Kartell v. Blue Shield of Massachusetts, Inc.
53 U.S.L.W. 2297, 749 F.2d 922 (1984)
Rule of Law:
A health insurer's 'ban on balance billing,' which requires participating physicians to accept the insurer's payment as full compensation, does not constitute an unreasonable restraint of trade or monopolization under Sherman Act §§ 1 or 2, even if the insurer possesses significant market power, as it represents a legitimate exercise of a buyer's power to negotiate price terms.
Facts:
- Blue Shield provides health insurance for physician services to a significant portion of the Massachusetts population.
- Blue Shield offers "full service" prepaid medical benefits to its subscribers.
- Doctors can become "participating doctors" by entering into a standard Participating Physician’s Agreement with Blue Shield.
- Under this agreement, participating doctors promise to accept Blue Shield’s determined amount, often a fixed fee based on "usual and customary charge" with capping devices, as full payment for services to subscribers.
- About 45 percent of Blue Shield's subscribers have coverage that includes a 'balance billing' ban.
- Blue Shield and its sister organization, Blue Cross, collectively provide insurance coverage for about 74 percent of privately insured Massachusetts residents.
- Virtually all practicing doctors in Massachusetts agree to participate in Blue Shield’s fee plan.
- Blue Shield payments account for approximately 13 to 14 percent of all physician practice revenue in Massachusetts.
Procedural Posture:
- Plaintiff doctors (Rodkey plaintiffs) sued Blue Shield of Massachusetts, Inc. in federal district court (D.Mass.) alleging that its 'ban on balance billing' violated Sherman Act §§ 1 and 2.
- The district court, 582 F.Supp. 734 (D.Mass.1984), held that Blue Shield's practice constituted an unreasonable restraint of trade in violation of Sherman Act § 1.
- Blue Shield appealed the district court's holding regarding the Section 1 violation to the United States Court of Appeals for the First Circuit.
- The plaintiff doctors cross-appealed from other rulings of the district court that were in Blue Shield's favor, specifically regarding claims related to refusal to reimburse non-participating doctors, predatory pricing, claims against Blue Cross, and alleged coercive attacks.
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Issue:
Does a health insurer's 'ban on balance billing,' which prohibits participating doctors from charging subscribers additional fees beyond the insurer's payment, constitute an unreasonable restraint of trade under Sherman Act § 1 or monopolization/attempted monopolization under Sherman Act § 2, particularly when the insurer holds significant market power?
Opinions:
Majority - Breyer, Circuit Judge
No, Blue Shield's "ban on balance billing" does not violate Sherman Act §§ 1 or 2, because the practice is a legitimate exercise of a buyer's power to bargain for prices, even when the buyer possesses significant market power. The court reasoned that Blue Shield should be viewed not as an inhibitory "third force" intervening in the marketplace, but as a purchaser of medical services on behalf of its subscribers. Antitrust law generally permits a buyer to determine the price and characteristics of the product or service it purchases. The court cited numerous precedents where similar insurer activities, such as direct reimbursement to providers and prohibitions on additional charges, were upheld as lawful purchasing arrangements, distinguishing them from "sham" organizations designed by competitors to suppress prices (e.g., Mandeville Island Farms, Inc.). The court acknowledged the district court's finding of Blue Shield's significant market power and assumed, for argument's sake, that Blue Shield obtains "lower than competitive" prices. However, it clarified that antitrust laws typically do not prohibit a buyer, even a monopolist, from bargaining for uncompetitive prices unless those prices are predatory (i.e., below incremental cost), citing Berkey Photo, Inc. v. Eastman Kodak Co. The court rejected the propositions that the law forbids a powerful buyer from bargaining for uncompetitive prices, that such a buyer cannot buy for the account of others, or that there is a relevant difference between obtaining such a price for oneself and for others for whom one can lawfully buy. The "ban on balance billing" is considered an essential part of the price bargain between buyer and seller. The court further distinguished this case from horizontal price-fixing agreements among competitors, such as those in Arizona v. Maricopa County Medical Society, emphasizing that Blue Shield's action is a unilateral purchasing decision, not an agreement among competing doctors. Finally, the court noted three additional policy considerations counseling against judicial interference: (1) the prices are low, benefiting consumers; (2) healthcare costs are a complex area involving non-economic values; and (3) the price system is supervised by state regulators. The court also affirmed the district court's dismissal of the doctors' cross-claims regarding refusal to deal, predatory pricing (lack of standing due to insufficient market impact), claims against Blue Cross (conspiracy to achieve a lawful objective), and alleged coercive attacks (minor business torts not antitrust violations).
Analysis:
This case significantly clarifies that a large health insurer acting as a buyer, negotiating prices and prohibiting balance billing, does not inherently violate antitrust laws. It reinforces the principle that unilateral actions of a powerful buyer to secure lower prices are generally lawful, distinguishing them sharply from illegal horizontal agreements among competitors to fix prices. The decision underscores judicial reluctance to intervene in buyer-seller price negotiations, especially when prices are low and non-predatory, and recognizes the unique complexities of the healthcare market and the role of state regulation. This ruling creates a high bar for challenging an insurer's contractual terms with providers under the Sherman Act, particularly for Section 1 claims where the alleged restraint stems from a buyer's legitimate exercise of market power.
