DocketNumber： 92-1270
Filed Date： 3/17/1993
Status： Precedential
Modified Date： 9/21/2015
March 17, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_____________________
No. 92-1270
U. S. HEALTHCARE, INC., ETC., ET AL.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ET AL.,
Defendants, Appellees
_____________________
ERRATA SHEET
The opinion of this court issued on February 26, 1993 is
amended as follows:
In footnote 1, l. 2, replace "1992" with "1991".
On page 7, l. 9, replace "mid-1992" with "mid-1991".
March 12, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_____________________
No. 92-1270
U. S. HEALTHCARE, INC., ETC., ET AL.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ET AL.,
Defendants, Appellees
_____________________
ERRATA SHEET
The opinion of this court issued on February 26, 1993 is
amended as follows:
On page 7, three lines above section II, replace "1992" with
"1991".
February 26, 1993
UNITED STATES COURT OF APPEALS
For The First Circuit
____________________
No. 92-1270
U. S. HEALTHCARE, INC., ETC., et al.,
Plaintiffs, Appellants,
v.
HEALTHSOURCE, INC., ETC., et al.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[William H. Barry, Jr., Magistrate Judge]
________________
____________________
Before
Torruella, Cyr and Boudin, Circuit Judges.
______________
____________________
Franklin Poul with whom Dana B. Klinges, Mark L. Heimlich, Wolf,
_____________ ________________ ________________ ____
Block, Schorr and Solis-Cohen, Andrew D. Dunn, Thomas Quarles, Jr. and
_____________________________ ______________ __________________
Devine, Millimet & Branch were on brief for appellants.
_________________________
Thomas Campbell with whom Deborah H. Bornstein, James W. Teevans,
_______________ ____________________ _________________
Gardner, Carton & Douglas, William J. Donovan, Peter S. Cowan and
___________________________ ___________________ _______________
Sheehan, Phinney, Bass & Green were on brief for appellees.
______________________________
____________________
February 26, 1993
____________________
BOUDIN, Circuit Judge. U.S. Healthcare and two related
_____________
companies (collectively "U.S. Healthcare") brought this
antitrust case in the district court against Healthsource,
Inc., its founder and one of its subsidiaries. Both sides
are engaged in providing medical services through health
maintenance organizations ("HMOs") in New Hampshire. In its
suit U.S. Healthcare challenged an exclusive dealing clause
in the contracts between the Healthsource HMO and doctors who
provide primary care for it in New Hampshire. After a trial
in district court, the magistrate judge found no violation,
and U.S. Healthcare appealed. We affirm.
I. BACKGROUND
Healthsource New Hampshire is an HMO founded in 1985 by
Dr. Norman Payson and a group of doctors in Concord, N.H.
Its parent company, Healthsource, Inc., is headed by Dr.
Payson and it manages or has interests in HMOs in a number of
states. We refer to both the parent company and its New
Hampshire HMO as "Healthsource."
In simpler days, health care comprised a doctor, a
patient and sometimes a hospital, but the Norman Rockwell era
of medicine has given way to a new world of diverse and
complex insurance and provider arrangements. One of the more
successful innovations is the HMO, which acts both as a
health insurer and provider, charging employers a fixed
premium for each employee who subscribes. To provide medical
-2-
-2-
care to subscribers, an HMO of Healthsource's type--sometimes
called an individual practice association or "IPA" model HMO-
-contracts with independent doctors. These doctors continue
to treat other patients, in contrast to a "staff" model HMO
whose doctors would normally be full-time employees of the
HMO.
HMOs often can provide health care at lower cost by
stressing preventative care, controlling costs, and driving
hard bargains with doctors or hospitals (who thereby obtain
more patients in exchange for a reduced charge).
Healthsource, like other HMOs, uses primary care physicians--
usually internists but sometimes pediatricians or others--as
"gatekeepers" who direct the patients to specialists only
when necessary and who monitor hospital stays. Typically,
the contracting primary care physicians do not charge by the
visit but are paid "capitations" by the HMO, a fixed amount
per month for each patient who selects the doctor as the
patient's primary care physician. Unlike a patient with
ordinary health insurance, the HMO patient is limited to the
panel of doctors who have contracted with the HMO.
There are familiar alternatives to HMOs. At the
"financing" end, these include traditional insurance company
policies that reimburse patients for doctor or hospital bills
without limiting the patient's choice of doctor, as well as
Blue Cross/Blue Shield plans of various types and Medicare
-3-
-3-
and Medicaid programs. At the "provider" end, there is also
diversity. Doctors may now form so-called preferred provider
organizations, which may include peer review and other joint
activities, and contract together to provide medical services
to large buyers like Blue Cross or to "network" model HMOs.
There are also ordinary group medical practices. And, of
course, there are still doctors engaged solely in independent
practice on a fee-for-service basis.
Healthsource's HMO operations in New Hampshire were a
success. At the time of suit, Healthsource was the only non-
staff HMO in the state with 47,000 patients (some in nearby
areas of Massachusetts), representing about 5 percent of New
Hampshire's population. Stringent controls gave it low
costs, including a low hospital utilization rate; and it
sought and obtained favorable rates from hospitals and
specialists. Giving doctors a further stake in
Healthsource's success and incentive to contain costs, Dr.
Payson apparently encouraged doctors to become stockholders
as well, and at least 400 did so. By 1989 Dr. Payson was
proposing to make Healthsource a publicly traded company, in
part to permit greater liquidity for its doctor shareholders.
U.S. Healthcare is also in the business of operating
HMOs. U.S. Healthcare, Inc., the parent of the other two
plaintiff companies--U.S. Healthcare, Inc. (Massachusetts)
and U.S. Healthcare of New Hampshire, Inc.--may be the
-4-
-4-
largest publicly held provider of HMO services in the
country, serving over one million patients and having total
1990 revenues of well over a billion dollars. Prior to 1990,
its Massachusetts subsidiary had done some recruiting of New
Hampshire doctors to act as primary care providers for
border-area residents served by its Massachusetts HMO. In
1989, U.S. Healthcare had a substantial interest in expanding
into New Hampshire.
Dr. Payson was aware in the fall of 1989 that HMOs
operating in other states were thinking about offering their
services in New Hampshire. He was also concerned that, when
Healthsource went public, many of its doctor-shareholders
would sell their stock, decreasing their interest in
Healthsource and their incentive to control its costs. After
considering alternative incentives, Dr. Payson and the HMO's
chief operating officer conceived the exclusivity clause that
has prompted this litigation. Shortly after the Healthsource
public offering in November 1989, Healthsource notified its
panel doctors that they would receive greater compensation if
they agreed not to serve any other HMO.
The new contract term, effective January 26, 1990,
provided for an increase in the standard monthly capitation
paid to each primary care physician, for each Healthsource
HMO patient cared for by that doctor, if the doctor agreed to
-5-
-5-
the following optional paragraph in the basic doctor-
________
Healthsource agreement:
11.01 Exclusive Services of Physicians. Physician
_________________________________
agrees during the term of this Agreement not to
serve as a participating physician for any other
HMO plan; this shall not, however, preclude
Physician from providing professional courtesy
coverage arrangements for brief periods of time or
emergency services to members of other HMO plans.
A doctor who adopted the option remained free to serve non-
HMO patients under ordinary indemnity insurance policies,
under Blue Cross\Blue Shield plans, or under preferred
provider arrangements. A doctor who accepted the option
could also return to non-exclusive status by giving notice.1
Although Healthsource capitation amounts varied, a
doctor who accepted the exclusivity option generally
increased his or her capitation payments by a little more
than $1 per patient per month; the magistrate judge put the
amount at $1.16 and said that it represented an average
increase of about 14 percent as compared with non-exclusive
status. The dollar benefit of exclusivity for an individual
doctor obviously varies with the number of HMO patients
handled by the doctor. Many of the doctors had less than 100
Healthsource patients while about 50 of them had 200 or more.
____________________
1The original notice period was 180 days. This was
reduced to 30 days in March or April 1991. It appears, at
least in practice, that a doctor could switch to non-
exclusive status more rapidly by returning some of the extra
compensation previously paid.
-6-
-6-
About 250 doctors, or 87 percent of Healthsource's primary
care physicians, opted for exclusivity.
U.S. Healthcare through its New Hampshire subsidiary
applied for a New Hampshire state license in the spring of
1990, following an earlier application by its Massachusetts
subsidiary. A cease and desist order was entered against it,
limiting its marketing efforts, because of premature claims
that it had approval to operate in the state. The cease and
desist order was withdrawn on February 15, 1991, and the
license issued on February 21, 1991, subject to later
approval of marketing materials. The present suit was filed
in district court by U.S. Healthcare against Healthsource and
Dr. Payson on March 12, 1991. By mid-1991, U.S. Healthcare
had only two New Hampshire "accounts" and only about 18
primary care physicians.
In the district court, U.S. Healthcare challenged the
exclusivity clause under sections 1 and 2 of the Sherman Act,
15 U.S.C. 1-2, and under state antitrust and tort law.
The parties stipulated to trial before a magistrate judge.
After discovery, two separate weeks of trial were conducted
in August and September 1991. In a decision filed on January
30, 1992, the magistrate judge found for the defendants on
all counts. This appeal followed.
II. DISCUSSION
-7-
-7-
In this court, U.S. Healthcare attacks the exclusivity
clause primarily as a per se or near per se violation of
section 1; accordingly we begin by examining the case through
the per se or "quick look" lenses urged by U.S. Healthcare.
We then consider the claim recast in the more conventional
framework of Tampa Electric Co. v. Nashville Coal Co., 365
__________________ ___________________
U.S. 320 (1961), the Supreme Court's latest word on
exclusivity contracts, appraising them under section 1's rule
of reason. Finally, we address U.S. Healthcare's claims of
section 2 violation and its attacks on the market-definition
findings of the magistrate judge.
The Per Se and "Quick Look" Claims. U.S. Healthcare's
___________________________________
challenge to the exclusivity clause, calling it first a per
se violation and later a monopolization offense, invokes a
signal aspect of antitrust analysis: the same competitive
practice may be reviewed under several different rubrics and
a plaintiff may prevail by establishing a claim under any one
of them. Thus, while an exclusivity arrangement is often
considered under section 1's rule of reason, it might in
theory play a role in a per se violation of section 1, cf.
__
Eastern States Retail Lumber Dealers' Ass'n v. United States,
___________________________________________ _____________
234 U.S. 600 (1914), or as an element in attempted or actual
monopolization, United States v. United Shoe Machinery Corp.,
_____________ ___________________________
110 F. Supp. 295 (D. Mass. 1953), aff'd per curiam, 347 U.S.
________________
-8-
-8-
521 (1954). But each rubric has its own conditions and
requirements of proof.
We begin, as U.S. Healthcare does, with the per se rules
of section 1 of the Sherman Act. It is a familiar story that
Congress left the development of the Sherman Act largely to
the courts and they in turn responded by classifying certain
practices as per se violations under section 1. Today, the
only serious candidates for this label are price (or output)
fixing agreements and certain group boycotts or concerted
_______
refusals to deal.2 The advantage to a plaintiff is that
given a per se violation, proof of the defendant's power, of
illicit purpose and of anticompetitive effect are all said to
be irrelevant, see United States v. Socony-Vacuum Oil Co.,
___ ______________ ______________________
310 U.S. 150 (1940); the disadvantage is the difficulty of
squeezing a practice into the ever narrowing per se nitch.
U.S. Healthcare's main argument for per se treatment is
to describe the exclusivity clause as a group boycott. To
understand why the claim ultimately fails one must begin by
recognizing that per se condemnation is not visited on every
arrangement that might, as a matter of language, be called a
group boycott or concerted refusal to deal. Rather, today
that designation is principally reserved for cases in which
____________________
2Tying is sometimes also described as a per se offense
but, since some element of power must be shown and defenses
are effectively available, "quasi" per se might be a better
label. See Eastman Kodak Co. v. Image Technical Services,
___ __________________ _________________________
Inc., 112 S. Ct. 2072 (1992).
___
-9-
-9-
competitors agree with each other not to deal with a supplier
or distributor if it continues to serve a competitor whom
they seek to injure. This is the "secondary boycott" device
used in such classic boycott cases as Eastern States Retail
_____________________
Lumber Dealers' Ass'n, and Fashion Originators' Guild of
_______________________ _______________________________
America, Inc. v. FTC, 312 U.S. 457 (1941).
____________ ___
We doubt that the modern Supreme Court would use the
boycott label to describe, or the rubric to condemn, a joint
venture among competitors in which participation was allowed
to some but not all, compare Northwest Wholesale Stationers,
_______ _______________________________
Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284
___ ____________________________________
(1985), with Associated Press v. United States, 326 U.S. 1
____ ________________ _____________
(1945), although such a restriction might well fall after a
more complete analysis under the rule of reason. What is
even more clear is that a purely vertical arrangement, by
which (for example) a supplier or dealer makes an agreement
exclusively to supply or serve a manufacturer, is not a group
boycott. See Klor's, Inc. v. Broadway-Hale Stores, 359 U.S.
___ ___________ ____________________
207, 212 (1959); Corey v. Look, 641 F.2d 32, 35 (1st Cir.
_____ ____
1981). Were the law otherwise, every distributor or retailer
who agreed with a manufacturer to handle only one brand of
television or bicycle would be engaged in a group boycott of
other manufacturers.
There are multiple reasons why the law permits (or, more
accurately, does not condemn per se) vertical exclusivity; it
-10-
-10-
is enough to say here that the incentives for and effects of
such arrangements are usually more benign than a horizontal
arrangement among competitors that none of them will supply a
company that deals with one of their competitors. No one
would think twice about a doctor agreeing to work full time
for a staff HMO, an extreme case of vertical exclusivity.
Imagine, by contrast, the motives and effects of a horizontal
agreement by all of the doctors in a town not to work at a
hospital that serves a staff HMO which competes with the
doctors.
In this case, the exclusivity arrangements challenged by
U.S. Healthcare are vertical in form, that is, they comprise
individual promises to Healthsource made by each doctor
selecting the option not to offer his or her services to
another HMO. The closest that U.S. Healthcare gets to a
possible horizontal case is this: it suggests that the
exclusivity clause in question, although vertical in form, is
in substance an implicit horizontal agreement by the doctors
involved. U.S. Healthcare appears to argue that stockholder-
doctors dominate Healthsource and, in order to protect their
individual interests (as stockholders in Healthsource), they
agreed (in their capacity as doctors) not to deal with any
other HMO that might compete with Healthsource. We agree
that such a horizontal arrangement, if devoid of joint
venture efficiencies, might warrant per se condemnation.
-11-
-11-
The difficulty is that there is no evidence of such a
horizontal agreement in this case. Although U.S. Healthcare
notes that doctor-stockholders predominate on the
Healthsource board that adopted the option, there is nothing
to show that the clause was devised or encouraged by the
panel doctors. On the contrary, the record indicates that
Dr. Payson and Healthsource's chief operating officer
developed the option to serve Healthsource's own interests.
Formally vertical arrangements used to disguise horizontal
ones are not unknown, see Interstate Circuit, Inc. v. United
________________________ ______
States, 306 U.S. 208 (1939), but U.S. Healthcare has supplied
______
us with no evidence of such a masquerade in this case.
There is less to be said for U.S. Healthcare's
alternative argument that, if per se treatment is not proper,
then at least the exclusivity clause can be condemned almost
as swiftly based on "a quick look." Citing FTC v. Indiana
___ _______
Federation of Dentists, 476 U.S. 447 (1986), and NCAA v.
_______________________ ____
Board of Regents, 468 U.S. 85 (1984), U.S. Healthcare argues
_________________
that the exclusivity clause is so patently bad that even a
brief glance at its impact, lack of business benefit and
anticompetitive intent suffice to condemn it. The cases
relied on provide little help to U.S. Healthcare and, even
on its own version of those cases, the facts would not
conceivably justify a "quick look" condemnation of the
clause.
-12-
-12-
In the cited cases, the Supreme Court actually
contracted the per se rule by refusing to apply it to
horizontal agreements that involved price and output fixing
(television rights by NCAA members) or the setting of other
terms of trade (refusal of dentists by agreement to provide
x-rays to insurers). Given the unusual contexts (an
interdependent sports league in one case; medical care in the
other), the Court declined to condemn the arrangements per
se, without at least weighing the alleged justifications. At
the same time it required only the briefest inspection (the
cited "quick look") for the Court to reject the excuses and
strike down the agreements. Accord, National Society of
______ ____________________
Professional Engineers v. United States, 435 U.S. 679 (1978).
______________________ _____________
In any event, no "quick look" would ever suffice to
condemn the exclusivity clause at issue in this case.
Exclusive dealing arrangements come with the imprimatur of
two leading Supreme Court decisions describing the potential
virtues of such arrangements. Tampa; Standard Oil Co. of
_____ ____________________
California v. United States, 337 U.S. 293 (1949) (Standard
__________ _____________ ________
Stations); see also Jefferson Parish Hospital District No. 2
________ ________ _________________________________________
v. Hyde, 466 U.S. 2, 46 (1984) (O'Connor, J., concurring).
____
To condemn such arrangements after Tampa requires a detailed
_____
depiction of circumstances and the most careful weighing of
alleged dangers and potential benefits, which is to say the
-13-
-13-
normal treatment afforded by the rule of reason. To that
subject we now turn.
Rule of Reason. Exclusive dealing arrangements, like
_______________
information exchanges or standard settings, come in a variety
of forms and serve a range of objectives. Many of the
purposes are benign, such as assurance of supply or outlets,
enhanced ability to plan, reduced transaction costs, creation
of dealer loyalty, and the like. See Standard Stations, 337
___ _________________
U.S. at 307. But there is one common danger for competition:
an exclusive arrangement may "foreclose" so much of the
available supply or outlet capacity that existing competitors
or new entrants may be limited or excluded and, under certain
circumstances, this may reinforce market power and raise
prices for consumers.
Although the Supreme Court once said that a
"substantial" percentage foreclosure of suppliers or outlets
would violate section 1, Standard Stations, the Court's Tampa
_________________ _____
decision effectively replaced any such quantitative test by
an open-ended inquiry into competitive impact. What is
required under Tampa is to determine "the probable effect of
_____
the [exclusive] contract on the relevant area of effective
competition, taking into account . . . . [various factors
including] the probable immediate and future effects which
pre-emption of that share of the market might have on
effective competition therein." 365 U.S. at 329. The lower
-14-
-14-
courts have followed Tampa and under this standard judgments
_____
for plaintiffs are not easily obtained. See ABA Antitrust
___
Section, Antitrust Law Developments 172-73, 176-78 (3d ed.
1992) (collecting cases).
On this appeal we are handicapped in appraising the
extent and impact of the foreclosure wrought by Healthsource
because U.S. Healthcare has not chosen to present its
argument in these traditional terms. Tampa is not even cited
_____
in the opening or reply briefs. Some useful facts pertaining
to the extent of the foreclosure are adverted to in U.S.
Healthcare's opening "statement of the case" but never
seriously developed in the argument section of its brief.
Since the brief itself also describes countervailing evidence
of Healthsource, something more is assuredly needed. In the
two paragraphs of its "quick look" formulation addressed to
"anticompetitive impact," U.S. Healthcare simply asserts that
competitive impact has already been discussed and that the
exclusivity clause has completely foreclosed U.S. Healthcare
and any other non-staff HMO from operation in New Hampshire.
This is not a persuasive treatment of a difficult issue
or, rather, a host of issues. First, the extent to which the
clause operated economically to restrict doctors is a serious
question.3 True, most doctors signed up for it; but who
____________________
3Even with no notice period, Healthsource's differential
pricing policy--paying more to those who exclusively serve
Healthsource--would disadvantage competing HMOs. Some courts
-15-
-15-
would not take the extra compensation when no competing non-
staff HMO was yet operating? The extent of the financial
incentive to remain in an exclusive status is unclear, since
it varies with patient load, and the least loaded (and thus
least constrained by the clause) doctors would normally be
the best candidates for a competing HMO. Healthsource
suggests that by relatively modest amounts, U.S. Healthcare
could offset the exclusivity bonus for a substantial number
of Healthsource doctors. U.S. Healthcare's reply brief
offers no response.
Second, along with the economic inducement is the issue
of duration. Normally an exclusivity clause terminable on 30
days' notice would be close to a de minimus constraint (Tampa
__________ _____
involved a 20-year contract, and one year is sometimes taken
as the trigger for close scrutiny). On the other hand, it
may be that the original 180-day clause did frustrate U.S.
Healthcare's initial efforts to enlist panel doctors, without
whom it would be hard to sign up employers. Perhaps even a
30-day clause would have this effect, especially if a
reimbursement penalty were visited on doctors switching back
to non-exclusive status. Once again, U.S. Healthcare's brief
offers conclusions and a few record references, but neither
____________________
hesitate to apply the exclusivity label to such arrangements
because there is no continuing promise not to deal (see
Antitrust Developments, supra, at 176), but the differential
_____
pricing plan is unquestionably part of a contract and so
subject to section 1, whatever label may be applied.
-16-
-16-
the precise operation of the clause nor its effects on
individual doctors are clearly settled.
Third, even assuming that the financial incentive and
duration of the exclusivity clause did remove many of the
Healthsource doctors from the reach of new HMOs, it is
unclear how much this foreclosure impairs the ability of new
HMOs to operate. Certainly the number of primary care
physicians tied to Healthsource was significant--one figure
suggested is 25 percent or more of all such primary care
physicians in New Hampshire--but this still leaves a much
larger number not tied to Healthsource. It may be, as U.S.
Healthcare urges, that many of the remaining "available"
doctors cannot fairly be counted (e.g., those employed full
____
time elsewhere, or reaching retirement, or unwilling to serve
HMOs at all). But the dimensions of this limitation were
disputed and, by the same token, new doctors are constantly
entering the market with an immediate need for patients.
U.S. Healthcare lays great stress upon claims, supported
by some meeting notes of Healthsource staff members, that the
latter was aware of new HMO entry and conscious that new HMOs
like U.S. Healthcare could be adversely affected by the
exclusivity clause.4 Healthsource in turn says that these
____________________
4Two examples of these staff notes give their flavor:
"Looking at '90 rates - and a deterent [sic] to joining other
HMOs (like Healthcare)"; and "amend contract (sending this or
next week) based on exclusivity. HMOs only (careful about
restraint of trade) will be sent to even those in Healthcare
-17-
-17-
were notes made in the absence of policy-making officers and
that its real motivation for the clause was to bolster
loyalty and cost-cutting incentives. Motive can, of course,
be a guide to expected effects, but effects are still the
central concern of the antitrust laws, and motive is mainly a
clue, see Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d
___ _________________ _________________
227 (1st Cir. 1983). This case itself suggests how far
motives in business arrangement may be mixed, ambiguous, and
subject to dispute. In any event, under Tampa the ultimate
_____
issue in exclusivity cases remains the issue of foreclosure
and its consequences.
Absent a compelling showing of foreclosure of
substantial dimensions, we think there is no need for us to
pursue any inquiry into Healthsource's precise motives for
the clause, the existence and measure of any claimed benefits
from exclusivity, the balance between harms and benefits, or
the possible existence and relevance of any less restrictive
means of achieving the benefits. We are similarly spared the
difficulty of assessing the fact that the clause is limited
to HMOs, a fact from which more than one inference may be
drawn. The point is that proof of substantial foreclosure
and of "probable immediate and future effects" is the
essential basis under Tampa for an attack on an exclusivity
_____
clause. U.S. Healthcare has not supplied that basis.
____________________
already . . . ."
-18-
-18-
In formal terms U.S. Healthcare has preserved on appeal
its claim that the exclusivity clause unreasonably restrains
competition in violation of section 1. That concept is
embraced by its complaint, and the limited depiction of
evidence in its appellate briefs stirs curiosity, if not
suspicion. But putting to one side its per se claims and
alleged market definition errors, U.S. Healthcare's basic
argument in this court must be that the evidence compelled
_________
the magistrate judge to find substantial foreclosure having
an unreasonable adverse effect on competition. U.S.
Healthcare, as plaintiff at trial and appellant in this
court, had the burden of fully mustering the facts and
applying the analysis to establish such a claim. It has not
done so.
In this discussion, we have placed little weight upon
the formal finding of the magistrate judge that "the
[exclusivity] restriction does not constitute an unreasonable
restraint of trade under Section 1 of the Sherman Act." His
finding rested primarily on the premise that whatever the
impact of the clause on HMOs, ample competition remains in a
properly defined market, which he found to be one embracing
all health care offered throughout the state of New
Hampshire.5 On this view of the antitrust laws, it does not
____________________
5On the other hand, we do not accept U.S. Healthcare's
effort to salvage something from the decision by arguing the
magistrate judge found substantial foreclosure in fact. For
-19-
-19-
matter whether substantial foreclosure of new entrants occurs
so long as widespread competition prevails in the relevant
market, thereby protecting consumers.6
Whether the law requires such a further showing of
likely impact on consumers is open to debate. Our own case
law is not crystal clear on this issue. Compare Interface
_________
Group, Inc. v. Mass Port Authority, 816 F.2d 9, 11 (1st Cir.
___________ ___________________
1981), with Corey v. Look, 641 F.2d at 36. Ultimately the
_____ ____
issue turns upon antitrust policy, where a permanent tension
prevails between the "no sparrow shall fall" concept of
antitrust, see Klor's, 359 U.S. at 213 (violation "not to be
___ ______
tolerated merely because the victim is just one merchant
whose business is so small that his destruction makes little
difference to the economy"), and the ascendant view that
antitrust protects "competition, not competitors". See
___
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488
_______________ _______________________
(1977). We need not confront this issue in a case where the
cardinal requirement of a valid claim--significant
foreclosure unreasonably restricting competitors--has not
been demonstrated.
____________________
the most part, the statements to which it points appear to us
to be efforts by the magistrate judge to describe the
___
allegations made by U.S. Healthcare.
___________
6See, e.g., Dep't of Justice Merger Guidelines, 4.21,
___ ___ __________________________________
4.213, June 14, 1984, 49 Fed. Reg. 26824, 26835-36 (1984),
adopting this position. The 1992 DOJ-FTC guidelines are
directed only to horizontal mergers and do not address the
issue. 49 Fed. Reg. 26823 (1992).
-20-
-20-
Section 2. Exclusive contracts might in some situations
_________
constitute the wrongful act that is an ingredient in
monopolization claims under section 2. See United Shoe
___ ____________
Machinery Corp. The magistrate judge resolved these section
_______________
2 claims in favor of Healthsource primarily by defining the
market broadly to include all health care financing in New
Hampshire. So defined, Healthsource had a share of that
market too small to support an attempt charge, let alone one
of actual monopolization. U.S. Healthcare argues, however,
that the market was misdefined.
It may be unnecessary to consider this claim since, as
we have already held, U.S. Healthcare has failed to show a
substantial foreclosure effect from the exclusivity clause.
After all, an act can be wrongful in the context of section 2
only where it has or threatens to have a significant
exclusionary impact. But a lesser showing of likely effect
might be required if the actor were a monopolist or one
_____
within striking distance. Compare Berkey Photo Inc. v.
_______ __________________
Eastman Kodak Co., 603 F.2d 263, 272 (2d Cir. 1979), cert.
__________________ _____
denied, 444 U.S. 1093 (1980). More important, the magistrate
______
judge dismissed the section 2 claims based on market
definition and, if his definition were shown to be wrong, a
remand might be required unless we were certain that U.S.
Healthcare could never prevail.
-21-
-21-
There is no subject in antitrust law more confusing than
market definition. One reason is that the concept, even in
the pristine formulation of economists, is deliberately an
attempt to oversimplify--for working purposes--the very
complex economic interactions between a number of differently
situated buyers and sellers, each of whom in reality has
different costs, needs, and substitutes. See United States
___ _____________
v. E.I. du Pont De Nemours & Co, 351 U.S. 377 (1956).
_________________________________
Further, when lawyers and judges take hold of the concept,
they impose on it nuances and formulas that reflect
administrative and antitrust policy goals. This adaption is
legitimate (economists have no patent on the concept), but it
means that normative and descriptive ideas become intertwined
in the process of market definition.
Nevertheless, rational treatment is assisted by
remembering to ask, in defining the market, why we are doing
___
so: that is, what is the antitrust question in this case that
market definition aims to answer? This threshold inquiry
helps resolve U.S. Healthcare's claim that the magistrate
judge erred at the outset by directing his analysis to the
issue whether HMOs or health care financing was the relevant
product market. This approach, says U.S. Healthcare,
mistakenly focuses on the sale of health care to buyers
____
whereas its concern is Healthsource's buying power in tying
______
up doctors needed by other HMOs in order to compete.
-22-
-22-
The magistrate judge's approach was correct. One can
monopolize a product as either a seller or a buyer; but as a
buyer of doctor services, Healthsource could never achieve a
monopoly (monopsony is the technical term), because doctors
have too many alternative buyers for their services.7
Rather, the only way to cast Healthsource as a monopolist is
to argue, as U.S. Healthcare apparently did, that HMO
services (or even IPA HMOs) are a separate health care
product sold to consumers such as employers and employees.
____
If so, it might become possible (depending on market share
and other factors) to describe Healthsource as a monopolist
or potential monopolist in the sale of HMO (or IPA HMO)
services in New Hampshire, using the exclusionary clause to
foster or reinforce the monopoly.
Thus, the magistrate judge asked the right question.
Even so U.S. Healthcare argues that he gave the wrong answer
in finding that HMOs were not a separate market (it uses the
phrase "submarket" but this does not alter the issue). This
is a legitimate contention and U.S. Healthcare has at least
____________________
7U.S. Healthcare, of course, is not concerned with
Healthsource's ability as a monopsonist to exploit doctors;
it is concerned with its own ability to find doctors to serve
it. The latter question--one of foreclosure--depends on the
available supply of doctors, the constraint imposed by the
exclusivity clause, the prospect for entry of new doctors
into the market, and similar issues. Whether U.S. Healthcare
is foreclosed, however, does not depend on whether consumers
treat HMOs as a part of health care financing or as a unique
and separate product.
-23-
-23-
some basis for it: HMOs are often cheaper than other care
methods because they emphasize illness prevention and severe
cost control. U.S. Healthcare also seeks to distinguish
cases defining a broader "health care financing market"--
cases heavily relied on by the magistrate judge--as involving
quite different types of antitrust claims. See, e.g., Ball
___ ____ ____
Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d
_____________________ ________________________
1325 (7th Cir. 1986). Once again, we agree that the nature
of the claim can affect the proper market definition.
The problem with U.S. Healthcare's argument is that
differences in cost and quality between products create the
possibility of separate markets, not the certainty. A car
with more features and a higher price is, within some range,
in the same market as one with less features and a lower
price. The issue is sometimes described as one of
interchangeability of products or services, see duPont
___ ______
(discussing cross-elasticity of demand), although this
formula is itself only an aid in trying to infer the shape of
the invisible demand curve facing the accused monopolist. In
practice, the frustrating but routine question how to define
the product market is answered in antitrust cases by asking
expert economists to testify. Here, the issue for an
economist would be whether a sole supplier of HMO services
(or IPA HMOs if that is U.S. Healthcare's proposed market)
could raise price far enough over cost, and for a long enough
-24-
-24-
period, to enjoy monopoly profits. Usage patterns, customer
surveys, actual profit levels, comparison of features, ease
of entry, and many other facts are pertinent in answering the
question.
Once again, U.S. Healthcare has not made its case in
this court. The (unquantified) cost advantage of HMOs is the
only important fact supplied; consumers might, or might not,
regard this benefit as just about offset by the limits placed
on the patient's choice of doctors. To be sure, there was
some expert testimony in the district court on both sides of
the market definition issue. But if there is any case in
which counsel has the obligation to cull the record, organize
the facts, and present them in the framework of a persuasive
legal argument, it is a sophisticated antitrust case like
this one. Without such a showing on appeal, we have limited
ability to reconstruct so complex a record ourselves and no
basis for overturning the magistrate judge.
Absent the showing of a properly defined product market
in which Healthsource could approach monopoly size, we have
no reason to consider the geographic dimension of the market.
If health care financing is the product market, as the
magistrate judge determined, plainly Healthsource has no
monopoly or anything close to it, given the number of other
providers in New Hampshire, such as insurers, staff HMOs,
Blue Cross/Blue Shield and individual doctors. This is
-25-
-25-
equally so whether the geographic market is southern New
Hampshire (as U.S. Healthcare claims) or the whole state (as
the magistrate judge found).
III. CONCLUSION
Once the federal antitrust claims are found wanting,
this appeal is resolved. U.S. Healthcare offers no authority
to suggest that New Hampshire antitrust law diverges from
federal law; indeed, the state statute encourages a uniform
construction. N.H. Rev. Stat. Ann. 356:14. As for the
state tort-law claims, primarily interference with potential
contractual relationships, the magistrate judge dealt
effectively with them, and U.S. Healthcare says little on
appeal to undercut his dismissal of those counts. Given the
arguments made and the record evidence arrayed in this court,
affirmance of the magistrate judge's judgment on all counts
is clearly in order.
Nevertheless, we do not think that this case was
inherently frivolous. The timing and original 180-day reach
of the exclusivity clause could reasonably excite suspicion;
the clause may have some impact though the extent of that
impact remains unclear; and the motives of Healthsource in
adopting the clause may well have been mixed. Competition
remains an essential force in controlling costs and improving
quality in health care. Courts are properly available to
settle claims that one business device or another is
-26-
-26-
unlawfully suppressing competition in this vital industry.
Although U.S. Healthcare's per se shortcut has taken it to a
dead end, we have addressed the antitrust issues at such
length precisely because of the importance of the subject.
Affirmed.
________
-27-
-27-
National Collegiate Athletic Ass'n v. Board of Regents of ... , 104 S. Ct. 2948 ( 1984 )
Northwest Wholesale Stationers, Inc. v. Pacific Stationery &... , 105 S. Ct. 2613 ( 1985 )
Barry Wright Corporation v. Itt Grinnell Corporation , 724 F.2d 227 ( 1983 )
Berkey Photo, Inc. v. Eastman Kodak Co.; And Eastman Kodak ... , 444 U.S. 1093 ( 1980 )
Eastern States Retail Lumber Dealers' Ass'n v. United States , 34 S. Ct. 951 ( 1914 )
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. , 97 S. Ct. 690 ( 1977 )
Federal Trade Commission v. Indiana Federation of Dentists , 106 S. Ct. 2009 ( 1986 )
Berkey Photo, Inc., Plaintiff-Appellee-Cross v. Eastman ... , 53 A.L.R. Fed. 768 ( 1979 )
Joseph L. Corey, Jr. v. Allen M. Look , 641 F.2d 32 ( 1981 )
Tampa Electric Co. v. Nashville Coal Co. , 81 S. Ct. 623 ( 1961 )
United States v. Socony-Vacuum Oil Co. , 60 S. Ct. 811 ( 1940 )
ball-memorial-hospital-inc-v-mutual-hospital-insurance-inc-doing , 784 F.2d 1325 ( 1986 )
Eastman Kodak Co. v. Image Technical Services, Inc. , 112 S. Ct. 2072 ( 1992 )
Klor's, Inc. v. Broadway-Hale Stores, Inc., Admiral ... , 79 S. Ct. 705 ( 1959 )