Opinion ID: 2135222
Heading Depth: 1
Heading Rank: 3

Heading: Restriction on Balance Billing.

Text: The parties have stipulated that, at present, approximately 96 per cent of all Blue Shield subscribers are covered by service benefit contracts, under which a participating physician is required to accept the fee paid by Blue Shield as payment in full for covered services. Thus, only about 4 per cent of subscribers may be billed directly by participating physicians for amounts in addition to Blue Shield's approved rate, or balance billed, as the plaintiffs term it. The defendants, conceding that no provision of G.L.c. 176B specifically orders this restriction, argue that the statutory purpose of providing low cost medical care, coupled with the Commissioner's regulatory actions in furtherance of that purpose, are together sufficient to insulate the restriction from Federal antitrust attack. We disagree. Assuming, as we must, that the challenged practice operates to restrain competition in contravention of Federal antitrust law, we find in G.L.c. 176B no affirmative policy requiring, or authorizing the Commissioner to require, such a restraint. We therefore answer question 1(a) in the negative. The restriction on balance billing is a product of two features of the Blue Shield system. Under the Participating Physician's Agreement presently in use, participating physicians are contractually obligated to accept Blue Shield's fees as payment in full for services rendered to members who are covered by service benefit, as opposed to indemnity benefit, contracts. Historically, as is explained in greater detail later in this opinion, service benefits were available only to subscribers who came within approved income limits. With the advent in 1968 of the usual and customary charge method of compensation, however, service benefits were for the first time provided to many subscribers without regard to their income. This development is the focal point of the State action controversy, and we explore it in some detail below. Blue Shield was incorporated on May 6, 1942, under the name Massachusetts Medical Service. It was the first and remains the only medical service corporation organized under G.L.c. 176B. On September 18, 1942, the Commissioner gave his approval to the first subscription contract, Participating Physician's Agreement, schedule of rates to be charged subscribers, and schedule of fees to be paid participating physicians. The Participating Physician's Agreement, which remains unchanged to the present day, provides that [t]he Participating Physician agrees to accept as full compensation for all ... services such payments as are received from the Corporation ... except in the case of those persons who are entitled only to Limited Indemnification, in which case the physician may make his customary charge to the patient for his services, crediting against such charge the amount set forth for such services in the fee schedule in effect at the time the services are rendered. The original subscription certificate established two classes of subscribers, limited and unlimited. An unlimited subscriber was one whose annual income was less than a certain amount on file with the Commissioner, a limited subscriber was one whose income exceeded that amount. Income limits were reviewed periodically, and revised to reflect general increases in wages. In 1951, Blue Shield implemented a second plan, known as Plan B, to supplement the original plan, which was known as Plan A. Under Plan B, a single income limit of $5,000 was set for the subscriber and covered dependents; Plan A retained separate limits of $2,000 for an individual, $2,500 for families of two, and $3,000 for families of three or more. Plan B imposed higher subscription rates and paid higher fees for doctors; essentially, it provided the option of more comprehensive coverage, particularly for higher income subscribers, but did not otherwise depart from the basic precedent of Plan A. In 1956, Blue Shield and Blue Cross jointly initiated the Master Medical Certificate, providing comprehensive coverage of hospital and medical costs under a single plan. As with Plan B, however, there was no departure from the income limit method of determining a subscriber's entitlement to service benefits. By the late 1960's, there was pervasive dissatisfaction among participating physicians with Blue Shield's fees, and particularly with fees received under service benefit contracts. See, e.g., Proceedings of the Massachusetts Medical Society, May 16, 1967. In response to the complaints of participating physicians, Blue Shield in late 1967 or early 1968 filed with the Commissioner a proposed revision of the Master Medical Certificate accompanied by a proposed Amended Schedule of Benefits  Blue Shield Portion of the Blue Cross  Blue Shield Master Medical Certificate (1968 Amended Schedule of Benefits). This filing introduced the usual and customary charge method of compensation. Blue Shield proposed to substitute for fixed fee schedules a system under which participating physicians would receive 95 per cent of the lesser of their usual charge, or the customary charge, for a particular service. The usual charge is calculated by determining the median of all fees charged by a particular physician for a specific service during each six-month reporting period. Similarly, the customary charge is established as the mean of all fees reported for a particular service by physicians of like experience and training during each reporting period. The advantage to participating physicians in this method of calculating fees lay in the promise of higher fees immediately for many services and relatively automatic future adjustments for inflation. Its benefit to consumers was that, for the first time, participating physicians would be bound to accept Blue Shield's fees as payment in full for covered services regardless of a subscriber's income. When the method was first proposed in 1968, it was to be implemented only for group accounts under the Master Medical Certificate and for Blue Shield's coverage of the Federal Employees program. [4] At present, however, it is applied to all Blue Shield accounts except the few remaining Plan B subscribers. The revisions to the Master Medical Certificate and the 1968 Amended Schedule of Benefits were approved by the Commissioner effective February 1, 1968. From 1970 until 1975, Blue Shield updated usual and customary charges as it deemed appropriate without objection from the Commissioner. In 1976, Blue Shield deferred any update due primarily to a decrease in its reserves from $26 million to $1 million during the eighteen months preceding April 30, 1976. On March 1, 1977, the financial condition of the corporation having improved, Blue Shield filed an amended schedule of benefits. On April 15, 1977, the amended schedule of benefits was approved by the Commissioner subject to the condition that for the 1977 update, the usual fees and the normal customary fees shall not exceed increases of 107% and 104% respectively, of those fees implemented in July, 1975. [5] In 1978, the Commissioner took the position that any update of usual and customary charges was subject to his prior written approval. A revision to the amended schedule of benefits was filed in 1978 and received preliminary approval, but, following a change in administrations, that approval was rescinded. Accordingly, the 1977 schedule of benefits has remained effective to the present. The defendants argue that in exercising his power of approval over methods of compensation to achieve the statutory purpose of providing low cost medical care to the public, the Commissioner exerts sufficient control over Blue Shield that the present methods of compensation, and the concomitant limitations on physicians' fees, must be considered to be compelled by a clearly articulated and affirmatively expressed state policy. There is no simple definition of the degree of State compulsion which will suffice to constitute State action for antitrust purposes. Several of the United States Supreme Court's decisions in which such a policy was found dealt with State schemes with an avowed purpose to restrain competition. See, e.g., California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980); Bates v. State Bar, 433 U.S. 350 (1977); Parker v. Brown, 317 U.S. 341 (1943). In this case, however, we are asked to infer such a policy from the broadly stated purpose of G.L.c. 176B and the comprehensive regulatory power of the Commissioner under the statute. The Supreme Court dealt with an analogous, although not identical, contention in Cantor v. Detroit Edison Co., 428 U.S. 579 (1976). There, a retail pharmacist engaged in marketing light bulbs brought suit to enjoin an electric utility company from distributing to its customers, with no separate charge, approximately fifty per cent of the most commonly used light bulbs. The cost to the utility of maintaining this program was approved by the State public utility commission as one aspect of the tariffs filed by the utility. The Court formulated the issue tendered in terms of whether the Parker rationale immunizes private action which has been approved by a State and which must be continued while the state approval remains effective. Id. at 581. Reversing the United States Court of Appeals for the Sixth Circuit, the Court held that the State's regulatory approval was insufficient to invoke the Parker immunity. In its analysis of the case, the Court offered two possible rationales for holding private conduct immune from Federal antitrust attack. First, it noted the potential injustice of holding a private actor liable for simply [obeying] the command of his state sovereign; second, the Court suggested that if the State is already regulating an area of the economy, it is arguable that Congress did not intend to superimpose the antitrust laws as an additional, and perhaps conflicting, regulatory mechanism. Id. at 592. The Court then noted that where the option to initiate the challenged program lay primarily in the private actor's hands, there was no inherent injustice in requiring that the utility conform its conduct to Federal law. Id. at 594; Second, and perhaps of more significance to the instant case, the Court found no logical inconsistency between requiring [the utility] to meet [State] regulatory criteria in so far as it is exercising its natural monopoly powers and also to comply with antitrust standards to the extent that it engages in business activity in competitive areas of the economy. Id. at 596. Thus, where the State's regulatory interest could not be considered to extend to the market in light bulbs, the possibility of Federal and State policy conflict was absent. Id. at 584-585, 596; see Bates v. State Bar, supra at 361; Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 419 (1978) (emphasizing the importance of a clearly and affirmatively expressed State policy requiring the anti-competitive restraint as part of a comprehensive regulatory system). In deciding whether Blue Shield's current methods of compensation are compelled by State policy, we understand that we are to look to at least the following factors: any indication that in enacting G.L.c. 176B the Legislature sought to restrain competition in the market for physicians' services; the nature of and extent of the Commissioner's regulatory powers; and the degree to which any State interests involved could be accommodated by a method of compensation with a lesser effect on competition. See, e.g., Sound, Inc. v. American Tel. & Tel. Co., 631 F.2d 1324, 1334 (8th Cir.1980); George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 424 F.2d 25, 30 (1st Cir.1970). We conclude that, under this analysis, Blue Shield's current method of compensation is not required by any express State policy. First, to the extent that the Legislature, in enacting G.L.c. 176B, was concerned at all with the market in physicians' services, that concern appears to have been limited to providing a means whereby persons of average and low income could obtain otherwise unaffordable medical care. The clearest indication of this limited purpose is the fact that for the first twenty-six years of its operation, Blue Shield limited service benefits, with the Commissioner's approval, to subscribers who met certain income requirements. It is apparent that neither Blue Shield nor the Commissioner during this period believed that G.L.c. 176B required the extension of service benefits beyond this population. This limited view of the purpose of G.L.c. 176B is supported by other materials which, while they do not constitute formal legislative history, nevertheless shed light on the contemporary understanding of the Blue Shield program. We have previously relied on such materials in determining legislative intent. See Pereira v. New England LNG Co., 364 Mass. 109, 115 (1973). The draft legislation which was enacted as G.L.c. 176B was introduced by the Massachusetts Medical Society. After its introduction, the Medical Society observed in its official journal that the legislation was submitted as evidence of a sincere effort on the part of the Massachusetts Medical Society to meet the present-day problems of low-income groups in regard to paying for medical care. Medical Service Corporations, 224 New England J. Med., No. 3, 124 (1941). In 1962, the Legislature empanelled a Special Commission to Investigate and Study the Laws relative to Non-Profit Hospital and Medical Service Corporations, and the Rising Cost of Hospital and Medical Care and Hospital Accommodations (Special Commission); the Special Commission's Final Report was filed in 1964. See 1964 Senate Doc. No. 958. The Special Commission specifically noted that both service and indemnity benefits were contemplated under G.L.c. 176B, and linked the provision of service benefits to Blue Shield's corporate purpose. Simply stated, the fundamental purpose of ... Blue Shield is to make available at the lowest possible premium cost, to the average and below average income citizen ... a plan whereby the medical and surgical needs of himself and his family would be paid for in full at the time of such need. Id. at 142. See also id. at 182 (recommending that the service-benefit features of Blue Shield contracts be retained in order to retain its purpose of serving the average and below average income subscribers). While the Special Commission's report cannot be taken as an indication of original legislative intent, it does reflect the contemporary understanding of the underlying purposes of Blue Shield. The conclusion is inescapable that no one familiar with the legislative scheme, either at its inception or immediately prior to the adoption of the present method of compensation, believed that it required the near universal provision of service benefits which is now subject to challenge. The second dimension to the defendants' State action argument is that G.L.c. 176B gives the Commissioner pervasive regulatory powers over Blue Shield, and that since 1968 he has exercised those powers to compel the extension of service benefits at their present level. Our review of the Commissioner's powers convinces us that his approval of the usual and customary method of compensation does not constitute State action for the purposes of antitrust immunity. In Nelson v. Blue Shield of Mass., Inc., 377 Mass. 746, 750 (1979), we held that G.L.c. 176B establishes a comprehensive scheme for the public supervision of medical service corporations. In support of this conclusion, we noted the Commissioner's power of approval over Blue Shield's articles of organization (§ 2), by-laws (§ 3), the form of its agreements with participating providers and its methods of compensating them (§ 4), as well as the certificates issued to, and the rates charged, subscribers (§§ 4, 6). Id. By G.L.c. 176B, § 4, the Commissioner is specifically required to approve in writing Blue Shield's methods of compensating providers. This language was inserted by St. 1968, c. 432, § 9; prior to this amendment, § 4 required the Commissioner to approve Blue Shield's rates of compensation. Under the prior law, we noted that because physician fee schedules are the primary determinants of the rates charged to Blue Shield's subscribers, the express standards governing the Commissioner's approval of rates to subscribers are implicitly the standards to be applied by the Commissioner ... in determining the rates at which the physicians are to be compensated.... It follows that the Commissioner may disapprove the fee schedule only if the fees are inadequate, excessive or unfairly discriminatory. Massachusetts Medical Serv. v. Commissioner of Ins., 344 Mass. 335, 338-339 (1962). There is no reason to think that the substitution, in 1968, of the word methods for the word rates implied any change in the Commissioner's role under § 4. Thus, following our analysis in Massachusetts Medical Serv. v. Commissioner of Ins., supra at 339, we think that the present § 4 does not give the Commissioner power to establish Blue Shield's methods of compensation, but only to disapprove them if they are outside the range of reasonableness. Cf. Hathaway v. Commissioner of Ins., 379 Mass. 551, 554 (1980). (St. 1968, c. 432, § 9, indicates no intention to have physicians' fees fixed by the Commissioner.) The above analysis leads us to the conclusion that although the usual and customary charge method of compensation may represent a reasonable accommodation of the various interests involved in establishing Blue Shield's rates of reimbursement to participating physicians, it is only one among a range of methods that the Commissioner would be required to approve. At least to the extent that it goes beyond the statutory policy of providing service benefits to low income subscribers, it cannot be said to be required by the State. Cf. Cantor v. Detroit Edison Co., supra, at 584-585.