The question presented is whether the interstate commerce requirement of antitrust jurisdiction is satisfied by allegations that petitioners conspired to exclude respondent, a duly licensed and practicing physician and surgeon, from the market for ophthalmological services in Los Angeles because he refused to follow an unnecessarily costly surgical procedure.
In 1987, respondent Dr. Simon J. Pinhas filed a complaint in District Court alleging that petitioners Summit Health, Ltd. (Summit), Midway Hospital Medical Center (Midway), its medical staff, and others had entered into a conspiracy to drive him out of business "so that other ophthalmologists and eye physicians [including four of the petitioners] will have a greater share of the eye care and ophthalmic surgery in Los
Because this case comes before us from the granting of a motion to dismiss on the pleadings, we must assume the truth of the material facts as alleged in the complaint. Respondent, a diplomate of the American Board of Ophthalmology, has earned a national and international reputation as a specialist in corneal eye problems. App. 7. Since October 1981, he has been a member of the staff of Midway in Los Angeles, and because of his special skills, has performed more eye surgical procedures, including cornea transplants and cataract removals, than any other surgeon at the hospital. Ibid.
Petitioners responded to respondent's request to forgo an assistant in two ways. First, Midway and its corporate parent offered respondent a "sham" contract that provided for payments of $36,000 per year (later increased by oral offer to $60,000) for services that he would not be asked to perform. Ibid. Second, when respondent refused to sign or return the "sham" contract, petitioners initiated peer review proceedings against him and summarily suspended, and subsequently terminated, his medical staff privileges.
The complaint alleges that petitioner Summit owns and operates 19 hospitals, including Midway, and 49 other health care facilities in California, six other States, and Saudia Arabia. Id., at 3. Summit, Midway, and each of the four ophthalmic surgeons named as individual defendants, as well as respondent, are all allegedly engaged in interstate commerce. The provision of ophthalmological services affects interstate commerce because both physicians and hospitals serve nonresident patients and receive reimbursement through Medicare payments. Reports concerning peer review proceedings are routinely distributed across
In the Court of Appeals, petitioners defended the District Court's dismissal of the complaint on the ground that there was no allegation that interstate commerce would be affected by respondent's removal from the Midway medical staff. The Court of Appeals rejected this argument because "`as a matter of practical economics'" the hospital's "peer review process in general" obviously affected interstate commerce. 894 F. 2d, at 1032 (citation omitted). The court added:
Congress enacted the Sherman Act in 1890.
We therefore begin by noting certain propositions that are undisputed in this case. Petitioner Summit, the parent of Midway as well as of several other general hospitals, is unquestionably engaged in interstate commerce. Moreover, although Midway's primary activity is the provision of health care services in a local market, it also engages in interstate commerce. A conspiracy to prevent Midway from expanding would be covered by the Sherman Act, even though any actual impact on interstate commerce would be "`indirect'" and "`fortuitous.'" Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 744 (1976). No specific purpose to restrain interstate commerce is required. Id., at 745. As a "matter of practical economics," ibid., the effect of such a conspiracy on the hospital's "purchases of out-of-state medicines and supplies as well as its revenues from out-of-state insurance companies," id., at 744, would establish the necessary interstate nexus.
This case does not involve the full range of activities conducted at a general hospital. Rather, this case involves the provision of ophthalmological services. It seems clear, however, that these services are regularly performed for out-of-state
There are two flaws in petitioners' argument. First, because the essence of any violation of § 1 is the illegal agreement itself—rather than the overt acts performed in furtherance of it, see United States v. Kissel, 218 U.S. 601 (1910)—proper analysis focuses, not upon actual consequences, but rather upon the potential harm that would ensue if the conspiracy were successful. As we explained in McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232 (1980):
Thus, respondent need not allege, or prove, an actual effect on interstate commerce to support federal jurisdiction.
Second, if the conspiracy alleged in the complaint is successful, "`as a matter of practical economics'" there will be a reduction in the provision of ophthalmological services in the Los Angeles market. McLain, 444 U. S., at 246 (quoting Hospital Building Co. v. Rex Hospital Trustees, 425 U. S., at 745). In cases involving horizontal agreements to fix prices or allocate territories within a single State, we have based jurisdiction on a general conclusion that the defendants' agreement "almost surely" had a marketwide impact and therefore an effect on interstate commerce, Burke v. Ford, 389 U.S. 320, 322 (1967) (per curiam), or that the agreement "necessarily affect[ed]" the volume of residential sales and therefore the demand for financing and title insurance provided by out-of-state concerns. McLain, 444 U. S., at 246. In the latter case, we explained:
We have no doubt concerning the power of Congress to regulate a peer review process controlling access to the
The judgment of the Court of Appeals is affirmed.
It is so ordered.
JUSTICE SCALIA, with whom JUSTICE O'CONNOR, JUSTICE KENNEDY, and JUSTICE SOUTER join, dissenting.
The Court treats this case as involving no more than a conspiracy among eye surgeons at Midway Hospital to eliminate one of their competitors. That alone, it concludes, restrains trade or commerce among the several States within the meaning of the Sherman Act. In my judgment, the conspiracy alleged by the complaint, fairly viewed, involved somewhat more than that; but even so falls far short of what is required for Sherman Act jurisdiction. I respectfully dissent.
The Court has "no doubt concerning the power of Congress to regulate a peer review process controlling access to the market for ophthalmological surgery in Los Angeles," and concludes that "respondent's claim . . . has a sufficient nexus with interstate commerce to support federal jurisdiction." Ante, at 332 and this page. I agree with all that. Unfortunately, however, the question before us is not whether Congress could reach the activity before us here if it wanted to, but whether it has done so via the Sherman Act. That enactment does not prohibit all conspiracies using instrumentalities of commerce that Congress could regulate. Nor does it prohibit all conspiracies that have sufficient constitutional "nexus" to interstate commerce to be regulated. It prohibits only those conspiracies that are "in restraint of trade or commerce
Until 1980, the nature of this jurisdictional inquiry (with respect to alleged restraints not targeted at the very flow of interstate commerce) was clear: The question was whether the restraint at issue, if successful, would have a substantial effect on interstate commercial activity. See Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 741, 744 (1976); Burke v. Ford, 389 U.S. 320, 321-322 (1967) (per curiam); Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 237 (1948). See Note, The Interstate Commerce Test for Jurisdiction in Sherman Act Cases and Its Substantive Applications, 15 Ga. L. Rev. 714, 716-717 (1981). As I shall discuss in due course, that criterion would have called for reversal in the present case. See United States v. Oregon State Medical Society, 343 U.S. 326 (1952).
Unfortunately, in 1980, the Court seemed to abandon this approach. McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232 (1980), appeared to shift the focus of the inquiry away from the effects of the restraint itself, asking instead whether the "[defendants'] activities which allegedly have been infected by a price-fixing conspiracy . . . have a not insubstantial effect on the interstate commerce involved." Id., at 246 (emphasis added). The result in McLain would have been the same under the prior test, since the subject of the suit was an alleged massive conspiracy by all realtors in the Greater New Orleans area, involving price
Thus, as a dictum based upon a misconception, the "infected activities" approach was introduced into antitrust law. It was not received with enthusiasm. Most courts simply finessed the language of McLain and said that nothing had changed, i. e., that the ultimate question was still whether the unlawful conduct itself, if successful, would have a substantial effect on interstate commerce. See, e. g., Cordova & Simonpietri Ins. Agency, Inc. v. Chase Manhattan Bank N. A., 649 F.2d 36, 45 (CA1 1981); Furlong v. Long Island College Hospital, 710 F.2d 922, 925-926 (CA2 1983); Sarin v. Samaritan Health Center, 813 F.2d 755, 758-759 (CA6 1987); Seglin v. Esau, 769 F.2d 1274, 1280 (CA7 1985); Hayden v. Bracy, 744 F.2d 1338, 1343, n. 2 (CA8 1984); Crane v. Intermountain Health Care, Inc., 637 F.2d 715, 724 (CA10 1980) (en banc); see also Thompson v. Wise General Hospital, 707 F.Supp. 849, 854-856 (WD Va. 1989), aff'd, 896 F.2d 547 (CA4 1990). Others, however, took McLain at face value—and of course immediately fell into disagreement over the proper application of the new test. With respect to a restraint like the one at issue here, for example, how does one decide which "activities of the defendants" are "infected"? Are they all the activities of the hospital, Weiss v. York Hospital, 745 F.2d 786, 824-825, and n. 66 (CA3 1984)? Only the activities of the eye surgery department, see Mitchell v. Frank R. Howard Memorial Hospital, 853 F.2d 762, 764, n. 1 (CA9 1988)? The entire practice of eye surgeons who use the hospital, El Shahawy v. Harrison, 778 F.2d 636, 641
Today the Court could have cleared up the confusion created by McLain, refocused the inquiry along the lines marked out by our previous cases (and still adhered to by most Circuits), and reversed the judgment below. Instead, it compounds the confusion by rejecting the two competing interpretations of McLain and adding yet a third candidate to the field, one that no court or commentator has ever suggested, let alone endorsed. To determine Sherman Act jurisdiction it looks neither to the effect on commerce of the restraint, nor to the effect on commerce of the defendants' infected activity, but rather, it seems, to the effect on commerce of the activity from which the plaintiff has been excluded. As I understand the Court's opinion, the test of Sherman Act jurisdiction is whether the entire line of commerce from which Dr. Pinhas has been excluded affects interstate commerce. Since excluding him from eye surgery at Midway Hospital effectively excluded him from the entire Los Angeles market for eye surgery (because no other Los Angeles hospital would accord him practice privileges after Midway rejected him), the jurisdictional question is simply whether that market affects interstate commerce, which of course it does.
Determining the "market" for a product or service, meaning the scope of other products or services against which it must compete, is of course necessary for many purposes of antitrust analysis. But today's opinion does not identify a relevant "market" in that sense. It declares Los Angeles to be the pertinent "market" only because that is the entire scope of Dr. Pinhas' exclusion from practice. If the scope of
The Court's focus on the Los Angeles market would make some sense if Midway was attempting to monopolize that market, or conspiring with all (or even most) of the hospitals in Los Angeles to fix prices there, cf. McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232 (1980). But the complaint does not mention § 2 of the Sherman Act, and Dr. Pinhas does not allege a conspiracy to affect eye surgery in the Los Angeles market. He merely alleges a conspiracy to exclude him from that market by a sort of group boycott. Since group boycotts are per se violations (not because they necessarily affect competition in the relevant market, but because they deprive at least some consumers of a preferred supplier, see R. Bork, The Antitrust Paradox 331-332 (1978)), Dr. Pinhas need not prove an effect on competition in the Los Angeles area to prevail, if the Sherman Act applies. But the question before us today is whether the Act does apply, and that must be answered by determining whether, in its practical economic consequences, the boycott substantially affects interstate commerce by restricting competition or, as in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 (1959), interrupts the flow of interstate commerce. The Court never comes to grips with that issue. Instead, because a group boycott, like a price-fixing scheme, would be (if the Sherman Act applies) a per se violation, the Court concludes that "the same analysis applies" to this exclusion of a single competitor from the Los Angeles market as was applied in McLain to the fixing of prices by all realtors in the Greater New Orleans market. See ante, at 331-332. It
In any case, it does not seem to me that a correct analysis of this case would treat it as involving a conspiracy to boycott a single physician. Such boycotts rarely exist in a vacuum; they are usually the means of enforcing compliance with larger anticompetitive schemes. H. Hovenkamp, Economics and Federal Antitrust Law 275-276 (1985); R. Posner, Antitrust Law 207 (1976). Cf. Radovich v. National Football League, 352 U.S. 445, 448-449 (1957) (describing blacklisting pursuant to conspiracy to monopolize professional football). Charitably read, respondent's complaint alleges just such a scheme, namely, a scheme to fix prices for some of the eye
Even when the conspiracy is viewed in this broader fashion, however, the scope of the market affected by it has nothing to do with the scope of Dr. Pinhas' exclusion from practice. If this had been a naked price-fixing conspiracy, instead of the more subtle one that it is, no one would contend that it affected prices throughout Los Angeles. Pursuant to standard antitrust analysis, the agreement itself would define the extent of the market. The market would be eye surgery at Midway (not "eye surgery in the city where Midway is located"), since the very existence of the agreement implies power over price in that defined market. FTC v. Superior Court Trial Lawyers Assn., 493 U.S. 411, 435, n. 18 (1990) (citing R. Bork, The Antitrust Paradox 269 (1978)). It is irrational to use a different analysis, and to assume
There is simply no basis for assuming that this alleged conspiracy's market power—and its consequent effect upon competition, as opposed to its effect upon Dr. Pinhas—extended throughout Los Angeles. It has not been alleged that the conspirators have perverted the peer review process in hospitals throughout the city; nor that the peer review process at Midway is the "gateway" to the Los Angeles market in the sense of being the only way (or even one of the few ways) to gain entry. To the contrary, it is acknowledged that every hospital in Los Angeles has its own peer review process, and the complaint itself asserts that, well before the offer of the "sham contract," "nearly all" those hospitals had abolished the featherbedding practice that is the object of this conspiracy. These uncontested facts reveal the truly local nature of the restraint and preclude any inference that the conspiracy at issue here had (or could have) an effect on competition in the Los Angeles market. Cf. Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 31 (1984); Northern Pacific R. Co. v. United States, 356 U.S. 1, 6-7 (1958). Any allegations to the contrary (and there are none) would have to be dismissed as inconsistent with simple economics. See Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 593-595 (1986).
In my view, the present case should be decided by applying to the price-fixing conspiracy at Midway Hospital the workable jurisdictional test that our cases had established before McLain confused things. On that basis, I would reverse the Court of Appeals' judgment that respondent had stated a Sherman Act claim.
In point of fact, such a dismissal seems compelled by our decision in United States v. Oregon State Medical Society, 343 U.S. 326 (1952). There, the state medical society, eight county medical services, and eight individual physicians conspired to restrain the business of providing prepaid medical care by, inter alia, allocating territories to be served by doctor-sponsored plans. The District Court found that the
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If it is true, as the complaint alleges, that one hospital will ordinarily not accord privileges to a doctor who has failed the peer review process elsewhere, it may well be that Dr. Pinhas has been the victim of a business tort affecting him throughout Los Angeles—or perhaps even nationwide. Cf. Hayden v. Bracy, 744 F. 2d, at 1343-1345 (various torts, in addition to Sherman Act violation, alleged to have arisen out of negative peer review). But the Sherman Act "does not purport to afford remedies for all torts committed by or against persons engaged in interstate commerce," Hunt v. Crumboch, 325 U.S. 821, 826 (1945), unless those torts restrain commerce "among the several States." The short of the matter is that Dr. Pinhas may well have a legitimate grievance, but it is not one redressed by the Sherman Act.
Disputes over the denial of hospital practice privileges are common, and most of the Circuits to which they have been presented as federal antitrust claims have rejected them on jurisdictional grounds. Furlong v. Long Island College Hospital, 710 F. 2d, at 925-926; Thompson v. Wise General Hospital, 707 F. Supp., at 854-856; Seglin v. Esau, 769 F.
I respectfully dissent.
Briefs of amici curiae were filed for the Arizona Hospital Association et al. by John P. Frank and Andrew S. Gordon; and for Richard A. Bolt by Clark C. Havighurst and Hal K. Litchford.
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U. S. C. § 1.
The complaint also named as a defendant the California Board of Medical Quality Assurance (BMQA). The BMQA, however, was dismissed by stipulation. See 894 F. 2d, at 1027, n. 2.