The question presented is whether § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1, has been violated by agreements among competing physicians setting, by majority vote, the maximum fees that they may claim in full
In October 1978 the State of Arizona filed a civil complaint against two county medical societies and two "foundations for medical care" that the medical societies had organized. The complaint alleged that the defendants were engaged in illegal price-fixing conspiracies.
The Court of Appeals, by a divided vote, affirmed the District Court's order refusing to enter partial summary judgment, but each of the three judges on the panel had a different view of the case. Judge Sneed was persuaded that "the challenged practice is not a per se violation." 643 F. 2d, at
The Maricopa Foundation for Medical Care 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.
The Maricopa Foundation was organized in 1969 for the purpose of promoting fee-for-service medicine and to provide the community with a competitive alternative to existing health insurance plans.
The Pima Foundation for Medical Care, which includes about 400 member doctors,
At the time this lawsuit was filed,
The fee schedules limit the amount that the member doctors may recover for services performed for patients insured under plans approved by the foundations. To obtain this approval the insurers — including self-insured employers as well as insurance companies
The impact of the foundation fee schedules on medical fees and on insurance premiums is a matter of dispute. The State of Arizona 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
This assumption presents, but does not answer, the question whether the Sherman Act prohibits the competing doctors from adopting, revising, and agreeing to use a maximum-fee schedule in implementation of the insurance plans.
The respondents recognize that our decisions establish that price-fixing agreements are unlawful on their face. But they argue 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. Before we examine each of these arguments, we pause to consider the history and the meaning of the per se rule against price-fixing agreements.
Section 1 of the Sherman Act of 1890 literally prohibits every agreement "in restraint of trade."
The elaborate inquiry into the reasonableness of a challenged business practice entails significant costs. Litigation of the effect or purpose of a practice often is extensive and complex. Northern Pacific R. Co. v. United States, 356 U.S. 1, 5 (1958). Judges often lack the expert understanding of industrial market structures and behavior to determine with any confidence a practice's effect on competition. United States v. Topco Associates, Inc., 405 U.S. 596, 609-610 (1972). And the result of the process in any given case may provide little certainty or guidance about the legality of a practice in another context. Id., at 609, n. 10; Northern Pacific R. Co. v. United States, supra, at 5.
The costs of judging business practices under the rule of reason, however, have been reduced by the recognition of per
Thus the Court in Standard Oil recognized that inquiry under its rule of reason ended once a price-fixing agreement was proved, for there was "a conclusive presumption which
Thirteen years later, the Court could report that "for over forty years this Court has consistently and without deviation adhered to the principle that 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." United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218 (1940). In that case a glut in the spot market for gasoline had prompted the major oil refiners to engage in a concerted effort to purchase and store surplus gasoline in order to maintain stable prices. Absent the agreement, the
The application of the per se rule to maximum-price-fixing agreements in Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211 (1951), followed ineluctably from Socony-Vacuum:
Over the objection that maximum-price-fixing agreements were not the "economic equivalent" of minimum-price-fixing agreements,
We have not wavered in our enforcement of the per se rule against price fixing. Indeed, in our most recent price-fixing case we summarily reversed the decision of another Ninth
Our decisions foreclose the argument that the agreements at issue escape per se condemnation because they are horizontal and fix maximum prices. Kiefer-Stewart and Albrecht place horizontal agreements to fix maximum prices 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. In Goldfarb v. Virginia State Bar, 421 U.S. 773, 788, n. 17 (1975), we stated that the "public service aspect, and other features of the professions, may
We are equally unpersuaded by the argument that we should not apply the per se rule in this case because the judiciary has little antitrust experience in the health care industry.
The respondents' 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.
The respondents contend that their fee schedules are procompetitive because they make it possible to provide consumers of health care with a uniquely desirable form of insurance coverage that could not otherwise exist. The features of the foundation-endorsed insurance plans that they stress are a choice of doctors, complete insurance coverage, and lower premiums. The first two characteristics, however, are hardly unique to these plans. Since only about 70% of
It is true that a binding assurance of complete insurance coverage — as well as most of the respondents' potential for lower insurance premiums
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. The validity of that assumption is far from obvious,
Our adherence to the per se rule is grounded not only on economic prediction, judicial convenience, and business certainty, but also on a recognition of the respective roles of the Judiciary and the Congress in regulating the economy. United States v. Topco Associates, Inc., 405 U. S., at 611-612. Given its generality, our enforcement of the Sherman Act has required the Court to provide much of its substantive content. By articulating the rules of law with some clarity and by adhering to rules that are justified in their general application, however, we enhance the legislative prerogative to amend the law. The respondents' arguments against application of the per se rule in this case therefore are
Having declined the respondents' invitation to cut back on the per se rule against price fixing, we are left with the respondents' argument that their fee schedules involve price fixing in only a literal sense. For this argument, the respondents rely upon Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979).
In Broadcast Music we were confronted with an antitrust challenge to the marketing of the right to use copyrighted compositions derived from the entire membership of the American Society of Composers, Authors and Publishers (ASCAP). The so-called "blanket license" was entirely different from the product that any one composer was able to sell by himself.
This case is fundamentally different. Each of the foundations is composed of individual practitioners who compete with one another for patients. Neither the foundations nor the doctors sell insurance, and they derive no profits from the sale of health insurance policies. The members of the foundations sell medical services. Their combination in the form of the foundation does not permit them to sell any different product.
The foundations are not analogous to partnerships or other joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit. In such joint ventures, the partnership is regarded as a single firm competing with other sellers in the market. The agreement under attack is
The judgment of the Court of Appeals is reversed.
It is so ordered.
JUSTICE BLACKMUN and JUSTICE O'CONNOR took no part in the consideration or decision of this case.
JUSTICE POWELL, with whom THE CHIEF JUSTICE and JUSTICE REHNQUIST join, dissenting.
The medical care plan condemned by the Court today is a comparatively new method of providing insured medical services at predetermined maximum costs. It involves no coercion. Medical insurance companies, physicians, and patients alike are free to participate or not as they choose. On its face, the plan seems to be in the public interest.
The State of Arizona challenged the plan on a per se antitrust theory. The District Court denied the State's summary judgment motion, and — because of the novelty of the issue — certified the question of per se liability for an interlocutory appeal. On summary judgment, the record and all inferences therefrom must be viewed in the light most favorable to the respondents. Nevertheless, rather than identifying clearly the controlling principles and remanding for decision on a completed record, this Court makes its own per se judgment of invalidity. The respondents' contention that
The Maricopa and Pima Foundations for Medical Care are professional associations of physicians organized by the medical societies in their respective counties.
An insured under a foundation-sponsored plan is free to go to any physician. The physician then bills the foundation directly for services performed.
This case comes to us on a plaintiff's motion for summary judgment after only limited discovery. Therefore, as noted above, the inferences to be drawn from the record must be viewed in the light most favorable to the respondents. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
Several other aspects of the record are of key significance but are not stressed by the Court. First, the foundation arrangement forecloses no competition. Unlike the classic cartel agreement, the foundation plan does not instruct potential competitors: "Deal with consumers on the following terms and no others." Rather, physicians who participate in the foundation 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. See n. 1, supra. Thus 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.
Second, on this record we must find that insurers represent consumer interests. Normally consumers search for high quality at low prices. But once a consumer is insured
The insurer, however, is not indifferent. To keep insurance premiums at a competitive level and to remain profitable, insurers — including those who have contracts with the foundations — step into the consumer's shoes with his incentive to contain medical costs. Indeed, insurers may be the only parties who have the effective power to restrain medical costs, given the difficulty that patients experience in comparing price and quality for a professional service such as medical care.
On the record before us, there is no evidence of opposition to the foundation plan by insurance companies — or, for that matter, by members of the public. Rather seven insurers willingly have chosen to contract out to the foundations the task of developing maximum-fee schedules.
It is settled law that once an arrangement has been labeled as "price fixing" it is to be condemned per se. But it is equally well settled that this characterization is not to be applied
Before characterizing an arrangement as a per se price-fixing agreement meriting condemnation, a court should determine whether it is a " `naked restrain[t] of trade with no purpose except stifling of competition.' " United States v. Topco Associates, Inc., 405 U.S. 596, 608 (1972), quoting White Motor Co. v. United States, 372 U.S. 253, 263 (1963). See also Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50 (1977). Such a determination is necessary because "departure from the rule-of-reason standard must be based upon demonstrable economic effect rather than . . . upon formalistic line drawing." Id., at 58-59. As part of this inquiry, a court must determine whether the procompetitive economies that the arrangement purportedly makes possible are substantial and realizable in the absence of such an agreement.
For example, in National Society of Professional Engineers v. United States, 435 U.S. 679 (1978), we held unlawful as a per se violation an engineering association's canon of ethics that prohibited competitive bidding by its members. After the parties had "compiled a voluminous discovery and trial record," id., at 685, we carefully considered — rather than rejected out of hand — the engineers' "affirmative defense" of their agreement: that competitive bidding would tempt engineers to do inferior work that would threaten public
In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., supra, there was minimum price fixing in the most "literal sense." Id., at 8. We nevertheless agreed, unanimously,
In sum, the fact that a foundation-sponsored health insurance plan literally involves the setting of ceiling prices among competing physicians does not, of itself, justify condemning the plan as per se illegal. Only if it is clear from the record that the agreement among physicians is "so plainly
The Court acknowledges that the per se ban against price fixing is not to be invoked every time potential competitors literally fix prices. Ante, at 355-357. One also would have expected it to acknowledge that per se characterization is inappropriate if the challenged agreement or plan achieves for the public procompetitive benefits that otherwise are not attainable. The Court does not do this. And neither does it provide alternative criteria by which the per se characterization is to be determined. It is content simply to brand this type of plan as "price fixing" and describe the agreement in Broadcast Music — which also literally involved the fixing of prices — as "fundamentally different." Ante, at 356.
In fact, however, the two agreements are similar in important respects. Each involved competitors and resulted in co-operative pricing.
As in Broadcast Music, the plaintiff here has not yet discharged its burden of proving that respondents have entered a plainly anticompetitive combination without a substantial and procompetitive efficiency justification. In my view, the District Court therefore correctly refused to grant the State's motion for summary judgment.
I believe the Court's action today loses sight of the basic purposes of the Sherman Act. As we have noted, the antitrust laws are a "consumer welfare prescription." Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979). In its rush to condemn a novel plan about which it knows very little, the Court suggests that this end is achieved only by invalidating activities that may have some potential for harm. But the little that the record does show about the effect of the plan suggests that it is a means of providing medical services that in fact benefits rather than injures persons who need them.
In a complex economy, complex economic arrangements are commonplace. It is unwise for the Court, in a case as novel and important as this one, to make a final judgment in the absence of a complete record and where mandatory inferences create critical issues of fact.
The District Court also denied the defendants' motion to dismiss based on the ground that they were engaged in the business of insurance within the meaning of the McCarran-Ferguson Act, 15 U. S. C. § 1011 et seq. See App. to Pet. for Cert. 39-41. The defendants did not appeal that portion of the District Court order. 643 F. 2d, at 559, and n. 7.
"The plaintiff's motion for partial summary judgment on the issue of liability is denied with leave to file a similar motion based on additional evidence if appropriate." App. to Pet. for Cert. 48.
On August 8, 1979, the District Court entered a further order providing:
"The Order of this Court entered June 5, 1979 is amended by addition of the following: This Court's determination that the Rule of Reason approach should be used in analyzing the challenged conduct in the instant case to determine whether a violation of Section 1 of the Sherman Act has occurred involves a question of law as to which there is substantial ground for difference of opinion and an immediate appeal from the Order denying plaintiff's motion for partial summary judgment on the issue of liability may materially advance the ultimate determination of the litigation. Therefore, the foregoing Order and determination of the Court is certified for interlocutory appeal pursuant to 28 U. S. C. § 1292(b)." Id., at 50-51.
"There does not now appear to be a controlling or definitive analysis of the market impact caused by the arrangements under scrutiny in this case, but trial may reveal that the arrangements are, at least in their essentials, not peculiar to the medical industry and that they should be condemned." 643 F. 2d, at 560.
"Defendants formulated and dispersed relative value guides and conversion factor lists which together were used to set an upper limit on fees received from third-party payors. It is clear that these activities constituted maximum price-fixing by competitors. Disregarding any `special industry' facts, this conduct is per se illegal. Precedent alone would mandate application of the per se standard.
"I find nothing in the nature of either the medical profession or the health care industry that would warrant their exemption from per se rules for price-fixing." Id., at 563-564 (citations omitted).
"The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences."
"Per se rules thus require the Court to make broad generalizations about the social utility of particular commercial practices. The probability that anticompetitive consequences will result from a practice and the severity of those consequences must be balanced against its procompetitive consequences. Cases that do not fit the generalization may arise, but a per se rule reflects the judgment that such cases are not sufficiently common or important to justify the time and expense necessary to identify them."
The Maricopa Foundation admits physicians who are members of their county medical society. The Maricopa Foundation has a renewable 1-year term of membership. Initial membership may be for a term of less than a year so that a uniform annual termination date for all members can be maintained.
The medical societies are professional associations of physicians practicing in the particular county. The Pima County Medical Society, but not the Pima Foundation, has been dismissed from the case pursuant to a consent decree.
The term "consumer" — commonly used in antitrust cases and literature — is used herein to mean persons who need or may need medical services from a physician.
The Court also offers as a distinction that the foundations do not permit the creation of "any different product." Ante, at 356. But the foundations provide a "different product" to precisely the same extent as did Broadcast Music's clearinghouses. The clearinghouses provided only what copyright holders offered as individual sellers — the rights to use individual compositions. The clearinghouses were able to obtain these same rights more efficiently, however, because they eliminated the need to engage in individual bargaining with each individual copyright owner. See 441 U. S., at 21-22.
In the same manner, the foundations set up an innovative means to deliver a basic service — insured medical care from a wide range of physicians of one's choice — in a more economical manner. The foundations' maximum-fee schedules replace the weak cost containment incentives in typical "usual, customary, and reasonable" insurance agreements with a stronger cost control mechanism: an absolute ceiling on maximum fees that can be charged. The conduct of the insurers in this case indicates that they believe that the foundation plan as it presently exists is the most efficient means of developing and administering such schedules. At this stage in the litigation, therefore, we must agree that the foundation plan permits the more economical delivery of the basic insurance service — "to some extent, a different product." Broadcast Music, 441 U. S., at 22.
Affirmance of the District Court's holding would not have immunized the medical service plan at issue. Nor would it have foreclosed an eventual conclusion on remand that the arrangement should be deemed per se invalid. And if the District Court had found that petitioner had failed to establish a per se violation of the Sherman Act, the question would have remained whether the plan comports with the rule of reason. See, e. g., United States v. United States Gypsum Co., 438 U.S. 422, 441, n. 16 (1978).