Court Opinion

ID: 4129234
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:49:18.169927+00
Date Added: 2024-06-11T12:51:56.526505
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OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

   JOHN      CORNYN

                                                December 27,200l

The Honorable Patrick B. Haggerty                           Opinion No . JC-0447
Chair, House Corrections Committee
Texas House of Representatives                              Re: Whether a hospital may contract exclusively
P. 0. Box 2910                                              with a single medical insurance provider
Austin, Texas 78768-29 10                                   (RQ-0407-JC)

Dear Representative       Haggerty:

         You ask about the authority of a hospital to enter into an “exclusive” point-of-service,
member hospital contract with a group hospital corporation.’ We understand that you are concerned
that such a contract violates the Texas Free Enterprise and Antitrust Act of 1983. See TEX. BUS. &
COM. CODEANN. 44 15.01-.52 (Vernon 1987 & Supp. 2002) (the “Act”).* Generally, it is beyond
the purview of the opinion process to construe particular contracts and investigate or make findings
of fact. Even assuming that the contract in question is an “exclusive” contract, we cannot provide
a definitive response. Exclusive dealing arrangements do not, as a matter of law, violate the Act.
Whether a particular exclusive contract violates the Act depends on whether it has an actual adverse
effect on competition in the relevant market by foreclosing competition in a substantial share of that
market.

         By way of background, a point-of-service health benefit plan is similar to a preferred
provider health benefit plan.3 A fundamental feature of such a managed care plan is that health care
coverage is offered through a network of health care providers that contract with the health plan or
insurer. See ERS Letter, sup-a note 3, at 2. The contracts are negotiated to enable the health plan
or insurer to obtain the lowest possible health care service rates from the network health providers
for the individuals covered by the plan, and the provider a guaranteed volume of business from the
plan’s participants. See id.

          ‘See Letter from Honorable Patrick B. Haggerty, Chair, House Corrections Committee, Texas House of
Representatives,   to Honorable John Cornyn, Texas Attorney General (July 26,200l) [hereinafter Request Letter] and
attached “dictation” from Lawrence P. Boyle, M.D. (July 18,200l) (on file with Opinion Committee) [hereinafter Dr.
Boyle Dictation].

           2You do not indicate the laws that the particular contract violates. See generali’y Request Letter, supra note
 1. However, the dictation from Lawrence P. Boyle, M.D., states that the contract “might involve federal antitrust
legislation or perhaps State Attorney General legislation.” See Dr. Boyle Dictation, supra note 1, at 4.

        3See Letter from Paula A. Jones, General Counsel, Employees Retirement System of Texas, to Honorable        John
Cornyn, Texas Attorney General (Oct. 3,200l) (on file with Opinion Committee) [hereinafter ERS Letter].
The Honorable Patrick B. Haggerty          - Page 2      (JC-0447)

         The specific contract giving rise to your request is the “Member Hospital Contract (Point of
Service (POS) Program)” between Huntsville Memorial Hospital, a private Texas nonprofit
corporation (“Memorial Hospital”), and Blue Cross and Blue Shield of Texas, Inc., a Texas group
hospital corporation (BCBSTX).4 Under the Contract, in exchange for an agreed reimbursement
rate, Memorial Hospital has contracted to provide certain health care services to subscribers of
BCBSTX or BCBSTX-affiliated          health plans. See Memorial Hospital Brief, supra note 4, at 5?
These services are provided at the facility also known as the Huntsville Memorial Hospital (the
“Hospital Facility”), which Memorial Hospital leases from the Walker County Hospital District (the
“Hospital District”). See Memorial Hospital Brief, supra note 4, at 4. The Hospital District is not
a party to the Contract. See Contract, supra note 4, at 1. In 1998, Memorial Hospital and BCBSTX
amended the Contract to provide that the Hospital Facility would be the only facility in Walker
County under contract with BCBSTX for the provision of ambulatory surgery services and that
BCBSTX would not contract with another ambulatory surgery center in the county without the
written consent of Memorial Hospital. See Memorial Hospital Brief, supra note 4, at 5; Huntsville
Surgery Brief, supra note 5, at l-2. In 2001, the parties again amended the Contract to provide that
the Hospital Facility would be the only facility in Walker County under contract with BCBSTX for
the provision of medical imaging services, specifically magnetic resonance imaging (“MRI”) and
computer tomography (“CT”) scans for two years. See Memorial Hospital Brief, supra note 4, at
5; Huntsville Surgery Brief, supra note 5, at 2. In return, Memorial Hospital further decreased its
hospital service fees, resulting in additional savings to BCBSTX. See Huntsville Surgery Brief,
supra note 5, at 2. The significance of the Contract and the two amendments is that services at the
Hospital Facility are compensated by BCBSTX at “in-network” or higher rates; services offered by
other medical providers in Walker County are compensated by BCBSTX at “out-of-network” or
lower rates. See Memorial Hospital Brief, supra note 4, at 5; Huntsville Surgery Brief, supra note
5, at 3.

         Huntsville Surgery Center, a private outpatient surgery center (“Huntsville Surgery”),
contends that because the Contract prevents Huntsville Surgery from becoming an “in-network”
provider, the Contract is an “exclusive” contract that by “its very nature” violates the Texas Free
Enterprise and Antitrust Act. See Huntsville Surgery Brief, supra note 5, at 4, 5, 10. Huntsville
Surgery does not contend that Memorial Hospital is a public hospital. See id., supra note 5, at 4. Nor
is Huntsville Surgery concerned with the latter’s status as a private or public entity, “but rather [with]
the exclusivity of [the] preferred provider arrangement.” Id., supra note 5, at 4. Memorial Hospital
disputes, first, that the Contract is exclusive, and second, even assuming that it is exclusive, that it
violates the Act. See Memorial Hospital Brief, supra note 4, at 9.

           4See “Member Hospital Contract (Point of Service (POS) Program)” at 1 [hereinafter Contract], attached at
subdivision “J” to Brief submitted on behalf of Huntsville Memorial Hospital, from Michael L. Spain, Fulbright &
Jaworski, L.L.P. (Oct. 2,200l) (on file with Opinion Committee) [hereinafter Memorial Hospital Brief].

        ‘See also Brief submitted on behalf of Huntsville Surgery Center, from Jerry W. Baker, Fairchild, Price,
Thomas, Haley & Willingham, L.L.P. (Oct. 2,200l) (on file with Opinion Committee) [hereinafter Huntsville Surgery
BriefJ.
The Honorable Patrick B. Haggerty         - Page   3    (~~-0447)

         Generally, it is beyond the purview of the opinion process to construe contracts or scrutinize
particular contractual arrangements, especially those between private entities, and to determine
whether they satisfy specific statutory requirements         or are otherwise legally permissible.6
Additionally, this office does not undertake investigations or make findings of facts in the opinion
process.7 Accordingly, even assuming here that public interests rather than private interests are
affected by the Contract and assuming that it is an “exclusive” contract, we cannot determine
whether it violates the Act. Such a determination requires investigation, presentation, and weighing
of factual data regarding the adverse effects of the Contract in the “relevant market” that is clearly
beyond the purview of an attorney general opinion. While we cannot provide a definitive response
to your question, we provide the general legal criteria for assessing whether an exclusive contract
violates the Act with the following caveat: It is beyond the scope of an attorney general opinion to
provide an exhaustive treatment of antitrust law, and we do not purport to do so here.

         The Act’s stated purpose is to “maintain and promote economic competition in trade and
commerce. . . and to provide the benefits of that competition to consumers in the state.” TEX. BUS.
& COM. CODE ANN. 9 15.04 (Vernon 1987); see also Caller-Times Pub1 ‘g Co. v. Triad
Communications, 826 S.W.2d 576,58 1 (Tex. 1992) (Act’s purpose is to protect competition and not
individual competitors).     The legislature adopted the Act in 1983 as a “sweeping reform of the
former Texas antitrust act originally passed in 1889, one year before Congress passed the Sherman
Antitrust Act,” and “to update Texas antitrust law and afford courts broader powers of protection
than that provided by the ‘laundry list’ of particular violations set out in” the earlier law. Caller-
Times, 826 S.W.2d at 579-80. It is modeled on both the federal Sherman Antitrust Act and the
Clayton Act. See id. at 580. Consistent with its foundation in federal law, section 15.04 of the Act
provides that it is to be interpreted in harmony with federal judicial interpretations of comparable
federal law. See TEX. BUS. & COM. CODE ANN. 5 15.04 (Vernon 1987); Caller-Times, 826 S.W.2d
at 580. This provision gives the Texas Supreme Court “wide latitude in developing an appropriate
test” when the United States Supreme Court has not developed a test for a particular type of antitrust
violation. See id. at 580-8 1. Significantly, the Texas Supreme Court is not bound by the decisions
of the Fifth Circuit when there is no United States Supreme Court precedent. See id.

        Huntsville Surgery’s contention, as we understand it, is that the Contract unlawfully restrains
trade or creates a monopoly in violation of sections 15.05(a) and 15.05(b) of the Act. See Huntsville
Surgery Brief, supra note 5, at 5. Those subsections provide as follows:

                (a) Every contract, combination,        or conspiracy in restraint of trade
                or commerce is unlawful.

        6SeeTex. Att’y Gen. LO-94-00 1, at 2.

        ‘See, e.g., Tex. Att’y Gen. Op. Nos. JC-0032(1999) at 4; JC-0027(1999) at 3; JC-0020 (1999) at 2.
The Honorable Patrick B. Haggerty             - Page 4          (JC-0447)

                 (b) It is unlawful for any person to monopolize,  attempt            to
                 monopolize,   or conspire to monopolize any part of trade            or
                 commerce.

Id. 5 15.05(a), (b) (V emon Supp. 2002). We consider each subsection in turn.

         Subsection (a), making contracts that restrain trade unlawful, is comparable to and taken from
section 1 of the Sherman Antitrust Act, 15 U.S.C. 5 1. See DeSantis v. Wackenhut Corp., 793
S.W.2d 670, 687 (Tex. 1990). Not every contract in restraint of trade is unlawful under section 1
of the Sherman Antitrust Act, but only those contracts that unreasonably restrain trade, i.e., those that
fail the “rule of reason” test. See DeSantis, 793 S.W.2d at 687 (citing Standard Oil Co. v. United
States, 221 U.S. 1 (1911) and UnitedStates v. Am. Tobacco Co., 221 U.S. 106 (1911)). The focus
of the “rule of reason” test is whether the restraint promotes or suppresses competition.         See id.
(citing Chicago Bd. of Trade v. United States, 246 U.S. 23 1 (1918) and Cont ‘1 T V., Inc. v. GTE
Sylvania, Inc., 433 U.S. 36 (1977)).

         Some restraints on trade have an inherently pernicious effect upon competition and are “per
se” unreasonable. See Cont’l T.V., 433 U.S. at 36-37 (1977); see also Jefferson Parish Hosp. Dist.
v. Hyde, 466 U.S. 2,9 (1984) (“A price fixing agreement between competitors is the classic example
of [a ‘per se’ unreasonable] arrangement.“). Under the “per se” rule, a restraint on trade that seldom
serves any purpose other than to restrain competition is illegal without proof of market power or
anticompetitive effect. See Jefferson Parish Hosp. Dist. 466 U.S. at 33 (O’Connor, J., concurring).
A price fixing agreement between competitors is an example of a “per se” illegal contract. See id.
at 9. Agreements to refuse to deal with non-members of an association or to license a patented
device on condition that unpatented materials be used in conjunction with the patented device are
additional examples of “per se” illegality. See id. at 11, n. 10.

         Arrangements that are not “per se” unreasonable are analyzed using the “rule of reason” test.
To establish a violation under the “rule of reason” test, it is necessary to prove that a contract has an
actual adverse effect on competition in the relevant market, and establish the relevant market. See
DeSantis, 793 S.W.2d at 688 (citing Consultants & Designers, Inc. v. Butler Serv. Group, Inc., 720
F.2d 1553 (11 th Cir. 1983) and Aydin Corp. v. Loral Corp., 718 F.2d 897 (9th Cir. 1983)); see also
Winston v. Am. Med. Int ‘l., 930 S.W.2d 945, 95 l-52 (Tex. App.-Houston            [ 1st Dist] 1996, writ
denied).

         Exclusive dealing contracts generally are not “per se” violations of section 1 of the Sherman
Antitrust Act. See Jefferson Parish Hosp. Dist., 466 U.S. at 2 (upholding contract providing that all
anesthesiologist services required at hospital would be provided by single anesthesiologist firn~);~

        ’ As Justice O’Connor   explained   in her concurring    opinion:

                                                                                             (continued..   .)
The Honorable Patrick B. Haggerty              - Page 5       (JC-0447)

Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) (upholding contract requiring utility
company to purchase all coal needed at generating plants from a single supplier); Surgical Care Ctr.
v. Hosp. Serv. Dist., No. CIV.A.97-1840,200l        WL 8586 (E.D. La. Jan. 3,200l) (upholding hospital
contract with health maintenance organizations and preferred provider organizations designating
hospital as sole health service provider in designated area in exchange for discounted charges);
Gonzalez v. San JacintoMethodist Hosp., 880 S.W.2d 436 (Tex. App.-Texarkana 1994, writ denied)
(concluding that hospital’s exclusive contract for anesthesiologist services did not violate Act in
absence of actual adverse effect on competition).        In Tampa Electric, the United States Supreme
Court explained that an exclusive dealing contract does not violate the antitrust laws “unless the
court believes it probable that performance of the contract will foreclose competition in a substantial
share of the line of commerce affected.” Tampa Elec., 365 U.S. at 327. This analysis requires
consideration of the area of competition for the product or service - the relevant market - and a
finding that “opportunities for other traders to enter into or remain in the market [are] significantly
limited as was pointed out in Standard Oil Co. v. United States, supra.” Id. at 328. Similarly, in
Jefferson Parish Hospital District, the Court stated that an exclusive contract does not violate section
1 of the Sherman Antitrust Act unless it unreasonably restrains competition. See Jefferson Parish
Hosp. Dist., 466 U.S. at 29. Moreover, “[wlithout a showing of actual adverse effect on competition,
respondent cannot make out a case under the antitrust laws . . . .” Id. at 3 1. Finally, in a concurring
opinion in that case, four of the justices reiterated that exclusive dealing is an unreasonable restraint
on trade only when a significant fraction of buyers or sellers are frozen out of the market. See id.
at 45 (O’Connor, J., concurring) (citing Standard Oil Co. v. United States, 337 U.S. 293 (1949)).

         Even when it is alleged that an exclusive contract involves an illegal “tie” - a form of
marketing in which a seller insists on selling two distinct products or services as a package -
application of the “per se” rule is limited to situations where the seller has the market power to force
purchase of a product or service that would not otherwise be purchased from the seller. See id. at
1 l-l 5; see also San Jacinto Methodist Hosp., 880 S.W.2d at 441-42. Without evidence of this
“forcing” market power, a “tying” is not illegal. See Jefferson Parish Hosp. Dist., 466 U.S. at 16-
19; see also id. at 34-35 (O’Connor, J., concurring) (“per se” doctrine in tying cases has always

         ‘(...continued)
                     Exclusive dealing arrangements may, in some circumstances,          create or extend
                     market power of a supplier or the purchaser party to the exclusive dealing
                     arrangement, and may thus restrain horizontal competition. Exclusive dealing can
                     have adverse economic consequences [on consumers] by allowing one supplier of
                     goods or services unreasonably    to deprive other suppliers of a market for their
                     goods, or by allowing one buyer of goods unreasonably to deprive other buyers of
                     a needed source of supply. In determining whether an exclusive dealing contract
                     is unreasonable, the proper focus is on the structure of the market for the products
                     or services in question--the number of sellers and buyers in the market, the volume
                     of their business, and the ease with which buyers and sellers can redirect their
                     purchases or sales to others.

Jefferson Parish   Hosp. Dist. v. Hyde, 466 U.S. 2,45 (1984) (O’Connor, J., concurring).
The Honorable Patrick B. Haggerty       - Page 6    (JC-0447)

required elaborate inquiry into economic effects of tying arrangement because Court has never been
willing to say that arrangement is always illegal, without proof of market power or anticompetitive
effect); see also Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28 F.3d 1379, 1382 (5th Cir. 1994)
(“per se” illegality makes sense when describing price fixing or horizontal market division, but is
confusing with respect to illegal tie because it requires market power analysis as predicate to “per
se” illegality).

        Because an exclusive dealing arrangement is generally not a “per se” violation of the antitrust
laws, a particular exclusive contract, such as the Contract here, would be subject to the “rule of
reason” test under section 15.05(a) of the Act: To constitute an unlawful restraint on trade, the
Contract must have an actual adverse effect on competition in the relevant market by foreclosing
competition in a substantial share of that market. To establish that the Contract restrains trade,
Huntsville Surgery would be required to provide evidence of the Contract’s actual adverse effects
on competition in the relevant market - by foreclosing competition in a substantial share of that
market - and establish the relevant market.

        We next consider section 15.05(b), which is comparable to section 2 of the Sherman Antitrust
Act: both make it unlawful for a person to monopolize or attempt to monopolize. See Caller-Times,
826 S.W.2d at 5 80. “Monopoly power is the power to control price or exclude competition.” United
States v. E.I. duPont de Nemours & Co., 351 U.S. 377,391 (1956).

         An unlawful monopoly or attempted monopoly under section 15.05(b) requires a showing
that an entity has through some anticompetitive act acquired or maintained monopoly power, such
as to control price or exclude competition, or that there is a dangerous probability that it will acquire
such monopoly power through some anticompetitive act. The elements necessary to establish a
completed monopoly under these sections are “( 1) the possession of monopoly power in the relevant
market and (2) the willful acquisition or maintenance of that power, as distinguished from growth
or development as a consequence of a superior product, business acumen, or historical accident.”
Caller-Times, 826 S.W.2d at 580 (citing United States v. Grinnell Corp., 384 U.S. 563, 570-71
(1966)). With respect to the first element, an assessment of monopoly or market power requires a
definition of the relevant market. See Roy B. Taylor Sales, 28 F.3d at 1386; see also E.I. duPont,
35 1 U.S. at 393 (“Illegal [monopoly] power must be appraised in terms of the competitive market
for the product.“). The relevant market is, in turn, defined by the product or service and the
geographic area in which it is sold. See Roy B. Taylor Sales, 28 F.3d at 1386. Absent special
circumstances, courts have generally required a market share higher than fifty percent of the relevant
market to support a finding of monopoly. See Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732
F.2d 480,489 (5th Cir. 1984). The second element of completed monopoly requires a showing of
some “predatory” or “anticompetitive”      act. See Caller-Times, 826 S.W.2d at 580. Turning to
attempted monopoly, the necessary elements are “( 1) . . . predatory or anticompetitive conduct with
(2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.”
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Demonstrating              the dangerous
The Honorable Patrick B. Haggerty     - Page 7     (~~-0447)

probability of monopolization in an attempt case also requires an inquiry into the relevant product
and geographic market and a defendant’s economic power in that market. See id. at 459.

         Huntsville Surgery does not elaborate on its contention that the Contract violates section
15.05(b).    Presumably, the Contract is the anticompetitive     act of which Huntsville Surgery
complains. It is unclear, however, whether Huntsville Surgery believes that Memorial Hospital or
BCBSTX has acquired or maintained an illegal monopoly or attempted such monopoly. In any case,
to prove either an illegal monopoly or attempted monopoly, Hunstville Surgery would have to
establish that Memorial Hospital or BCBSTX has the requisite market power in the relevant market.

         Huntsville Surgery asserts that the Contract is unlawful, as a matter of law, under section
 15.05(a) and (b) of the Act, relying on Southern Health Ass ‘n v. Harris Memorial Methodist
Hospital, 180 S.W.2d 169 (Tex. Civ. App.-Fort Worth 1944, writ ref d w.o.m.). See Huntsville
Surgery Brief, supra note 5, at 7-8. Huntsville Surgery’s reliance on this case as dispositive of the
“per se” illegality of the Contract is misplaced. See id. In Southern Health, the court opined that
an exclusive hospitalization agency contract between a hospital - Harris Memorial Methodist
Hospital - and an insurance company restricting insured policy holders to hospital services at
Methodist Hospital violated the state’s antitrust laws. See S. Health, 180 S.W.2d at 176. As
Huntsville Surgery acknowledges, this case was decided well before the prevalence of health
maintenance organizations and preferred provider organizations.       See Huntsville Surgery Brief,
supra note 5, at 7. But more importantly, it was decided under the state’s 1889 version of the
antitrust laws, when Texas courts did not interpret its provisions consistently with federal antitrust ’
law. See Red Wing Shoe Co. v. Shearer’s Inc., 769 S.W.2d 339,342-43 (Tex. App.-Houston             [lst
Dist.] 1989, no writ) (holding that 1983 amendment to state antitrust laws overruled former law
holding vertical nonprice restrictions illegal “per se”; such restraints subject to “rule of reason”
analysis applied by federal courts and adopted by 1983 Act); see also DeSantis, 793 S.W.2d at 688
(post-employment    noncompetition agreement does not violate section1 5.05(a) of Act unless it fails
the same “rule of reason” analysis that would be applied under federal law). Southern Health ‘s
analysis does not reflect antitrust jurisprudence under the Act.

         Additionally, Huntsville Surgery contends that the Contract is unlawful because BCBSTX
did not follow the contracting procedures applicable to “Preferred Provider Benefit Plans” set out
in section 3 of article 3.70-3C of the Insurance Code. See Huntsville Surgery Brief, supra note 5,
at 9. Section 3 of article 3.70-3C provides as follows:

               (a) A health insurance policy that includes different benefits from the
               basic level of coverage for use of preferred providers shall not be
               considered    unjust under Article 3.42 of this code, or unfair
               discrimination under Article 2 1.2 l-6, added by Chapter 415, Acts of
               the 74th Legislature, 1995, or Article 21.21-8 of this code or to
               violate Subsection (B), Section 2, Chapter 397, Act of the 54th
               Legislature, 1955 (Article 3.70-2, Vernon’s Texas Insurance Code),
The Honorable Patrick B. Haggerty     - Page 8     (JC-0447)

              or Article 21.52 of this code, if it meets the requirements       of this
              section.

              (b) (1) Physicians, practitioners, institutional providers, and health
              care providers other than physicians, practitioners, and institutional
              providers, if such other health care providers are included by the
              insurer as preferred providers, licensed to treat injuries or illnesses or
              to provide services covered by the health insurance policy that
              comply with the terms and conditions established by the insurer for
              designation as preferred providers may apply for and shall be
              afforded a fair, reasonable, and equivalent opportunity to become
              preferred providers.    Such designation shall not be unreasonably
              withheld.

                   (2) If a designation as a preferredprovider  is withheld relating
             to a physician orpractitioner, the insurer shallprovide a reasonable
             review mechanism that incorporates, in an advisory role only, a
             reviewpanel. Any recommendation of the panel shall be provided on
             request to the affected physician or practitioner. In the event of an
             insurer determination contrary to any recommendation of the panel,
             a written explanation of the insurer’s determination shall also be
             provided on request to the affected physician or practitioner.

                     (4) The insurer must give a physician or health care provider
              not designated on initial application written reasons for denial of the
              designation; however, unless otherwise limited by this code, this
              section does not prohibit an insurer from rejecting an application
             from a physician or health care provider based on a determination
              that the preferred provider benefit plan has sufficient qualified
             providers.

             (c) Any insurer, when sponsoring a preferred provider benefit plan,
             shall immediately nottfi, by publication or in writing to each
             physician and practitioner, all physicians and practitioners in the
             geographic area covered by the plan of its intent to offer such a plan
             and of the opportunity to participate. Such notice and opportunity
             shall be provided on a yearly basis thereafter to noncontracting
             physicians and practitioners in the geographic area covered by the
             plan. The insurer shall on request make available to any physician or
             health care provider information concerning the application process
The Honorable Patrick B. Haggerty             - Page 9      (JC-0447)

                   and qualification    requirements      for participation   as a provider in the
                   plan.

TEX. INS. CODEANN. art. 3.70-3C 8 3(a), (b), (c) (V emon Supp. 2002) (emphasis                       added).

         Huntsville Surgery specifically alleges that (1) it was not provided the opportunity to
participate in the preferred provider benefit plan; (2) it has been unable to apply for participation;
(3) no review panel has been employed to review the withholding of the preferred provider status;
(4) BCBSTX has not given any reasons for denial of the designation; and (5) Huntsville Surgery’s
“designation as a preferred provider has been unreasonably withheld, and this withholding is solely
due to the exclusive contract between” Memorial Hospital and BCBSTX. See Huntsville Surgery
Brief, supra note 5, at 10.

          While an insurer must follow the procedures set out in article 3.70-3C, section 3 in
contracting with preferred health providers to the extent applicable,’ a health care provider is not
entitled to a designation as a preferred provider. The statute only requires that the designation “shall
not be unreasonably withheld.” TEX. INS.CODE ANN. art. 3.70-3C 8 3(b)( 1) (Vernon Supp. 2002).
An insurer may reject a health care provider’s application for preferred provider designation based
on a determination that the preferred provider benefit plan has sufficient qualified providers. See
id. 8 3(b)(4). Withholding a preferred provider designation based on such a determination is
statutorily “reasonable.” See id. 8 3(b)(l), (4).

         If BCBSTX has determined that its Contract with Memorial Hospital provides sufficient
“qualified providers” in the geographic area, nothing in the statute requires that it nonetheless
contract with another health provider. See id. 8 3 (b)(4). Whether BCBSTX’s determination is
unreasonable - which appears to be the essence of Huntsville Surgery’s contentions - involves
questions of fact. Similarly, determining whether BCBSTX’s failure to comply with the procedural
requirements of the statute, assuming the truth of Huntsville Surgery’s assertions, is fatal in light of
BCBSTX’s contractual obligation with Memorial Hospital also involves questions of fact. In any
case, the Texas Department of Insurance is the appropriate entity, in the first instance, to investigate
and determine whether BCBSTX has violated section 3 of article 3.70-3C. See TEX. INS.CODEANN.
9 3 1.002 (Vernon 2002) (Texas Department of Insurance shall regulate the business of insurance and
ensure that the Insurance Code and other laws regarding insurance are executed.).

          ‘Memorial Hospital argues that because Huntsville Surgery is not a “physician” or a “practitioner,” BCBSTX
is not required to give notice and opportunity to participate on an annual basis under section 3(c) or provide a “review
panel” under section 3(b)(2). See Supplemental Brief submitted on behalf of Huntsville Memorial Hospital, from
Michael L. Spain, Fulbright & Jaworski, L.L.P., at 2-4 (Oct. 22, 2001) (on file with Opinion Committee).
The Honorable Patrick B. Haggerty    - Page 10     (JC-0447)

                                       SUMMARY

                         Whether a particular exclusive contract between a public or
               private hospital and a medical insurance provider violates the Texas
               Free Enterprise and Antitrust Act of 1983 depends on whether it has
               an actual adverse effect on competition in the relevant market by
               foreclosing competition in a substantial share of that market.
               Exclusive dealing arrangements do not, as a matter of law, violate the
               Act.

                                              Ve    truly your

                                             4 cl  Qv
                                              JOIj[N   CORNYN
                                              Attorney General of Texas

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee