

that modern antitrust cases are analyzed by the courts.

C. The Eleventh Circuit Court of Appeals Properly

Decided That Dr. Levine’s Antitrust Claims Were

Meritless Under The Rule of Reason.

Under the Rule of Reason, the court must evaluate

the alleged activity by analyzing the facts peculiar to the

business, the history of the alleged restraint, and the

reason it was imposed, so that it can evaluate the compet-

itive significance of the activity complained of. National

Society of Professional Engineers v. United States, 435 U.S.

679 (1978). The activity only violates Section 1 if it is

adjudged an unreasonable restraint on competition.

Northwest Wholesale Stationers, Inc. v. Pacific Stationery &

Printing Co., 472 U.S. 284 (1985). In Northwest Stationers,

the plaintiff was expelled from membership in a lucrative

cooperative buying agency after a relatively minor breach

of the agency’s bylaws. Plaintiff argued that its expulsion,

without notice or an opportunity for a hearing, constitu-

ted a group boycott that should be deemed a per se

violation of Section 1. The Supreme Court disagreed,

stating that “Rule of Reason analysis guides the inquiry

unless the challenged action falls into the category of

agreements or practices which because of their pernicious

effect on competition and lack of any redeeming virtue

14

are conclusively presumed to be unreasonable...” Id. at

289; quoting, Northern Pacific R. Co. v. United States, 356

U.S. 1 (1958). Such cases are deemed per se unlawful. In

Northwest Stationers, the court found that wholesale pur-

chasing cooperatives were not an activity likely to have a

predominantly anticompetitive effect, and applied the

Rule of Reason, not per se, analysis. Id. at 295-298. Per se

treatment of certain antitrust activity has been justified

by this Court to avoid the burdensome inquiry into actual

market conditions in situations where the likelihood of

harm to competition arising from the activity is so great

that the costs of such inquiry cannot be justified. Jefferson

Parish Hospital District 2 v. Hyde, 466 U.S. 2 (1984).

Cases in which the Supreme Court has applied the

per se analysis have generally involved joint efforts by a

firm or firms to cut off access to a “supply, facility or

market necessary for the boycotted firm to compete... ”

Northwest Stationers, supra at 294. Therefore, in order to

invoke the per se rule, the plaintiff must present a thresh-

old case that the challenged activity fits into a category

likely to have predominantly anticompetitive effects. Id.

at 298. The types of cases to which per se analysis should

be applied should not be expanded indiscriminately.

F.T.C. v. Indiana Federation of Dentists, 476 U.S. at 458.

(i) Group Boycott Claims Against Healthchoice

and CFMA.

Following this Court’s direction from the cases cited

above, the Eleventh Circuit Court of Appeals properly

applied the Rule of Reason to the Petitioner’s antitrust

claims against Healthchoice and CFMA. As shown by the

15

uncontroverted facts set forth above, the managed care

market in the Orlando Area is very competitive. Health-

choice, with only 6% of the relevant market, has no

ability to adversely effect competition. Each payor which

contracts with Healthchoice is free to terminate its con-

tract upon relatively short notice and negotiate agree-

ments with other managed care plans. No Healthchoice

physician is precluded from joining the provider panels

of other managed care networks and, in fact, most physi-

cians are members of several networks. As a result, it is

virtually impossible for Healthchoice to restrict competi-

tion among other managed care plans. Finally, no patient

who is not a Healthchoice member is precluded from

using a Healthchoice physician. Even assuming arguendo

that Healthchoice had conspired with CFMA or its mem-

ber physicians to exclude Dr. Levine from the network,

the Eleventh Circuit found that such action had no effect

on competition in the market for internal medicine physi-

cian services. Levine v. Central Florida Medical Affiliates,

Inc., et al., 72 F.3d 1538, 1553 (11th Cir. 1996).

On the other hand, there are many pro-competitive

reasons why Healthchoice would seek to restrict member-

ship in its preferred provider network. By limiting the

number of panel physicians, Healthchoice can assure that

its providers get greater access to more patients. In

return, the physicians are willing to accept lower fees for

their services and submit themselves to quality assurance

and utilization management review. By limiting the

number of physician providers, Healthchoice is able to

provide a quality product at a lower cost. This allows

Healthchoice to compete more effectively with the 38

16

other PPOs, 11 other HMOs, and numerous TCIC com-

panies in the Orlando Area. Significantly, Healthchoice

submitted to the District Court in support of summary

judgment an Affidavit by the health benefits manager of

Healthchoice’s largest managed care customer (Orange

County Public Schools) in which this customer confirmed

that it desired Healthchoice to operate a closed panel of

physicians (R3-76-{{ 6, 7).

Cases relating to the exclusion of a particular pro-

vider from a managed care plan have been decided by

other courts under the Rule of Reason. In Capital Imaging

Associates, P.C. v. Mohawk Valley Medical Association, Inc.,

996 F.2d 537 (2d Cir. 1992), a private radiology group of

doctors was denied membership in an independent asso-

ciation of private physicians who were providing medical

care through an HMO. The stated basis for the denial was

that the radiology group was located outside the plan’s

designated service area. Id. at 540. As a result, the radiol-

ogists filed Sherman Act Section 1 and 2 claims against

the independent physicians association and the HMO.

The Second Circuit Court of Appeals affirmed the District

Court’s grant of summary judgment in favor of the defen-

dants on the grounds that the plaintiff had not estab-

lished an unreasonable restraint of trade under the Rule

of Reason. The Court in Capital Imaging acknowledged

the “Supreme Court's caution about extension of the per

se doctrine into new areas, see Indiana Fed’n of Dentists,

476 U.S. at 458-59, [as well as] the recognized pro-

competitive virtues of ... HMOs.” Id. at 545. It also found

that the defendants’ actions had no actual detrimental

effects because there was no evidence of an increase in

prices or a deterioration of the quality of radiological

17

services to the plan’s enrollees. Id. at 546. As a result, the

court applied the Rule of Reason and found that the

defendants were unable to injure competition because of

their small market share. The same analysis holds true in

this case.

Petitioner has cited no factually similar cases which

support his claim that this case should be analyzed as

either a per se violation of the Sherman Act or pursuant

to the hybrid analysis set forth in F.T.C. v. Indiana Federa-

tion of Dentists, supra. Rather, Dr. Levine cites cases out-

side of the managed health care arena in an effort to

classify the Healthchoice PPO as a per se illegal group

boycott. However, cases such as Klor’s, Inc. v. Broadway-

Hale Stores, Inc., 359 U.S. 207 (1959), and F.T.C. v. Superior

Court Trial Lawyers Association, 493 U.S. 411 (1990), upon

which Petitioner heavily relies, are inapplicable to the

facts in this case.

In Klor’s, a large chain of retail department stores

conspired with various manufacturers and distributors to

prevent sales of electronics to the plaintiff. The complaint

alleged that the combination effectively prevented Klor’s

from buying appliances in a competitive market and

drove it out of business as a dealer in the defendant's

products. Klor’s, 359 U.S. at 213. The Court, in its opinion,

clearly distinguished the facts in Klor’s from the facts in

this case when it stated that “[t]his is not a case of a

single trader refusing to deal with another...” Id. at 212.

Instead of a “wide combination” conspiring against a

competitor, this case involves a single preferred provider

organization which, through its administrative pro-

cedures, denied mer.bership to a single physician. There

18

was no collaborative action and there was no harm to the

physician’s ability to compete in the relevant market.

In Superior Court Trial Lawyers, the boycott by a

majority of lawyers providing indigent criminal defense

services in the Washington, D.C. area had the effect of

crippling an already over-burdened court system. F.T.C. v.

Superior Court Trial Lawyers Association, supra at 417, 418.

Again, there was an agreement among competitors which

resulted in a substantial restraint on competition in the

relevant market. The undisputed facts in this case clearly

establish that Healthchoice does not compete in any mar-

ket with Petitioner and that its actions in limiting its

provider panel had no effect on competition.

None of the defendants in the above-cited cases

offered any pro-competitive reasons for their actions.

Conversely, Healthchoice presented uncontroverted evi-

dence that its closed provider panel is demanded by its

customers as a means of containing health care costs.

Moreover, the Rule of Necessity, by which new physi-

cians are admitted to the provider panel, is administered

by non-physician staff members of Healthchoice without

the input from its member physicians or the physician

members of CFMA. Healthchoice provides a product - a

package of medical services - that is marketed to third

party payors in competition with other PPOs, HMOs and

TCIC companies. It does not compete with the Petitioner.

The complete lack of evidence of any anti-competitive

effect and the pro-competitive reasons for the Rule of

Necessity distinguish this case from those cited above. As

a result, Dr. Levine’s reliance on the “group boycott”

cases is misplaced.

19

As recognized by the Department of Justice, the man-

aged care market is relatively new to the healthcare

industry. In its enforcement policies relating to multi-

provider networks, the Department of Justice has noted

that “where a geographic market can support several

-multi-provider networks, there are not likely to be signifi-

cant competitive problems associated with the exclusion

of particular providers by particular networks.” Levine, 72

F.3d at 1550; citing DOJ Enforcement Policy, available in

1994 WL 642477 at *42 (F.T.C.). As previously stated, there

were approximately 38 preferred provider organizations

and 11 health maintenance organizations in the Orlando

Area. These organizations had a combined coverage of

approximately 69% of the population. The remainder of

the population is covered by numerous traditional com-

prehensive insurance coverage companies in the area or

have no coverage at all. Healthchoice had approximately

sixty eight thousand enrollees or approximately a 6%

share of the Orlando health care market. Accordingly, the

Eleventh Circuit properly found as a matter of law that

there was no significant anticompetitive effect resulting

from the exclusion of Dr. Levine from this particular

network.

(ii) Price-Fixing Claim Against Healthchoice and

CFMA.

Dr. Levine has raised a new argument in his Petition.

Specifically, he now asserts that the establishment of the

Master Payor Rate Schedule by Healthchoice is a type of

price-fixing which should be deemed per se unlawful. In

.eviewing the Complaint, it is interesting to note that the

Petitioner did not raise any allegations of price fixing.

20

Specifically, Count I of his Complaint is simply titled

“Conspiracy to Unreasonably Reduce the Availability of

and Competition in Services to Consumers of Medical

Services” (R1-1-5). In his portion of the Pre-trial State-

ment prepared by the parties on the eve of trial, Peti-

tioner defined the concise issues to be tried relating to

Count I of his Complaint as:

“Did the Defendant’s contract, combine or con-

spire with one another and/or among the doctor

members at CFMA to exclude Plaintiff from

being a provider under CFMA and/or Health-

choice?”; and

“Did the Defendant create a health care plan

(PPO) that locked in consumers and excluded

physicians like Plaintiff?” (R3-132-23).

Price-fixing was not even an issue to be litigated at the

trial. In fact, throughout this litigation, the Petitioner’s

complaint has been that he was excluded as a member of

the Healthchoice PPO. He wanted to become a member of

the Healthchoice PPO because he heard it paid well and

he thought it would improve his practice (R2-52-438, 439);

(R2-54-65). He wanted to become a part of the plan not

challenge the method by which fees are set. As a result,

the Eleventh Circuit properly found that there was “no

genuine issue of material fact regarding the existence of

an agreement to fix prices .. . ”. Levine, 72 F.3d at 1549.

Dr. Levine compares this case with this Court’s deci-

sion in Arizona v. Maricopa County Medical Society, 457

U.S. 332 (1982). In Maricopa, a group of doctors represent-

ing approximately 70% of the practitioners in the area

formed an association for the purpose of establishing a

schedule of maximum fees that participating doctors

21

would accept as payment in full for services performed

for patients insured under approved plans. Id. at 339. The

physicians themselves agreed by majority vote on the maxi-

mum fee that they would claim as payment in full for

their services. Id. at 335-336. The Court acknowledged

that fee schedules may be desirable in certain circum-

stances, but appeared troubled by the fact that the fees

were set by the physicians themselves. Id. at 352. As a

result, a closely divided Court found that the arrange-

ment in question was a form of illegal price-fixing. Id. at

Ka

In the present case, it is the non-physician members

of the Board of Directors of Healthchoice that establish

the rates and conversion factors which are used to make

up the Master Payor Rate Schedule. The physician mem-

bers of the Board of Directors of Healthchoice are

required to remove themselves from any discussions

regarding the establishment of rates for physician ser-

vices. The rates are then negotiated by Healthchoice indi-

vidually with prospective payors and the agreed upon

rate schedule is presented, in toto, to the provider panel.

Any doctor is free to opt out of any contract under which

he is unhappy with the amount of the fee to be received.

The provider is also free to accept an amount less than

the proscribed maximum fee or to waive any copayment

which may be due from an out-of-network provider. Any

physician is also free to join other managed care networks

if the fees are more favorable or for any other reason.

Therefore, this case can be easily distinguished from Mar-

icopa County as the maximum fees for individual physi-

cian services are determined by an independent entity

seeking to market its package of physician services to

22

third-party payors such as large businesses and local

governments.

The Eleventh Circuit acknowledged that the Peti-

tioner did not argue in the court below that the Respon-

dents had illegally fixed prices. However, the Eleventh

Circuit also noted that portions of Petitioner’s brief

assumed the existence of such an agreement and

addressed, in dictum, Petitioner’s alleged price-fixing

claims. The court found that the Healthchoice PPO

involved “an agent or third party conveying to pur-

chasers information obtained individually from providers

in the network about prices the network participants are

willing to accept, and conveying to providers any con-

tract offers made by purchasers.” Levine, at 1549. As a

result, the method by which Healthchoice negotiates the

fees to be paid to its providers was not prohibited by the

Sherman Act.

Although some managed care plans have come under

scrutiny lately, those cases have involved jointly owned

physician-hospital organizations with extremely large

market shares which allegedly restrained competition

among the physicians and impeded the entry of other

managed care plans into the relevant markets. In United

States v. Health Choice of Northwest Missouri, Inc., No.

95-6171-CV-5J-6 (W.D.Mo.), reprinted in, 60 Fed.Reg.

51,808 (Oct. 4, 1995) and United States v. HealthCare Part-

ners, Inc., No. 395-CV-01946-RNC (D.Conn.), reprinted in,

60 Fed.Reg. 52,014 (Oct. 4, 1995), the Department of Jus-

tice alleged physician participation in the relevant mar-

kets of 85% and 98%, respectively. In addition, the

relevant hospitals in both cases were the only acute care

23

hospitals in their respective markets. There was also evi-

dence that the physicians refused to deal with any man-

aged care plans except through their organization and

that the organizations were restricting access to the phy-

sicians. Therefore, the Department of Justice felt that the

structure of the organizations in question had the poten-

tial to restrict price competition among the physicians

and limit the development of managed care plans.

In the present case, Healthchoice is not owned by the

physician providers. The PPO has a very small market

share in a highly competitive market. In addition, all of

the agreements with its providers allow the physicians to

participate in other competing managed care plans. Even

the President of Healthchoice participates in several other

competing managed care plans (R3-83-] 4). Healthchoice

is unable to restrict access to its physician providers or

limit price competition because any effort to unilaterally

raise prices above market levels would result in payors

(and physicians) switching to one of the other managed

care plans in the area. This case is clearly distinguishable

from those that have been challenged by the government.

More importantly, an action brought by a single physician

challenging his exclusion from a managed care network is

not an appropriate vehicle for review of managed health

care by this Court.

(iii) Group Boycott Claims Against ORHS.

Dr. Levine also argues that the temporary suspension

of his medical siaff privileges by ORHS should have been

deemed per se illegal. He ignores the fact that the peer

review process is a requirement for licensing under state

24

law. He also ignores the fact that he at all times main-

tained (and utilized) active staff privileges at other hospi-

tal facilities in the Orlando area, including the largest

hospital network in the area. Most importantly, Dr.

Levine is asking this Court to ignore the benefits to

patient care which are attributable to the physician peer

review process. The benefits of having a physician’s work

reviewed by other doctors having knowledge in the med-

ical field is beyond dispute. Physician peer review is not

an activity which can be said to have such obvious anti-

competitive effects as to justify classification as a per se

violation of the Sherman Act. Dr. Levine’s argument is

merely an attempt to re-litigate his disciplinary proceed-

ing in a federal treble damages forum. Such a result is

not within the spirit and intent of the federal antitrust

laws.

Numerous decisions have addressed the issues of

medical staff disciplinary actions under the Rule of Rea-

son. See, e.g., Oksanen v. Page Memorial Hospital, 945 F.2d

696 (4th Cir. 1991), cert. denied, 112 S.Ct. 1972 (1992); Bolt

v. Halifax Medical Center, 891 F.2d 810 (11th Cir. 1990), cert.

denied, 495 U.S. 924 (1990); and Lie v. St. Joseph Hospital of

Mt. Clemmons, Michigan, 964 F.2d 567 (6th Cir. 1992). In

fact, these respondents are unaware of a single case in

which a medical staff disciplinary action has been

deemed a per se violation of the Sherman Act. As

acknowledged by counsel for Dr. Levine at oral argument

at the Eleventh Circuit, the proper standard for antitrust

3 Dr. Levine also filed a companion case asserting state law

claims against ORHS which remains pending. (Orange County,

Florida Circuit Court Case No. CI93-1478).

25

claims arising from medical staff disciplinary actions is

the Rule of Reason. Levine, 72 F.3d at 1553. A contrary

holding would federalize the state-mandated peer review

process and provide a treble damages forum for any

disgruntled physician who was aggrieved by the process.

In Oksanen v. Page Memorial Hospital, supra, the plain-

tiff’s medical staff privileges were revoked by the medi-

cal staff at the defendant hospital based on allegations of

numerous incidents of disruptive behavior at the hospi-

tal. In response, Dr. Oksanen sued the hospital and mem-

bers of the medical staff alleging Sherman Act Section 1

and 2 violations and other state law violations. The court

found that Dr. Oksanen’s efforts to show an unreasonable

restraint on trade were not satisfied by showing only that

he had suffered an economic injury. Oksanen, supra, at

708. As stated by the Court:

If the law were otherwise, many a physicians’

workplace grievance with a hospital would be

elevated to the status of an antitrust action. To

keep the antitrust laws from becoming so trivi-

alized, the reasonableness of a restraint is evalu-

ated based on its impact on competition as a

whole within the relevant market. Id. at 708;

Atlantic Richfield Co. v. USA Petroleum Co., 495

U.S. 328 (1990).

Therefore, while the court recognized that Dr. Oksanen’s

individual practice may have been hurt by the hospital’s

actions, there was no evidence that competition had been

harmed in the relevant market. Id. at 709. As a result, Dr.

Oksanen’s Section 1 claim failed.

26

The modified Rule of Reason analysis propounded by

the court in Indiana Federation of Dentists is also inapplica-

ble to a peer review case. Lie v. St. Joseph Hospital of Mount

Clemmons, Michigan, supra. In Lie, the plaintiff’s surgical

privileges were suspended after an extended review indi-

cated that the patient care he had rendered was unaccept-

able. As a result, Dr. Lie sued the hospital and certain

individual physicians for antitrust violations (specifically,

Sherman Act Section 1). Although he attempted to define

the relevant market, Dr. Lie argued that he did not have

to establish that the defendant hospital had market power

under the authority of F.T.C. v. Indiana Federation of Den-

tists, 476 U.S. 447 (1986) (the presence of a “naked restric-

tion on price or output” does not require an inquiry into

market power. Id. at 460). However, the Sixth Circuit

Court of Appeals rejected this argument. Instead, the

Court recognized that the peer review process has a

public purpose of policing the competence of physicians

and can enhance competition. Lie, at 570. Therefore, the

plaintiff was required to allege and prove market power

and an unreasonable restraint on competition. The only

evidence produced by Dr. Lie was a reduction in his own

income and an affidavit from an expert that the peer

review process could chill competition among physicians.

The court found that evidence insufficient to establish an

unreasonable restraint on trade, especially in view of the

defendant’s evidence of an increase in the number of

surgeons practicing in the area. Id. at 570.

Dr. Levine continues to rely on Justice Scalia’s dissent

in Summit Health, Ltd. v. Pinhas, 111 S.Ct. 1842 (1991). This

Court reviewed the Summit Health decision solely to

determine whether the complaint in that case satisfied the

7 |

el AS WIAA eee Bevo eet

27

interstate commerce requirement of antitrust jurisdiction.

Id., at 1844. Justice Scalia, while dissenting from the

majority’s holding that the jurisdictional requirement was

satisfied, also expressed his displeasure at the prospect of

“federalizing” physician disciplinary actions. Specifically,

Justice Scalia wrote that it was a mistake to treat claims

over the denial of hospital privileges as federal antitrust

claims because the federal courts should not be trivi-

alized by the handling of routine business disputes. Id., at

1854. These Respondents agree with this analysis.

The decision of the Eleventh Circuit to analyze the

Petitioner’s antitrust claims against ORHS under the Rule

of Reason was consistent with decisions from other Cir-

cuits which have faced similar situations. All have

required that the Plaintiff satisfy the Rule of Reason to

pursue an antitrust claim relating to a physician disciplin-

ary procedure because the pro-competitive and other

societal benefits of physician peer review far outweigh

any alleged anticompetitive effects. The Petitioner has

never made any effort to attempt to identify or define the

relevant product and geographic markets relating to his

Section 1 claims against ORHS. Instead, he relied on a per

se analysis or the Indiana Federation of Dentists hybrid

analysis. The only evidence relating to market definition

in this case was provided by the Respondents. The Elev-

enth Circuit gave the Petitioner every benefit of the doubt

while analyzing his antitrust claims against ORHS under

the Rule of Reason. The overwhelming result of such

analysis was that the Petitioner had failed to prove that

the disciplinary action in this matter had any effect on

competition in the relevant markets. Levine, 72 F.3d at

1554. The Eleventh Circuit properly applied the Rule of

28

Reason in affirming the summary judgment granted

against Dr. Levine on his antitrust claims against ORHS

in this matter and certiorari should not be granted to

review its decision.

(iv) “GVR”

These Respondents join in that portion of the

Response Brief filed by CFMA relating to the reasons why

“GVR” is inappropriate in this matter.

Il.

CONCLUSION

The most cogent arguments for the denial of Dr.

Levine’s Petition can be found in the Eleventh Circuit’s

Opinion. The judges obviously reviewed the matter thor-

oughly and provided an insightful analysis of the rele-

vant antitrust precedents. There is no reason for this

Court to review the Eleventh Circuit’s decision in this

case. The decision below was substantively correct and

was not a product of any “confusion” in the law.

In addition, given the increasing importance of man-

aged care and the requisite development of provider net-

works involved in managed care, it would be a serious

mistake to open the doors of the federal courts as a forum

for review of network decisions made by the many man-

aged care plans operating and being developed across the

country. The formation of such networks, which is being

demanded by market forces, necessarily means that some

providers will be in a network and some will be

adie» x i Meal FA Ng cee NR TS wean wee

29

excluded. If Dr. Levine’s position is accepted, every pro-

vider who is excluded from a particular network would

be a potential federal court antitrust plaintiff. The appeal-

ing lure of treble damages would only serve to increase

the potential that such claims would be filed.

Where there is no evidence of any detrimental effect

on competition, as the courts below in this case have

noted, it would be an extreme departure from prior law

to allow a federal antitrust action to proceed. The accep-

tance by the Supreme Court of the argument that pro-

vider exclusions from managed care plans are per se

antitrust violations would completely federalize the law

in this area and would insert the federal courts into the

market relationships between willing buyers and sellers

in a highly detrimental fashion. Therefore, for the reasons

set forth above, Orlando Regional Healthcare System,

Inc., Sand Lake Hospital, and Healthchoice, Inc. hereby

respectfully request that Dr. Levine’s Petition for Writ of

Certiorari be denied.

Respectfully submitted,

Davip L. Evans, Esquire

Florida Bar No. 260312

THomas R. Harsert, Esquire

Florida Bar No. 817759

Martreer & Harsert, P.A.

225 East Robinson Street, Suite 600

Post Office Box 2854

Orlando, Florida 32802

Telephone: 407/425-9044

Fax: 407/423-2016

Attorneys for Orlando Regional

Healthcare System, Inc., Sand Lake

Hospital and Healthchoice, Inc.

Sd ee