The court ruled, "Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting perhaps the erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. ... Maximum prices may be fixed too low ... may channel distribution through a few large or specifically advantaged dealers. ... Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices."
At issue in Jefferson Parish Hospital District No. 2 v. Hyde (466 U.S. 2 [1984]) was an exclusive contract between a group of four anesthesiologists and Jefferson Parish Hospital in the New Orleans area. Dr. Hyde was an independent board-certified anesthesiologist who was denied medical staff privileges at the hospital because of this exclusive contract. The exclusive arrangement in effect required patients at the hospital to use the services of the four anesthesiologists and none others, raising the issue of unlawful "tying," where a seller requires a customer to purchase one product or service as a condition of being allowed to purchase another.
In a rare unanimous decision, the U.S. Supreme Court, while agreeing that the contract was a tying arrangement, nonetheless rejected the argument that it was per se illegal or that it unreasonably restrained competition among anesthesiologists. The court reasoned that the hospital’s 30% share of the market did not amount to sufficient market power in the provision of hospital services in the Jefferson Parish area. Pointing out that every patient undergoing surgery needed anesthesia, the court found no evidence that any patient received unnecessary services, and it noted that the tying arrangement that was generally employed in the health care industry improved patient care and promoted hospital efficiency.
Tying arrangements in health care are frequently analyzed under a rule of reason standard instead of the strict per se standard, and the favorable decision in this specific case depended heavily on the hospitals’ relatively small market power.
Finally, consider a case on insurance reimbursement and a group boycott against a third-party payer. In Federal Trade Commission v. Indiana Federation of Dentists (476 U.S. 447 [1986]), dental health insurers in Indiana attempted to contain the cost of dental treatment by limiting payments to the least expensive yet adequate treatment suitable to the needs of the patient. The insurers required the submission of x-rays by treating dentists for review of their insurance claims.
Viewing such review of diagnostic and treatment decisions as a threat to their professional independence and economic well-being, members of the Indiana Dental Association and later the Indiana Federation of Dentists agreed collectively to refuse to submit the requested x-rays. These concerted activities resulted in the denial of information that dental customers had requested and had a right to know, and forced them to choose between acquiring the information in a more costly manner or forgoing it altogether.
The lower court had ruled in favor of the dentists, but the U.S. Supreme Court reversed. It agreed that in the absence of concerted behavior, an individual dentist would have been subject to market forces of competition, creating incentives for him or her to comply with the requests of patients’ third-party insurers. But the conduct of the federation was tantamount to a group boycott, which unreasonably restrained trade. The court noted that while this was not price fixing as such, no elaborate industry analysis was required to demonstrate the anticompetitive character of such an agreement.
Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk", and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at siang@hawaii.edu.
