¹ Kissam, , State HMO Laws and the Theory of Limited Reformongering, 25 KAN. L. REV. 21 (1976)Google Scholar.

² COLEMAN &, J. F. KAMINSKY, AMBULATORY CARE SYSTEMS 4–9 (1977)Google Scholar; The Center for Information on America, Prepaid Group Health Care Programs 11-12 (1976) [hereinafter cited as Center for Information on America].

³ Services commonly provided by the HMO include: physician care, laboratory diagnosis, radiology therapy and diagnosis, inpatient and outpatient care, home health care, referral and treatment for alcohol and drug abuse, and preventive services such as family planning, preventive dental care for children, and eye examinations. Center for Information on America, supra note 2, at 14.

⁴ Supplemental services include vision care, and dispensing prescription drugs. Id. See also 42 U.S.C. § 300e-l(2) (Supp. IV 1980). sponsored by local, county, or state medical societies,

⁵ See 42 U.S.C. § 300e(b)(3) (Supp. IV 1980); 42 U.S.C. § 300e-l(4) (Supp. IV 1980).

⁶ See 42 U.S.C. § 300e(b) (Supp. IV 1980).

⁷ See 42 U.S.C. § 300e-l(8) (Supp. IV 1980). Federally qualified HMOs are required to premiums through community rating. This method establishes the total costs of the premiums by dividing cost among all members regardless of the risks of the group involved, spreading the cost of illness evenly over all subscribers. However, some differentials allowed with community rating; these differences are in marketing and administrative for categories of members to accommodate group purchasing and in contracts pursuant to government programs. 42 U.S.C. § 300e-l(8) (Supp. IV 1980). Experience rating, the method used by insurance companies, charges premium rates based on variables such as group's past performance, age, sex, or health. Both methods spread the risk; the base factors differentiate the methods.

⁸ See generally GOLDBERG L. & GREENBERG W., FEDERAL TRADE COMMISSION STAFF REPORT ON THE HMO AND ITS EFFECTS ON COMPETITION (July 1977) [hereinafter cited as FTC REPORT].

⁹ Id. at 5; see COLEMAN J. & KAMINSKY F., supra note 2, at 6–7.

¹⁰ For example, Ross-Loos in Los Angeles. FTC REPORT, supra note 8, at 4. Ross-Loos organized in 1929 by a group of physicians who had contracted to provide medical for Los Angeles Water Department employees. Today the clinic has over 320,000 members. Unger>, , Have HMOs Finally Come of Age?, 21 FOUND. NEWS 23, 24 (1980),+,+Have+HMOs+Finally+Come+of+Age?,+21+FOUND.+NEWS+23,+24+(1980)>Google Scholar.

¹¹ For example, Genesee Valley Group Health Association in Rochester, New York. REPORT, supra note 8, at 4. This plan enrolls 30,000 members, about three percent the area population. The plan began in 1973 to improve the effectiveness and control costs of health care. Blue Cross’ and Blue Shield's size and'membership were thought make these companies uniquely able to establish and operate an HMO. Id. at 54-55.

¹² For example, Georgetown University Plan in Washington, D.C. Id. at 4. Georgetown's HMO was initiated by a government grant. As of 1977, 24,000 members were enrolled in the plan. The HMO uses less expensive community hospitals, rather than the Georgetown hospital. Georgetown does not have its own specialists, so patients requiring services are referred to community-based specialists. Id. at 67-70.

¹³ For example, Michael Reese in Chicago. Id. at 4. This HMO, begun in 1972, now enrolls about 11,000 subscribers. The HMO is affiliated with the Michael Reese teaching hospital in Chicago and one of the two health centers adjacent to the hospital. Members required to use the Michael Reese Hospital in any non-emergency situation. Id. at 49-50.

¹⁴ Id. at 4.

¹⁵ Id. at 5. One IPA is the Capital Area Health Plan in Washington, D.C. As of 1977, the plan contracted with sixty physicians and dentists. Blue Cross does the IPA's marketing and pays for the hospitalization. The plan is offered by Blue Cross as an option and members are treated as Blue Cross subscribers for hospital coverage. Id. at 71.

¹⁶ 42 U.S.C. § 300e-(b)(3)(A) (Supp. IV 1980).

¹⁷ 42 U.S.C. § 300e-l(5)(A) (Supp. IV 1980). This is usually less than the usual and customary rate.

¹⁸ FTC REPORT, supra note 8, at 5. While the IPA provider can insure against the risk of extended provision of hospital care, the IPA provider must continue to provide outpatient services under the contract. If, in determining the physician's fee, the estimate of amount of services that would be necessary was less than the amount actually required, the physicians must continue to provide services regardless of the loss they may incur.

¹⁹ Id.

²⁰ Id. at 6. The central office of the HMO is analogous to the billing department of a large company; the services, however, are rendered at various locations.

²¹ See 42 U.S.C. § 300e (Supp. IV 1980). One example of this federal support of HMOs is the “dual option” provision of the Federal HMO Act. Every employer subject to Section 6 of the Fair Labor Standards Act of 1938 must offer enrollment in a qualified HMO (if one exists) to its employees. 42 U.S.C. § 300e-9 (Supp. IV 1980). See also infra notes 231-32.

²² Health Maintenance Organizations Act of 1973, 42 U.S.C. § 300e (1973). This act enabled the Department of Health, Education and Welfare [HEW] to spend up to $375 million for grants and loans to support the planning, development, and initial operation of 300-500 new HMOs throughout the United States. 42 U.S.C. § 300e-8 (Supp. IV 1980). See COLEMAN J. & KAMINSKY F., supra note 2, at 4-9.

²³ 42 U.S.C. § 300e(c)(l) (Supp. IV 1980). Some of the requirements are: maintenance of a fiscally sound operation and adequate risk against insolvency satisfactory to the Secretary of Department of Health and Human Services [HHS], 42 U.S.C. § 300e(c)(l) (Supp. IV 1980); assumption of full financial risk on a prospective basis for the provision of health services, 42 U.S.C. § 300e(c)(2) (Supp. IV 1980); open enrollment requirements, 42 U.S.C. § 300e(c)(4) (Supp. IV 1980); other organizational standards, 42 U.S.C. § 300e(c)(6-8, 11) (Supp. IV 1980); and provision of medical services, 42 U.S.C. § 300e(c)(9) (Supp. IV 1980).

²⁴ COLEMAN J. & KAMINSKY F., supra note 2, at 3; Unger, supra note 10, at 23-24, 42. See 42 U.S.C. § 300e(a)(l) (Supp. IV 1980) (scope and definition of HMOs).

²⁵ HMO Fact Sheet (Sept. 1980) (published by HEW, Public Health Service, Office of Health Maintenance Organizations) [hereinafter cited as HMO Fact Sheet],

²⁶ See infra notes 114-15 and accompanying text.

²⁷ 15 U.S.C. §§ 1011-15 (1976).

²⁸ HMO Fact Sheet, supra note 25.

²⁹ See infra notes 83-85 and accompanying text.

³⁰ See infra notes 86-94 and accompanying text.

³¹ See infra notes 67-76 and accompanying text.

³² See infra notes 33-115 and accompanying text.

³³ Doctors and medical societies have used anticompetitive tactics to suppress the emergence of HMOs in the health care market. See Kissam, HMOs and the Role of Antitrust Law, 1978 DUKE L.J. 487. Common techniques are denial of hospital privileges, expulsion from medical societies, and publicizing the “unethical nature” of HMO participation. In the early history of HMOs, opposition arose from the medical societies and physicians in the form of policy statements against HMOs, formation of alternative prepaid plans sponsored by the county medical societies, and expulsion of physicians who participated in HMOs. FTC REPORT, supra note 8, at 7. HMOs were characterized as destroying competition among medical groups, providing inferior medical care, and demoralizing the profession. In an antitrust suit brought by the Justice Department, American Med. Ass'n v. United States, 317 U.S. 519 (1943), the AMA was found guilty of conspiring to deny hospital privileges to physicians who joined Group Health Association in Washington, D.C.

³⁴ In W. KOPIT, RESTRICTIONS ON COMPETITION BY GOVERNMENT AND ASSOCIATION REGULATION, ANTITRUST PRIMER, 67-75 (1970), the author noted that as HMOs grow into positions of market dominance, they will have to be more concerned with allegations of antitrust violations. See infra notes 35-37 and accompanying text.

³⁵ See Unger, supra note 10, at 23; supra note 33.

³⁶ Unger, supra note 10, at 24.

³⁷ Id.

³⁸ 42 U.S.C. § 300e (Supp. IV 1980).

³⁹ 42 U.S.C. §§ 201 note, 300e, 300e-l, 300e-3, 300e-4, 300e-4a, 300e-5, 300e-7, 300e-8, 300e-9, 300e-ll, 300e-13, 300e-16, 300e-17, 1320a-l, 1396a, 1396b (Supp. IV 1980).

⁴⁰ Health Maintenance Organization Act of 1973, 42 U.S.C. § 300e (1973).

⁴¹ See 1974 U.S. CODE CONG. & AD. NEWS 4313-14; 1978 U.S. CODE CONG. & AD. NEWS, 4936; FTC REPORT, supra note 8, at 11.

⁴² Staver, Big Changes In Store as HMO Industry Enters ‘Adolescence', Am. Med. News, Oct. 3, 1980, at 15, col. 1.

⁴³ id: at 15, col. 2.

⁴⁴ 15 U.S.C. §§ 1-7 (Supp. IV 1981). ‘

⁴⁵ 15 U.S.C. §§ 29, 44, 52 (Supp. IV 1981).

⁴⁶ HMOs offer comprehensive services, attempt to maximize economies of scale, and often enroll a significant percentage of the population in an area. An economy of scale is an economic concept based on efficiency. The average cost of producing a good, or providing a service, may be lower for the producer with a larger operation or output. Since average costs generally decline with output, the price can be lowered. If, for example, the minimum efficient firm size in an industry is twice the size of two existing firms now producing separately, a merger will achieve an economy of scale. The HMO contains the possibility of economies of scale and integration in providing physician, laboratory, and X-ray services. Such integration enables the HMO to retain funds which the fee-for-service patient would spend at a separate facility.

⁴⁷ SULLIVAN, L., HANDBOOK OF THE LAW OF ANTITRUST § 64 (1977)Google Scholar.

⁴⁸ See United States v. Grinnell Corp., 384 U.S. 563 (1966). What is prohibited is not just having a monopoly, but the willful acquisition and maintenance of a monopoly position. Therefore, arrangements directed toward some other purpose will not fail because of an incidental and inconsequential restraint on trade. See Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert, denied, 440 U.S. 1093 (1980).

⁴⁹ See infra notes 57-62 and accompanying text.

⁵⁰ No set market share is required to trigger antitrust liability. However, with increasing membership, the ability to manipulate market, competition and conditions is increased. Again, this factor alone probably would not trigger a finding of an antitrust violation. See infra notes 57-62, 65, 66 and accompanying text.

⁵¹ The number and types of providers included indicate the degree of control the HMO may have over a particular market. If a city has several X-ray technicians, involvement of three of them with an HMO would not be anticompetitive. However, if an area had five technicians, and three contract exclusively with the HMO, the market impact is different. See infra notes 57-62, 65, 66 and accompanying text.

⁵² staver, supra note 42, at 15, col. 1. Kaiser-Permanente enrolls 3.8 million members. In 1979, its revenues were just under $1.5 billion, and its assets were just under $1 billion. Unger, supra note 10, at 24; supra note 37 and accompanying text.

⁵³ staver, supra note 42. Staver suggests that private companies are beginning to operate and expand existing HMOs, increasing HMOs’ market position. Staver also suggests that amendments to the Federal HMO Act that reduce federal requirements on benefit packages or enrollment would encourage HMO expansion. Government support of HMOs will be the most significant factor determining HMO growth in the future. See also 1978 U.S. CODE CONG. & AD. NEWS 4942 (recognizing the importance of government support).

⁵⁴ Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).

⁵⁵ See United States v. National Ass'n of Real Estate Bds., 339.U.S. 385 (1950) (adherence to a price schedule was not mandatory and no penalties were imposed on deviation therefrom); United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) (purpose'was to stop ruinous competition or eliminate instability of prices affecting both consumers and producers); United States v. Trenton Potteries Co., 273 U.S. 392 (1927).

⁵⁶ see infra notes 77-78, 80, 87-91 and accompanying text.

⁵⁷ 246 U.S. 231 (1918).

⁵⁸ Id. at 238. See also United States v. Columbia Steel Co., 334 U.S. 495, 527-28 (1948) (Court focused on market position, purpose of the restraint, industry development, remaining market competition and consumer demands). ∼

⁵⁹ National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 690 (1978).

⁶⁰ Id, at 692.

⁶¹ See POSNER, R., ANTITRUST CASES, ECONOMIC NOTES, AND OTHER MATERIALS 261 (1980)Google Scholar. Posner stales lower courts tend to require proof of market share of the relevant market.

⁶² The discussion of potential antitrust violations which follows cannot, therefore, be definitive, but will point out factors courts may find relevant.

⁶³ See infra notes 68-69, 83-85, 92-94 and accompanying text.

⁶⁴ 15 U.S.C. § 1 (Supp.TV 1980) prohibits every contract, combination, or conspiracy in restraint of trade or commerce among the states. ‘

⁶⁵ No particular share of the market is required. The court evaluates all of the circumstances surrounding the allegation. See, e.g., United States v. Aluminum Co. of Am., 377 U.S. 271 (1964) (the Court found that the addition of only 1.3% of Alcoa's control of the aluminum conductor market substantially lessened market competition).

⁶⁶ Thus, if overall supply of physicians is limited, the combination of some physicians to form an HMO would have a greater impact on the overall choice to consumers and upon physicians who choose not to join the HMO.

⁶⁷ United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); Blue Cross v. Virginia, 211 Va. 180, 176 S.E.2d 439 (1970). Establishing minimum or maximum prices, Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (minimum); Kiefer-Steward Co. v. Joseph E. Seagram fc Sons, 340 U.S. 211 (1951) (maximum resale prices); stabilizing prices, United States v. Container Corp. of Am., 393 U.S. 333 (1969); and establishing a uniform term of sale, Vandervelde v. Put & Call Brokers & Dealers Ass'n, 344 F. Supp. 118, 136 (S.D.N.Y. 1972), without any economic justification are prohibited.

⁶⁸ 441 U.S. 1 (1979).

⁶⁹ Id. at 23.

⁷⁰ Id. at 20.

⁷¹ See supra note 67.

⁷² The situation is best explained through an illustration. A person who goes to the HMO can receive a checkup, X-ray, and eye examination. That same person can go to a fee-for-service provider for each service, and would receive three bills. The HMO would cost less than the total of the other three individual bills. The HMO justifies the result because of an economy of scale. See supra note 46. Yet, the fee-for-service provider is not really competing with an economy of scale in one type of provider. Rather, the individual provider is competing with the HMO service, reduced in cost because of the combination of different types of services within the HMO. For example, the ophthalmologist is not competing with the HMO affiliated ophthalmologist, but with the entire HMO entity, which includes the primary care physician and the X-ray personnel and facilities. The HMO ‘ price for the ophthalmologist charge is lower because of the combination with other service providers, and is not just an efficiency due to the size of the HMO ophthalmologist practice.

⁷³ An IPA affiliation may give the provider a competitive advantage over other fee-for-service providers. For example, the IPA providers, receiving more patients, could increase his profits. Those profits could be reinvested in better equipment, making the IPA provider more attractive to non-IPA patients, or could be used to lower per person costs over all of the patients.

⁷⁴ See generally R. POSNER, ANTITRUST LAW, AN ECONOMIC PERSPECTIVE 8-18 (1976).

⁷⁵ A peer review board oversees charges by members of its health specialty. The function of the process is to insure the services provided are medically necessary, are of an acceptable quality, and are justified as such by the providing professional. See Federal Professional Standard Review Act, 42 U.S.C. § 1320c-9 (Supp. IV 1980).

⁷⁶ See supra note 7. The premium price is an estimate of the cost of the services to be provided. The HMO's cost may be either higher or lower for a particular service, or for the overall benefit package, than a market determination of the competitive price.

⁷⁷ United States v. Topco Assoc's., 405 U.S. 596 (1972).

⁷⁸ Id.; see supra notes 54-56 and accompanying text.

⁷⁹ See St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531 (1978)..

⁸⁰ Id.

⁸¹ L. SULLIVAN, supra note 47, § 90.

⁸² See supra notes 57-62 and accompanying text.

⁸³ 15 U.S.C. § 2 (Supp. IV 1980) prohibits every person from monopolizing, attempting to monopolize, or conspiring to monopolize any trade or commerce among the states. Vertical restraints also involve § 1 of the Sherman Act and § 3 of the Clayton Act.

⁸⁴ Continental T.V. v. G.T.E. Sylvania, 433 U.S. 36, 58-59 (1977). The Court did not exclude particular vertical restraints from per se treatment, but did overrule United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967) (Court enunciated a general rule of per se analysis in favor of the application of the rule of reason).

⁸⁵ See Havighurst, , Health Maintenance Organizations and the Market for Health Services, 35 LAW & CONTEMP. PROBS., 716, 760–61 (1970)Google Scholar.

⁸⁶ 15 U.S.C. § 14 (Supp. IV 1980). Section 3 prohibits sales or leases of goods on the condition that the buyer not deal with competitors of the seller where the effect may be to lessen competition or tend to create a monopoly in any line of commerce.

⁸⁷ Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958); R. POSNER, supra note 74, at 171.

⁸⁸ Northern Pac. Ry. Co., 356 U.S. at 6-7.

⁸⁹ Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 (1969); Times-Picayune Publ. Co. v. United States, 345 U.S. 594, 613 (1953).

⁹⁰ United States v. Loew's Inc., 371 U.S. 38, 49 (1962) ($60,800); International Salt Co. v. United States, 332 U.S. 392 (1947) ($500,000).

⁹¹ In the recently decided case of Portland Retail Druggists Ass'n v. Kaiser Foundation Health Plan, 662 F.2d 641 (9th Cir. 1981), the court considered this issue but remanded it to the district court. See infra notes 214-23 and accompanying text.

⁹² 15 U.S.C. § 1 (Supp. IV 1980).

⁹³ See United States v. Bausch & Lomb Optical Co., 45 F. Supp. 387 (S.D.N.Y. 1942), aff'd, 321 U.S. 707 (1944).

⁹⁴ See Kallstrom, Health Care Cost Control By Third Party Payors: Fee Schedules and the Sherman Act, 1978 DUKE L.J. 645, 654-55, n.35.

⁹⁵ Sullivan & Wiley, Recent Antitrust Developments: Defining the Scope of Exemptions, Expanding Coverage, and Refining the Rule of Reason, 26 U.C.L.A. L. REV. 265 (1980).

⁹⁶ See infra notes 99-103 and accompanying text.

⁹⁷ See infra notes 104-11 and accompanying text.

⁹⁸ See infra notes 112-15 and accompanying text.

⁹⁹ See Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975) (this case was argued against the exception, but professional status still was a consideration).

¹⁰⁰ Id. at 788 n.17. One may argue that an HMO is a business, not a professional service. However, this exception should be analyzed because the HMO is composed of professionals primarily rendering professional services.

¹⁰¹ Id. at 786-88.

¹⁰² 435 U.S. 679 (1978). In this case, involving competitive bidding, the learned professions exemption was raised as an affirmative defense. While conceding the defense is appropriate in some situations, in this case the practice challenged and the anticompetitive effect were found to be too attenuated from ethical constraints imposed by the profession. Id. at 696.

¹⁰³ Id.

¹⁰⁴ United States v. Oregon Med. Soc'y., 343 U.S. 326, 338-39 (1952).

¹⁰⁵ Hospital Bldg. Co. v. Rex Hosp. Trustees, 425 U.S. 738, 745 (1976).

¹⁰⁶ Id. See City of Fairfax v. Fairfax Hosp. Ass'n., 562 F.2d 280, 283 (4th Cir. 1977); but see Hahn v. Oregon Phy. Serv., 508 F. Supp. 970, 977 (D. Or. 1981) (no interstate commerce was involved because fewer than 2% of podiatrists’ patients traveled across state lines and the largest sum any one podiatrist received from an out-of-state insurer was less than one half of 1% of his gross income); Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1210 (E.D. Mich. 1973) (the sale of hospital services was limited to one physician's patients in a single county; thus the court concluded that the sale of hospital services was personal and local in nature).

¹⁰⁷ Hospital Bldg. Co., supra note 105, at 744.

¹⁰⁸ Id. at 745.

¹⁰⁹ Because HMO's provide hospital services either directly or indirectly, they have the same potential nexus with interstate commerce.

¹¹⁰ Social Security Act, Tit. XVIII, 42 U.S.C. § 1395 (1974); 42 U.S.C. § 300(c)(3)(n) (Supp. 1976) includes coverage under the Social Security Act, Tit. XIX, 42 U.S.C. § 1396 (1974).

¹¹¹ HMO Fact Sheet, supra note 25.

¹¹² Parker v. Brown, 317 U.S. 341 (1943).

¹¹³ California Retail Liquor Dealers v. Midcal Aluminum. Co., 445 U.S. 97 (1980); Cantor v. Detroit Edison Co., 428 U.S. 579 (1976).

¹¹⁴ See 42 U.S.C. § 300e (Supp. 1980); cf. Broadcast Music, Inc. v. Columbia Broadcasting Sys., 441 U.S. 1 (1979), on remand, 620 F.2d 930 (2nd Cir. 1980) (the court considered both the Justice Department's monitoring and consent decrees involving blanket licensing practices, as well as the Congressional approval of the practice).

¹¹⁵ Lynch v. Household Fin. Corp., 405 U.S. 538, 549 (1972) (citing Jones v. Mayer Co., 392 U.S. 409, 437 (1968); Posadas v. National City Bank, 296 U.S. 497, 503 (1936)).

¹¹⁶ 15 U.S.C. §§ 1011-15 (1976).,

¹¹⁷ 322 U.S. 533 (1944). See S. REP. NO. 20, 79th Cong., 1st Sess. 2 (1945); H. R. REP. No. 143, 79th Cong., 1st Sess. 2-3, reprinted in 1945 U.S. CODE CONG. & AD. NEWS 670.

¹¹⁸ 322 U.S. 533 (1944).

¹¹⁹ Group Life and Health.Ins. Co. v. Royal Drug Co., 440 U.S. 205, 217-18 (1979) (the activity specifically focused upon was the ability of insurance companies to engage in rate setting).

¹²⁰ Id. at 217-18 n.18.

¹²¹ Id. at 219, nn. 20-21 (citing 78th Cong., 2d Sess., 90 CONG. REC. 6559, 6565 (1944); 79th Cong., 1st Sess., 91 CONG. REC. 1087 (1945) (Remarks of Rep. Hancock)).

¹²² 15 U.S.C. §§ 1011-15 (1976).

¹²³ R. KEETON, BASIC TEXT ON INSURANCE LAW § 1.2(c) (1971).

¹²⁴ Id. at 548 (discussing Jordon v. Group Health Ass'n, 107 F.2d 239 (D.C. Cir. 1939)); see infra notes 192-95 and accompanying text.

¹²⁵ R. KEETON, supra note 123, § 1.6. Keeton defines insurance as “an arrangement by one party (insurer) to do something that is of value to another (insured) upon the occurrence of a specified harmful contingency.” Id. at § 1.2(a).

¹²⁶ 15 U.S.C. §§1011-15 (1976).

¹²⁷ Securities and Exch. Comm'n v. Variable Annuity Life Ins; Co., 359 U.S. 65, 69 (1959); Manasen v. California Dental Serv., 424 F. Supp. 657, 663 (N.D. Cal. 1976).

¹²⁸ 393 U.S. 453 (1969).

¹²⁹ Id. at 460.

¹³⁰ Id.

¹³¹ Traveler's Ins. Co. v. Blue Cross of Western Pa., 481 F.2d 80 (3rd Cir.), cert, denied, 414 U.S. 1093 (1973). Blue Cross successfully invoked the McCarran Act protection when challenged by a private insurer who alleged that Blue Cross’ fee contracts with hospitals violated antitrust laws. Blue Cross, which insured 51% of the population, paid 14-15% less than other insurers for hospital rates and could reduce its premiums proportionally. In addition to reducing the insureds’ costs, this system implicitly helped control health care costs. The same implicit result applies to the HMO and its cost containing effect.

¹³² Anderson v. Medical Serv. of D.C., 1976-1 Trade Cas. (CCH) ¶66,855; see generally Borsody, , The Antitrust Laws & the Health Industry, 12 AKRON L. REV. 417, 442 (1979)Google Scholar.

¹³³ Federal Trade Comm'n v. National Casualty Co., 357 U.S. 560 (1958). Application of the McCarran Act withdrew the FTC's authority to regulate an insurance company's advertising practices in those states that regulated such advertising practices under their laws.

¹³⁴ Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1211 (E.D. Mich. 1973).

¹³⁵ 440 U.S. 205 (1979).

¹³⁶ Id. at 214.

¹³⁷ Id. at 210-11. The Court recognized, however, that some type of provider agreement is necessary for a service benefit plan to exist. Id. at 213 n.9. Cf. Cochran v. Paco, Inc., 606 F.2d 460 (5th Cir. 1979) (not all insurance company activities constitute the business of insurance; lending activities of an independent premium finance company did not constitute the business of insurance, and the McCarran Act did not preclude application of the Truth-in-Lending disclosure requirements); Perry v. Fidelity Union Life Ins. Co., 606 F.2d 468 (5th Cir. 1979), reh. denied, 608 F.2d 1373, cert, denied, 446 U.S. 987 (1980) (purchasing insurance is an act within the business of insurance, but credit activities of the same companies are not). To draw two distinct roles, as this court did, creates analytical and practical problems for future cases where the distinction may not be quite as sharp. However, even when drawing this distinction, the court focused on the nature of the activity, not that the activity was being performed by an insurance company; this reasoning would support the contention of this Note.

¹³⁸ 440 U.S. at 215.

¹³⁹ Id. at 211.

¹⁴⁰ Id. at 215-16, citing Securities and Exch. Comm'n v. National Sec, Inc., 393 U.S. 453, 460 (1960).

¹⁴¹ 440 U.S. at 214; supra note 137.

¹⁴² 440 U.S. at 214.

¹⁴³ 612 F.2d 812 (4th Cir. 1979).

¹⁴⁴ Id. at 817.

¹⁴⁵ Id.

¹⁴⁶ Id. at 817-18. The dissent argued that by allowing a broad exemption under the McCarran Act, illegal conspiracy and price-fixing would be immunized from antitrust regulation. Id. at 818-19 (Hall, J., dissenting). This position would be correct if price-fixing or such a conspiracy would be considered to be the business of insurance. The approach of the court in National Soc'y of Prof. Eng'rs v. United States, 435 U.S. 679 (1978), supra note 102 and accompanying text, is illustrative. While some courts have accepted the learned professions defense, the defense cannot shield otherwise unlawful conduct. Thus, the possibility of sanctioning unlawful conduct is unlikely.

¹⁴⁷ 508 F. Supp. 970 (D. Or. 1981).

¹⁴⁸ Id. at 974.

¹⁴⁹ Id. But see Pireno v. New York Chiropractic Ass'n, 650 F.2d 387 (2d Cir. 1981) (reversing the lower court's finding that the Association's peer review practice used by insurance companies was within the business of insurance). Therefore, the “business of insurance” has not been clearly and consistently defined and followed since Royal Drug.

¹⁵⁰ The decision in Royal Drug was 5-4, and seemed to be contrary to the preceeding decisions defining the business of insurance. See supra notes 128-34 and accompanying text.

¹⁵¹ See infra notes 157-95 and accompanying text.

¹⁵² See infra notes 205-13 and accompanying text.

¹⁵³ See infra notes 171-82 and accompanying text. But see infra notes 192-95 and accompanying text.

¹⁵⁴ See Group Health Ass'n v. Moor, 24 F. Supp. 445 (D.D.C. 1938); infra notes 189-91 and accompanying text.

¹⁵⁵ See Jordon v. Group Health Ass'n, 107 F.2d 239 (D.D.C. 1939); infra notes 192-95 and accompanying text.

¹⁵⁶ See infra notes 157-87 and accompanying text.

¹⁵⁷ 45 N.E.2d 157 (1942), aff'd, 142 Ohio St. 51, 49 N.E.2d 929 (1943).

¹⁵⁸ Id. This case was an action brought under the tax laws.

¹⁵⁹ Id. at 160.

¹⁶⁰ Id. at 159.

¹⁶¹ Id. The decision did not mention that only specific diseases or causes for certification would trigger coverage.

¹⁶² Id. The hospital did not extend credit to the subscriber and the subscriber was not primarily liable. Thus, the Service Association was not an indemnifier.

¹⁶³ Id.

¹⁶⁴ Id.

¹⁶⁵ 193 N.W.2d 244 (1971).

¹⁶⁶ Id. The case arose as an action by the executor of an estate for benefits due under the NPBA plan.

¹⁶⁷ Id. at 248.

¹⁶⁸ Id.

¹⁶⁹ Id.

¹⁷⁰ Unger, supra note 10, at 23-24.

¹⁷¹ 26 Wash. 2d 660, 683-85, 175 P.2d 653, 666 (1946).

¹⁷² Id.

¹⁷³ Id.

¹⁷⁴ Id. at 683, 175 P.2d at 665.

¹⁷⁵ Id.

¹⁷⁶ Id.

¹⁷⁷ 119 Cal. App. 2d 319, 259 P.2d 503 (1953). This case arose under insolvency claims brought under the Insurance Code.

¹⁷⁸ Id. at 321, 259 P.2d at 504.

¹⁷⁹ id. at 325-26, 259 P.2d at 506-07.

¹⁸⁰ Id. at 325, 259 P.2d at 506. The corporation agreed to pay the bills of a member who required services. Payment was not dependent upon the amount of dues that might be collected from members within any period. The risk was not undertaken by the doctors or the hospitals.

¹⁸¹ 119 Cal. App. 2d at 362, 259 P.2d at 507.

¹⁸² 424 F. Supp. 657 (N.D. Cal. 1976). This case dealt specifically with the McCarran Act issues.

¹⁸³ Id. at 665.

¹⁸⁴ Id. at 661. Participating dentists agreed to be reimbursed on a preapproved fee schedule of usual and customary charges.

¹⁸⁵ Id. at 665.

¹⁸⁶ Id. at 666. The court rejected a narrower definition of the business of insurance which would not have allowed it to recognize California Dental Services as being in the business of insurance because it is not licensed and regulated as an insurance company under California law. Id. at 662-63.

¹⁸⁷ Id. at 666; Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 217 (1979). See Nankin Hosp. v. Michigan Hosp. Serv., 361 F. Supp. 1199, 1211 (E.D. Mich. 1973) (the basic function of Blue Cross in providing prepaid hospital care is the business of insurance); Anderson v. Medical Serv. of D.C. 1976-1 Trade Cas. (CCH) ¶60,884 (interrelationship between hospital payments and subscriber's costs was such that under the Blue Cross prepaid medical-surgical contracts, the arrangements with hospitals should be considered to be part of the business of insurance).

¹⁸⁸ Often these cases arise under state insurance codes, not the antitrust statutes.

¹⁸⁹ 24 F. Supp. 445 (D.D.C. 1935). This case is cited in Royal Drug in the discussion of what constitutes the business of insurance. The issue was whether the plaintiff was violating Healing Arts Practice Act. That statute provided that every corporation collecting dues from its members and providing for payment of indemnity on account of sickness, known as “health, accident, and life insurance companies,” would be covered under the Healing Arts Practice Act.

¹⁹⁰ Id. at 447.

¹⁹¹ Id.

¹⁹² 107 F.2d 239 (D.D.C. 1939). The case, which.arose under the Insurance Code, sought to prohibit Group Health from transacting business unless it possessed certain assets as a capital or guarantee fund and provided for licensing and examination by the Superintendent of Insurance.

¹⁹³ Id. at 246. The court tested the nature of the member's recourse against Group Health, concluding that recourse would only be allowed if proof that best efforts to secure services was not made. Group Health did not, and could not, regulate the physician; the-physician was free to exercise his own judgment regardless of the treatment or diagnosis. Id. at 243. Group Health's obligation was to make provider contracts. However, these contracts were for services by independent contractors, and Group Health did not guarantee that these services would be provided. Id.at 243-44.

¹⁹⁴ Id. at 247. The court concluded that this was the only distinctive factor of an insurance contract.

¹⁹⁵ Id. The care of minor colds, routine illness, and temporary bodily discomforts were not risks of medical care. But see Bloom v. Northern Pac. Beneficial Ass'n, 193 N.W.2d 244 (1971); supra notes 165-69 and accompanying text.

¹⁹⁶ 440 U.S. 205, 211 (1979).

¹⁹⁷ Id. at 215.

¹⁹⁸ Id. at 214.

¹⁹⁹ Id. at 213.

²⁰⁰ Id. at 214.

²⁰¹ Id.

²⁰² Id.

²⁰³ 42 U.S.C. § 300e(b) (Supp. 1980).

²⁰⁴ 440 U.S. 205 (1979).

²⁰⁵ Cf. Arizona v. Maricopa County Med. Soc'y, 643 F.2d 553 (9th Cir. 1980) Cert, granted 49 U.S.L.W. 3663 (U.S. Mar. 9, 1981) (physician's associations that approved and administered insurance plans underwritten by private insurers to offer an alternative to an HMO, did not underwrite or spread risk peculiar to the business of insurance, that is, that the policyholders could not afford the services of a physician when needed). The HMO does insure against this possibility.

²⁰⁶ 42 U.S.C. § 300e(c)(2) (Supp. IV 1980).

²⁰⁷ See Schneider, Model Consumer HMO Act and Commentary, 6 RUT-CAM. L. REV. 266, 303 (1974).

²⁰⁸ Id.

²⁰⁹ See supra notes 9-14 and accompanying text.

²¹⁰ See supra notes 15-19 and accompanying text.

²¹¹ See supra note 20 and accompanying text. 212 42 U.S.C. § 300e (Supp. IV 1980). See supra note 22 and accompanying text.

²¹³ See supra notes 157-87 and accompanying text.

²¹⁴ 662 F.2d 641 (9th Cir. 1981). This decision was handed down on November 30, 1981.

²¹⁵ The complaint charged Kaiser with violating three distinct antitrust provisions: 1) Section 2(f) of the Robinson-Patman Anti-Price Discrimination Act, 15 U.S.C. § 13(f) (1976), by knowingly inducing or receiving discriminatorily low prices from pharmaceutical suppliers; 2) Section 2 of the Sherman Act, 15 U.S.C. § 2 (1976), by attempting to monopolize the retail drug market; 3) Section 1 of the Sherman Act, by unlawfully tying health products and services for sale. 662 F.2d at 643.

²¹⁶ Id.

²¹⁷ Id. at 645.

²¹⁸ Id. at 647.

²¹⁹ Id. at 643, 647.

²²⁰ Id. at 647.

²²¹ Id.

²²² Only the HMO's agreement with the pharmaceutical companies was determined not to be the business of insurance. Id. Although the court inferred that the drug plan and the health plan appeared to be separate products, Id. at 648, it did not state the grounds upon which it distinguished the two prooducts, nor did it give any guidelines for determining what services would be included as part of the “product” of, the health plan.

²²³ see supra notes 143-50 and accompanying text.

²²⁴ Cantor v. Detroit Edison Co., 428 U.S. 579 (1976) (dicta).

²²⁵ Borsody, supra note 132, at 417.

²²⁶ proctor v. State Farm Mut. Auto Ins. Co., 406 F. Supp. 26, 30 (D.D.C. 1975), aff'd, 561 F.2d 262 (D.C. Cir. 1977), vacated on other grounds, 440 U.S. 942 (1979).

²²⁷ Hahn v. Oregon Physician Serv., 508 F. Supp. 970 (D. Or. 1981). In contrast, courts in recent decisions under another judicially recognized defense, the state action exemption, have required more specific state regulation. For example, in Cantor v. Detroit Edison Co., 428 U.S. 579 (1976), the court limited the scope of this exemption to private action that was coercively commanded or strictly regulated by the state. If the regulation does not affect the particular activity which is challenged, the exemption will not apply. Id. at 583. While the decisions are not controlling on the question of whether state regulation for McCarran Act purposes’ must also be more stringent, the decisions are relevant in recognizing a trend towards increased scrutiny when a federal court is applying an antitrust exemption.

²²⁸ 42 U.S.C. § 300e-10 (Supp. IV 1980).

²²⁹ See Kissam, supra note 1.

²³⁰ COLO. REV. STAT. § 10-17 (1973); S.C. CODE ANN. § 38-25-10 (Law. Co-op. 1976).

²³¹ Through the health division: HAWAII REV. STAT. § 323D:41(5) (Supp. 1979); MICH. COMP. LAWS ANN. §§ 333.21001, 333.21013, 333.21023 (1980); MINN. STAT. ANN. § 62D.01 (West Supp. 1981); NEB. REV. STAT. §§ 44-3202 to 44-3232 (1978); N.J. STAT. ANN. § 26:2J (West Supp. 1981). Through the insurance division: ARK. STAT. ANN. §§ 66-5201 to 66-5228 (1980); IDAHO CODE § 41-3906 (Cum. Supp. 1981); KAN. STAT. ANN. § 40-320 to 40-3226 (Supp. 1980); KY. REV. STAT. § 304.38-010 to 304.38-200 (1981); ME. REV. STAT. ANN. tit. 56, 24-A § 4202 (Supp. 1980); WASH. REV. CODE ANN. § 48-46 (Supp. 1981).

²³² OKI.A. STAT. ANN. tit. 63, § 2501-10 (West Supp. 1980); TEX. REV. CIV. STAT. ANN. art. 20A.01 (Vernon Cum. Supp. 1975); see Kissam, supra note 1. ‘

²³³ Even though the state statute is not comprehensive or detailed, this does not mean that the HMO is not regulated by administrative or other rules or regulations. See MICH. COMP. LAWS ANN. § 333.21001 (1980).

²³⁴ COLO. REV. STAT. § 10-17-103 (1973).

²³⁵ COLO. REV. STAT. § 10-17-118 (1973).

²³⁶ COLO. REV. STAT. § 10-17-109 (1973).

²³⁷ COLO. REV. STAT. § 10-17-110 (1973).

²³⁸ COLO. REV. STAT. § 10-17-111 (1973).

²³⁹ COLO. REV. STAT. § 10-17-114 (1973).

²⁴⁰ COLO. REV. STAT. § 10-17-112 (1973).

²⁴¹ COLO. REV. STAT. § 10-17-108 (1973).

²⁴² COLO. REV. STAT. § 10-17-106 (1973).

²⁴³ For example, COLO. REV. STAT. § 10-17-125 (1973); IDAHO CODE § 41-3921(1) (Cum. Supp. 1981); IND. CODE ANN. § 27-8-7-17 (West 1980); Mr. REV. STAT. ANN. tit. 56, 24-A § 4222 (Supp. 1980); MINN. STAT. § 62D.01 (Cum. Supp. 1981); N.J. STAT. ANN. 26:2J-25 (West Supp. 1981).Google Scholar

²⁴⁴ For example, ARK. STAT. ANN. §§ 66–5215(2), 66-3000 (1980); KY. REV. STAT. § 304.38-200 (1981); MASS. GEN. LAWS ANN. ch. 1776G, § 9 (1977).Google Scholar

²⁴⁵ ARK. STAT. ANN. §§ 66-3001 to 66-3005 (1980).

²⁴⁶ For example, S.D. COMP. LAWS ANN. § 58-41-26 (Supp. 1981).

²⁴⁷ For example, licensing and malpractice statutes, MASS. GEN. LAWS ANN. ch. 1776G, § 12 (West 1978).

²⁴⁸ See supra notes 95-113 and accompanying text.

²⁴⁹ See supra note 227.

²⁵⁰ 15 U.S.C. § 1013(b) (1976).

²⁵¹ SULLIVAN, L., supra note 47, §§ 231, 331.Google Scholar

²⁵² Id.at 261.

²⁵³ See United States Parke, v.., Davis & Co., 362 U.S. 29 (1960).Google Scholar

²⁵⁴ 438 U.S. 531 (1978).

²⁵⁵ Id. at 550.

²⁵⁰ Id.; See 42 U.S.C. § 300e (Supp. 1980).

²⁵⁷ See 42 U.S.C. § 300e (Supp. 1980).

²⁵⁸ See generally SULLIVAN, L. supra note 47, §§ 163, 471 (1977).CrossRefGoogle Scholar

²⁵⁹ Id. at 471.

²⁶⁰ Id.