¹ See Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975)(“professionals” are not excluded from Sherman Act liability).

² For an interesting discussion of hospitals’ changing role from charitable organization to that of business-role, see Utah County v. Intermountain Health Care, Inc., 709 P.2d 265 (Utah 1985).

³ The following factors create this “warped” market and play a predominant role in shaping demand for medical goods and services: (1) competing health care insurance plans are difficult to evaluate because there is a shortage of information on the quality and value of competing plans and the information on advanced medical technology is difficult to comprehend; (2) consumers do not or cannot “shop around” for a quality health care plan but instead rely on their physician's advice, thereby making the doctor the “gatekeeper” to medical goods and services; (3) economic barriers to entry in the health care delivery market such as the high cost of capital, ah effective business plan, and brand loyalty present formidable obstacles for firms seeking to enter the market; (4) regulatory barriers to entry such as extensive federal and state government regulation including certificates of need (CON) along with capital and company-licensure requirements present difficult obstacles for firms seeking to enter the market; and (5) historically, indemnity insurance plans have provided little or no incentive to hospitals and physicians to contain health care costs.

Certificates of need are government programs that require hospitals to obtain government approval for capital investments. For more on CONs, see Bovbjerg, Problems and Prospects for Health Planning: The Importance of Incentives, Standards, and Procedures in Certificate of Seed, 1978 UTAH L. REV. 83; Gittler, Hospital Cost Containment in Iowa: A Guide for State Public makers, 69 IOWA L. REV. 1263 (1984); Havighurst, Regulation of Health Facilities and Services by “Certificate of Need,” 59 VA. L. REV. 1143 (1973)(critical analysis of certificate of need programs).

⁴ 42 U.S.C. §§ 1395-1396 (1965).

⁵ Indemnity insurance is a fee-for-service arrangement whereby the insurance companies charge a premium and then reimburse the provider or the patient the cost of the provider's services minus deductibles and co-insurance requirements. To compete for patients and doctors, hospitals spent exorbitant amounts on new technology and services at the expense of improving existing technology, which led to spiraling costs. Consumers, desiring maximum health care when ill, had no incentive to “shop around” or minimize their consumption of medical goods and services if they knew that their insurance company would pay 100% of the provider charges, subject to deductibles. See Alpert & McCarthy, Beyond Goldfarb: Applying Traditional Antitrust Analysis to Changing Health Markets, 29 ANTITRUST BULL. 165, 169 (1984).

⁶ HMOs combine the health care insurance function and health care delivery function into a single organization. Regardless of the amount or cost of medical services the subscriber uses, he or shemsually is limited to seeking the services of doctors appoved by the HMO in order for the doctor's services to be covered under the HMO contract. Otherwise, the consumer has to pay 100% to the provider charge.

⁷ An IPA is a variation of an HMO. The providers render services in their own offices and hold ownership shares in the IPA. The IPA contracts with an HMO on a capitation basis and then pays the provider either on a fee-for-service or capitation basis. The providers have more control in an IPA than a standard HMO.

⁸ “Health care delivery” and “health care insurance” historically have had different functions but are combined under the new forms of contractual risk-spreading for health care services.

⁹ 784 F.2d 1325 (7th Cir. 1986).

¹⁰ A “provider” is defined in Indiana as “(1) an individual, group of individuals, or professional corporation licensed in Indiana to deliver health care services; (2) a health facility … or (3) an individual or organization furnishing services or products necessarily incidental to the providing of health care services.” IND. CODE ANN. § 27-8-7-1 (West 1988).

¹¹ Payments to providers are similar to the Medicare Diagnostic Related Group (DRG) procedures. The DRG system, developed for Medicare in 1983, is a way of classifying or grouping relatively similar medical treatments that require the same medical resources. Twenty-three principal diagnoses, categorized by body system, are broken down into 467 separate categories depending on principal and secondary diagnoses, whether a surgical procedure was performed, and in some cases, age, gender, and discharge status are considered. The federal government then determines how much money it will reimburse for each separate category.

¹² For a more detailed discussion, see Commentary, Preferred Provider Organizations: Can Doctors Do the Price Fixing?, 37 OKLA. L. REV. 733 (1984).

¹³ This Note focuses on PPOs because this was the form of health care delivery plan at issue in Ball. The antitrust analysis, however, easily can be applied to other forms of alternative health care delivery plans.

¹⁴ See infra note 23 and accompanying text.

¹⁵ See infra note 24 and accompanying text.

¹⁶ A market demand curve represents all prices that consumers are willing to pay for all given quantities of output. For example, a consumer might be willing to pay 1.00 for one unit of output that is available, .90 if two units are available, and yet only .80 for three units and so on. This is because the consumer does not value the second and third unit of output as much as the first. (We probably value that first glass of cool water on a summer afternoon more than we value the tenth glass.) A market demand curve assumes all units of output are of equal quality and that if a competitor charges a lower price the consumer will immediately switch to the lower priced product in order to obtain more satisfaction or consumption. On a graph, this would represent a fairly continuous, uninterrupted, downward sloping line matching up all prices for all given quantities produced. An aberrational or “kinked” demand curve occurs when this plotted line is not continuously downward sloping because consumers are not willing to switch to lower priced substitutes. Given the level of quantity available, consumers are purchasing goods or services at a price higher than they would on a continuous, downward-sloping demand curve. The demand curve described above is a model and in reality all demand curves are aberrational or “kinked” to some degree, but as will be shown, the problem of an aberrational demand curve is especially acute in the alternative health care delivery market. Consumers do not and cannot make decisions that are as rational as those concerned with the purchase of fungible goods and services.

¹⁷ The Supreme Court, for example, has upheld arrangements that facilitate a market or create a new product which would not exist without the arrangement. The Court uses a “rule of reason” analysis, and looks to all variables peculiar to a given industry. See, e.g.. Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. 1, 13-14 (1979)(price-fixing, which normally is considered to be per se violation, was upheld by the Court in the copyright industry because of the “practical situation in the marketplace“); Board of Trade of City of Chicago v. United States, 246 U.S. 231 (1918)(the Court upheld a rule, imposed by the defendant Exchange that required members to adhere to their closing bid on the “call” — which had the effect of forcing members to trade during the Exchange's hours of operation — because the Court found that the rule was designed to further rather than suppress competition). For a discussion of per se violations, see infra note 25. Whether a PPO facilitates a market or creates a new product depends on how one defines the product or service being delivered. If a PPO is viewed as merely another form of indemnity insurance then a PPO does not create a new product. But if a PPO is viewed as a unique cost-cutting method of providing medical goods and services then a PPO might be viewed as a different product. Broadcast Music was simply a unique cost-cutting method of allowing licensees access to the work of thousands of individual artists and other performance right owners via a blanket license. If a PPO is seen as a new product, therefore, the Ball court should have looked to the “practical situation” of the medical market of goods and services and analyzed the industry-specific factors in-depth.

¹⁸ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1330 (7th Cir. 1986).

¹⁹ Id. at 1331.

²⁰ Id. at 1330.

2l Id. at 1331.

²² Id.

²³ Section 1 of the Sherman Act states in relevant part: “[E]very contract, combination in the form of trust otherwise, or conspiracy, in restraint of trade or commerce among the several States … is declared to be illegal … .” 15 U.S.C. § 1 (1982). The Ball court opinion focused on Section 2, and therefore this Note also will focus on the plaintiff's allegation that the Blues had monopolized or were attempting to monopolize the health care insurance market in violation of Section 2.

²⁴ 15 U.S.C. §2 (1982).

²⁵ United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)(monopoly power was inferred from defendant's predominant market share in the accredited central station service business, which was acquired in part by unlawful and exclusionary practices).

²⁶ Ball, 784 F.2d at 1335; see also U.S. v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 389 (1956)(a firm has monopoly power if it has “a power of controlling prices or unreasonably restricting competition“).

²⁷ For a discussion of the intent requirement, see infra note 77.

²⁸ See Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967) (predatory pricing at issue in frozen pie market); but see Areeda & Turner, Predatory Pricing and Practices Under Section 2 of the Sherman Act, 88 HARV. L. REV. 697 (1975) (Professors Areeda and Turner develop a model for testing whether prices charged by a monopolist are predatory or justified). There is substantial doubt whether predatory practices occur very often, if at all, because of the costs incurred by the firm engaging in the practice. G. STIGLER, THE ORGANIZATION OF INDUSTRY 113-18(1968).

²⁹ In the 1960s, anti-merger policies were at their peak under the Warren Court. See, e.g., Brown Shoe Co. v. U.S., 370 U.S. 294 (1962)(primary issue was vertical merger of Brown's manufacturing operations and Kinney's retail distribution outlets, which was held to be illegal under § 7 of the Clayton Act).

³⁰ United States v. American Tobacco Co., 221 U.S. 106 (191 l)(the defendant's conduct included the purchase of.over thirty competing firms whose plants were immediately closed).

³¹ United States v. Aluminum Co. Am., 377 U.S. 271 (1964)(defendant's expansion of capacity because of anticipated increase in demand for aluminum was an anticompetitive practice).

³² United States v. United Shoe Machinery Co., 110 F. Supp. 295 (D. Mass. 1953)(price discrimination held to be impermissible where the defendant charged different lease rates depending on the competition the defendant faced).

³³ Eastman Kodak Co. N.Y. v. Southern Photo Materials Co., 273 U.S. 359 (I927)(vertical integration is an impermissible practice if it extends the duration of a monopoly).

³⁴ See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984)(defendant not found liable of tying violation because the defendant lacked sufficient market power).

³⁵ Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert, denied, 444 U.S. 1093 (1980)(defendant was allowed to bring new products to market without notifying competitors in advance).

³⁶ Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917)(a patent grant does not give the patentee the right to restrict the patent's use if sold by the patentee).

³⁷ Central States, E. & S.W. Areas Pension Fund v. Central Transp., 472 U.S. 559 (1985)(defendant's refusal to participate in a joint ticket-selling venture with a competitor could be considered by the jury as impermissible conduct).

³⁸ A per se violation is presumed an unreasonable restraint of trade by the very nature of the alleged acts, such as price-fixing among competitors. See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982). Aperse analysis arguably could be applied in Ball because the contractual arrangements involve price-fixing which historically has been condemned as per se illegal. In Brillhart v. Mutual Med. Ins., however, the court, relying on Quality Auto Body Inc. v. Allstate Ins. Co., said a rule of reason will be used to examine provider contracts because the Supreme Court has been reluctant to use per se analysis where substantial knowledge of the business practice in question is not known. Brillhart, 768 F.2d 196, 199 & n.2 (7th Cir. 1985)(citing Quality Auto Body Inc., 660 F.2d 1195 (7th Cir. 1981), cert, denied, 455 U.S. 1020 (1982)).

³⁹ A court uses a rule of reason analysis in Section 2 Sherman Act cases because competitive conduct must be distinguished from exclusionary conduct. See infra note 53. A rule of reason analysis inquires into the actual effects on competition rather than relying on a presumption of illegality. To determine whether a defendant is unreasonably restraining competition:

Board of Trade of Chicago v. United States, 246 U.S. 231 (1918)(The Court upheld a rule imposed by the defendant-exchange which required members to adhere to their closing bid on the “call.” The Court applying the reasonableness test found that this rule, which had the effect of forcing members to trade during the exchange's hours of operation, was designed to further rather than suppress competition.).

⁴⁰ See supra note 38.

⁴¹ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1335 (7th Cir. 1986).

⁴² For what substitutes compete with PPOs, see infra text accompanying notes 71-83.

⁴³ “Unless the [Blues] possess market power, it is unnecessary to ask whether their conduct may be beneficial to consumers.” Ball, 784 F.2d at 1334-35. The Ball court concluded: “[T]he Blues lack market power and are therefore entitled to adopt a PPO plan without further scrutiny under the Sherman Act.” Id. at 1337.

⁴⁴ Id. at 1335.

⁴⁵ Id.

⁴⁶ Id. at 1335-36.

⁴⁷ See supra notes 24-37.

⁴⁸ Ball, 784 F.2d at 1336.

⁴⁹ Section 7 of the Clayton Act, states in part:

15 U.S.C. § 18 (1982).

⁵⁰ United States v. Pabst Brewing Co., 384 U.S. 546 (1965).

⁵¹ United States v. Von's Grocery Co., 384 U.S. 270 (1965). In 1966, the Supreme Court decided that the beer and grocery industries were being consolidated by way of mergers, and therefore, certain firms were gaining substantial market power. The Court relied on Section 7 of the Clayton Act to remedy the uncompetitive effects by invalidating the mergers even though the relevant market shares of the defendants were 4.49% and 7.5% of the beer and grocery markets respectively. It was because of the recent activity within the particular industries and the relative geographic markets that led the Supreme Court to uphold antitrust violations. Pabst Brewing Co., 384 U.S. at 551-53; Von's Grocery, 384, U.S. at 273-74, 277-78. Pabst Brewing Co. and Von's Grocery, involved the legality of mergers in a period when the Court was severely scrutinizing such mergers in response to the Clayton Act. Although the cases have not been explicitly overruled, courts now are taking a closer look to what the market share in an industry really represents rather than looking to whether a trend of concentration is developing. See General Dynamics Corp. v. United States, 415 U.S. 486 (1974)(merger upheld because past performance did not necessarily indicate the ability to compete in the future); United States v. Marine Bancorporation, 418 U.S. 602 (1974)(bank merger upheld because the two merging banks were neither actual nor potential competitors due to state regulation).

⁵² See supra note 39.

⁵³ The rule of reason approach, which evolved out of the Standard Oil case, is always used for monopolization cases. Standard Oil Co. v. United States, 221 U.S. 1, 60 (1911).

⁵⁴ See supra note 39.

⁵⁵ L. SULLIVAN, ANTITRUST 41, 53 (1977).

⁵⁶ See id. at 44.

⁵⁷ 351 U.S. 377 (1956).

⁵⁸ L. SULLIVAN, supra note 55, at 53.

⁵⁹ United States v. Grinnell, 384 U.S. 563 (1966)(only quality and end-use were considered).

⁶⁰ This concept is labelled the cross elasticity of demand and it compares the demand of one substitute based on the price of another. Cross elasticity of demand, for example, can be illustrated by comparing the demand for both a movie and a comedy show. Both are viewed as substitutes for each other: on any given evening people will go to either a movie or a comedy show. Cross elasticity of demand is present if a change in the price for one changes the demand for the other.

⁶¹ L. SULLIVAN, supra note 55, at 61.

⁶² United States v. Paramount Pictures, 334 U.S. 131 (1948).

⁶³ United States v. International Boxing Club N.Y., Inc., 348 U.S. 236 (1955).

⁶⁴ United States v. Grinnel, 384 U.S. 563, 574-75 (1966).

⁶⁵ 749 F.2d 922 (1st Cir. 1984).

⁶⁶ Id. at 924. In Iowa, for example. Medicare and Medicaid accounted for 42% of Hospitals’ source of revenues for 1980. Gittler, supra note 3, at 1273-74.

⁶⁷ Newman, Medicare and Medicaid, in MEDICAID: LESSONS FOR NATIONAL HEALTH INSURANCE, 314-15, 317 (1975)(discusses Medicare system while comparing it to Medicaid).

⁶⁸ See Morreim, Cost Containment and the Standard of Medical Care, 75 CAL. L. REV. 1719 (1987)(Professor Morreim challenges whether the unitary standard for malpractice liability remains adequate given the economic constraints on health care).

⁶⁹ Arguably, if the economic position of one who is enrolled in Medicaid changed favorably so as to allow that person to afford health insurance a switch might be forthcoming. This is more true with Medicaid than Medicare because arguably a social stigma is attached to recipients of Medicaid, which is viewed as a transfer payment (i.e. welfare). Conversely, Medicare is seen as a “right” earned throughout one's life by making Social Security contributions. Once earned, upon reaching age 65, a Medicare recipient is not going to give it up and switch solely to private insurance.

Considering the nature of Medicaid recipients, such changes in financial fortune are most likely so infrequent as to be considered negligible.

⁷⁰ L. SULLIVAN, supra note 55, at 63.

⁷¹ The 1984 Department of Justice Merger Guidelines, which the Department of Justice uses when determining whether to challenge a merger, defines a market as:

Justice Department Merger Guidelines, [Jan. -June] Antitrust & Trade Reg. Rep. (BNA) No. 1169, at 5-1 (June 14, 1984). The Guidelines go on to define a “small but significant and nontransitory” increase in price as an “increase of five percent lasting one year.” Id.

⁷² 663 F. Supp. 1360 (D. Kan. 1987).

⁷³ id. at 1417.

⁷⁴ id.at 1417-18.

⁷⁵ The Reazin court noted the factual distinctions between Reazin and Ball in determining that the defendants in Reazin acted with unlawful intent. Id. at 1420-21 & n.16.

⁷⁶ See supra note 23.

⁷⁷ The intent requirement for Section 2 Sherman Act violations is far from clear. Three Supreme Court cases trace the intent requirement. In United States v. Aluminum Co. of America, Judge Learned Hand concluded that monopoly power could be presumed because “no monopolist monopolizes unconscious of what he is doing.” 148 F.2d 416, 432 (2d Cir. 1945). Alcoa disposed of any specific intent requirement — which is an intent to achieve a prohibited result — and substituted a less demanding proof of intent. Intent now could be inferred from the objective evidence. In United Stales v. Crinnell, the Court appeared to continue the requirement of intent by defining the second element of a Secton 2 violation as “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” 384 U.S. 563, 570-71 (1966). Finally, in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., the Court drew a distinction between attempt to monopolize and monopolization cases. In monopolization cases, “evidence of intent is merely relevant to the question whether the challenged conduct is … ‘exclusionary’ or ‘anticompetitive'.” 472 U.S. at 585, 602 (1985). In an attempt to monopolize cases, “it is necessary to prove a ‘specific intent.’ “ Id. at 602; see also Swift & Co. v. United States, 196 U.S. 375, 396 (1905)(the specific intent element originated in this case under the opinion of Justice Holmes).

Although the specific intent to monopolize is not the requirement, under the case law it is probative in determining whether a § 2 Sherman Act violation has occurred. The Ball court chose to “focus … on the objective basis, not the mental state” and declined to “decide just what [intent] means — if it means anything.” Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1339 (7th Cir, 1986).

⁷⁸ As noted earlier, the Ball court never reached the second element of a Section 2 Sherman Act offense because it found that the Blues lacked sufficient market power. See supra note 43. Because the Ball court's opinion focused on the issue of market power, which is the first element of a Section 2 Sherman Act ofTense, this Note also focuses on the issue of market power.

⁷⁹ As noted earlier, when a market becomes more narrowly defined, the market share of a firm becomes larger. A higher market share, in turn, creates a stronger inference that market power exists.

⁸⁰ See supra note 17.

⁸¹ “[T]he product which is treated as separate commands a distinctly higher price than others in the broader category to which it belongs.” L. SULLIVAN, supra note 55, at 61.

⁸² id.

⁸³ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1331 (7th Cir. 1986).

⁸⁴ See infra notes 95-116 and accompanying text.

⁸⁵ See infra notes 134-45 and accompanying text. The entire discussion of barriers to entry is applicable because all barriers go to define the relevant geographic market. The discussion on elasticity of supply, however, is especially relevant to the discussion of the relevant geographic market.

⁸⁶ See United States v. Grinnell, 384 U.S. 563, 570-76 (1966)(Court held that a Id. market existed for accredited central station protective services because of the national activities in which the defendant engaged notwithstanding that competition for fire and burglar alarm systems was confined to individual metropolitan areas).

⁸⁷ Id., 784 F.2d at 1336.

⁸⁸ Id. at 1335.

⁸⁹ “Utility” is an economic term and can be defined as the capacity to satisfy human wants or desires.

⁹⁰ G. STIGLER, supra note 28, at 67.

⁹¹ Brand loyalty is present when consumers have purchased a product or service produced by a particular firm and consumers continue to purchase the product or service notwithstanding that an acceptable substitute is or has become available at a lower price.

⁹² Ball, 784 F.2dat 1335.

⁹³ Id.

⁹⁴ Id.

⁹⁵ For example, a consumer might be brand loyal to Budweiser beer and thereby earn the dubious distinction of being known as a “Bud man.” That person, might be willing to pay twenty-five cents more for a bottle of Budweiser than for a bottle of Goors even though many other people consider the two beers of equal quality. Paying a certain premium for Budweiser over Coors easily can be justified as a simple preference — that person might simply prefer the taste of Budweiser over Coors. But as the premium increases for Budweiser, there must come a point when the “Bud man” is engaging in irrational behavior, especially when considering all of the other substitute brands of beer available on the market. The consumer could spend the extra premium charged for Budweiser on a higher quality beer and presumably better maximize his utility. Whether the “Bud man” considers Budweiser to be the only acceptable taste of beer in the free world is an extreme form of economic irrationality that ordinarily does not exist in a market for virtually fungible goods and services. This Note, however, contends that this sort of irrationality exists when people choose and retain physicians and health care delivery plans regardless of lower priced plans offered by the Blues’ rivals.

⁹⁶ Besides, most insurance already is being provided by employers. The idea that lower premiums will induce consumers to purchase their own insurance because of the tax benefits is illusory. See infra note 108 and accompanying text. Additionally, the difference in premiums might seem relatively small but this is irrelevant. Any price above a competitive level is not tolerated by the antitrust laws, especially when one considers the vast number of Americans who either are uninsured or underinsured. B. FURROW, S. JOHNSON, T. JOST, & R. SCHWARTZ, HEALTH LAW CASES, MATERIALS AND PROBLEMS 569 (1987).

⁹⁷ See infra notes 102-16 and accompanying text.

⁹⁸ A study conducted in 1981 highlights the importance of choosing a competent doctor. The study looked at 815 consecutive admissions to a university hospital. Of these 815 admissions, thirty-six percent of them resulted in iatrogenic illnesses which had both major and minor complications. Steel, Gertman, Crescenzi & Anderson, Iatrogenic Illness on a General Medical Service at a University Hospital, 304 NEW ENC. J. MED. 638, 638 (1981). Iatrogenic illness is a disease or illness caused by a physician's negligence which can include misdiagnosis or a mishap in procedure.

⁹⁹ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1330 (7th Cir. 1986).

¹⁰⁰ Life Ins. Ass'n Mass. v. Comm'r of Ins., 403 Mass. 410, 530 N.E.2d 168 (1988)(court held that the Commissioner did not have implied authority pursuant to an enabling statute to promulgate regulations prohibiting regulating insurers from testing prospective insureds for exposure to the AIDS virus).

¹⁰¹ Supracompetitive prices are prices charged above a competitive level.

¹⁰² Alpert & McCarthy, supra note 5, at 187.

¹⁰³ Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 361 (1982).

¹⁰⁴ B. FURROW, S.JOHNSON, T. JOST, & R. SCHWARTZ, supra note 96, at 399, 466.

¹⁰⁵ “[E]mployer-purchased health insurance is a standard fringe benefit that most employees receive.” Gittler, supra note 3, at 1277; see also P. FARLEY & G. WILENSKY, OPTIONS, INCENTIVES AND EMPLOYMENT RELATED HEALTH INSURANCE COVERAGE 1 (1982); Rossiter & Taylor, Union Effects on the Provision of Health Care Insurance, 21 INDUS. REL. 167, 169 (1982).

¹⁰⁶ “ Other states allow [a firm] to set up a PPO, but only after first offering a traditional plan of benefits as an alternative.” Schnitzer, Preferred Provider Organizations: The Future or the Past?, 8 WHITTIER L. REV. 415, 417 (1986).

¹⁰⁷ 42 U.S.C §300e-9 (1982).

¹⁰⁸ I.R.C. § 106(a) (1986).

¹⁰⁹ The U.S. Treasury Department has recognized the incentives to consume excess medical goods and services.

U.S. TREASURY DEP'T, 1 TAX REFORM FOR FAIRNESS, SIMPLICITY, AND ECONOMIC GROWTH 73- 74 (1984).

¹¹⁰ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1337 (7th Cir. 1986)(emphasis added).

¹¹¹ Id.

¹¹² See also supra note 98.

¹¹³ Ball, 784 F.2dat 1330.

¹¹⁴ Id.

¹¹⁵ Under the PPO concept, physicians are allowed to be members of as many PPO's as they choose. Otherwise, other antitrust violations, such as exclusive-dealing and tying arrangements, could occur. “Most physicians are members of two to six PPO type organizations.” Schnitzer, supra note 106, at 420.

¹¹⁶ Physicians receive approximately twenty-two percent of the money spent on health care, yet they direct seventy percent of all health care expenditures. B. FURROW, S.JOHNSON, T. JOST & R. SCHWARTZ, supra note 96, at 398.

¹¹⁷ For example, an elasticity of supply of two would mean that an increase in price of one percent would result in a two percent increase of quantity supplied, and an elasticity of supply of zero would mean that an increase in price would result in a zero increase of output supplied to the market by other firms.

¹¹⁸ See G. STIGLER, supra note 28, at 67.

¹¹⁹ IND. CODE ANN. § 27-8-7-2 (West 1988).

¹²⁰ Id. Each applicant must submit the following information to the commissioner:

1. (1)

   (1) The basic organizational documents, including the articles of incorporation, articles of association, partnership agreement, articles of admission, or other applicable documents in duplicate.

2. (2)

   (2) The bylaws or any similar documents of the organization in duplicate.

3. (3)

   (3) A statement describing the prepaid health care delivery plan's:

   • (A) proposed method of marketing;

   • (B) geographic area to be served, designated by county;

   • (C) financial program;

   • (D) sources of working capital and funding, including certified financial statements that show the assets, liabilities, and sources of financial support of the applicant as well as of any corporation, association, partnership, trust, or other organization owned or controlled by or affiliated with the applicant; and

   • (E) relationship to any parent or affiliate and any proposed method of operation involving the parent or affiliate and the applicant.

4. (4)

   (4) The names, addresses, and positions of the board of directors, board of trustees, or other governing body responsible for the conduct of the affairs of the applicant.

5. (5)

   (5) Any proposed evidence of coverage to be issued by the applicant to enrollees.

6. (6)

   (6) A document appointing the commissioner as the applicant's attorney upon whom legal process in any proceeding against it may be served, if the applicant is not domiciled in Indiana.

7. (7)

   (7) Any provider agreement forms, which must contain acceptable hold harmless provisions applicable to enrollees.

8. (8)

   (8) A copy of any administrative or management agreements made between any persons and the applicant.

9. (9)

   (9) Any proposed charges or rates to be issued by the applicant to employers or enrollees.

10. (10)

    (10) A copy of the group contract, if any, that is to be issued to employers or other organizations.

11. (11)

    (11) A copy of reinsurance arrangements, agreements, or evidence of stop-loss coverage issued to the applicant.

12. (12)

    (12) Any other information required by the commissioner to make a determination under section 4 of this chapter. The description of the prepaid health care delivery plan's financial program required under subdivision (3)(C) must include a three (3) year projection of the plan's operations and must demonstrate that the plan, while meeting the requirements of this chapter, can be expected at least to break even.

Id.

¹²¹ Id. at § 27-8-7-4.

¹²² Id.

¹²³ Id.

¹²⁴ See id. at §§ 27-8-7-1 to 27-8-7-21.

¹²⁵ Id. at §27-1-6-8.

¹²⁶ Id. at §27-1-6-9.

¹²⁷ Id. at §27-1-6-10.

¹²⁸ Id. at § 27-1-6-13. In addition, certified copies of the articles of incorporation and the permit for completion or organization, issued pursuant to § 27-1-6-11, must be filed with the county recorder of the county in which the principle office is located.

¹²⁹ Id. at §27-1-6-5.

¹³⁰ Id. This requirement mandates, among other things, disclosure of (1) the name of the company, (2) the types of insurance the company intends to sell, and (3) the time when the articles of incorporation will be presented to the department of insurance.

¹³¹ Foreign insurers must also qualify under Indiana law. Id. at § 27-1-6.5-1.

¹³² See Id. at §§ 27-1-6-1 to 27-1-6-20.

¹³³ See supra note 130.

¹³⁴ Ball Mem. Hosp. v. Mutual Hosp. Inc., 784 F.2d 1325, 1335 (7th Cir. 1986).

¹³⁵ According to the Blues'January 1983 internal report, controlling a large amount of health care dollars is essential in order to appeal to purchasers of health care services. Id. at 1337.

¹³⁶ IND. CODE ANN. § 27-8-7-5 (West 1988).

¹³⁷ Id. at § 27-8-7-8.

¹³⁸ Id. at § 27-8-7-5.

¹³⁹ A capital stock company that desires to issue indemnity insurance and that is organized after June 30, 1977 must maintain 1,000,000 in paid-in capital stock. Id. at § 27-1-6-14. In addition, a capital stock company must maintain at least 250,000 as surplus and must have a surplus at the time of organiztion of not less than 1,000,000. Id.

A mutual insurance company that desires to issue indemnity insurance and that is organized after June 30, 1977 must maintain a surplus of at least 1,250,000 and must have a surplus at the time it organizes of not less than 2,000,000. Id. at § 27-1-6-15.

¹⁴⁰ See id. at §§ 27-1-6-1 to 27-1-6-20.

¹⁴¹ Telephone interview with Lori Hight, Admission Coordinator, Department of Insurance, in Indianapolis (Jan. 6, 1989).

¹⁴² Similar hurdles were alluded to in the celebrated case of United States v. United Shoe Machinery Corp., where the court found entry barriers because, inter alia, competitors needed certain capabilities to compete: “[T]o combat [the defendant's] market control, a competitor must be prepared with knowledge of shoemaking, engineering skill, capacity to invent around patents, and financial resources … . The competitor must be prepared for consumer's resistance [i.e. brand loyalty?] founded on their long-term, satisfactory relations with United … .” 110 F. Supp. 295, 344 (D. Mass. 1953), aff'd, 347 U.S. 521 (1954)(per curiam).

¹⁴³ Ball Mem. Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1335 (7th Cir. 1986).

¹⁴⁴ The Blues also might argue they are exempt from the antitrust laws because their rates are subject to state regulation. This argument was initially raised in Reazin and ultimately rejected by the court. Reazin v. Blue Cross and Blue Shield of Kan., Inc., 663 F. Supp. 1360, 1418-20 (D. Kan. 1987).

¹⁴⁵ Ball, 784F.2dat 1331.