Arizona v. Maricopa County Medical Society

Facts

ARIZONA V. MARICOPA COUNTY MEDICAL SOCIETY

457 U.S. 332 (1982)

NATURE OF THE CASE: Arizona (P) appealed a judgment of the Court of Appeals refusing to grant P's motion for summary judgment against Maricopa (Ds) wherein P alleged that agreements among competing member physicians to set maximum fees that the physicians could claim in full payment of health services violated 15 U.S.C.S. § 1.

FACTS: D is a nonprofit Arizona corporation composed of licensed doctors of medicine, osteopathy, and podiatry engaged in private practice. Approximately 1,750 doctors, representing about 70% of the practitioners in Maricopa County, are members. D promotes fee-for-service medicine and provides the community with a competitive alternative to existing health insurance plans. D establishes the schedule of maximum fees that participating doctors agree to accept as payment in full for services performed for patients insured under plans approved by the foundation. D reviews the medical necessity and appropriateness of treatment provided by its members to such insured persons. D is authorized to draw checks on insurance company accounts to pay doctors for services performed for covered patients. D is an 'insurance administrator.' Participating doctors have no financial interest in the operation of D. P believed that D’s modus operandi increased prices and also increased insurance costs. P sued D for a violation of the Sherman Act. The impact of the foundation fee schedules on medical fees and insurance premiums is a matter of dispute. P contends that the periodic upward revisions of the maximum-fee schedules have the effect of stabilizing and enhancing the level of actual charges by physicians and that the increasing level of their fees, in turn, increases insurance premiums. D argues that the schedules impose a meaningful limit on physicians' charges and that the advance agreement by the doctors to accept the maxima enables the insurance carriers to limit and to calculate more efficiently the risks they underwrite and therefore serves as an effective cost-containment mechanism that has saved patients and insurers millions of dollars. P moved for summary judgment, and it was denied. The court of appeals affirmed, and the Supreme Court granted certiorari. D argues that the per se rule does not govern this case because the agreements at issue are horizontal and fix maximum prices, are among members of a profession, are in an industry with which the judiciary has little antitrust experience, and are alleged to have procompetitive justifications.

ISSUE: Does the Sherman Act, so far as price-fixing agreements are concerned, establish one uniform rule applicable to all industries alike? Are horizontal agreements to fix maximum prices on the same legal -- even if not economic -- footing as agreements to fix minimum or uniform prices? Does the fact that doctors rather than nonprofessionals are the parties to the price-fixing agreement preclude application of the per se rule?

RULE OF LAW: The Sherman Act, so far as price-fixing agreements are concerned, establishes one uniform rule applicable to all industries alike. Horizontal agreements to fix maximum prices are on the same legal -- even if not economic -- footing as agreements to fix minimum or uniform prices. It does not matter that doctors rather than nonprofessionals are the parties to the price-fixing agreement; the per se rule still applied.

HOLDING AND DECISION: (Stevens, J.) Does the Sherman Act, so far as price-fixing agreements are concerned, establish one uniform rule applicable to all industries alike? Yes. Are horizontal agreements to fix maximum prices on the same legal -- even if not economic -- footing as agreements to fix minimum or uniform prices? Yes. Does the fact that doctors rather than nonprofessionals are the parties to the price-fixing agreement preclude application of the per se rule? No. The costs of judging business practices under the rule of reason have been reduced by the recognition of per se rules. Once experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it, it has applied a conclusive presumption that the restraint is unreasonable. 'Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, division of markets, group boycotts, and tying arrangements.' Price-fixing agreements are unlawful per se under the Sherman Act and that no showing of so-called competitive abuses or evils which those agreements were designed to eliminate or alleviate may be interposed as a defense. Under the Sherman Act, a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. Horizontal agreements to fix maximum prices are on the same legal -- even if not economic -- footing as agreements to fix minimum or uniform prices. Nor does the fact that doctors -- rather than nonprofessionals -- are the parties to the price-fixing agreements support the respondents' position. The price-fixing agreements, in this case, are not premised on public service or ethical norms. D does not argue that the quality of the professional service that their members provide is enhanced by the price restraint. The claim for relief from the per se rule is simply that the doctors' agreement not to charge certain insureds more than a fixed price facilitates the successful marketing of an attractive insurance plan. But the claim that the price restraint will make it easier for customers to pay does not distinguish the medical profession from any other provider of goods or services. D's principal argument is that the per se rule is inapplicable because their agreements are alleged to have procompetitive justifications. The argument indicates a misunderstanding of the per se concept. The anticompetitive potential inherent in all price-fixing agreements justifies their facial invalidation even if procompetitive justifications are offered for some. Claims of enhanced competition are so unlikely to prove significant in any particular case that we adhere to the rule of law that is justified in its general application. Even when the respondents are given every benefit of the doubt, the limited record, in this case, is not inconsistent with the presumption that the respondents' agreements will not significantly enhance competition. The most that can be said for having doctors fix the maximum prices is that doctors may be able to do it more efficiently than insurers. Reversed. 

Dissenting: (Powell, J.) The D arrangement forecloses no competition. Unlike the classic cartel agreement, D does not instruct potential competitors: 'Deal with consumers on the following terms and no others. ' Physicians who participate in the D plan are free both to associate with other medical insurance plans -- at any fee level, high or low -- and directly to serve uninsured patients -- at any fee level, high or low. Similarly, insurers that participate in the foundation plan also remain at liberty to do business outside the plan with any physician -- foundation member or not -- at any fee level. Nor are physicians locked into a plan for more than one year's membership. Freedom to compete, as well as freedom to withdraw, is preserved. The Court cites no case in which a remotely comparable plan or agreement is condemned on a per se basis. Normally consumers search for high quality at low prices. But once a consumer is insured, he is largely indifferent to the amount that his physician charges if the coverage is full, as under the D plan. The insurer steps into the consumer's shoes with his incentive to contain medical costs. There is no evidence of opposition to the D plan by insurance companies -- or, for that matter, by members of the public. Before characterizing an arrangement as a per se price-fixing agreement meriting condemnation, a court should determine whether it is a ''naked [restraint] of trade with no purpose except stifling of competition.' The per se label should not be assigned without carefully considering substantial benefits and procompetitive justifications. This is especially true when the agreement under attack is novel, as in this case. Anti-trust laws are a 'consumer welfare prescription.' In a complex economy, complex economic arrangements are commonplace.

LEGAL ANALYSIS: Fixing maximum prices is deemed just as bad as setting minimum prices. 

Commentary: Before insurance companies and the government “fixed” health care, the AMA used to require doctors who wanted to be members to split up the indigent in their communities of practice and care for them free of charge. When people paid directly for health insurance, costs remained contained for centuries, and this did not impede technological progress by any stretch of the imagination.

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Issues

Rule of Law

Holding and Decision

Legal Analysis

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