FTC v. Indiana Fed'n of Dentists
476 U.S. 447 (1986)

Annotate this Case

U.S. Supreme Court

FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986)

Federal Trade Commission v. Indiana Federation of Dentists

No. 84-1809

Argued March 25, 1986

Decided June 2, 1986

476 U.S. 447

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

Syllabus

Respondent organization of dentists in Indiana promulgated a policy requiring its members to withhold x-rays from dental insurers in connection with evaluating patients' claims for benefits. The Federal Trade Commission (FTC) issued a cease-and-desist order, ruling that the policy constituted an unfair method of competition in violation of § 5 of the Federal Trade Commission Act, since it amounted to a conspiratorial restraint of trade in violation of § 1 of the Sherman Act. The Court of Appeals vacated the FTC's order on the ground that it was not supported by substantial evidence, holding that the FTC's findings that respondent's x-ray policy was anticompetitive were erroneous; that the findings were inadequate because of the FTC's failure to define the market in which respondent allegedly restrained competition and to establish that respondent had the power to restrain competition in that market; and that the FTC erred in not determining whether the alleged restraint on competition among dentists had actually resulted in higher dental costs to patients and insurers.

Held:

1. The FTC's factual findings regarding respondent's x-ray policy are supported by substantial evidence. There is no dispute that respondent's members conspired among themselves to withhold x-rays, and the FTC's finding that competition among dentists with respect to cooperation with insurers' requests for x-rays was diminished where respondent held sway also finds adequate support in the record. Pp. 476 U. S. 455-457.

2. Evaluated under the Rule of Reason, the FTC's factual findings are sufficient as a matter of law to establish a violation of § 1 of the Sherman Act, i.e., an unreasonable restraint of trade, and hence a violation of § 5 of the FTC Act. Respondent's x-ray policy takes the form of a horizontal agreement among its members to withhold from their customers a particular service that they desire. Absent some countervailing procompetitive virtue, such an agreement cannot be sustained under the Rule of Reason. This conclusion is not precluded by the absence of specific findings as to the market in which respondent allegedly restrained competition or as to the power of respondent's members in that market, or by the FTC's failure to find that respondent's x-ray policy resulted in

Page 476 U. S. 448

more costly dental services than the patients and insurers would have chosen if they were able to evaluate x-rays in conjunction with claim forms. Nor do alleged noncompetitive "quality of care" considerations justify respondent's x-ray policy. And whether or not respondent's policy is consistent with Indiana's supposed policy against submission of x-rays to insurers, it is not immunized from antitrust scrutiny. Anticompetitive collusion among private actors, even when consistent with state policy, acquires antitrust immunity only when it is actually supervised by the State, and there is no suggestion of such supervision here. Pp. 476 U. S. 457-466.

745 F.2d 1124, reversed.

WHITE, J., delivered the opinion for a unanimous Court.

JUSTICE WHITE delivered the opinion of the Court.

This case concerns commercial relations among certain Indiana dentists, their patients, and the patients' dental health care insurers. The question presented is whether the Federal Trade Commission correctly concluded that a conspiracy among dentists to refuse to submit x-rays to dental insurers for use in benefits determinations constituted an

Page 476 U. S. 449

"unfair method of competition" in violation of § 6 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U.S.C. § 45 (1982 ed. and Supp. II).

I

Since the 1970's, dental health insurers, responding to the demands of their policyholders, have attempted to contain the cost of dental treatment by, among other devices, limiting payment of benefits to the cost of the "least expensive yet adequate treatment" suitable to the needs of individual patients. Implementation of such cost-containment measures, known as "alternative benefits" plans, requires evaluation by the insurer of the diagnosis and recommendation of the treating dentist, either in advance of or following the provision of care. In order to carry out such evaluation, insurers frequently request dentists to submit, along with insurance claim forms requesting payment of benefits, any dental x-rays that have been used by the dentist in examining the patient, as well as other information concerning their diagnoses and treatment recommendations. Typically, claim forms and accompanying x-rays are reviewed by lay claims examiners, who either approve payment of claims or, if the materials submitted raise a question whether the recommended course of treatment is in fact necessary, refer claims to dental consultants, who are licensed dentists, for further review. On the basis of the materials available, supplemented where appropriate by further diagnostic aids, the dental consultant may recommend that the insurer approve a claim, deny it, or pay only for a less expensive course of treatment.

Such review of diagnostic and treatment decisions has been viewed by some dentists as a threat to their professional independence and economic wellbeing. In the early 1970's, the Indiana Dental Association, a professional organization comprising some 85% of practicing dentists in the State of Indiana, initiated an aggressive effort to hinder insurers'

Page 476 U. S. 450

efforts to implement alternative benefits plans by enlisting member dentists to pledge not to submit x-rays in conjunction with claim forms. [Footnote 1] The Association's efforts met considerable success: large numbers of dentists signed the pledge, and insurers operating in Indiana found it difficult to obtain compliance with their requests for x-rays, and accordingly had to choose either to employ more expensive means of making alternative benefits determinations (for example, visiting the office of the treating dentist or conducting an independent oral examination) or to abandon such efforts altogether.

By the mid-1970's, fears of possible antitrust liability had dampened the Association's enthusiasm for opposing the submission of x-rays to insurers. In 1979, the Association and a number of its constituent societies consented to a Federal Trade Commission order requiring them to cease and desist from further efforts to prevent member dentists from submitting

Page 476 U. S. 451

x-rays. In re Indiana Dental Assn., 93 F.T.C. 392. Not all Indiana dentists were content to leave the matter of submitting x-rays to the individual dentist. In 1976, a group of such dentists formed the Indiana Federation of Dentists, respondent in this case, in order to continue to pursue the Association's policy of resisting insurers' requests for x-rays. The Federation, which styled itself a "union" in the belief that this label would stave off antitrust liability, [Footnote 2] immediately promulgated a "work rule" forbidding its members to submit x-rays to dental insurers in conjunction with claim forms. Although the Federation's membership was small, numbering less than 100, its members were highly concentrated in and around three Indiana communities: Anderson, Lafayette, and Fort Wayne. The Federation succeeded in enlisting nearly 100% of the dental specialists in the Anderson area, and approximately 67% of the dentists in and around Lafayette. In the areas of its strength, the Federation was successful in continuing to enforce the Association's prior policy of refusal to submit x-rays to dental insurers.

In 1978, the Federal Trade Commission issued a complaint against the Federation, alleging in substance that its efforts to prevent its members from complying with insurers' requests for x-rays constituted an unfair method of competition in violation of § 5 of the Federal Trade Commission Act. Following lengthy proceedings, including a full evidentiary hearing before an Administrative Law Judge, the Commission ruled that the Federation's policy constituted a violation of § 5, and issued an order requiring the Federation to cease and desist from further efforts to organize dentists to refuse to submit x-rays to insurers. In re Indiana Federation of Dentists, 101 F.T.C. 57 (1983). The Commission based its ruling on the conclusion that the Federation's policy of requiring its members to withhold x-rays amounted to a conspiracy in restraint of trade that was unreasonable, and hence

Page 476 U. S. 452

unlawful under the standards for judging such restraints developed in this Court's precedents interpreting § 1 of the Sherman Act. E.g., Chicago Board of Trade v. United States,246 U. S. 231 (1918); National Society of Professional Engineers v. United States,435 U. S. 679 (1978). The Commission found that the Federation had conspired both with the Indiana Dental Association and with its own members to withhold cooperation with dental insurers' requests for x-rays; that, absent such a restraint, competition among dentists for patients would have tended to lead dentists to compete with respect to their policies in dealing with patients' insurers; and that, in those areas where the Federation's membership was strong, the Federation's policy had had the actual effect of eliminating such competition among dentists and preventing insurers from obtaining access to x-rays in the desired manner. These findings of anticompetitive effect, the Commission concluded, were sufficient to establish that the restraint was unreasonable, even absent proof that the Federation's policy had resulted in higher costs to the insurers and patients than would have occurred had the x-rays been provided. Further, the Commission rejected the Federation's argument that its policy of withholding x-rays was reasonable because the provision of x-rays might lead the insurers to make inaccurate determinations of the proper level of care, and thus injure the health of the insured patients: the Commission found no evidence that use of x-rays by insurance companies in evaluating claims would result in inadequate dental care. Finally, the Commission rejected the Federation's contention that its actions were exempt from antitrust scrutiny because the withholding of x-rays was consistent with the law and policy of the State of Indiana against the use of x-rays in benefit determination by insurance companies. The Commission concluded that no such policy existed, and that, in any event, the existence of such a policy would not have justified the dentists' private and unsupervised conspiracy in restraint of trade.

Page 476 U. S. 453

The Federation sought judicial review of the Commission's order in the United States Court of Appeals for the Seventh Circuit, which vacated the order on the ground that it was not supported by substantial evidence. 745 F.2d 1124 (1984). Accepting the Federation's characterization of its rule against submission of x-rays as merely an ethical and moral policy designed to enhance the welfare of dental patients, the majority concluded that the Commission's findings that the policy was anticompetitive were erroneous. According to the majority, the evidence did not support the finding that, in the absence of restraint, dentists would compete for patients by offering cooperation with the requests of the patients' insurers, nor, even accepting that finding, was there evidence that the Federation's efforts had prevented such competition. Further, the court held that the Commission's findings were inadequate because of its failure both to offer a precise definition of the market in which the Federation was alleged to have restrained competition and to establish that the Federation had the power to restrain competition in that market. Finally, the majority faulted the Commission for not finding that the alleged restraint on competition among dentists had actually resulted in higher dental costs to patients and insurers. The third member of the Court of Appeals panel concurred in the judgment solely on the ground that there was insufficient proof that cooperation with insurers was an element of dental services as to which dentists would tend to compete.

We granted certiorari, 474 U.S. 900 (1985), in order to consider the Commission's claim that, in vacating the Commission's order, the Court of Appeals misconstrued applicable principles of antitrust law and "misapprehended or grossly misapplied' the substantial evidence test," American Textile Manufacturers Institute, Inc. v. Donovan,452 U. S. 490, 452 U. S. 523 (1981) (citation omitted). We now reverse.

Page 476 U. S. 454

II

The issue is whether the Commission erred in holding that the Federation's policy of refusal to submit x-rays to dental insurers for use in benefits determinations constituted an "unfair method of competition," unlawful under § 5 of the Federal Trade Commission Act. The question involves review of both factual and legal determinations. As to the former, our review is governed by 15 U.S.C. § 45(c), which provides that "[t]he findings of the Commission as to the facts, if supported by evidence, shall be conclusive." The statute forbids a court to "make its own appraisal of the testimony, picking and choosing for itself among uncertain and conflicting inferences." FTC v. Algoma Lumber Co.,291 U. S. 67, 291 U. S. 73 (1934). Rather, as under the essentially identical "substantial evidence" standard for review of agency factfinding, the court must accept the Commission's findings of fact if they are supported by "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Universal Camera Corp. v. NLRB,340 U. S. 474, 340 U. S. 477 (1951); see also Beneficial Corp. v. FTC, 542 F.2d 611, 616 (CA3 1976), cert. denied, 430 U.S. 983 (1977).

The legal issues presented -- that is, the identification of governing legal standards and their application to the facts found -- are, by contrast, for the courts to resolve, although, even in considering such issues, the courts are to give some deference to the Commission's informed judgment that a particular commercial practice is to be condemned as "unfair." See FTC v. Sperry & Hutchinson Co.,405 U. S. 233 (1972); Atlantic Refining Co. v. FTC,381 U. S. 357, 381 U. S. 367-368 (1966); FTC v. Cement Institute,333 U. S. 683, 333 U. S. 720 (1948). The standard of "unfairness" under the FTC Act is, by necessity, an elusive one, encompassing not only practices that violate the Sherman Act and the other antitrust laws, see FTC v. Cement Institute, supra, at 333 U. S. 689-695, but also practices that the Commission determines are against public policy for other reasons, see FTC v. Sperry & Hutchinson Co., 405

Page 476 U. S. 455

U.S. at 405 U. S. 244. Once the Commission has chosen a particular legal rationale for holding a practice to be unfair, however, familiar principles of administrative law dictate that its decision must stand or fall on that basis, and a reviewing court may not consider other reasons why the practice might be deemed unfair. See id. at 405 U. S. 245-250; cf. SEC v. Chenery Corp.,318 U. S. 80 (1943). In the case now before us, the sole basis of the FTC's finding of an unfair method of competition was the Commission's conclusion that the Federation's collective decision to withhold x-rays from insurers was an unreasonable and conspiratorial restraint of trade in violation of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. Accordingly, the legal question before us is whether the Commission's factual findings, if supported by evidence, make out a violation of Sherman Act § 1.

III

The relevant factual findings are that the members of the Federation conspired among themselves to withhold x-rays requested by dental insurers for use in evaluating claims for benefits, and that this conspiracy had the effect of suppressing competition among dentists with respect to cooperation with the requests of the insurance companies. As to the first of these findings, there can be no serious dispute: abundant evidence in the record reveals that one of the primary reasons -- if not the primary reason -- for the Federation's existence was the promulgation and enforcement of the so-called "work rule" against submission of x-rays in conjunction with insurance claim forms.

As for the second crucial finding -- that competition was actually suppressed -- the Seventh Circuit held it to be unsupported by the evidence, on two theories. First, the court stated that the evidence did not establish that cooperation with requests for information by patients' insurance companies was an aspect of the provision of dental services with respect to which dentists would, in the absence of some

Page 476 U. S. 456

restraint, compete. Second, the court found that, even assuming that dentists would otherwise compete with respect to policies of cooperating or not cooperating with insurance companies, the Federation's policy did not impair that competition, for the member dentists continued to allow insurance companies to use other means of evaluating their diagnoses when reviewing claims for benefits: specifically,

"the IFD member dentists allowed insurers to visit the dental office to review and examine the patient's x-rays, along with all of the other diagnostic and clinical aids used in formulating a proper course of dental treatment."

745 F.2d at 1143.

Neither of these criticisms of the Commission's findings is well-founded. The Commission's finding that,

"[i]n the absence of . . . concerted behavior, individual dentists would have been subject to market forces of competition, creating incentives for them to . . . comply with the requests of patients' third-party insurers,"

101 F.T.C. at 173, finds support not only in common sense and economic theory, upon both of which the FTC may reasonably rely, but also in record documents, including newsletters circulated among Indiana dentists, revealing that Indiana dentists themselves perceived that unrestrained competition tended to lead their colleagues to comply with insurers' requests for x-rays. See App. to Pet. for Cert. 289a, 306a-308a. Moreover, there was evidence that, outside of Indiana, in States where dentists had not collectively refused to submit x-rays, insurance companies found little difficulty in obtaining compliance by dentists with their requests. 101 F.T.C. at 172. A "reasonable mind" could conclude on the basis of this evidence that competition for patients, who have obvious incentives for seeking dentists who will cooperate with their insurers, would tend to lead dentists in Indiana (and elsewhere) to cooperate with requests for information by their patients' insurers.

Page 476 U. S. 457

The Commission's finding that such competition was actually diminished where the Federation held sway also finds adequate support in the record. The Commission found that, in the areas where Federation membership among dentists was most significant (that is, in the vicinity of Anderson and Lafayette), insurance companies were unable to obtain compliance with their requests for submission of x-rays in conjunction with claim forms, and were forced to resort to other, more costly, means of reviewing diagnoses for the purpose of benefit determination. Neither the opinion of the Court of Appeals nor the brief of respondent identifies any evidence suggesting that the Commission's finding that the Federation's policy had an actual impact on the ability of insurers to obtain the x-rays they requested was incorrect. The lower court's conclusion that this evidence is to be discounted because Federation members continued to cooperate with insurers by allowing them to use more costly -- indeed, prohibitively costly -- methods of reviewing treatment decisions is unpersuasive. The fact remains that the dentists' customers (that is, the patients and their insurers) sought a particular service: cooperation with the insurers' pretreatment review through the forwarding of x-rays in conjunction with claim forms. The Federation's collective activities resulted in the denial of the information the customers requested in the form that they requested it, and forced them to choose between acquiring that information in a more costly manner or forgoing it altogether. To this extent, at least, competition among dentists with respect to cooperation with the requests of insurers was restrained.

IV

The question remains whether these findings are legally sufficient to establish a violation of § 1 of the Sherman Act -- that is, whether the Federation's collective refusal to cooperate with insurers' requests for x-rays constitutes an "unreasonable" restraint of trade. Under our precedents, a

Page 476 U. S. 458

restraint may be adjudged unreasonable either because it fits within a class of restraints that has been held to be "per se" unreasonable or because it violates what has come to be known as the "Rule of Reason," under which the

"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."

Chicago Board of Trade v. United States, 246 U.S. at 246 U. S. 238.

The policy of the Federation with respect to its members' dealings with third-party insurers resembles practices that have been labeled "group boycotts": the policy constitutes a concerted refusal to deal on particular terms with patients covered by group dental insurance. Cf. St. Paul Fire & Marine Insurance Co. v. Barry,438 U. S. 531 (1978); Paramount Famous Lasky Corp. v. United States,282 U. S. 30 (1930). Although this Court has, in the past, stated that group boycotts are unlawful per se, see United States v. General Motors Corp.,384 U. S. 127 (1966); Klor's, Inc. v. Broadway-Hale Stores, Inc.,359 U. S. 207 (1959), we decline to resolve this case by forcing the Federation's policy into the "boycott" pigeonhole and invoking the per se rule. As we observed last Term in Northwest Wholesale Stationers, Inc. v. Pacific Stationers & Printing Co.,472 U. S. 284 (1985), the category of restraints classed as group boycotts is not to be expanded indiscriminately, and the per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor -- a situation obviously not present here. Moreover, we have been slow to condemn rules adopted by professional associations as unreasonable per se, see National Society of Professional Engineers v. United States,435 U. S. 679 (1978), and, in general, to extend per se analysis to restraints imposed in the context

Page 476 U. S. 459

of business relationships where the economic impact of certain practices is not immediately obvious, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.,441 U. S. 1 (1979). Thus, as did the FTC, we evaluate the restraint at issue in this case under the Rule of Reason, rather than a rule of per se illegality.

Application of the Rule of Reason to these facts is not a matter of any great difficulty. The Federation's policy takes the form of a horizontal agreement among the participating dentists to withhold from their customers a particular service that they desire -- the forwarding of x-rays to insurance companies along with claim forms.

"While this is not price-fixing as such, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement."

National Society of Professional Engineers, supra, at 435 U. S. 692. A refusal to compete with respect to the package of services offered to customers, no less than a refusal to compete with respect to the price term of an agreement, impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them. Absent some countervailing procompetitive virtue -- such as, for example, the creation of efficiencies in the operation of a market or the provision of goods and services, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., supra; Chicago Board of Trade, supra; cf. National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla.,468 U. S. 85 (1984) -- such an agreement limiting consumer choice by impeding the "ordinary give-and-take of the marketplace," National Society of Professional Engineers, supra, at 435 U. S. 692, cannot be sustained under the Rule of Reason. No credible argument has been advanced for the proposition that making it more costly for the insurers and patients who are the dentists' customers to obtain information needed for evaluating the dentists' diagnoses has any such procompetitive effect.

Page 476 U. S. 460

The Federation advances three principal arguments for the proposition that, notwithstanding its lack of competitive virtue, the Federation's policy of withholding x-rays should not be deemed an unreasonable restraint of trade. First, as did the Court of Appeals, the Federation suggests that, in the absence of specific findings by the Commission concerning the definition of the market in which the Federation allegedly restrained trade and the power of the Federation's members in that market, the conclusion that the Federation unreasonably restrained trade is erroneous as a matter of law, regardless of whether the challenged practices might be impermissibly anticompetitive if engaged in by persons who, together, possessed power in a specifically defined market. This contention, however, runs counter to the Court's holding in National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., supra, that, "[a]s a matter of law, the absence of proof of market power does not justify a naked restriction on price or output," and that such a restriction "requires some competitive justification even in the absence of a detailed market analysis." Id. at 468 U. S. 109-110. Moreover, even if the restriction imposed by the Federation is not sufficiently "naked" to call this principle into play, the Commission's failure to engage in detailed market analysis is not fatal to its finding of a violation of the Rule of Reason. The Commission found that, in two localities in the State of Indiana (the Anderson and Lafayette areas), Federation dentists constituted heavy majorities of the practicing dentists, and that, as a result of the efforts of the Federation, insurers in those areas were, over a period of years, actually unable to obtain compliance with their requests for submission of x-rays. Since the purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, "proof of actual detrimental effects, such as a reduction of output," can

Page 476 U. S. 461

obviate the need for an inquiry into market power, which is but a "surrogate for detrimental effects." 7 P. Areeda, Antitrust Law

Official Supreme Court caselaw is only found in the print version of the United States Reports. Justia caselaw is provided for general informational purposes only, and may not reflect current legal developments, verdicts or settlements. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or information linked to from this site. Please check official sources.