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RAMEY v. PACIFIC FOUND. FOR MEDICAL CARE

April 6, 1998

J. ALLEN RAMEY, M.D., INC., Plaintiff,
v.
PACIFIC FOUNDATION FOR MEDICAL CARE, Defendant.



The opinion of the court was delivered by: BREWSTER

 I. Case Type and Jurisdiction

 Plaintiff is suing Defendant under the Clayton Act for treble damages and injunctive relief for alleged violations of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. The Court has federal question jurisdiction over this action pursuant to 15 U.S.C. §§ 15, 26 and 28 U.S.C. § 1337. The parties have submitted cross-motions for summary judgment.

 On January 22, 1998, the Court requested that the parties submit additional briefing on the following question: "Has the Plaintiff suffered an 'antitrust injury' cognizable under § 4 and § 16 of the Clayton Act? See 15 U.S.C. §§ 15, 26; Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977); Atlantic Richfield Co. v. USA Petroleum, 495 U.S. 328, 109 L. Ed. 2d 333, 110 S. Ct. 1884 (1990)."

 II. Background

 Plaintiff J. Allen Ramey, M.D., Inc. ("Plaintiff") is a corporation owned by Dr. Ramey that offers ear, nose, and throat ("ENT") medical services in San Diego County. *fn1" Defendant Pacific Foundation for Medical Care ("Defendant" or "PFMC") is a non-profit, preferred provider organization (PPO) headquartered in Santa Rosa, California, that facilitates business between health care providers (i.e., doctors, hospitals) and third-party payors (i.e., insurance companies, health care service plans). Doctors may apply to Defendant to become preferred providers. Defendant selects preferred providers based upon their willingness to agree to provide medical services within certain reimbursement rate schedules and to abide by certain cost-containment quality of care and utilization controls.

 Defendant's reimbursement rate schedule is established each year by an at least nominally independent actuary, Mr. Robert Shirrell. The actuarial process reviews industry data to establish a schedule of conversion factors that weigh the relative value of different types of services. These conversion factors are multiplied by prices for specific medical procedures, as established in the 1974 California Relative Value Studies, to determine the maximum price that will be reimbursed to preferred providers for services rendered to PFMC-affiliated patients. *fn2" Health care providers and third-party payors are permitted, and sometimes do, lobby Mr. Shirrell to adjust the schedule. Defendant's board of trustees does not vote on the schedule, and the schedule is not submitted to doctor-members for group approval. The schedules must be accepted or rejected on a yearly basis by each individual provider when they decide whether to renew their association with Defendant.

 The quality of care and utilization control standards are established by Defendant's liaison committees for each of some thirty specialties. The otolaryngology liaison committee is composed of eleven to fifteen ENT specialists from practice locations throughout the country. These standards prescribe guidelines for testing, surgery, use of alternate techniques, etc. These standards are used to determine the appropriate billing codes to be charged to a patient, and are designed to protect payors from unnecessary and excessive procedures and overbilling.

 A five-person membership committee reviews membership applications from the San Diego area in accordance with specified procedures. Fifty-six ENT specialists are listed in Defendant's 1997 San Diego County preferred provider directory. These doctor-members are free to join other PPO organizations. Several other PPOs operate in the San Diego area, and there is no evidence that Defendant is a dominant market actor in this area.

 Defendant serves to bring together doctors on one side, and patients and their third-party payors on the other, by developing arguably mutually beneficial cost-containment strategies, including maximum fees for certain services. This system, a common framework among PPOs, enables insurance companies to permit their customers greater freedom to choose their doctor while reducing the companies' exposed risk to overbilling and providing greater assurance to patients that they will be reimbursed on a relatively more familiar and simple system than an ad hoc reimbursement plan.

 Dr. Ramey *fn4" was a doctor-member of PFMC until 1989, when he claims that he quit due to conflicts about his billing practices. On June 6, 1995, Ramey reapplied for membership. His application included an explicit acceptance of Defendant's reimbursement policies, including the maximum price schedules. On August 29, 1995, Ramey was informed that his application had been denied on the grounds that his "practice patterns have been found to be inconsistent with peer review norms adopted by the Foundation or that which is generally accepted in the community." Further letters to Ramey's counsel on February 16 and April 9, 1996, explain that the membership committee believed that Ramey had a history of billing for unnecessary tests and for "unbundling" extra charges that should have been included in a global fee (e.g., charging separately for office visit or supplies that should have been included in the fee charged for a performed procedure). Ramey declined invitations to appear for an interview or to appeal. On October 11, 1996, Plaintiff filed this antitrust action. Plaintiff seeks the following relief: (1) a declaration that Defendant has engaged in unlawful activities, (2) $ 2,000,000 in compensatory damages, to be trebled for violation of the antitrust laws, (3) a permanent injunction preventing Defendant from enforcing its maximum fee schedule on doctors, and (4) costs and attorney's fees.

 On February 4, 1997, the Court denied Defendant's motion to dismiss the suit. Both Plaintiff and Defendant have now submitted motions for summary judgment.

 III. Plaintiff's Claims

 Plaintiff's first cause of action alleges that Defendant's refusal to accept Dr. Ramey as a member was an illegal group boycott that limits Plaintiff's access to PFMC-affiliated patients and handicaps its ability to compete in the market for ENT medical services. Plaintiff argues that the boycott (1) suppresses competition in ENT services, (2) prevents Plaintiff from competing for PFMC-affiliated patients, (3) shrinks Plaintiff's clientele, and (4) discourages Plaintiff from attempting new and innovative treatment techniques.

 Plaintiff's second cause of action alleges that PFMC fixes prices for medical care by imposing maximum prices to be charged by its preferred providers. Plaintiff alleges that the price-fixing scheme stifles competition and innovation by rewarding the status quo and discouraging state-of-the-art medical care. Plaintiff further alleges that the scheme hinders its ability to compete for PFMC-affiliated patients and forces Dr. Ramey to accept the same compensation as less experienced doctors.

 Plaintiff's third cause of action alleges that Defendant's rejection of Dr. Ramey's membership application was illegal because it was done in furtherance of its price-fixing scheme.

 IV. Discussion

 A. Standard of Law

 On a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56, the moving party must first establish that there is "no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." British Airways Board v. Boeing Co., 585 F.2d 946, 951 (9th Cir. 1978). Summary judgment must be granted if the party responding to the motion fails "to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Although the moving party has the initial burden of ...


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