Respondent Pinhas, an ophthalmologist on the staff of petitioner
Midway Hospital Medical Center, filed a suit in the District Court,
asserting a violation,
inter alia, of § 1 of the Sherman
Act by Midway and other petitioners, including several doctors. The
amended complaint alleged, among other things, that petitioners
conspired to exclude Pinhas from the Los Angeles ophthalmological
services market when he refused to follow an unnecessarily costly
surgical procedure used at Midway; that petitioners initiated peer
review proceedings against him which did not conform to
congressional requirements and which resulted in the termination of
his Midway staff privileges; that, at the time he filed suit,
petitioners were preparing to distribute an adverse report about
him based on the peer review proceedings; that the provision of
ophthalmological services affects interstate commerce because both
physicians and hospitals serve nonresident patients and receive
reimbursement from Medicare; and that reports from peer review
proceedings are routinely distributed across state lines, and
affect doctors' employment opportunities throughout the Nation. The
District Court dismissed the amended complaint, but the Court of
Appeals reversed, rejecting petitioners' argument that the Act's
jurisdictional requirements were not met because there was no
allegation that interstate commerce would be affected by Pinhas'
removal from Midway's staff. Rather, the court found that Midway's
peer review proceedings obviously affected the hospital's
interstate commerce because they affected its entire staff, and
that Pinhas need not make a particularized showing of the effect on
interstate commerce caused by the alleged conspiracy.
Held: Pinhas' allegations satisfy the Act's
jurisdictional requirements. To be successful, Pinhas need not
allege an actual effect on interstate commerce. Because the essence
of any § 1 violation is the illegal agreement itself, the proper
analysis focuses upon the potential harm that would ensue if the
conspiracy were successful, not upon actual consequences. And 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. Thus,
petitioners erroneously contend that a boycott of a single surgeon,
unlike a conspiracy to destroy a hospital department or a hospital,
has no effect on
Page 500 U. S. 323
interstate commerce because there remains an adequate supply of
others to perform services for his patients. This case involves an
alleged restraint on the practice of ophthalmological services
accomplished by an alleged misuse of a congressionally regulated
peer review process, which has been characterized as the gateway
controlling access to the market for Pinhas' services. When the
competitive significance of respondent's exclusion from the market
is measured not by a particularized evaluation of his practice, but
by a general evaluation of the restraint's impact on other
participants and potential participants in that market, the
restraint is covered by the Act. Pp.
500 U. S.
328-333.
894 F.2d 1024 (CA 9 1989), affirmed.
STEVENS, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and WHITE, MARSHALL, and BLACKMUN, JJ., joined.
SCALIA, J., filed a dissenting opinion, in which O'CONNOR, KENNEDY,
and SOUTER, JJ., joined,
post, p.
500 U. S.
333.
Page 500 U. S. 324
JUSTICE STEVENS delivered the opinion of the Court.
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
Page 500 U. S. 325
Angeles."
App. 39. Among his allegations was a claim that the conspiracy
violated § 1 of the Sherman Act. [
Footnote 1] The District Court granted defendants' (now
petitioners') motion to dismiss the First Amended Complaint
(complaint) without leave to amend, App. 315, but the United States
Court of Appeals for the Ninth Circuit reinstated the antitrust
claim. 894 F.2d 1024 (1989). [
Footnote 2] We granted certiorari, 496 U.S. 935 (1990), to
consider petitioners' contention that the complaint fails to
satisfy the jurisdictional requirements of the Sherman Act, as
interpreted in
McLain v. Real Estate Bd. of New Orleans,
Inc., 444 U. S. 232
(1980), because it does not describe a factual nexus between the
alleged boycott and interstate commerce.
I
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 diplomat
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. [
Footnote
3]
Page 500 U. S. 326
Prior to 1986, most eye surgeries in Los Angeles were performed
by a primary surgeon with the assistance of a second surgeon.
Id. at 8. This practice significantly increased the cost
of eye surgery. In February of that year, the administrators of the
Medicare program announced that they would no longer reimburse
physicians for the services of assistants, and most hospitals in
southern California abolished the assistant surgeon requirement.
Respondent, and certain other ophthalmologists, asked Midway to
abandon the requirement, but the medical staff refused to do so.
Ibid. Respondent explained that, because Medicare
reimbursement was no longer available, the requirement would cost
him about $60,000 per year in payments to competing surgeons for
assistance that he did not need.
Id. at 9. Although
respondent expressed a desire to maintain the preponderance of his
practice at Midway, he nevertheless advised the hospital that he
would leave if the assistant surgeon requirement were not
eliminated.
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. [
Footnote 4]
Id. at 10. The
Page 500 U. S. 327
proceedings were conducted in an unfair manner by biased
decisionmakers, and ultimately resulted in an order upholding one
of seven charges against respondent, and imposing severe
restrictions on his practice. [
Footnote 5] When this action was commenced, petitioners
were preparing to distribute an adverse report [
Footnote 6] about respondent that would
"preclude him from continued competition in the marketplace, not
only at defendant Midway Hospital [but also] . . . in California,
if not the United States."
Id. at 40. The defendants allegedly planned to
disseminate the report
"to all hospitals which Dr. Pinhas is a member, and to all
hospitals to which he may apply so as to secure similar actions by
those hospitals, thus effectuating a boycott of Dr. Pinhas."
Ibid.
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
Page 500 U. S. 328
state lines and affect doctors' employment opportunities
throughout the Nation.
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:
"Pinhas need not, as appellees apparently believe, make the more
particularized showing of the effect on interstate commerce caused
by the alleged conspiracy to keep him from working.
[
McLain
v. Real Estate Bd. of New Orleans, Inc.,
444 U. S.
232 at
444 U. S. 242-243 (1980)].
He need only prove that peer review proceedings have an effect on
interstate commerce, a fact that can hardly be disputed. The
proceedings affect the entire staff at Midway, and thus affect the
hospital's interstate commerce. Appellees' contention that Pinhas
failed to allege a nexus with interstate commerce because the
absence of Pinhas' services will not drastically affect the
interstate commerce of Midway therefore misses the mark, and must
be rejected."
Ibid.
II
Congress enacted the Sherman Act in 1890. [
Footnote 7] During the past century, as the
dimensions and complexity of our economy have grown, the federal
power over commerce, and the concomitant coverage of the Sherman
Act, have experienced
Page 500 U. S. 329
similar expansion. [
Footnote
8] This history has been recounted before, [
Footnote 9] and we need not reiterate it today.
[
Footnote 10]
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 Bldg. Co. v. Rex
Hospital Trustees, 425 U. S. 738,
425 U. S. 744
(1976). No specific purpose to restrain interstate commerce is
required. Id. at 425 U. S. 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 425 U. S. 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
Page 500 U. S. 330
patients and generate revenues from out-of-state sources; their
importance as part of the entire operation of the hospital is
evident from the allegations of the complaint. A conspiracy to
eliminate the entire ophthalmological department of the hospital,
like a conspiracy to destroy the hospital itself, would
unquestionably affect interstate commerce. Petitioners contend,
however, that a boycott of a single surgeon has no such obvious
effect, because the complaint does not deny the existence of an
adequate supply of other surgeons to perform all of the services
that respondent's current and future patients may ever require.
Petitioners argue that respondent's complaint is insufficient
because there is no factual nexus between the restraint on this one
surgeon's practice and interstate commerce.
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):
"If establishing jurisdiction required a showing that the
unlawful conduct itself had an effect on interstate commerce,
jurisdiction would be defeated by a demonstration that the alleged
restraint failed to have its intended anticompetitive effect. This
is not the rule of our cases.
See American Tobacco Co. v.
United States, 328 U. S. 781,
328 U. S.
811 (1946);
United States v. Socony-Vacuum Oil
Co., 310 U. S. 150,
310 U. S.
225, n. 59 (1940). A violation may still be found in
such circumstances, because, in a civil action under the Sherman
Act, liability may be established by proof of either an unlawful
purpose or an anticompetitive effect.
United States v. United
States Gypsum Co., 438 U. S. 422,
438 U. S.
436, n. 13 (1978);
See United States
Page 500 U. S. 331
v. Container Corp., 393 U. S. 333,
393 U. S.
337 (1969);
United States v. National Assn. of Real
Estate Boards, 339 U. S. 485,
339 U. S.
489 (1950);
United States v. Socony-Vacuum Oil Co.,
supra, [310 U.S.] at
310 U. S. 224-225, n.
59."
Id. at
444 U. S. 243.
Thus, respondent need not allege, or prove, an actual effect on
interstate commerce to support federal jurisdiction. [
Footnote 11]
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 444 U. S. 246
(quoting Hospital Building Co. v. Rex Hospital Trustees,
425 U.S. at 425 U. S.
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 market-wide impact, and therefore an effect
on interstate commerce, Burke v. Ford, 389 U.
S. 320, 389 U. S. 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 444 U. S. 246.
In the latter, we explained:
"To establish the jurisdictional element of a Sherman Act
violation, it would be sufficient for petitioners to demonstrate a
substantial effect on interstate commerce generated by respondents'
brokerage activity. Petitioners need not make the more
particularized showing of an effect on interstate commerce caused
by the alleged conspiracy to fix commission rates, or by those
other aspects of respondents' activity that are alleged to be
unlawful."
Id. at
444 U. S.
242-243.
Page 500 U. S. 332
Although plaintiffs in
McLain were consumers of the
conspirators' real estate brokerage services, and plaintiff in this
case is a competing surgeon whose complaint identifies only himself
as the victim of the alleged boycott, the same analysis applies.
For if a violation of the Sherman Act occurred, the case is
necessarily more significant than the fate of "just one merchant
whose business is so small that his destruction makes little
difference to the economy."
Klor's, Inc. v. Broadway-Hale
Stores, Inc., 359 U. S. 207,
359 U. S. 213
(1959) (footnote omitted). The case involves an alleged restraint
on the practice of ophthalmological services. The restraint was
accomplished by an alleged misuse of a congressionally regulated
peer review process, [
Footnote
12] which respondent characterizes as the gateway that controls
access to the
Page 500 U. S. 333
market for his services. The gateway was closed to respondent,
both at Midway and at other hospitals, because petitioners insisted
upon adhering to an unnecessarily costly procedure. The competitive
significance of respondent's exclusion from the market must be
measured not just by a particularized evaluation of his own
practice, but rather by a general evaluation of the impact of the
restraint on other participants and potential participants in the
market from which he has been excluded.
We have no doubt concerning the power of Congress to regulate a
peer review process controlling access to the market for
ophthalmological surgery in Los Angeles. Thus, respondent's claim
that members of the peer review committee conspired with others to
abuse that process, and thereby deny respondent access to the
market for ophthalmological services provided by general hospitals
in Los Angeles has a sufficient nexus with interstate commerce to
support federal jurisdiction.
The judgment of the Court of Appeals is affirmed.
It is so ordered.
[
Footnote 1]
Section l of the Sherman Act, 26 Stat. 209, as amended, provides
in relevant part:
"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.
[
Footnote 2]
Although the complaint alleged five claims, only the "Fourth
Claim for Relief," the antitrust claim, is before us now.
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.
[
Footnote 3]
"One of the reasons for his success is the rapidity with which
he, as distinguished from his competitors, can perform such
surgeries. The speed with which such surgery can be completed
benefits the patient because the exposure of cut eye tissue is
drastically reduced. Some of Dr. Pinhas' competitors regularly
require, on the average, six times the length of surgical time to
complete the same procedures as Dr. Pinhas."
App. 7.
[
Footnote 4]
Respondent was notified, by a letter dated April 13, 1987, that
such actions were the result of a
"Medical Staff review of [his] medical records, with
consideration as to the questions raised regarding: indications for
surgery; appropriateness of surgical procedures in light of
patient's medical condition; adequacy of documentation in medical
records; and ongoing pattern of identified problems."
Id. at 93.
[
Footnote 5]
After the Governing Board of Midway affirmed the decision of the
peer review committee, but imposed even more stringent conditions
on respondent than the committee had imposed, respondent filed a
petition for writ of mandate, pursuant to Cal.Civ.Proc.Code Ann. §
1094.5 (West Supp.1991). 894 F.2d 1024, 1027 (CA9 1989). On May 17,
1989, the Superior Court of California denied respondent's request
for further relief. App. to Pet. for Cert. A30-A35.
[
Footnote 6]
Petitioners had already distributed the report, a Business and
Professions Code 805 Report, to Cedars-Sinai Medical Center in Los
Angeles, which then denied respondent medical staff privileges
there. App. to Brief for Respondent A-3. Cedars-Sinai, like Midway,
had refused to abolish the assistant surgeon requirement. App.
8.
[
Footnote 7]
Act of July 2, 1890, ch. 647, § 1, 26 Stat. 209. The floor
debates on the Sherman Act reveal, in Senator Sherman's words, an
intent to "g[o] as far as the Constitution permits Congress to go.
. . ." 20 Cong.Rec. 1167 (1889). For views of the enacting Congress
toward the Sherman Act,
see 21 Cong.Rec. 2456 (1890);
see also United States v. South-Eastern Underwriters
Association, 322 U. S. 533,
322 U. S.
555-560 (1944);
Apex Hosiery Co. v. Leader,
310 U. S. 469,
310 U. S. 493,
n. 15 (1940).
[
Footnote 8]
The Court's decisions have long
"permitted the reach of the Sherman Act to expand along with
expanding notions of congressional power.
See Gulf Oil Corp. v. Copp
Paving Co., 419 U.S. [186,]
419 U. S.
201-202 [(1974)]."
Hospital Bldg. Co. v. Rex Hospital Trustees,
425 U. S. 738,
425 U. S. 743,
n. 2 (1976).
[
Footnote 9]
See, e.g., Mandeville Island Farms, Inc. v. American Crystal
Sugar Co., 334 U. S. 219,
334 U. S.
229-235 (1948).
[
Footnote 10]
It is firmly settled that, when Congress passed the Sherman Act,
it "left no area of its constitutional power [over commerce]
unoccupied."
United States v. Frankfort Distilleries,
Inc., 324 U. S. 293,
324 U. S. 298
(1945). Congress
"meant to deal comprehensively and effectively with the evils
resulting from contracts, combinations and conspiracies in
restraint of trade, and to that end to exercise all the power it
possessed."
Atlantic Cleaners & Dyers, Inc. v. United States,
286 U. S. 427,
286 U. S. 435
(1932).
[
Footnote 11]
Cf. United States v. Staszcuk, 517 F.2d 53, 60 n. 17
(CA7 1975) (en banc) ("The federal power to protect the free market
may be exercised to punish conduct which threatens to impair
competition even when no actual harm results")
cert.
denied, 423 U.S. 837 (1975).
[
Footnote 12]
See Health Care Quality Improvement Act of 1986, 100
Stat. 3784, 42 U.S.C. § 11101
et seq. The statute provides
for immunity from antitrust, and other, actions if the peer review
process proceeds in accordance with § 11112. Respondent alleges
that the process did not conform with the requirements set forth in
§ 11112, such as adequate notice, representation by an attorney,
access to a transcript of the proceedings, and the right to
cross-examine witnesses. According to the House sponsor of the
bill,
"[t]he immunity provisions [were] restricted so as not to
protect illegitimate actions taken under the guise of furthering
the quality of health care. Actions . . . that are really taken for
anticompetitive purposes will not be protected under this
bill."
132 Cong.Rec. H9957 (Oct. 14, 1986) (remarks of Rep.
Waxman).
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.
I
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
500 U. S. 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
Page 500 U. S. 334
among the several States." 15 U.S.C. § 1. This language commands
a judicial inquiry into the nature and potential effect of each
particular restraint.
"The jurisdictional inquiry under general prohibitions . . .
like § 1 of the Sherman Act, turning as it does on the
circumstances presented in each case and requiring a particularized
judicial determination, differs significantly from that required
when Congress itself has defined the specific persons and
activities that affect commerce, and therefore require federal
regulation."
Gulf Oil Corp. v. Copp Paving Co., 419 U.
S. 186,
419 U. S. 197,
n. 12 (1974).
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,
425 U. S. 741,
425 U. S. 744
(1976);
Burke v. Ford, 389 U. S. 320,
389 U. S.
321-322 (1967) (per curiam);
Mandeville Island
Farms, Inc. v. American Crystal Sugar Co., 334 U.
S. 219,
334 U. S. 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 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
444 U. S. 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-fixing,
Page 500 U. S. 335
suppression of market information, and other anticompetitive
practices. The Court's resort to the more expansive "infected
activity" test was prompted by the belief that focusing upon the
effects of the restraint itself would require plaintiffs to prove
their case at the jurisdictional stage.
See id. at
444 U. S. 243.
That belief was in error, since the prior approach had simply
assumed, rather than required proof of, the success of the
conspiracy.
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
Page 500 U. S. 336
(CA11 1985)? Or, as the Ninth Circuit apparently found in this
case, the peer review process itself?
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.
* This analysis
tells us nothing about the substantiality of the impact on
interstate commerce generated by the particular conduct at issue
here.
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
Page 500 U. S. 337
his exclusion had been national, it would have declared the
entire United States to be the "market," though it is quite
unlikely that all eye surgeons in the United States are in
competition. I cannot understand why "market" in the Court's
peculiar sense has any bearing upon this restraint's impact on
interstate commerce, and hence upon Sherman Act jurisdiction. The
Court does not even attempt to provide an explanation.
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 Section 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,
359 U. S. 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
500 U.S. 331-332. It
Page 500 U. S. 338
seems to me obvious that the two situations are not remotely
comparable. The economic effects of a price-fixing scheme are felt
throughout the market in which the prices are fixed; the economic
effects of "blackballing" a single supplier are not felt throughout
the market from which he is
theoretically excluded, but,
at most, within the subportion of that market in which he was, or
could be, doing business. If, for example. the alleged conspirators
in the present case had decided to effectuate the ultimate
exclusion of Dr. Pinhas,
i.e., to have him killed, it
would be absurd to think that the
world market in eye
surgery would thereby be affected. It is undoubtedly true, in the
present case, that Dr. Pinhas has been affected throughout the Los
Angeles area, but it is rudimentary that the effect of a restraint
of trade must be gauged according to its effect on
"
competition, not
competitors,"
Brown Shoe
Co. v. United States, 370 U. S. 294, 320
(1962) (emphasis in original).
See also, e.g., Associated
General Contractors of California, Inc. v. California State Council
of Carpenters, 459 U. S. 519,
459 U. S. 539,
n. 40 (1983);
Fishman v. Estate of Wirtz, 807 F.2d 520,
564-568 (CA7 1986) (Easterbrook, J., dissenting in part). The
Court's suggestion that competition in the entire Los Angeles
market was affected by this one surgeon's exclusion from that
market simply ignores the "practical economics" of the matter.
II
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,
352 U. S.
448-449 (1957) (describing black listing 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
Page 500 U. S. 339
surgery performed at Midway Hospital. Instead of simply agreeing
to a supercompetitive price, Midway's eye surgeons have, contrary
to prevailing Los Angeles practice, allegedly "padded" the cost of
certain varieties of eye surgery by requiring a useless second
surgeon to be present. The so-called "sham contract" was an attempt
to compensate the hyperproductive Dr. Pinhas for his participation
in the scheme and the concomitant reduction in his output. When
that failed, the conspirators eliminated him as a competitor by
terminating his medical staff privileges through the peer review
process. That termination was not the totality of the conspiracy,
but merely the means used to enforce it -- just as, in
Monsanto
Co. v. Spray-Rite Service Corp., 465 U.
S. 752 (1984), the elimination of the price-cutting
Spray-Rite as a distributor of Monsanto's products (via termination
and a boycott) was merely the means of enforcing the alleged
price-fixing conspiracy between Monsanto and its other
distributors. This case, like
Monsanto, involves a
"termination . . .
pursuant to a conspiracy . . . to set .
. . prices,"
id. at
465 U. S.
757-758 (emphasis added), and, for purposes of
determining Sherman Act jurisdiction, what counts is the impact of
that entire price-fixing conspiracy.
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,
493 U. S. 435,
n. 18 (1990) (citing R. Bork, The Antitrust Paradox 269 (1978)). It
is irrational to use a different analysis, and to assume
Page 500 U. S. 340
the affected market to be all of Los Angeles, simply because
this more subtle price-fixing conspiracy led (incidentally) to the
exclusion of Dr. Pinhas not only from Midway, but from all
hospitals throughout the city.
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,
466 U. S. 31
(1984).
Northern Pacific R. Co. v. United States,
356 U. S. 1,
356 U. S. 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,
475 U. S.
593-595 (1986).
III
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.
Page 500 U. S. 341
The complaint does not begin to suggest that the conspiracy at
Midway could have even the most trivial effect on interstate
commerce.
Cf. Crane v. Intermountain Health Care, Inc.,
637 F.2d at 725. It literally alleges nothing more than that Dr.
Pinhas, the defendant physicians, Midway Hospital, and Summit
Health, Ltd. are "engaged in interstate commerce." Contrary to the
Court's (undocumented) suggestion,
ante at ___ and ___,
there is no allegation that any out-of-state patients call upon the
hospital for eye surgery (or anything else) -- let alone a
sufficient number that overcharging them would create a
"substantial" effect on commerce among the several States.
Respondent does not allege that out-of-state insurance companies or
the Federal Government pays for the overcharges,
cf. Goldfarb
v. Virginia State Bar, 421 U. S. 773,
421 U. S. 783
(1975); indeed, it appears on the face of the complaint that the
Federal Government has stopped reimbursing featherbedded
operations. He does not allege that eye surgery involves the use of
implements or equipment purchased out of state, or that the
restraint at issue here could have any appreciable effect on such
purchases,
cf. Hospital Building Co. v. Rex Hospital
Trustees, 425 U.S. at
425 U. S. 741,
425 U. S. 744.
Quite simply, the complaint is entirely devoid of any attempt to
show a connection between the challenged restraint and "commerce
among the several States." Because
"it is not sufficient merely to rely on identification of a
relevant local activity and to presume an interrelationship with
some unspecified aspect of interstate commerce,"
McLain, 444 U.S. at
444 U. S. 242,
I would dismiss the complaint out of hand.
In point of fact, such a dismissal seems compelled by our
decision in
United States v. Oregon 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
Page 500 U. S. 342
conspiracy did not restrain interstate commerce. On direct
appeal, the United States argued that the interstate activities of
the private associations sufficed to show the requisite interstate
effect. The Court rejected this argument, holding that, in order to
prevail, the Government had to show that the
restraint
itself (the allocation of territories) had a substantial
adverse effect on interstate commerce. Such an effect had not been
proven, the Court observed, because the activities of the
doctor-sponsored plans were "wholly intrastate"
id. at
343 U. S. 338.
It did not matter that the plans had made a few payments to
out-of-state patients. Those payments were "few, sporadic, and
incidental."
Id. at
343 U. S. 339.
A straightforward application of this same rationale compels
reversal in the present case.
* * * *
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,
325 U. S. 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
922, 925-926 (CA2 1983);
Thompson v. Wise General
Hospital, 707 F.
Supp. 849, 854-856,
aff'd, 896 F.2d 547 (CA4 1990);
Sarin v. Esau, 769 F.2d
Page 500 U. S. 343
1274, 1283-1284 (CA7 1985);
Hayden v. Bracy, 744 F.2d
1338, 1342-1343 (CA8 1984). At least two other Circuits would reach
that result on the particular complaint before us here.
Cordova
& Simonpietri Ins. Agency Inc. v. Chase Manhattan Bank
N.A., 649 F.2d 36, 45 (CA1 1981);
Crane v. Intermountain
Health Care, Inc., 637 F.2d 715, 725 (CA10 1980) (en banc). I
think it is a mistake to overturn this view. Federal courts are an
attractive forum, and the treble damages of the Clayton Act an
attractive remedy. We have today made them available for routine
business torts, needlessly destroying a sensible statutory
allocation of federal-state responsibility and contributing to the
trivialization of the federal courts.
I respectfully dissent.
* Even so, I might note, it is improper for the Court to
dispense with the necessary allegations to that effect.
See
McLain v. Real Estate Board of New Orleans, Inc., 444 U.
S. 232,
444 U. S. 242
(1980).