Judges: JOHN CORNYN, Attorney General of Texas
Filed Date: 12/27/2001
Status: Precedential
Modified Date: 7/6/2016
Office of the Attorney General — State of Texas John Cornyn The Honorable Patrick B. Haggerty Chair, House Corrections Committee Texas House of Representatives P. O. Box 2910 Austin, Texas 78768-2910
Re: Whether a hospital may contract exclusively with a single medical insurance provider (RQ-0407-JC)
Dear Representative Haggerty:
You ask about the authority of a hospital to enter into an "exclusive" point-of-service, member hospital contract with a group hospital corporation.1 We understand that you are concerned that such a contract violates the Texas Free Enterprise and Antitrust Act of 1983. See Tex. Bus. Com. Code Ann. §§ 15.01-.52 (Vernon 1987 Supp. 2002) (the "Act").2 Generally, it is beyond the purview of the opinion process to construe particular contracts and investigate or make findings of fact. Even assuming that the contract in question is an "exclusive" contract, we cannot provide a definitive response. Exclusive dealing arrangements do not, as a matter of law, violate the Act. Whether a particular exclusive contract violates the Act depends on whether it has an actual adverse effect on competition in the relevant market by foreclosing competition in a substantial share of that market.
By way of background, a point-of-service health benefit plan is similar to a preferred provider health benefit plan.3 A fundamental feature of such a managed care plan is that health care coverage is offered through a network of health care providers that contract with the health plan or insurer. See ERS Letter, supra note 3, at 2. The contracts are negotiated to enable the health plan or insurer to obtain the lowest possible health care service rates from the network health providers for the individuals covered by the plan, and the provider a guaranteed volume of business from the plan's participants. Seeid.
The specific contract giving rise to your request is the "Member Hospital Contract (Point of Service (POS) Program)" between Huntsville Memorial Hospital, a private Texas nonprofit corporation ("Memorial Hospital"), and Blue Cross and Blue Shield of Texas, Inc., a Texas group hospital corporation (BCBSTX).4 Under the Contract, in exchange for an agreed reimbursement rate, Memorial Hospital has contracted to provide certain health care services to subscribers of BCBSTX or BCBSTX-affiliated health plans. See Memorial Hospital Brief, supra note 4, at 5.5 These services are provided at the facility also known as the Huntsville Memorial Hospital (the "Hospital Facility"), which Memorial Hospital leases from the Walker County Hospital District (the "Hospital District"). See Memorial Hospital Brief, supra note 4, at 4. The Hospital District is not a party to the Contract. See Contract, supra note 4, at 1. In 1998, Memorial Hospital and BCBSTX amended the Contract to provide that the Hospital Facility would be the only facility in Walker County under contract with BCBSTX for the provision of ambulatory surgery services and that BCBSTX would not contract with another ambulatory surgery center in the county without the written consent of Memorial Hospital. See Memorial Hospital Brief, supra note 4, at 5; Huntsville Surgery Brief, supra note 5, at 1-2. In 2001, the parties again amended the Contract to provide that the Hospital Facility would be the only facility in Walker County under contract with BCBSTX for the provision of medical imaging services, specifically magnetic resonance imaging ("MRI") and computer tomography ("CT") scans for two years. See Memorial Hospital Brief, supra note 4, at 5; Huntsville Surgery Brief,supra note 5, at 2. In return, Memorial Hospital further decreased its hospital service fees, resulting in additional savings to BCBSTX. See Huntsville Surgery Brief, supra note 5, at 2. The significance of the Contract and the two amendments is that services at the Hospital Facility are compensated by BCBSTX at "in-network" or higher rates; services offered by other medical providers in Walker County are compensated by BCBSTX at "out-of-network" or lower rates. See Memorial Hospital Brief,supra note 4, at 5; Huntsville Surgery Brief, supra note 5, at 3.
Huntsville Surgery Center, a private outpatient surgery center ("Huntsville Surgery"), contends that because the Contract prevents Huntsville Surgery from becoming an "in-network" provider, the Contract is an "exclusive" contract that by "its very nature" violates the Texas Free Enterprise and Antitrust Act. See Huntsville Surgery Brief, supra note 5, at 4, 5, 10. Huntsville Surgery does not contend that Memorial Hospital is a public hospital. See id., supra note 5, at 4. Nor is Huntsville Surgery concerned with the latter's status as a private or public entity, "but rather [with] the exclusivity of [the] preferred provider arrangement." Id., supra note 5, at 4. Memorial Hospital disputes, first, that the Contract is exclusive, and second, even assuming that it is exclusive, that it violates the Act. See Memorial Hospital Brief, supra note 4, at 9.
Generally, it is beyond the purview of the opinion process to construe contracts or scrutinize particular contractual arrangements, especially those between private entities, and to determine whether they satisfy specific statutory requirements or are otherwise legally permissible.6 Additionally, this office does not undertake investigations or make findings of facts in the opinion process.7 Accordingly, even assuming here that public interests rather than private interests are affected by the Contract and assuming that it is an "exclusive" contract, we cannot determine whether it violates the Act. Such a determination requires investigation, presentation, and weighing of factual data regarding the adverse effects of the Contract in the "relevant market" that is clearly attorney general opinion. While we cannot provide a definitive response to your question, we provide the general legal criteria for assessing whether an exclusive contract violates the Act with the following caveat: It is beyond the scope of an attorney general opinion to provide an exhaustive treatment of antitrust law, and we do not purport to do so here.
The Act's stated purpose is to "maintain and promote economic competition in trade and commerce . . . and to provide the benefits of that competition to consumers in the state." Tex. Bus. Com. Code Ann. §
Huntsville Surgery's contention, as we understand it, is that the Contract unlawfully restrains trade or creates a monopoly in violation of sections 15.05(a) and 15.05(b) of the Act. See Huntsville Surgery Brief, supra note 5, at 5. Those subsections provide as follows:
(a) Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.
(b) It is unlawful for any person to monopolize, attempt to monopolize, or conspire to monopolize any part of trade or commerce.
Id. § 15.05(a), (b) (Vernon Supp. 2002). We consider each subsection in turn.
Subsection (a), making contracts that restrain trade unlawful, is comparable to and taken from section 1 of the Sherman Antitrust Act,
Some restraints on trade have an inherently pernicious effect upon competition and are "per se" unreasonable. See Cont'l T.V.,
Arrangements that are not "per se" unreasonable are analyzed using the "rule of reason" test. To establish a violation under the "rule of reason" test, it is necessary to prove that a contract has an actual adverse effect on competition in the relevant market, and establish the relevant market. See DeSantis,
Exclusive dealing contracts generally are not "per se" violations of section 1 of the Sherman Antitrust Act. See Jefferson ParishHosp. Dist.,
Even when it is alleged that an exclusive contract involves an illegal "tie" — a form of marketing in which a seller insists on selling two distinct products or services as a package — application of the "per se" rule is limited to situations where the seller has the market power to force purchase of a product or service that would not otherwise be purchased from the seller.See id. at 11-15; see also San Jacinto Methodist Hosp.,
Because an exclusive dealing arrangement is generally not a "per se" violation of the antitrust laws, a particular exclusive contract, such as the Contract here, would be subject to the "rule of reason" test under section 15.05(a) of the Act: To constitute an unlawful restraint on trade, the Contract must have an actual adverse effect on competition in the relevant market by foreclosing competition in a substantial share of that market. To establish that the Contract restrains trade, Huntsville Surgery would be required to provide evidence of the Contract's actual adverse effects on competition in the relevant market — by foreclosing competition in a substantial share of that market — and establish the relevant market.
We next consider section 15.05(b), which is comparable to section 2 of the Sherman Antitrust Act: both make it unlawful for a person to monopolize or attempt to monopolize. See Caller-Times,
An unlawful monopoly or attempted monopoly under section 15.05(b) requires a showing that an entity has through some anticompetitive act acquired or maintained monopoly power, such as to control price or exclude competition, or that there is a dangerous probability that it will acquire such monopoly power through some anticompetitive act. The elements necessary to establish a completed monopoly under these sections are "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident."Caller-Times,
Huntsville Surgery does not elaborate on its contention that the Contract violates section 15.05(b). Presumably, the Contract is the anticompetitive act of which Huntsville Surgery complains. It is unclear, however, whether Huntsville Surgery believes that Memorial Hospital or BCBSTX has acquired or maintained an illegal monopoly or attempted such monopoly. In any case, to prove either an illegal monopoly or attempted monopoly, Hunstville Surgery would have to establish that Memorial Hospital or BCBSTX has the requisite market power in the relevant market.
Huntsville Surgery asserts that the Contract is unlawful, as a matter of law, under section 15.05(a) and (b) of the Act, relying on Southern Health Ass'n v. Harris Memorial Methodist Hospital,
Additionally, Huntsville Surgery contends that the Contract is unlawful because BCBSTX did not follow the contracting procedures applicable to "Preferred Provider Benefit Plans" set out in section 3 of article
(a) A health insurance policy that includes different benefits from the basic level of coverage for use of preferred providers shall not be considered unjust under Article 3.42 of this code, or unfair discrimination under Article 21.21-6, added by Chapter 415, Acts of the 74th Legislature, 1995, or Article 21.21-8 of this code or to violate Subsection (B), Section 2, Chapter 397, Act of the 54th Legislature, 1955 (Article
3.70-2 , Vernon's Texas Insurance Code), or Article 21.52 of this code, if it meets the requirements of this section.(b)(1) Physicians, practitioners, institutional providers, and health care providers other than physicians, practitioners, and institutional providers, if such other health care providers are included by the insurer as preferred providers, licensed to treat injuries or illnesses or to provide services covered by the health insurance policy that comply with the terms and conditions established by the insurer for designation as preferred providers may apply for and shall be afforded a fair, reasonable, and equivalent opportunity to become preferred providers. Such designation shall not be unreasonably withheld.
(2) If a designation as a preferred provider is withheld relating to a physician or practitioner, the insurer shall provide a reasonable review mechanism that incorporates, in an advisory role only, a review panel. Any recommendation of the panel shall be provided on request to the affected physician or practitioner. In the event of an insurer determination contrary to any recommendation of the panel, a written explanation of the insurer's determination shall also be provided on request to the affected physician or practitioner.
. . . .
(4) The insurer must give a physician or health care provider not designated on initial application written reasons for denial of the designation; however, unless otherwise limited by this code, this section does not prohibit an insurer from rejecting an application from a physician or health care provider based on a determination that the preferred provider benefit plan has sufficient qualified providers.
(c) Any insurer, when sponsoring a preferred provider benefit plan, shall immediately notify, by publication or in writing to each physician and practitioner, all physicians and practitioners in the geographic area covered by the plan of its intent to offer such a plan and of the opportunity to participate. Such notice and opportunity shall be provided on a yearly basis thereafter to noncontracting physicians and practitioners in the geographic area covered by the plan. The insurer shall on request make available to any physician or health care provider information concerning the application process and qualification requirements for participation as a provider in the plan.
. . . .
Tex. Ins. Code Ann. art.
Huntsville Surgery specifically alleges that (1) it was not provided the opportunity to participate in the preferred provider benefit plan; (2) it has been unable to apply for participation; (3) no review panel has been employed to review the withholding of the preferred provider status; (4) BCBSTX has not given any reasons for denial of the designation; and (5) Huntsville Surgery's "designation as a preferred provider has been unreasonably withheld, and this withholding is solely due to the exclusive contract between" Memorial Hospital and BCBSTX. See Huntsville Surgery Brief, supra note 5, at 10.
While an insurer must follow the procedures set out in article 3.70-3C, section 3 in contracting with preferred health providers to the extent applicable,9 a health care provider is not entitled to a designation as a preferred provider. The statute only requires that the designation "shall not be unreasonably withheld." Tex. Ins. Code Ann. art.
If BCBSTX has determined that its Contract with Memorial Hospital provides sufficient "qualified providers" in the geographic area, nothing in the statute requires that it nonetheless contract with another health provider. See id. § 3(b)(4). Whether BCBSTX's determination is unreasonable — which appears to be the essence of Huntsville Surgery's contentions — involves questions of fact. Similarly, determining whether BCBSTX's failure to comply with the procedural requirements of the statute, assuming the truth of Huntsville Surgery's assertions, is fatal in light of BCBSTX's contractual obligation with Memorial Hospital also involves questions of fact. In any case, the Texas Department of Insurance is the appropriate entity, in the first instance, to investigate and determine whether BCBSTX has violated section 3 of article 3.70-3C. See Tex. Ins. Code Ann. §
Very truly yours,
JOHN CORNYN Attorney General of Texas
HOWARD G. BALDWIN, JR. First Assistant Attorney General
NANCY FULLER Deputy Attorney General — General Counsel
SUSAN D. GUSKY Chair, Opinion Committee
Sheela Rai Assistant Attorney General, Opinion Committee
Exclusive dealing arrangements may, in some circumstances, create or extend market power of a supplier or the purchaser party to the exclusive dealing arrangement, and may thus restrain horizontal competition. Exclusive dealing can have adverse economic consequences [on consumers] by allowing one supplier of goods or services unreasonably to deprive other suppliers of a market for their goods, or by allowing one buyer of goods unreasonably to deprive other buyers of a needed source of supply. In determining whether an exclusive dealing contract is unreasonable, the proper focus is on the structure of the market for the products or services in question — the number of sellers and buyers in the market, the volume of their business, and the ease with which buyers and sellers can redirect their purchases or sales to others.
Jefferson Parish Hosp. Dist. v. Hyde,
consultants-designers-inc-cross-appellees-v-butler-service-group , 720 F.2d 1553 ( 1983 )
Roy B. Taylor Sales, Inc. v. Hollymatic Corp. , 28 F.3d 1379 ( 1994 )
Board of Trade of Chicago v. United States , 38 S. Ct. 242 ( 1918 )
Aydin Corporation, a Delaware Corporation v. Loral ... , 718 F.2d 897 ( 1983 )
United States v. American Tobacco Co. , 221 U.S. 106 ( 1911 )
The Domed Stadium Hotel, Inc., D/B/A Holiday Inn-Superdome ... , 732 F.2d 480 ( 1984 )
DeSantis v. Wackenhut Corp. , 793 S.W.2d 670 ( 1990 )
Continental T. v. Inc. v. GTE Sylvania Inc. , 97 S. Ct. 2549 ( 1977 )
Standard Oil Co. of California v. United States , 69 S. Ct. 1051 ( 1949 )
United States v. E. I. Du Pont De Nemours & Co. , 76 S. Ct. 994 ( 1956 )
Tampa Electric Co. v. Nashville Coal Co. , 81 S. Ct. 623 ( 1961 )
United States v. Grinnell Corp. , 86 S. Ct. 1698 ( 1966 )
Spectrum Sports, Inc. v. McQuillan , 113 S. Ct. 884 ( 1993 )
Jefferson Parish Hospital District No. 2 v. Hyde , 104 S. Ct. 1551 ( 1984 )
Red Wing Shoe Co. v. Shearer's, Inc. , 769 S.W.2d 339 ( 1989 )
Gonzalez v. San Jacinto Methodist Hospital , 880 S.W.2d 436 ( 1994 )
Caller-Times Publishing Co. v. Triad Communications, Inc. , 826 S.W.2d 576 ( 1992 )
Winston v. American Medical International, Inc. , 930 S.W.2d 945 ( 1996 )