Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic

65 F.3d 1406, 1995 WL 550121
CourtCourt of Appeals for the Seventh Circuit
DecidedSeptember 18, 1995
DocketNos. 95-1965, 95-2140
StatusPublished
Cited by24 cases

This text of 65 F.3d 1406 (Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1995 WL 550121 (7th Cir. 1995).

Opinion

POSNER, Chief Judge.

Blue Cross & Blue Shield United of Wisconsin (“Blue Cross” for short), and its subsidiary, Compcare Health Services Insurance Corporation, a health maintenance organization (HMO), brought suit last year under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, against the Marshfield Clinic and its HMO subsidiary, Security Health Plan of Wisconsin, Inc. After a two-week trial, the jury brought in a verdict for both plaintiffs that, after remittitur, trebling, and addition of attorneys’ fees, produced a judgment just short of $20 million to which the judge then added a sweeping injunction that we have stayed pending the decision of the defendants’ appeal, which we have heard on an expedited schedule. (The plaintiffs filed a cross-appeal, but it was dismissed by agreement of the parties.) The speed with which this complex case was brought to trial is as commendable as it is unusual.

The two plaintiffs have distinct though overlapping claims. Compcare, Blue Cross’s HMO, claims that the Marshfield Clinic — a nonprofit corporation owned by the 400 physicians whom it employs — has a monopoly which it acquired and has maintained by improper practices that have excluded Comp-care from the HMO “market” in the counties of north central Wisconsin in which the Marshfield Clinic and its HMO subsidiary (Security) operate. This is a section 2 monopolization charge. Blue Cross claims that Marshfield, partly through its own monopoly power and partly by collusion with other providers of medical services, charged supra-competitive prices to patients insured by Blue Cross. This is a section 2 monopolization charge combined with a section 1 price-fixing and division-of-markets charge.

[1409]*1409Although Marshfield is a town of only 20,-000 people in a largely rural region, the Marshfield Clinic is the fifth largest physician-owned clinic in North America, with annual revenues in excess of $200 million. The Clinic has its main office in Marshfield but it has 21 branch offices scattered throughout the 14 counties of north central Wisconsin. Oddly, we cannot find in the record, nor were counsel able to inform us at argument, what percentage the 400 physicians employed by the Clinic comprise of all the physicians in the 14 counties. We do know that the Clinic employs all the physicians in Marshfield itself and in several other towns — but one of these towns has only one physician — and all the physicians in one entire county — but a county that has only 12 physicians. Security, the Marshfield Clinic’s HMO subsidiary, serves its subscribers through the physicians employed by the Clinic plus almost 900 other physicians with whom Security has contracts. These contracts are not exclusive — the physicians are free to work for other HMOs as well as to practice fee-for-service medicine— and in fact work for Security generates only 6 percent of these physicians’ total income. (Compcare argues that the 6 percent figure is found only in a study and testimony excluded from evidence, but our reading of the objection to the testimony and the ruling on that objection is that not the figure, but only the witness’s effort to characterize it as insignificant, was excluded.) In nine of the 14 counties in the north central region, Security has more than 90 percent of all subscribers to HMOs.

Compcare persuaded the jury that HMOs constitute a separate market, much as banks are a separate market from currency exchanges; and if there is a reasonable basis for this finding in the evidence, we are bound to accept it regardless of what we might think as an original matter. But we have searched the record in vain for evidence that under contemporary principles of antitrust law would justify such a finding. An HMO is not a distinctive organizational form or assemblage of skills, as is plain from the fact that the physicians retained by Security, whether they are employees of the Marsh-field Clinic or completely independent, to serve its subscribers serve other patients on a fee-for-service basis. An HMO is basically a method of pricing medical services. Instead of having the patient pay separately for each medical procedure, the patient pays a fixed annual fee for all the services he needs and the HMO undertakes to provide those services with the physicians with whom it has contracts. The different method of pricing used by the HMO has, of course, consequences both for the practice of medicine and for the allocation of the risk of medical expenses. The method of pricing gives the HMO an incentive to minimize the procedures that it performs, since the marginal revenue it derives from each procedure is zero. Hence HMOs are thought to reduce “waste” and to encourage preventive care, although those hostile to the HMO concept believe that the principal effect is merely to reduce the amount of medical care that patients receive. The risk-shifting feature of the concept lies in the fact that if a subscriber incurs above-average medical expenses, the excess cost is borne by the HMO rather than by the subscriber (or by his insurer, or more likely by both because of copayment and deductible provisions in the insurance policy), while if he incurs below-average medical expense the difference enures to the benefit of the HMO rather than to him or his insurer (or, again, both). To control the upside risk that it incurs, the HMO provides medical services through physicians with whom it has contracts specifying their compensation, rather than merely reimbursing some percentage of whatever fee they might happen to charge for their services. This means that the HMO must be able to line up enough physicians with whom to contract to provide its subscribers with a more or less complete menu of medical services. Comp-care complains that Security’s contracts with physicians require them to refer their patients to the Clinic rather than to “independent” physicians. But that is of the essence of an HMO: the subscriber must take the service offered by the physicians whom the HMO has enlisted.

Compcare’s principal argument is that Security has enlisted such a large fraction of the physicians in the 14-eounty north central region that Compcare cannot find enough “independent” physicians to be able to offer HMO services competitive with Security’s— hence Security’s huge market shares in 9 of the 14 counties. Supposing this is true — as [1410]*1410seems unlikely since Security’s almost 900 independent physicians are available to join other HMOs, along with an unknown number of physicians neither employed by the Marshfield Clinic nor retained by Security— it has monopolistic significance only if HMOs constitute a market separate from other contractual forms in which many of the same physicians sell their services. Of this we cannot find any evidence.

In defining a market, one must consider substitution both by buyers and by sellers, IIA Phillip E. Areeda, John L. Solow & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶53(^ (1995), and let us start with buyers. The record shows, what is anyway well known, that individuals, and their employers, and medical insurers (the real “buyers” of medical services, according to the plaintiffs) regard HMOs as competitive not only with each other but also with the various types of fee-for-service provider, including “preferred provider” plans (generally referred to as “PPOs,” for “preferred provider organization”) under which the insurer offers more generous reimbursement if the insured patronizes physicians who have contracts with the insurer to provide service at low cost to its insureds.

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Cite This Page — Counsel Stack

Bluebook (online)
65 F.3d 1406, 1995 WL 550121, Counsel Stack Legal Research, https://law.counselstack.com/opinion/blue-cross-blue-shield-united-of-wisconsin-v-marshfield-clinic-ca7-1995.