Indiana Law Review


Antitrust Liability for Collective Speech:

Medical Society Practice Standards

Mark R. Patterson*

While it would probably be excessive to say that the fox is

guarding the chicken coop, it is undeniable that a great many
critical judgments in [the medical] field are being made by persons
with a direct economic stake in particular outcomes .... The
vast majority of physicians and their organizations sincerely
believe that they are acting in the public interest. Yet this is

not enough. To be genuinely well served, the public must have
assurance that those in control are responsive to consumer needs.

—Former F.T.C. Chairman Michael Pertschuk'

Introduction

In the provision of professional services,^ as in other commerci-

al arrangements, the antitrust laws are intended to preserve competi-

* The Ohio State University, B.S.E.E., 1978, M.S. 1980; Stanford Law School,
J.D., 1991. The author practices in Boston, Massachusetts. Currently, however, he is

serving as law clerk to Justice John M. Greaney of the Supreme Judicial Court of
Massachusetts. The views expressed in this Article are those of the author alone.

1. Statement prepared for presentation to the Subcommittee on Health and Sci-

entific Research of the United States Senate, Oct. 10, 1977, quoted in American Medical

Ass'n V. F.T.C, 638 F.2d 443, 455 (2d Cir. 1980) (Mansfield, J., dissenting), aff'd by

an equally divided Court per curiam y 455 U.S. 676 (1982).

2. This Article focuses particularly on medical services. In part, that is because

it responds to several recent decisions regarding standard-setting in medical societies. But

it is also because medical standard-setting remains a largely private activity, in contrast

to, for example, the same process in the legal profession, where standards of the American

Bar Association are often adopted by state supreme courts. See, e.g., Mass. Sup. Jud.

Ct. R. 3:07 (setting out "canons and rules [that] are based on but are not identical to

the American Bar Association 'Code of Professional Responsibility and Canons of Judicial

Ethics' (1970)"). State action in standard-setting is exempt from antitrust scrutiny to the

extent that the government involvement meets certain established requirements. See infra

text accompanying notes 1A\-A6.

The proposals made here are also relevant to non-professional standard-setting. How-
ever, non-professional standards present less of an antitrust problem for several reasons.

First, the members of industrial standard-setting organizations, unlike those of professional

societies, are in many cases not competitors in the field to which their standards apply.
Second, industrial organizations often do not possess, at least to the extent that professional

societies do, specialized expertise that the general public lacks. Finally, perhaps because

of their relative lack of specialized knowledge, industrial organizations are not deferred

to by the public as readily as are professional societies. See infra text accompanying notes

33-43.



52 INDIANA LAW REVIEW [Vol. 27:51

tion.^ Ideally, the laws protect the ability of consumers to receive the

professional services they desire and the ability of individual profession-

als to provide those services. In promoting this goal, the laws can

conflict with the activities of professional societies, which directly and

indirectly restrict the services provided by their members. The societies'

activities take a variety of forms, from establishing certification
requirements'* to enacting codes of ethics^ and practice standards,^ but

all are agreements^ imposing restraints of one form or another on

professional services.^ Of course, not all of the restraints are anticom-
petitive.^ Some benefit not only the professionals themselves, but also
the consumers of professional services as well. Establishing education

and training requirements, for example, both ensures that professionals

3. See Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975) ("The nature of

an occupation, standing alone, does not provide sanctuary from the Sherman Act, nor

is the public-service aspect of professional practice controlling in determining whether § 1

includes professions." (citations omitted)).

4. The basic functions of most professional societies are the establishment and

enforcement of membership credentials, which necessarily limit the activities of their

members, both prior to and after joining the society. See Paul Starr, The Social
Transformation of American Medicine 90-91 (1982) (noting that the formation of the

American Medical Association had two basic purposes: to standardize the requirements

for medical degrees and to adopt a code of professional ethics, "with its concern for

excluding sectarian and untrained practitioners"); Clark C. Havighurst & Nancy M. P.
King, Private Credentialing of Health Care Personnel: An Antitrust Perspective (pts. 1
& 2), 9 Am. J. L. & Med. 131, 9 Am. J. L. & Med. 263 (1983).

5. See, e.g., American Medical Association, Principles of Medical Ethics (1980);

Council on Ethical and Judicial Affairs, American Medical Association, Current Opinions

(1989) ("intended as an adjunct to the revised Principles of Medical Ethics").

6. See, e.g., American Society of Anesthesiologists, Basic Standards for Pre-

anesthesia Care (1987), Standards for Basic Intra-Operative Monitoring (1986) (amended

1992), Standards for Postanesthesia Care (1988) (amended 1992).

7. See 1 Phillip E. Areeda, Antitrust Law f 1477 (1986) ("Although the issue
is seldom discussed, trade associations are routinely treated as continuing conspiracies of

their members, as are bodies promulgating rules or standards for the competitive conduct

of their members, such as the National Society of Professional Engineers.").

8. Of course, professional societies today also serve an important educational role,
independent of their other functions. But the very importance of that role pressures

professionals to join and therefore to comply with the societies' requirements. See Mancur
Olson, The Logic of Collective Action: Public Goods and the Theory of Groups
139-40 (1971 ed.) ("The many technical publications of the American Medical Association,
and the state and local medical societies, also give the doctor a considerable incentive to

affiliate with organized medicine.").

9. As expressed in the Supreme Court's often-quoted statement establishing the

scope of the Sherman Act's § 1, "[t]he true test of legality is whether the restraint imposed

is such as merely regulates and perhaps thereby promotes competition or whether it is

such as may suppress or even destroy competition." Board of Trade of City of Chicago
V. United States, 246 U.S. 231, 238 (1918).



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 53

possess a basic level of competency and communicates information re-

garding that competency to consumers.'^

However, professional standards, especially in medicine, often go

well beyond the basic requirements for professional competence to

prescribe (or proscribe) particular methods of practice." Because there

are often differences of opinion regarding the appropriateness of par-

ticular services, especially when they are new,'^ the establishment of
standards inevitably places some professional services outside the of-
ficially accepted area of practice. Furthermore, the standards are gen-

erally established by a professional society's mainstream members, who
have a vested interest in continuing to practice by the profession's

established methods. In such a situation, where a group's economic

interests coincide with its regulatory power, skepticism regarding the

exercise of that power is warranted.'^ Indeed, at least one physician

has suggested that a doctor's evaluation of a controversial procedure

can depend on whether he profits from it.*"* Even putting aside the

problem of immediate economic incentives, it has been observed that

there is a general conservatism and reluctance to accept innovation

among professionals.'^

10. For discussions of both pro and anticompetitive aspects of the certification

process, see Havighurst & King, supra note 4.
11. See David M. Eddy, Practice Policies— What Are They?, 263 J. A.M.A. 877,

877 (1990) (They are "preformed recommendations issued for the purpose of influencing

decisions about health interventions."); see also Clark C. Havighurst, Practice Guidelines

for Medical Care: The Policy Rationale, 34 St. Louis U. L.J. 777 (1990) (describing

several recent initiatives, both private and public, that promote practice standards).

12. As an example, even a technique as widely accepted as magnetic resonance

imaging (MRI) was initially the subject of dispute. See Goodman v. Sullivan, 891 F.2d
449, 450 (2d Cir. 1989) (affirming denial of Medicare coverage for MRI treatment on
the ground that it was "not yet generally accepted in the medical profession"). See also

James S. Goodwin & Jean M. Goodwin, The Tomato Effect: Rejection of Highly Efficacious
Therapies, 251 J. A.M.A. 2387 (1984) (describing the medical establishment's rejection of

various effective treatments that did not fit its then-current theories).

13. See Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500
(1988) ("There is no doubt that the members of such [private standard-setting] associations

often have economic incentives to restrain competition and that the product standards set

by such associations have a serious potential for anticompetitive harm.").

14. See Gina Kolata, Amid Fears About a Fetal Test, Many Are Advising Against
It, N.Y. Times, July 15, 1992, at C13, col. 4 (quoting Dr. Benjamin Sachs, obstetrician-

gynecologist-in-chief at Beth Israel Hospital and Harvard Medical School as stating that

in the evaluation of chorionic villus sampling, a prenatal test, "there had been a very

unfortunate 'polarization, depending on whether people make money on the procedure"').

15. See, e.g., Gina Kolata, A Tradition of Caution: Confronting New Ideas, Doctors
Often Hold On to the Old, N.Y. Times, May 10, 1992, § 4, at 6, col. 1:

Doctors generally are "reactionary," said Dr. Jeffrey Isner, a cardiologist

at Tufts University School of Medicine. "As a group, they are relatively slow



54 INDIANA LAW REVIEW [Vol. 27:51

Of course, given the special expertise possessed by professionals,
it is not surprising that much information regarding the practice of
the profession originates with the profession itself. But it is exactly

the advantage in knowledge that professionals possess over the public

that creates a danger of anticompetitive activity. Because consumers

typically have not received professional training, they are unable to

effectively evaluate the professionals* claims for their services.'^ This

would not present a problem if each professional operated indepen-

dently, and was not subject to the influence of professional societies.

In that case, competing professionals would step in to provide alternative

descriptions of their services, and free competition would prevail. How-
ever, very little of the information received by consumers comes from

individual professionals.

Instead, professional societies have taken on the role of providing

a wide range of information and guidance, both to their members and
the public at large. Medical societies, of course, claim that this role

for professional groups is desirable and procompetitive.'^ Legal com-

mentators generally agree, asserting that the societies' production and

communication of information benefit the market because they provide

valuable professional expertise '^ and because they help remedy the

information advantage otherwise possessed by professionals.'^ This might

to accept new ideas. There is a lot of criticism—'Oh, it will never work.' 'Oh,
that's crazy.' A lot of negative responses."

Much of it is a reflection on medical school, specifically which students
are chosen and how they are trained. Dr. Isner said. "You spend a lot of time
learning and memorizing how you're supposed to deal with things," he explained.
"Now someone says, 'We're going to do it a different way,' That means all
your investment is worthless."

See also Joe Sims, Maricopa: Are the Professions Different?, 52 Antitrust L.J. 177,
177 (1983) ("[Another] significant distinction between the professions and other occupations

is that many in the former camp actively seek to discourage entrepreneurial efforts by
their counterparts, going so far as to seek to label as unethical (and thus presumably

bad) the use of normal business organization structure for the marketing of services.").

16. See Shapero v. Kentucky Bar Ass'n, 486 U.S. 466, 490 (1988) (O'Connor, J.,

dissenting) ("[M]arket forces, and the ordinary legal prohibitions against force and fraud,

are simply insufficient to protect the consumers of their necessary services from the peculiar

power of the specialized knowledge that [physicians and lawyers] possess.").

17. See American Medical Association, Legal Implications of Practice Par-

ameters (1990).

18. See Clark C. Havighurst, Applying Antitrust Law to Collaboration in the
Production of Information: The Case of Medical Technology Assessment, 51 Law &
Contemp. Probs., Spring 1988, at 341, 350 ("The participation of professional organizations

in technology debates . . . offers the public access to a valuable reservoir of knowledge

and insight.").

19. See Thomas L. Greaney, Quality of Care and Market Failure Defenses In



19931 MEDICAL SOCIETY ANTITRUST LIABILITY 55

be true if consumers were assured that the information were accurate,

or if, in case it were inaccurate, equally accessible alternative sources

of information were available. ^^ But when a large, respected group
gains a position of dominance from which its voice is virtually the

only one heard, its statements, if incorrect, have a great potential for

harm.2' This is especially true of a professional group, due to the

difficulty that outsiders have in evaluating that information.

Therefore, a professional society should not be permitted to issue

evaluations describing practices as appropriate or inappropriate without

ensuring that its statements leave the ultimate choice with consumers. ^^

For example, if there is a possibility that consumers may be misled
by its subjective evaluations, a society should confine its statements

to objective and verifiable facts.^^ The Supreme Court's opinions are
consistent with this view. Its opinions in both the antitrust and com-
mercial speech areas have demanded objectivity from professionals and
standard-setting organizations.^"^ Moreover, a society should not be

permitted to indirectly control consumer choices by determining which

Antitrust Health Care Litigation, 21 Conn. L. Rev. 605, 664 (1989) ("Information supplied

in this fashion—evaluating the scientific status of a procedure and the advisability of
routinizing it by deeming it non-'experimental'—obviously counteracts information asym-
metries in the health insurance market.").

20. See Havighurst & King, supra note 4 (pt. 1), at 154 n.72 ("Of course, where
a self-certified group of professionals enjoys a substantial degree of monopoly power,

there exists, by hypothesis, no close competitors who can be counted on to dispute its
unwarranted claims of superiority. In such a case, the primary hope must be for competition

to break out within the monopolistic group itself as individuals and subsets of providers

within the group seek to differentiate themselves from their supposed peers.").

21. See Martin Rose & Robert F. Leibenluft, Antitrust Implications of Medical
Technology Assessment, 314 N. Eng. J. Med. 1490, 1492 (1986) ("[S]ome concern about

antitrust implications is warranted, even in the case of the expression of the opinion of

a medical specialty society, if such expression is likely to have a substantial effect in the

marketplace.").

22. See Havighurst, supra note 18, at 353 ("[A] professional organization pro-

nouncing its opinions on medical technologies is quite likely to believe that its word should

be received not merely as advice, but as gospel. If the effect of its pronouncements is

to perpetuate a professional monopoly over crucial choices concerning medical care, there

would be a problem that might concern an antitrust court.").

23. See infra section III.A. A society may also require its members to refrain from
false or deceptive claims. See infra text accompanying notes 276-77.

24. See, e.g.. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492,
501 (1988) (stating that private standards should be "based on the merits of objective

expert judgments and through procedures that prevent the standard-setting process from

being biased by members with economic interests in stifling product competition."); Peel

V. Attorney Registration and Disciplinary Comm'n of 111., 496 U.S. 91, 110 (1990) (holding
that state licensing boards can require that professionals' advertisements be based on

"objective and consistently applied standards."); see also infra sections II. C. & II. D.



56 INDIANA LAW REVIEW [Vol. 27:51

medical services will be reimbursed by medical insurers. ^^ The medical

services market should be permitted to function free of the intervention

of groups of practitioners.^^ As the Supreme Court said in a medical
society case, the antitrust laws serve to prevent agreements that '*may

deter experimentation and new developments by individual entrepre-
neurs."^''

One would therefore expect the courts to provide a forum where
consumers or professionals suffering from the anticompetitive effects

of society standards could bring antitrust challenges to those standards.

However, to a great extent, the lower courts have failed to let antitrust

law meet that expectation. Until recently, courts often gave professional

standards ad hoc antitrust exemptions that would never be given to

agreements by other groups. The courts deferred to professional so-
cieties' judgments regarding, for example, the importance of the sci-

entific method in patient care.^^ More recently, in response to the
Supreme Court's explicit rejection of quality of care defenses,^^ courts

have relied instead on what they characterize as the purely advisory,

non-coercive nature of professional standards. ^^ This Article presents

25. See infra section III.B.

26. See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 462 (1986) ("The Federation
is not entitled to pre-empt the working of the market by deciding for itself that its

customers do not need that which they demand.").

27. Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 348 (1982).

28. See Wilk v. American Medical Ass'n, 719 F.2d 207, 227 (7th Cir. 1983)

(approving a jury instruction to the effect that even if the plaintiffs showed that the

defendants' actions restrained competition, rather than promoted it, the defendants would

not be liable if they could show **(1) that they genuinely entertained a concern for what

they perceive as scientific method in the care of each person with whom they have entered
into a doctor-patient relationship; (2) that this concern is objectively reasonable; (3) that

this concern has been the dominant motivating factor in defendants' promulgation of [the

standard at issue] and in the conduct intended to implement it; and (4) that this concern

for scientific method in patient care could not have been adequately satisfied in a manner

less restrictive of competition."), cert, denied, 467 U.S. 1210 (1984), There is no support

in the Sherman Act for this elevation of concern for the scientific method to a privileged

status. The Act is concerned not with the "competition of ideas" engendered by the

scientific method, but with the competition of the market, as even Wilk stated elsewhere

in the opinion. See 719 F.2d at 225 (rejecting the district court's jury instructions because

they were not "geared simply, clearly, and exclusively to the question whether the challenged

conduct promoted or suppressed competition").

29. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 25 n.41

(1984) ("[W]e reject the view of the District Court that the legality of an arrangement

of this kind [tying] turns on whether it was adopted for the purpose of improving patient

care."); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 694 (1978)

("[A] purchaser might conclude that his interest in quality—which may embrace the safety
of the end product—outweighs the advantages of achieving cost savings by pitting one
competitor against another.").

30. See, e.g., Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 57

two responses. First, coercion has never been a requirement for the

application of the antitrust laws.^' Second, even advisory standards can

have a significant anticompetitive impact, both on patients and on
insurers. ^^

The remainder of this Article is divided into four parts. Part I
provides an overview of the nature of the professional standards of

concern in the Article and discusses two recent cases challenging such

standards. Part II describes the applicable legal precedent, particularly

in the Supreme Court, regarding private standard-setting, and discusses
more generally the anticompetitive effects of private medical standards.
Part III offers proposals for determining antitrust liability for medical

standards and discusses how societies can avoid such liability. Part IV
concludes with a discussion of the role professional societies would

play if the proposals of Part III were adopted.

I. Medical Practice Standards

The specific standards of concern in this Article are those through
which medical societies influence their members' methods of practice. ^^

They include, for example, standards that regulate particular surgical
techniques^"* or that mandate the selection of specific medical personnel

to perform certain services.^^ It is in these aspects of professional

practice that standard-setting presents particular problems, for two

reasons. First, it is in these areas that professional judgment is most

important, and, therefore, where restrictions on that judgment can be
most harmful. Second, it is also in these areas that outside evaluation

of the standards is most difficult, due to the special expertise of

397, 397-98 (7th Cir. 1989) (''There can be no restraint of trade without a restraint. . . .

[The Academy] did not require its members to desist from performing the operation or

associating with those who do."); see also John E. Lopatka, Antitrust and Professional
Rules: A Framework for Analysis, 28 San Diego L. Rev. 301, 309 (1991) C'ObUgations'
that are not enforced have little relevance to an analysis of the antitrust implications of

professional rules." (footnote omitted)).

31. See infra section II.A.

32. See infra sections 11.B & II. C.
33. See Eddy, supra note 11, at 878 ("Practice policies are extremely versatile. In

addition to supporting individual decisions between practitioners and patients, practice

policies can be used to specify who should perform a practice ([e.g.], accreditation), how
it should be performed ([e.g.], performance criteria), where it should be performed ([e.g.],

inpatient vs[.] outpatient), on whom it should be performed ([e.g.], patient indications),
and whether it will be paid for ([e.g.], precertification criteria and coverage policies.").

34. See infra section LB.

35. See infra section LA.



58 INDIANA LAW REVIEW [Vol. 27:51

professionals.^^ In other areas, such as price, outsiders (e.g., consumers

of professional services or the courts) are generally able to evaluate

the reasonableness of professional regulations.^^

In some respects, the professional standards considered here are
similar to standards for manufactured products. ^^ In both cases, a

private group issues its judgment as to the acceptability of particular

products or services. However, the anticompetitive problems of pro-

fessional standards are more fundamental than those of industrial
standards. ^^ For example, the uniform nature of manufactured products

makes them fitter subjects of standards. Professional services are, or

should be, the antithesis of such products. They should be tailored to

the needs of the individual patient or client in a way that makes them
unsuitable for standardization.'"^

More important, though, are the differences in the entities that
establish the two kinds of standards. Industrial standards are often

established by organizations (e.g.. Underwriters Laboratories or the

American Society of Testing and Materials) whose primary purpose is

standard-setting. Such organizations are, as the Supreme Court has

observed, * 'composed of members with expertise but no economic

36. That does not mean, however, that courts should not review such standards.

A court need not conduct a substantive review of the standard itself to determine that
its effect is to deny individual professionals a meaningful opportunity to choose whether

to conform to it.

37. Price-related standards have received more attention from the Supreme Court

than have other practice standards. See, e.g., Arizona v. Maricopa County Medical Soc'y,

457 U.S. 332 (1982); Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975); National Soc'y

of Professional Eng'rs v. United States, 435 U.S. 679 (1978); but see FTC v. Indiana
Fed'n of Dentists, 476 U.S. 447 (1986) (agreement not to provide x-rays for review by

insurers).

38. Standards for industrial products are exemplified by those at issue in two recent

Supreme Court cases. See Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S.
492 (1988); American Soc'y of Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S.

556 (1982).

39. This is not to say that the anticompetitive dangers of industrial product standards

are insignificant. See, e.g., 7 Phillip E. Areeda, Antitrust Law t 1503a (1986) ("Product
standardization might impair competition in several ways. . . . Such standardization might

deprive some consumers of a desired product, eliminate quality competition, exclude rival

producers, or facilitate oligopolistic pricing by easing rivals' ability to monitor each other's

prices.").

40. See Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council,

Inc., 425 U.S. 748, 773 n.25 (1976) ("Physicians and lawyers, for example, do not dispense

standardized products; they render professional services of almost infinite variety and

nature . . . ." (emphasis in original)); see also Shapero v. Kentucky Bar Ass'n, 486 U.S.

466, 487 (1988) (O'Connor, J., dissenting) (noting the "defective analogy between pro-

fessional services and standardized consumer products").



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 59

interest in suppressing competition.'"*' Professional standards, in con-

trast, are established by organizations whose members are providers
of the services to which the standards apply. The temptation is great
for a provider to promote standards favorable to his own services. It
is this danger on which the Supreme Court has focused in its opinions
regarding standard-setting associations:'*^ 'There is no doubt that the

members of such associations often have economic incentives to restrain
competition and that the product standards set by such associations

have a serious potential for anticompetitive harm.""*^

The following sections discuss the realization of that potential as
evidenced in two recent cases challenging medical society standards
directed at two different groups: patients and third-party payers of
medical bills. '^^ It will be apparent that the facts in these cases are not

well developed. That is in part because they arose on motions for
summary judgment. However, as is argued in Parts II and III, it is
also partly due to the courts' failure to recognize the nature of the

potential anticompetitive harm in these cases. This has resulted in a
focus, by both courts and litigants, on more peripheral issues. In any
event, the point here is not to prove that the actions in these particular

41. Allied Tube & Conduit Corp., 486 U.S. at 510 n.l3. As an example, the Court
cited Sessions Tank Liners, Inc. v. Joor Mfg., Inc., 827 F.2d 458 (9th Cir. 1987), vacated
on other grounds, 487 U.S. 1213 (1988). The trade association in Sessions allowed industry

members to serve on committees considering new standards and to participate in hearings

regarding them, but it permitted only public officials to vote on the standards. Id. at

460-61.

42. It is notable that in the cases that the Supreme Court has heard regarding

industrial standards, the organizations involved were trade associations more akin to

professional societies than to pure standard-setting organizations. See Allied Tube & Conduit
Corp. V. Indian Head, Inc., 486 U.S. 492 (1988); American Soc'y of Mechanical Eng'rs

v. Hydrolevel Corp., 456 U.S. 556 (1982); Radiant Burners, Inc. v. Peoples Gas Light

& Coke Co., 364 U.S. 656 (1961) (per curiam).
43. Allied Tube & Conduit Corp., 486 U.S. at 500 (footnote and citation omitted);

see also American Soc'y of Mechanical Eng'rs, 456 U.S. at 571 ("Furthermore, a standard-

setting organization like ASME can be rife with opportunities for anticompetitive activity.
Many of ASME's officials are associated with members of the industries regulated by
ASME's codes. Although, undoubtedly, most serve ASME without concern for the interests
of their corporate employers, some may well view their positions with ASME, at least in
part, as an opportunity to benefit their employers.").

44. Although the text speaks of standards' effects on patients and third-party

payers, it is likely that, to the extent those effects are anticompetitive, they would be

challenged not by those groups themselves, but by physicians affected indirectly through

decreased demand for their services. See infra sections III.A and III.B. It is one of the
main points of this Article that much of the doctrinal confusion in this area is caused
by a failure to distinguish between direct effects on providers, which reduce supply, and

indirect, but still anticompetitive, effects on them, which are produced by a reduction in

demand by consumers.



60 INDIANA LAW REVIEW [Vol. 27:51

cases were anticompetitive. The point is to examine the true nature of
the harm to competition in these cases and to show the economic
incentives that medical societies have in enacting their standards.

A. The Effects of Standards on Patients

Koefoot V. American College of Surgeons*^ was a dispute between

the American College of Surgeons (ACS) and Dr. Robert Koefoot,

formerly a fellow of the ACS, regarding the ACS's rule forbidding
* itinerant surgery. '''^^ The ACS defined * itinerant surgery" as surgery
**under circumstances in which the responsibility for diagnosis or care

of the patient is delegated to another who is not fully qualified to
undertake it.'"*'' Because the ACS's position was that a physician was
not qualified to provide post-operative care unless he was as qualified

as the operating surgeon, the rule effectively reserved all post-operative

care to surgeons."*^

Dr. Koefoot practiced in rural Nebraska and performed some * typ-
ically less complex and more routine" surgery at hospitals outside the
city where his practice was based.'^^ Post-operative care for those pro-

cedures was provided by general practitioners at the hospitals. Dr.

Koefoot admitted that this practice constituted **itinerant surgery" as

defined by the ACS, but he refused to stop it, and he was first suspended
and then expelled from the ACS. The ACS's position was that **[i]f
Dr. Koefoot chooses not to drive 20 miles to [the local hospitals] to

see his patients, if Dr. Koefoot disagrees with the College policy, or

45. 610 F. Supp. 1298 (N.D. 111. 1985).

46. See generally id. at 1300-03.

47. Id. at 1300.

48. Id. at 1300, 1303. According to the plaintiffs' allegations, the rule "inhibited

the ability of rural community hospitals to compete with hospitals in major metropolitan

areas, of surgeons in Dr. Koefoot's position to compete with local surgeons, and of

general practitioners to compete with surgeons in the provision of post-operative care."

Id. at 1303.

49. The court provided the following description of medical practice in Nebraska:

Plaintiffs provide medical care in the State of Nebraska, largely a rural

state consisting of 92 counties, comprising approximately 70,000 square miles.

In 1980, there were approximately 2,300 doctors in Nebraska, of whom 181
were general surgeons, such as Dr. Koefoot. Over 70*70 of the state's population

resides in 21 of the 92 counties, located in and around the major cities of

Omaha and Lincoln. Those 21 counties had 89'Vb of the physician population,
leaving only 247 physicians to serve the remaining 71 counties with their 457,000

residents. The state has 116 hospitals. The area outside that known as the "Fish

Hook" has only 247 physicians to serve over 63,000 square miles and 450,000
people, a ratio of 1,850 people per doctor. Thus, the practice of rural medicine

in Nebraska is vital to the health of its general populace.

Id. at 1301.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 61

if Dr. Koefoot chooses to spend his time on pursuits other than surgery,

that is his perfect right. But he may not call himself a Fellow of the
American College of Surgeons. "^^

Dr. Koefoot alleged that he suffered a variety of injuries as a

result of this dispute. He said that his surgery practice declined^' and
that he suffered a variety of professional injuries." It is important to

note, however, that it was apparently only the latter injuries that

stemmed from his expulsion from the ACS. For example, Dr. Koefoot
said that the expulsion made it difficult for him to hire an associate,
reduced the frequency with which he was employed as an expert witness,

and injured his relationships with other doctors." All of these injuries

related to Dr. Koefoot's dealings with his fellow professionals, not his

dealings with patients. He did not allege that his surgical practice was
harmed by the expulsion.

Instead, Dr. Koefoot attributed the decline in his practice to '*the

publicity resulting from the disciplinary charges of unethical surgery

relating to the delegation of post-operative care of patients under [his]

supervision to family practitioners," and said that patients had declined

to have surgery in their local hospitals '^because of the accusations of

unethical surgery."^"* These claims can be interpreted in two ways. The
patients might have declined to receive surgery from Dr. Koefoot

because of charges that he practiced in an unethical fashion, or they

might have declined to receive itinerant surgery from anyone, including

Dr. Koefoot, because of the allegations that the practice itself was

unethical. In either case, the injuries to Dr. Koefoot's practice were

caused by the influence the ACS's rule had on the decisions of his
potential patients, not by his expulsion. ^^ There is no mention in the

50. Id. at 1303.

51. Id. at 1307-09.

52. Id. at 1307-08.

53. Id. at 1308.

54. Id. at 1308-09.

55. It does not appear from the case that the ACS publicized its expulsion of Dr.
Koefoot. In any event, he could have suffered the same damage from negative publicity

regarding his practice methods even if he had never been a member. An informative
contrast is provided by Kreuzer v. American Academy of Periodontology, 735 F.2d 1479
(D.C. Cir. 1984), which reversed a grant of summary judgment in favor of the defendant

medical society. The society standard in Kreuzer, similar to that in Koefoot, required the

society's "active" members to confine their practices solely to periodontology. However,

the focus of the Kreuzer court was on the society's policy, when contacted by potential
patients, to provide referrals only to active members, as defined by the standard. The

court observed that the standard harmed consumers in two ways: (1) they would never

be referred to periodontists who refused to conform to the society's rule, thus limiting
the number of periodontists available to them, and, therefore, increasing the market price;



62 INDIANA LAW REVIEW [Vol. 27:51

case that patients were even aware of his expulsion from, or his prior

membership in, the ACS.
Thus, merely by calling Dr. Koefoot's method of practice '*uneth-

ical," his competitors in the ACS were able to damage his business.
And they had an obvious economic interest in doing so. Any rule that
justified a surgeon's refusal to allow another, perhaps lower-paid phy-

sician to perform post-operative care preserved the income from that

service for the surgeon. The director of the ACS had even admitted
that one of the purposes of the rule was to protect surgeons in local

practices: "We had been thinking in terms of the practice of itinerant
surgery freezing out young men who might wish to come into a
community to practice. "^^ The ACS claimed that the rule was necessary
to assure "the highest quality post-operative care,"^^ but it apparently

presented no evidence for that claim. Dr. Koefoot asserted that he had

an "extremely low rate of post-operative complications.'*^^

Under these circumstances, it is reasonable to question the ACS's
condemnation of itinerant surgery. Consider the following comment
from the District of Columbia Circuit considering a similar society

rule:

[W]e can set the following standard for application of a rule

of reason analysis to questioned conduct of professional as-

sociations justified under a patient care motive. When the
economic self-interest of the boycotting group and its proffered

justifications merge the rule of reason will seldom be satisfied. ^^

This well-describes the danger presented when a group of competitors
has the power to issue influential standards regarding its own practices
and those of competing groups. In Koefoot, where the ACS apparently
was unable to provide any evidence that patient care benefitted from

its rule against itinerant surgery, or any reason for labelling the practice

"unethical," it seems likely that the rule was based more on the ACS's

competitive goals than on any desire to convey information. This is

not to say that medical societies always, or even often, use their

statements to influence competition without regard to truth. The point

and (2) they could not receive additional non-periodontal care from society members,

denying them the benefits of one-stop dental service. Id. at 1493-94. Thus the harm in

Kreuzer was caused by the effects of the society's rule on the choices of periodontists,

not by the effect of the rule on patient demand, which is the focus of this Article.

56. Koefoot, 610 F. Supp. at 1305 (quoting the director of the ACS).

57. Id. at 1303.

58. Id.

59. See Kreuzer v. American Academy of Periodontology, 735 F.2d 1479, 1494
(D.C. Cir, 1984). This case is described in note 55 supra.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 63

is simply that society statements do have competitive effects and that,

in cases like Koefoot, those effects can be produced in the absence of

any objective support for the statements. The next section describes
another avenue for society action affecting competition.

B. The Effects of Standards on Third-Party Payers

Schachar v. American Academy of Ophthalmology, Inc.^ involved
a new ophthalmological procedure known as radial keratotomy.^' The
incidents that gave rise to the case began in 1976. ^^ In that year, Dr.

Leo Bores visited the Soviet Union and performed several radial ker-
atotomies; he returned the following year to examine his patients. He
performed the first radial keratotomy in the United States in 1978,

and in 1979 he formed, with seven other eye surgeons, the National

Radial Keratotomy Study Group (NRKSG). The NRKSG developed a
protocol for use in performing the procedure and created a detailed

informed consent form to be reviewed by patients undergoing the

procedure. ^^

In March, 1980, Dr. George Waring joined the NRKSG. Later that
month, Dr. Waring convened a meeting of a different group of fourteen

eye surgeons to discuss radial keratotomy and the possibility of getting

a government grant to study the procedure. Dr. Waring then contacted

Dr. Ronald Geller of the National Advisory Eye Council (NAEC), an

60. 1988-1 Trade Cases (CCH) 1 67,986 (N.D. 111.). Some of the factual history
related in the text comes from Vest v. Waring, 565 F. Supp. 674 (N.D. Ga. 1983), another

case involving many of the same parties and issues. Although some of the facts presented
here might therefore not have been before the court in Schachar, they are given to provide

a more complete story, and because they do not change the analysis of the issues involved.

61. Radial keratotomy is a surgical procedure for the correction of nearsightedness.

Nearsightedness occurs where the cornea focuses visual images in front of the retina rather

than exactly on it, which results in an out-of-focus retinal image. Radial keratotomy

corrects this problem by making shallow incisions radially on the surface of the cornea,

which causes it to flatten slightly. The flatter cornea focuses images farther back in the

eye, so vision is improved.

The procedure has had mixed results. See Jane E. Brody, Study Cites Risks in an

Operation for Myopia, N.Y. Times, Feb. 23, 1990, at A20, col. 1 (noting that some

patients receive undercorrection or overcorrection, and that ophthalmologists disagree

regarding the effectiveness of the procedure). See also George O. Waring III et a!.. Results

of the Prospective Evaluation of Radial Keratotomy (PERK) Study 4 Years After Surgery

for Myopia, 263 J. A.M.A. 1083 (1990); Perry S. Binder, Radial Keratotomy in the 1990s
and the PERK Study, 263 J. A.M.A. 1127 (1990).

62. See generally Schachar, 1988-1 Trade Cases (CCH) 1 67,986, at 58,050-51;
Vest, 565 F. Supp. at 676-83.

63. Vest, 565 F. Supp. at 677.



64 INDIANA LAW REVIEW [Vol. 27:51

advisory committee^'* for the National Eye Institute (NEI), which pro-

vides federal funding for vision research. Dr. Geller indicated that the

NEI was interested in funding research in radial keratotomy, and Dr.
Waring's group met again in May to make plans for submitting a
proposal for a study called the Prospective Evaluation of Radial Ker-

atotomy (PERK).

Shortly after that May meeting the NAEC issued a statement that
**[t]he Council considers radial keratotomy to be an experimental pro-

cedure because it has not been subjected to adequate scientific evaluation

in animals and humans. ''^^ The issuing of the NAEC statement was
followed by similar statements'^ from ophthalmological and medical

associations in several states,'^ orchestrated, the plaintiffs alleged, by

64. Federal advisory committees are governed by the Federal Advisory Committee

Act, 5 U.S.C. App. 2. Such committees, though nominally public agencies, may themselves
put private interests over those of the public. See Sidney A. Shapiro, Public Accountability

of Advisory Committees, 1 Risk Issues in Health & Safety 189 (1990).
65. Vest, 565 F. Supp. at 678 n.6.

66. In this Article, the terms "standard" and "statement" are used, for the most

part, interchangeably. Because the "statements" discussed are official communications of

the societies involved, any technical differences that might exist between the two terms

are not relevant here.

67. Vest, 565 F. Supp. at 679-80 n.8 (Georgia), 680 n.9 (New Mexico), 680-81

n.lO (Florida), 681 n.ll (Arizona). Following is the Arizona statement:

RESOLVED, that,
1. The Arizona Ophthalmological Society (AOS), a group of physicians

primarily concerned with eye care, expresses their concern about potential wide-

spread [sic] adoption of an operation intended to correct nearsightedness, a

common condition that can be easily and safely corrected by the use of eyeglasses
or contact lenses.

2. The operation called Radial Keratotomy has received widespread publicity

during the last two years. It involves cutting the cornea with a series of deep

incisions that extend from the sclera toward, but not into, the center of the

cornea. The incisions are intended to be deep enough so that internal eye pressure

causes the edge of the cornea to bulge slightly, thereby flattening the central

portion of the cornea which improves focusing. The incisions result in permanent

scars.

3. The AOS considers Radial Keratotomy to be an "experimental" procedure
because it has not been subjected to adequate scientific evaluation in animals

and humans.

4. The AOS endorses the conclusions of the National Keratotomy Workshop
of March 15, 1980; and the National Advisory Eye Council (NAEC) Resolution
approved May 29, 1980, concerning Radial Keratotomy.

5. The AOS urges restraint on the part of both Arizona Ophthalmologists
and patients regarding the procedure until results of research known as the

Prospective Evaluation of Radial Keratotomy (PERK) study of the National Eye

Institute (NEI) are obtained and fully evaluated.

6. The AOS urges that its view on the subject of Radial Keratotomy as



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 65

the American Academy of Ophthalmology.^* All of them, purportedly
following the NAEC, declared radial keratotomy to be "experimen-
tal/'^^ In addition, despite the fact that some of the statements were
issued before any PERK grants were awarded, they condemned in
various terms the performance of radial keratotomy outside the confines

of the PERK study. For example, the Georgia motion said that "[e]ach
member of the [Georgia Ophthalmological] Society in good standing
will agree to refrain from participating in such surgery outside the

framework of [the PERK] study, for a period of one year, or until
results indicate the technique is safe and effective. "^° The original
Florida statement was nearly identical to the Georgia one, but it was

later withdrawn, and a somewhat less restrictive statement substituted.

The new statement, tellingly, included the NRKSG study among the
approved programs.^^

The plaintiffs alleged that the statements issued by the societies
decreased demand for radial keratotomies. It was not clear in this case,
however, whether the decrease was caused by reduced demand from
the patients themselves or by less willingness on the part of their

insurers to pay for the procedure."'^ There was no specific evidence

reported in the cases regarding whether patients were discouraged from

seeking the services.''^ It is clear, though, that the intent of the societies*

statements was to discourage patients from seeking the procedure, at

expressed in this resolution be announced to the general pubUc, other health

care professionals, institutions, including institutional review committees, and

third party insurers and payers in Arizona; therefore be it

RESOLVED,
That the Arizona Medical Association endorses and supports the resolution

of the Arizona Ophthalmological Society concerning the procedure known as

Radial Keratotomy until the safety and efficacy of the procedure have been

carefully demonstrated in controlled studies.

Id. at 681 n.ll.

68. Schachar, 1988-1 Trade Cases (CCH) 1 67,986, at 58,050-51.

69. Vest, 565 F. Supp. at 679-80 n.8, 680 n.9, 680-81 n.lO, 681 n.ll.

70. Id. at 680 n.8.

71. Id. at 680-81 n.lO.

72. Indeed, in Vest the plaintiffs included potential patients who wanted to receive

radial keratotomies, but were hindered in doing so by the societies' statements. Id. at

682.

73. However, the notice issued in Vest when a settlement agreement was reached

in the case notes that one of the conditions of settlement was that Dr. Waring would

issue a statement that radial keratotomy was no longer "experimental" and that "[pjlaintiffs

also anticipate that the statement will encourage public employers to accept applicants

who have had the procedure performed on them." Vest v. Waring, No. C82-325A, Revised
Notice to Class Members, at 2 (N.D. Ga. Mar. 25, 1985). Apparently, then, some of

those employers had been unwilling to hire patients who had received radial keratotomies,
due at least in part to the societies' statements regarding the procedure.



66 INDIANA LAW REVIEW [Vol. 27:51

least outside of the PERK study. ^'^ The statements explicitly said that
they were intended to **be announced to the general public."^' More-

over, the statements* use of dramatic, if not inflammatory, language^^

could only have been directed at the public.

But most of the reduced patient demand for radial keratotomies
in Schachar was apparently caused by decisions by third-party payers

not to reimburse for the procedure.''^ After the NAEC and the state
medical societies issued their statements, several insurance companies

made such decisions. ^^ The plaintiffs alleged that the American Academy
of Ophthalmology was instrumental in causing insurance companies to

take that action.^^ It accomplished this, the plaintiffs claimed, through

its membership in the Council of Medical Specialty Societies (CMSS),

which is associated with the Health Insurance Association of America

(HIAA). The HIAA is an organization of insurance companies which
together account for approximately eighty-five percent of health in-

surance in the United States. ^° When the academy classified radial
keratotomy as experimental, the CMSS transmitted that information
to the HIAA through a newsletter under a heading entitled * 'Procedures
Which Should Not Be Reimbursed Routinely by Third Party Payers
Without Written Justification.'*^' Insurers apparently followed this in-

struction.^^

74. The goal of the PERK group was not to eliminate radial keratotomy altogether,
but only to confine its practice to their study. They were not, therefore, intending to

convey the message that radial keratotomy was ttwsafe, but only that its safety and

effectiveness were unproven and, further, were only appropriately tested in their study.

Even this, however, was questionable. There was no evidence that the PERK group
provided better care or more useful research than the NRKSG (Dr. Bores's group). As
mentioned above, the NRKSG had developed and implemented its own research protocol.
See supra text accompanying note 63.

75. E.g., Vest, 565 F. Supp. at 681 n.ll.

76. This sort of evaluation is necessarily subjective, but to express "concern" about

an "experimental" procedure that involves "deep incisions" into the cornea, resulting in

"permanent scars," though perhaps not technically inaccurate, seems calculated more to

alarm than to inform. This is especially so in light of the absence, discussed in the text,

of efforts to place the statements in any objective context. For the full text of the statement

including these descriptions, see note 67 supra.

11. This result is not unique to the medical field. In the industrial area, a product's

failure to meet a standard can also result in third-party insurers' unwillingness to provide

insurance where the product is used. See Allied Tube & Conduit Corp. v. Indian Head,
Inc., 486 U.S. 492, 495-96 (1988).

78. Vest, 565 F. Supp. at 681-82.

79. Schachar, 1988-1 Trade Cases (CCH) If 67,986, at 58,051.
80. Id.

81. Id.

82. In addition, the case reports that some hospitals do not allow "experimental"



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 67

The adoption by insurers of medical society decisions on these
matters is not surprising. Both private^^ and public*'' insurers rely heavily

on medical society assessments of services. The societies are generally
consulted in determining whether a given service should be covered by

the patient's policy, which most often excludes procedures that are

**experimental.''*^ As described above, *^ the state medical societies ap-

procedures to be performed in their operating rooms, so that after the statements were

issued surgeons were no longer permitted to perform radial keratotomy in those hospitals'

operating rooms. Vest, 565 F. Supp. at 682. This made the purchase of personal surgical
equipment necessary for those surgeons who wished to continue performing the surgery.
Id. Hospitals are not, of course, third-party payers, but the effects of their actions were

in some ways analogous to the payers' actions. The increased costs incurred by the affected

physicians would have resulted in higher costs to their patients, as did third-party payers'

decisions not to reimburse for the procedure. The higher costs would have reduced the

affected physicians' output of radial keratotomies, benefiting their competitors. See Thomas
G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to
Achieve Power over Price, 96 Yale L.J. 209 (1986); Steven C. Salop & David T. Scheffman,
Raising Rivals' Costs, 73 Am. Econ. Rev. (Papers & Proceedings) 267 (1983). Moreover,
the hospitals apparently directly accepted the societies' evaluations of the procedure in

much the same was as did third-party payers, as discussed in this section and section
III.B infra.

83. See Institute of Medicine, Assessing Medical Technologies 2 (1985) ("Blue

Cross and Blue Shield Association and other major insurers increasingly seek assistance

from medical associations such as the American College of Physicians, the American

College of Radiology, and the American College of Surgeons in formulating coverage

policies.").

84. See Health Care Financing Administration, Medicare Programs; Criteria and

Procedures for Making Medical Services Coverage Decisions That Relate to Health Care

Technology, 54 Fed. Reg. 4302, 4311 (1989) (Medicare coverage decisions by private

contractors "are usually made in consultation with the contractor's own medical staff and
local medical specialty groups.").

85. A typical coverage provision excludes '"[alny treatment or procedure, medical
or surgical, or any facilities, drugs, drug usage, equipment, or supplies which are Ex-

perimental or Investigative.'" Thomas v. Gulf Heahh Plan, Inc., 688 F. Supp. 590, 593
n.2 (S.D. Ala. 1988) (quoting coverage exclusion). Medicare coverage has similar limitations,

derived from the Social Security Act's requirement that a covered procedure be "reasonable

and necessary." See 42 U.S.C. § 1395y(a)(l)(A). The Department of Health and Human
Services' s Health Care Financing Administration has interpreted this requirement to mean
that a procedure must be (1) safe and effective, (2) not experimental or investigational,

and (3) appropriate. Health Care Financing Administration, Medicare Programs; Criteria

and Procedures for Making Medical Services Coverage Decisions That Relate to Health

Care Technology, 54 Fed. Reg. 4302, 4307 (1989). Under this test, a procedure's exper-

imental status would presumably be sufficient in itself to preclude its coverage, but an

experimental procedure is also unlikely to satisfy the other two criteria, given their close

interdependence See Institute of Medicine, Assessing Medical Technologles 5 (1985)
("Safety and effectiveness are addressed only indirectly in some evaluations; payers generally

rely on a determination of a technology's diffusion, i.e., whether it is standard practice

rather than experimental or investigative, as an indicant of a physician's judgment of its



68 INDIANA LAW REVIEW [Vol. 27:51

plied this label to radial keratotomy, which caused insurers to refuse

to reimburse for it. There is reason to think that professional societies

should not be permitted to exercise such power.

A basic problem is that there is no objective definition of '*ex-
perimental." The Health Care Financing Administration has proposed

regulatory guidelines for evaluating a treatment's experimental status,

but to the extent that they are not circular,^^ they rely on general

acceptance by the medical community.^^ Therefore, the evaluation is

an imprecise process, and determination of which procedures are ex-

perimental has been extremely inconsistent, even in the presumably

impartial forum of the court system. ^^ Even more significantly, the use
of acceptance by the medical community as the evaluation criterion
has inherent problems when it is a subgroup of that same community
that is making the evaluation and that subgroup has an economic

interest in the outcome.

The evaluation of radial keratotomy in Schachar, made by the
medical societies and allegedly influenced by the PERK group, was a
self-interested one.^ Recall that the effect of the societies' efforts was

safety and effectiveness."); Health Care Financing Administration, Medicare Programs;

Criteria and Procedures for Making Medical Services Coverage Decisions That Relate to

Health Care Technology, 54 Fed. Reg. 4302, 4308 (1989) ("Among the many relevant
considerations [in evaluating appropriateness], safety and effectiveness are the key factors

for our review.").

86. See supra text accompanying notes 65-69 & 77-82.
87. See Health Care Financing Administration, Medicare Programs; Criteria and

Procedures for Making Medical Services Coverage Decisions That Relate to Health Care

Technology, 54 Fed. Reg. 4302, 4316 (1989) ("'Experimental' means a technology that

should be confined to a research setting under which human or animal subjects are
assigned, in accordance with predetermined rules.").

88. See id. at 4307-08 ("Has the service been generally accepted by the medical

community, and has it emerged from the research stage?").

89. See Richard S. Saver, Note, Reimbursing New Technologies: Why Are the
Courts Judging Experimental Medicine?, 44 Stan. L. Rev. 1095, 1098-1104 (1992).

90. The court outlined the plaintiffs' description of the process as follows:

The Academy commissioned its Eye Banks Committee to determine the status
of radial keratotomy, although the committee members were unqualified to do

so, and it declared the procedure experimental. In March of 1980 at the Academy's

direction various co-conspirators held a meeting at the Atlanta airport and also

concluded that radial keratotomy should be designated experimental. Defendants

then began a national campaign to pressure state and local medical societies,

governmental agencies and hospital staffs to declare a moratorium on radial

keratotomy until self-appointed academicians could study the procedure and

decide whether it should be approved.

Schachar, 1988-1 Trade Cases (CCH) 1 67,986, at 58,050-51.
There is some indication that the evaluations of radial keratotomy were not based

solely on scientific considerations. The NAEC first declared radial keratotomy experimental



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 69

not to halt the practice of radial keratotomy, but to reserve the practice

of it, even in research, to the PERK group's academic studies.^' This
was true despite the absence of any showing of a significant difference

between the PERK study and Dr. Bores' s (non-academic) NRKSG work.
As described above,^^ Dr. Bores's NRKSG was not performing radial
keratotomies indiscriminately, but had itself established a research pro-

tocol for the procedure. There was no showing, or even any allegation,

that the NRKSG was performing radial keratotomies irresponsibly. The
main difference between its work and that of the PERK study was
apparently that the NRKSG's patients paid for the procedure, while
patients in the PERK study did not. Although the ophthalmologists
in the NRKSG therefore stood to gain from performance of the pro-
cedure, and thus had an economic interest at stake, so did the PERK
ophthalmologists.^^ Dr. Waring and the other ophthalmologists in the

study were compensated for their work as part of the grant. ^'^ Moreover,
even if they had not been paid, the receiving of a grant has significant

implications for career advancement for an academic researcher. There-

in August, 1979. Vest v. Waring, 565 F. Supp. 674, 677 n.3 (N.D. Ga. 1983). At that

time the NAEC stated that **[n]o clinical research employing refractive keratoplasty [i.e.,
radial keratotomy] should be supported by the National Eye Institute (NEl) until the

results of animal research can be evaluated." See 18 Investigative Ophthalmology and

Visual Science 882 (1979). However, on May 28, 1980, shortly after the meeting between
Dr. Waring's study group and Dr. Ronald Geller of the NAEC, the Council changed its
opinion and "urged the [National Eye Institute] to 'take whatever measures are necessary

to encourage research in radial keratotomy ... in scientifically designed cUnical trials

conducted by qualified investigators.'" See Vest, 565 F. Supp. at 678. The turnaround

just as the PERK group was lobbying the NAEC for a research grant seems more than
coincidental.

It is also notable that Dr. Waring himself eventually decided that he could approve

radial keratotomy as part of a settlement agreement in Vest. The settlement notice included

the following statements:

[0]ne of the Defendants, Dr. George O. Waring, has agreed to issue a statement

which will be released when the proposed settlement becomes final. The statement

is intended to set forth certain current and historical facts about the radial

keratotomy procedure, and states, inter aUa[,] that enough information is now

available to establish that radial keratotomy is not an experimental procedure.

Vest V. Waring, No. C82-325A, Revised Notice to Class Members, at 2 (N.D. Ga. Mar.

25, 1985).

91. See supra text accompanying notes 70-71.

92. See supra text accompanying note 63.

93. The third-party payers also have economic interests in the evaluations. Because

insurance companies usually receive payment per capita, they have every reason not to

cover a service if they can justify non-payment. Therefore, any effort by a society to

persuade an insurer to ehminate reimbursement is likely to be readily accepted.

94. They probably continued to receive their paychecks from academic institutions,

of course. But research grants typically include compensation for the researchers, paid to

institutions for their benefit.



70 INDIANA LAW REVIEW [Vol. 27:51

fore, it was in the PERK group members' economic interests to establish
that radial keratotomy was experimental before widespread practice of

the procedure provided data regarding its efficacy; otherwise, there

would have been no need for their study. Furthermore, establishing

the societies' rules that no radial keratotomies should be performed

outside their study assured the PERK group of patients who might
otherwise have preferred to receive the procedure without the additional

burden of the experimental procedure.^^

Thus, as in Koefoot, the defendants in Schachar were able to use

the influence of their medical societies to injure the practices of their

competitors. Again, as with Koefoot, it should be emphasized that this

is not to say that the medical society evaluations were necessarily

wrong. And even if they were, it is not to say that any members of
either of the radial keratotomy study groups intentionally made false
statements regarding the procedure. The point is only that the economic
interests of the participants and the potential for effects on competition

argue for a critical analysis of the society statements. The next two
Parts of this Article provide a framework for that analysis.

II. Current Legal Standards

The facts in Koefoot and Schachar appear to make prima facie
cases of combinations to restrain trade. Both trial judges thought so

and denied the defendants' motions for summary judgment.^^ Never-
theless, in both cases the juries found for the defendants. ^^ Although

this may truly indicate that the societies' actions were, on balance,
procompetitive, the economic incentives and anticompetitive potential

discussed in Part I suggest that other possibilities should be considered.

One is that the juries might have deferred to the professionals' jus-
tifications for their actions more readily than they would have for
other groups. This possibility seems plausible when one considers that
juries have returned plaintiffs' verdicts against non-professional trade

associations in somewhat similar cases. ^^ However, another possibility

is that the medical societies received deference not from the juries but

from the courts. Koefoot and Schachar may have had jury instructions

95. See Havighurst, supra note 18, at 370 (discussing denial of consumer choice

in conduct of clinical trials).

96. Schachar, 1988-1 Trade Cases (CCH) % 67,986; Vest, 565 F. Supp. 674.
97. See Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 397,

398 (7th Cir. 1989) (noting jury verdict for defendants); Koefoot v. American College of

Surgeons, 692 F. Supp. 843, 845 (N.D. 111. 1988) (same).

98. See, e.g., Alhed Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492,
497-98 (1988) (noting jury verdict for plaintifO; American Soc'y of Mechanical Eng'rs v.

Hydrolevel Corp., 456 U.S. 556, 565 (1982) (same).



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 71

similar to those in Wilk v. American Medical Association,^^ another

society standard case that produced a jury verdict for defendants.

Those instructions could not **be defended successfully as an adequate

approximation of a rule of reason test geared simply, clearly, and

exclusively to the question whether the challenged conduct promoted

or suppressed competition. '''°^

Support for this explanation can be found in the opinion of the

Seventh Circuit affirming the verdict in Schachar. This opinion, by

Judge Easterbrook, sounded two notes often heard in professional

society cases:

[The Academy] did not require its members to desist from
performing [radial keratotomies] or associating with those who
do. It did not expel or discipline or even scowl at members
who performed radial keratotomies. '^^

An organization's towering reputation does not reduce its free-
dom to speak out. Speech informed, hence affected, demand
for radial keratotomy, but the plaintiffs had no entitlement to

consumers' favor. The Academy's declaration affected only the
demand side of the market, and then only by appealing to
consumers' (and third-party payors') better judgment. If such

statements should be false or misleading or incomplete or just

plain mistaken, the remedy is not antitrust litigation but more
speech—the marketplace of ideas. '^^

If the trial courts gave jury instructions in line with these statements,

it is not surprising that the juries decided for the defendants. As Judge
Easterbrook points out, the Academy in Schachar did not force its
members or others to cease providing radial keratotomies. Instead, it
and the ACS in Koefoot were able to influence patients and third-
party payers to cease buying the services they disapproved. Contrary

to Judge Easterbrook' s view, however, that should not remove the

societies' actions from the reach of the antitrust laws.'°^

99. 719 F.2d 207, 211 (7th Cir. 1983) (noting jury verdict for defendants), cert,

denied, 467 U.S. 1210 (1984). Wilk was subsequently retried (on a more limited set of

issues) without a jury, and the trial judge found for the plaintiff. See Wilk v. American

Medical Ass'n, 671 F. Supp. 1465 (N.D. 111. 1987), aff'd, 895 F.2d 352 (7th Cir. 1990),

cert, denied, 416 U.S. 927 (1990).

100. Id. at 225. In contrast, the Supreme Court in Allied Tube specifically noted

that "[tjhe jury, instructed under the rule of reason that respondent carried the burden

of showing that the anticompetitive effects of petitioners's actions outweighed any pro-

competitive benefits of standard setting, found petitioner liable." 486 U.S. at 497-98.

101. Schachar, 870 F.2d at 398.

102. Id. at 399-400.

103. Even commentators who are generally sympathetic to society standard-setting



72 INDIANA LAW REVIEW [Vol. 27:51

A. Anticompetitive Effects on Demand

As a preliminary matter, it is clear that some medical standards,

such as the one in Koefoot, do have a coercive effect. Although Dr.

Koefoot did not give up his practice of what the ACS called * itinerant
surgery," he was thereby forced to give up his ACS membership. ^^ It
would be a cramped definition of coercion that excluded a rule with

effects hke these from its reach.
*

'Coercion" is present not only when
the society member has no choice at all, but also when the society
exercises some degree of undue influence. '^^

In any event, the view that coercion is necessary to estabUsh an

antitrust violation is simply wrong. In Schachar, Judge Easterbrook cited

several trade association cases in which standards were found anticom-

petitive, and he said that in those cases the standard was enforced. ^°*

However, his characterization of those cases was at best disingenuous.

Several of the cases cited involved only standard-setting, not enforcement,

or expHcitly said that coercion was not necessary to find a violation. ^^^

have expressed skepticism about Judge Easterbrook's comments. See Greaney, supra note

19, at 663 ("The Seventh Circuit's dismissive analysis of [Schachar's] antitrust claim is

questionable . . . .")

104. See Koefoot v. American College of Surgeons, 610 F. Supp. 1298, 1303 (N.D.

111. 1985) (The ACS stated that "[i]f Dr. Koefoot chooses not to drive 20 miles to [plaintiff
hospitalsl to see his patients, if Dr. Koefoot disagrees with the College's policy, or if Dr.

Koefoot chooses to spend his time on pursuits other than surgery, that is his perfect right.

But he may not call himself a Fellow of the American College of Surgeons."). See supra
section LA.

105. A standard that operated much like the one in Koefoot was at issue in Wilk
V. American Medical Ass'n, 719 F.2d 207 (7th Cir. 1983), cert, denied, 467 U.S. 1210

(1984), decision on remand, 671 F. Supp. 1465 (N.D. 111. 1987), aff'd, 895 F.2d 352 (7th

Cir. 1990), cert, denied, 496 U.S. 927 (1990). The AMA's standard prohibited its members
from practicing in association with chiropractors. 719 F.2d at 213-14. Although, as in

Koefoot, an AMA member physician need only have left the society to practice as she
liked, the Wilk court had no difficulty finding a coercive effect. On remand, it enjoined
the AMA from "restricting, regulating or impeding, or aiding and abetting others from
restricting, regulating or impeding, the freedom of any AMA member or any institution
or hospital to make an individual decision as to whether or not [to] professionally associate

with chiropractors." 671 F. Supp. at 1507.

106. Schachar, 870 F.2d at 399 (citing National Soc'y of Professional Eng'rs, Inc.

V. United States, 435 U.S. 679 (1978); Wilk v. American Medical Ass'n, 719 F.2d 207

(7th Cir. 1983), cert, denied, 467 U.S. 1210 (1984); Moore v. Boating Indus. Ass'ns, 819

F.2d 693 (7th Cir. 1987); Hydrolevel Corp. v. American Soc'y of Mechanical Eng'rs, 635

F.2d 118, 124-27 (2d Cir. 1980), aff'd on other grounds, 456 U.S. 556 (1982); Indian

Head, Inc. v. Allied Tube & Conduit Corp., 817 F.2d 938, 946-47 (2d Cir. 1987), aff'd
on other grounds, 486 U.S. 492, 499 n.3 (1988)).

107. See, e.g., American Soc'y of Mechanical Eng'rs v. Hydrolevel Corp., 456 U.S.

556, 559 (1982) ("These codes, while only advisory, have a powerful influence . . . .");

Wilk V. American Medical Ass'n, 719 F.2d 207, 230 (7th Cir. 1983) ("[Ejven without



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 73

Moreover, the Supreme Court has repeatedly found antitrust violations

by professional societies in the absence of coercive enforcement, so it

is clear that antitrust liability does not require that there be any formal

enforcement mechanism. '^^ It is true that the Court has also said that

**[c]oncerted efforts to enforce (rather than just agree upon) private

product standards face more rigorous antitrust scrutiny. '''°^ But this

merely indicates that the mechanism by which standards act is relevant;

it does not suggest that the Court would exempt from scrutiny standards

that lack formal enforcement. Thus, neither the antitrust laws nor the

Supreme Court's interpretation of those laws imposes a requirement that

a restraint of trade be formally coercive. It is the practical effects of

a standard that matter. *^°

Actually, this seems to be acknowledged in Schachar. After Judge

Easterbrook's rhetorical flourish regarding coercion, he evaluated whether

the Academy's action produced anticompetitive effects. As evidence of

coercive enforcement, a court may find that members of an association promulgating
guidelines sanctioning conduct in violation of § 1 participated in an agreement to engage

in an illegal refusal to deal."), cert, denied, 467 U.S. 1210 (1984); see also United States

V. National Soc'y of Professional Eng'rs, Inc., 389 F. Supp. 1193, 1200 (D.D.C. 1974)

(stating that the society "actively pursue[d] a course of policing adherence" to its ban

on competitive bidding, but referring only to "educational campaigns and personal ad-

monitions to members and clients"), aff'd in part, modified in part on other grounds,

555 F.2d 978 (D.C. Cir. 1977), aff'd, 435 U.S. 679 (1978). In addition. Judge Easterbrook

described the enforcement mechanism in Allied Tube as an agreement "not to manufacture,

distribute, or purchase certain types of products." Schachar, 870 F.2d at 399 (quoting

Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988)). But no
evidence was offered in Allied Tube of any efforts to enforce such an agreement. A
competitor was free to manufacture any product it chose; it would just be unable to sell

it due to the established standard labelling it unacceptable. The situation is thus exactly

analogous to that in Schachar, where the resolutions of the medical societies required

members to "'refrain from participating in [radial keratotomies] outside the framework

of [the PERK study]."' Vest v. Waring, 565 F. Supp. 674, 680 n.9 (N.D. Ga. 1983)
(quoting resolution of the New Mexico Ophthalmological Society).

108. For example, the defendant bar association in Goldfarb v. Virginia State Bar,

421 U.S. 773 (1975), set fee standards that it argued were voluntary, so that there was

no real price-fixing. Id. at 781. But the Court responded that the standards presented

not only the threat of professional discipline but "the desire of attorneys to comply with

announced professional norms." Id. (citation omitted). Thus, the Court seemed to say

that any norm issued by a professional society would be a restraint that could create

antitrust liability, merely because the society's members tended to follow it.

109. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 n.6
(1988) (citations omitted, emphasis in original).

110. See Eastman Kodak Co. v. Image Technical Servs., Inc., 112 S. Ct. 2072,

2082 (1992) ("Legal presumptions that rest on formalistic distinctions rather than actual

market realities are generally disfavored in antitrust law. This Court has preferred to

resolve antitrust claims on a case-by-case basis, focusing on the 'particular facts disclosed

by the record.'" (citations omitted)).



74 INDIANA LAW REVIEW [Vol. 27:51

a lack of such effects, he pointed out that radial keratotomies continued

to be performed. But this point is hardly conclusive. The Sherman Act

proscribes not just total elimination of trade, but all unreasonable re-

straint of trade.^^^ In fact, the court went on to discuss the number of
radial keratotomies that were performed, indicating that it acknowledged

the number's relevance. It should, therefore, have considered the extent,

if any, of the reduction in the number of radial keratotomies performed. ^'^

Reduced output is what antitrust law is all about.

B. Medical Society Power in the Market for Information

The misplaced emphasis on coercion is a result of a misconception

regarding the nature of medical societies' market power. Coercion of

society members is a product of the power of societies to grant or deny
membership. If a society, as in Koefoot, denied membership to those

who did not conform to its standards, it might be able to force its
members to conform. It is true that some society power is of this kind
and derives from the importance to individual professionals of society

membership. Membership provides a source of referrals, *^^ and it may
be useful for marketing one's services. It may even be necessary to
qualify for staff privileges in a hospital.''"^ But it is not this sort of

power in the professional employment market that is reflected in Schachar

and to a large extent in Koefoot.

In those cases, competitive effects were produced by society influence

over third parties, i.e., patients and insurers, rather than society members.

That influence was produced by the evaluations communicated in the

societies' statements: in Koefoot, labelling itinerant surgery '*unethi-

cal,"'^^ and in Schachar, labeUing radial keratotomy ** experimental" and

saying it should not be performed outside a particular research study. '^^

111. See supra note 9.

112. That was the approach taken by the Supreme Court in Goldfarb, where it

pointed out that every lawyer that the petitioners had contacted had adhered to the fee

schedule, which it said "revealled] a situation quite different from what would occur

under a purely advisory fee schedule." Goldfarb, 421 U.S. at 781. Thus, the Court

expressed its willingness to rely on the effects of a society's standards as evidence of their

coercive power. It made this approach more explicit in FTC v. Indiana Fed'n of Dentists,
476 U.S. 447 (1986), where it noted the FTC's finding that the federation's restrictions

were adhered to by its members and said that those effects were "legally sufficient to

support a finding that the challenged restraint was unreasonable." Id. at 461.

113. Kreuzer v. American Academy of Periodontology, 735 F.2d 1479, 1484 (D.C.
Cir. 1984).

114. Koefoot V. American College of Surgeons, 610 F. Supp. 1298, 1301 (N.D. 111.

1985).

115. See supra section LA.
116. See supra section I.B.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 75

In a very real sense, therefore, the societies' influence was caused by

their power in a market for medical information."^ Although neither

consumers nor (usually) third-party payers actually purchase medical

information directly, both actively seek it out. Professional societies

wilhngly respond by supplying this information. Indeed, professional

societies are major suppliers in the medical information market.''* For

better or worse, their prominent positions in their fields, and the respect

and esteem in which they are held, give them power in that market.''^

Moreover, it is difficult for new entrants to attain comparable positions
in order to provide alternative views regarding medical services. '^°

As was made clear in Koefoot and Schachar, the medical information
market has strong effects on the medical services market. The exact
mechanism of these effects can be described in any of several ways,'^'

117. The same observation has been made in the context of medical credentials and
accreditation: "The key to the analysis—and the shortest and surest path to sensible legal
results—is recognition that a market for commercially valuable information and opinion
exists and can be kept competitive by applying traditional antitrust principles to those

participating in it." Havighurst & King, supra note 4 (pt. 2), at 334. See also Howard
Beales, Richard Craswell, & Steven C. Salop, The Efficient Regulation of Consumer
Information, 24 J. L. & Econ. 491, 505 (1981) ("When scale economies in information
generation and dissemination lead to natural monopoly problems, information intermediaries

can achieve a high level of market power, though it may not be exercised in practice.").
118. See Havighurst, supra note 18, at 350 ("Much of the privately generated

information concerning medical technology emanates from professionals and professional

organizations.").

119. See, e.g., Schachar v. American Academy of Ophthalmology, Inc., 1988-1

Trade Cases (CCH) f 67,986, at 58,052 (N.D. 111.) ("The views of [a large and highly
respected professional] organization specializing in a field about which the general public

is generally uninformed, especially where the views are publically disseminated to potential

patients and third party payers, acquire significantly more weight and thus have a more

coercive effect than would the views of individuals.").

120. See Havighurst, supra note 18, at 350 ("Because of the difficulties of marketing

public goods . . . , private technology assessment is more likely to be undertaken by large

organizations that can themselves internalize enough of the benefit to justify the cost.").

121. For example, one can look at the effect of standards from the perspective of

purchasers of medical services. For such a group, standards greatly affect information

costs. See Eastman Kodak Co. v. Image Technical Servs., Inc., 112 S. Ct. 2072, 2085-

87 (1992) (discussing effects of information costs generally). The relative availability of

information regarding different medical services, and the nature of that information, will

be largely a function of the standards and statements that have been issued regarding

those services. Therefore, because information about medical services is difficult and costly

to obtain, when a standard is available it is likely to be the only information a consumer

will use. See id. at 2086 ("[E]ven if consumers were capable of acquiring and processing

the complex body of information, they may choose not to do so. Acquiring the information
is expensive.").

Imposing liability on competitors who worsen this problem has been considered. In
Town Sound and Custom Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 468 (3d Cir.



76 INDIANA LAW REVIEW [Vol. 27:51

but the important point is that information (or misinformation) conveyed

1992), cert, denied, 113 S. Ct. 196 (1992), the plaintiff argued that Chrysler's pohcy of

requiring consumers to purchase radios with its cars allowed it to include part of the

price of the radios in the base price of the car, thus misleading consumers regarding the

price that they were paying for the radios. The court agreed that *'[a]ctions creating or

exacerbating problems of imperfect information could be seen as 'restraining trade' or

'substantially lessening competition' even though not leading to monopoly or oligopoly."

Id. at 492 n.34. The court also noted that some comments in the Supreme Court's opinion

in Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984), might justify such a

view. 959 F.2d at 490-92. But it declined to consider that option itself, "absent a much
clearer mandate from the Court." Id. at 492. Kodak may be that mandate. In any event,
Chrysler's actions in Town Sound were not specifically directed at conveying information.
In professional standard-setting, where informing others is the goal of the actions at issue,

more searching scrutiny is appropriate.

Alternatively, one can look at the costs of the suppliers who compete with standard-
setters. Although in principle it is possible for competing suppliers to correct misleading

information conveyed by a standard, so as to recover the demand of consumers, it may
be prohibitively expensive to do so. See Kodak, 112 S. Ct. at 2086 n.21 ("Even in a

market with many sellers, any one competitor may not have sufficient incentive to inform
consumers because the increased patronage attributable to the corrected consumer beliefs

will be shared among other competitors." (citation omitted)). And even if a supplier did
expend the resources to compete against a misleading standard, doing so would raise his

costs, and, therefore, disadvantage him in competition. This occurred in Interstate Circuit,

Inc. V. United States, 306 U.S. 208 (1939). The defendant in Interstate Circuit, a monopoly

operator of first-run movie theaters, prevailed upon a distributor to require second-run

theaters to charge a minimum price. Id. at 215-18. As Professors Krattenmaker and Salop
point out, the effect of this action was to raise the costs of the second-run theaters: "The

price that theaters paid for exhibition rights did not necessarily rise but, presumably, their

costs of attracting patrons did." Thomas G. Krattenmaker & Steven C. Salop, Anticom-
petitive Exclusion: Raising Rivals' Costs to Achieve Power over Price, 96 Yale L.J. 209,

239 n.97 (1986). The necessity of competing with a deceptive standard imposes similar

additional costs on competitors of the standard-setters. Professors Krattenmaker and Salop

note that under these circumstances the theory that monopoly power in one market (i.e.,

medical information) can be "leveraged" into another (i.e., medical services) is plausible.

Id. at 248-49.

Interestingly, both of these mechanisms were discussed in a recent article on pro-

fessional rules, yet the author of that article had Uttle concern regarding the demand-

related effects described here. See John E. Lopatka, Antitrust and Professional Rules: A
Framework for Analysis, 28 San Diego L. Rev. 301 (1991). Professor Lopatka describes,

in a discussion emphasizing economic theory, how restrictions in the supply of information
can both increase consumer search costs, id. at 317-23, and raise the costs of providers,

id. at 323-32. He further notes the parallels between these two phenomena and observes,
as does this Article, that "[t]he best way to view the matter may be to recognize a
demand for information." Id. at 329. Nevertheless, when he discusses what he calls the

"theoretical possibility" of a group of professionals coUusively manipulating demand by

establishing rules that mislead consumers, he states only that "determining that such a

rule is Hkely to reduce welfare would be difficult." Id. at 333-35.

Professor Lopatka does not apply his observations on cost-raising to the manipulation

of demand by professionals because he focuses only on markets defined by professional



19931 MEDICAL SOCIETY ANTITRUST LIABILITY 77

in society standards, and the interpretation of that information by its

recipients, influences the purchase of medical services. The influence is

effective independent of any influence or coercion that societies impose

on their members. This has two important implications. First, the cases

that look at the percentage of physicians belonging to a society'^^ or at

the importance to a physician of belonging to a society^" are missing

the point. Those factors affect only the society's power in the market

for medical society membership, not necessarily its power in the medical

services market. ^^'^ Second, and conversely, a society's power to affect

services as a whole, rather than on particular product markets. For example, although

Professor Lopatka notes that his model of increased consumer costs "depends on a change

in demand, not a change in the costs of the supplies," id. at 321, he examines this

phenomenon only in the context of the suppression of price information, an action that

affects the entire professional services market. See id. at 318-21. Similarly, in describing

the efforts of dentists who do not use dental hygienists to raise their rivals' costs by
banning those rivals' use of hygienists, he notes only that "[tjhe industry supply curve

rotates up and to the left." Id. at 324. The industry focus of Professor Lopatka is

confirmed by his statement dismissing the importance of professional rules affecting

information: "The information restrained by such a rule might have no effect on the

demand for professional services, but merely cause a shift in the pattern of supply among
professionals." Id. at 334. But it is exactly control over the shifting of supply patterns

(that is, the allocation of productive capacity) that the antitrust laws seek to prevent.

See, e.g., 1 Phillip Areeda & Donald F. Turner, Antitrust Law t 103 (1978) ("The
economic objective of a pro-competitive policy is to maximize consumer economic welfare

through efficiency in the use and allocation of scarce resources . . . ."). A focus on an
entire industry is only appropriate when the cross-elasticity of demand among the various
services in that industry is high. See generally 2 Phillip Areeda & Donai.d F. Turner,
Antitrust Law f 525 (1978). That is, it is only appropriate when consumers perceive
the services in the industry as close substitutes. Id. This may be the case in Professor
Lopatka' s examples. For instance, consumers are probably largely indifferent between

dental-services-without-dental-hygienists and dental-services-with-dental-hygienists. How-
ever, in many other cases, consumers are not indifferent between professional services.
In the ophthalmological area, for example, consumers do not treat even contact lenses

and eyeglasses as completely interchangeable, and it is not likely that a surgical procedure

like radial keratotomy would be perceived as a close substitute for either. Therefore,

radial keratotomy probably constitutes an market in itself, and the effects of manipulation

of demand should be assessed in that market, not in the market for ophthalmological

(or, even more broadly, medical) services in general. The same anticompetitive potential

that Professor Lopatka describes for entire industries also applies to individual product

markets.

122. See, e.g., Schachar, 1988-1 Trade Cases (CCH) 1 67,986, at 58,050 (noting

that over ninety percent of all ophthalmologists in the United States belong to the American

Academy of Ophthalmologists).
123. See supra text accompanying notes 113-14.

124. Of course, the importance of society membership and power in the information
market will often both be present when a society is prominent and well respected. But

power in the information market does not derive from the importance of membership;

instead, both are a result of the prominence of the society.



78 INDIANA LAW REVIEW [Vol. 27:51

the consumption of medical services may be much greater, due to the
esteem in which it is held or the effectiveness of publication of its

statements, than its size or market share of physicians would predict.'"

The Supreme Court has recognized exactly this sort of market power

in two trade association cases. In American Society of Mechanical En-

gineers V. Hydrolevel Corp.,^^^ for example, it said that the society's
*

'agents exercise economic power because they act with the force of the

Society's reputation behind them.'''^^ That power derived not from

influence over the members of the society, but because the Society's

**codes and standards influence the policies of numerous States and

cities, and, as has been said about 'so-called voluntary standards' gen-

erally, [the Society's] interpretation of its guidelines 'may result in ec-

onomic prosperity or economic failure for a number businesses of all

sizes throughout the country,' as well as entire segments of an indus-

try,
"'^s Similarly, in Allied Tube & Conduit Corp. v. Indian Head,

Inc.y^^^ the Court said that it was deciding the case "on the theory 'that

the stigma of not obtaining [Code] approval of its products and [the

defendant's] "marketing" of that stigma caused independent marketplace

harm'" to the plaintiff. '^^ The "independent marketplace harm" produced

by the absence of Code approval was a result of the standard's impact
on third parties, not its effect on society members.'^'

125. Cf. Mozart Co. v. Mercedes-Benz of North America, Inc., 833 F.2d 1342,

1346-47 (9th Cir. 1987) (pointing out that although the uniqueness of Mercedes automobiles

may provide market power in the consumer market, it does not necessarily do so in the
dealer market for automobile franchises), cert, denied, 488 U.S. 870 (1988).

126. 456 U.S. 556 (1982).

127. Id. at 574.

128. Id. at 570 (quoting H.R. Rep; No. 1981, 90th Cong., 2d Sess. 75 (1968)).

129. 486 U.S. 492 (1988).

130. 486 U.S. at 498 n.2 (quoting Indian Head, Inc. v. Allied Tube & Conduit
Corp., 817 F.2d 938, 941 n.3 (2d Cir. 1987), with interpolations by Supreme Court); see

also Koefoot v. American College of Surgeons, 610 F. Supp. 1298, 1308 (N.D. 111. 1985)

("[TJhis Court simply cannot accept the defendants' contention that any injury to Dr.

Koefoot's reputation is irrelevant to his antitrust claim. To the extent that the number

of patients referred to a surgeon depends on his reputation, that reputation is critically

important and directly affects his income. Because Dr. Koefoot is a direct competitor of

surgeons who are Fellows of the American College of Surgeons, injury to his reputation
and income is precisely the sort of anti-competitive injury that the antitrust laws were

designed to prevent.").

131. It should be pointed out that at another point the Allied Tube Court said

that the effects of the code were not solely a result of the "power of persuasion." It

noted that "[tjhe Association's members, after all, include consumers, distributors, and

manufacturers of electrical conduit, and any agreement to exclude [a particular product]

from the Code is in part an implicit agreement not to trade in [the product]." 486 U.S.

at 507, The presence of consumers in a trade association, when the association takes a



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 79

C. Competitive Effects in the Medical Information Market

Accepting that medical societies influence the operation of the medical

services market by issuing evaluations of products and services to third

parties, how does that information affect competition? Third-party pay-
ers, as discussed below, '^^ present a special case because they often

respond not to the information in a standard but merely to the fact of

its issuance. For consumers, it is the specific statements of the society

that affect their decisions. Therefore, as the Supreme Court has said in
addressing this issue, it is important that '^private economic decisions

... be intelligent and well informed.'*'" The focus should be on whether
the information provided enables patients to make better, i.e., better
informed, choices of services.*^"* In other words, do the medical societies
provide accurate information, or do they merely (mis)lead patients to
purchase the services the societies prefer? '^^

There are two ways to attempt to ensure that information flows

cleanly and accurately: information can be tested for substantive content,

or the generation of information can be governed by rules that ensure

the integrity of the information-generating process. The Supreme Court

in Allied Tube relied on both tests in stating its view that if private

position disapproving a product, lends the association's action the character of a group

boycott. See Havighurst & King, supra note 4 (pt. 1), at 173-74. Because professionals
societies do not have patients as members, they do not share this problem.

132. See infra section IIl.B.

133. Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc.,

425 U.S. 748, 765 (1976).

134. See Havighurst, supra note 18, at 350 ('*[T]he issue that antitrust courts must

resolve is whether professional sponsorship of technology assessment perpetuates profes-

sional dominance, thus impeding rather than promoting the movement toward a competitive

market in which choices are made, with good information, by consumers and independent

agents acting on their behalf.").

135. The staff of the Federal Trade Commission has described a variety of ways

in which standards can be deceptive or misleading. See Bureau of Consumer Protection,

Federal Trade Commission, Standards and Certification: Final Staff Report 188-

209, 288-95 (1983). As described in notes 152 and 218 infra, the F.T.C. proposed regulations

in this area, but its authority to issue such regulations was withdrawn by Congress with

the comment that deceptive standards were already prohibited by the antitrust laws.

At least one court of appeals has appeared to accept this theory of competitive

impact, at least in principle. In Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d

478 (1st Cir. 1988), cert, denied, 488 U.S. 1007 (1989), the plaintiff alleged that the form

of a trade association's standard might have misled users regarding the significance of

the association's approval. The court affirmed a finding of no antitrust liability because

there was "no testimony that any of [the consumers] was fooled." Id. at 487-88. It did

not, however, reject the argument that such deception could be anticompetitive. See id.

For a similar view in a somewhat different context, see the discussion of Town Sound
and Custom Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 468 (3d Cir. 1992), cert,

denied, 113 S. Ct. 196 (1992), in note 121 supra.



80 INDIANA LAW REVIEW [Vol. 27:51

Standards are derived **based on the merits of objective expert judgments

and through procedures that prevent the standard-setting process from

being biased by members with economic interests in stifling product

competition, those private standards can have significant procompetitive

advantages.*' '^^ However, despite this statement's reference to both sub-

stantive and procedural tests, the rest of the case focused solely on the

procedural protections.

Allied Tube involved the National Fire Protection Association (NFPA),

which sets and publishes standards routinely adopted as law in many
jurisdictions.'^^ A change was proposed to a standard estabhshed by the
NFPA, and the standard's supporters (most of whom were manufacturers
of products that conformed to it) packed the association's annual meeting

with new members recruited specifically to vote against the proposed
change, which would have approved a new and competing product.'^*
The change was voted down.'^^ The Court said that even though the

packing of the meeting did not actually violate the association's rules,

and even though most of the damage to plaintiffs was done by government

adoption of the NFPA's standards, the association was responsible for
seeing that its power was not used in such a fashion:

[T]he hope of procompetitive benefits depends upon the existence

of safeguards sufficient to prevent the standard-setting process

from being biased by members with economic interests in re-

straining competition. An association cannot vaHdate the anti-
competitive activities of its members simply by adopting rules

that fail to provide such safeguards. '"^^

It is not clear, however, that there could ever be procedural safeguards

sufficient to protect the standard-setting process from economic self-

interest. The problem is especially acute in a case hke Wilk v. American

Medical Association, ^"^^ where the American Medical Association sought

to '^eliminate" the practice of chiropractic, in part through enactment

of an **ethical principle" that prohibited its members from practicing
in association with chiropractors.'"^^ In that case, where the disapproved

136. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988)
(citation omitted).

137. Id. at 495-96.

138. Id. at 496-97.

139. Id. at 497.

140. Id. at 509 (footnote omitted).

141. 719 F.2d 207 (7th Cir. 1983), cert, denied, 467 U.S. 1210 (1984), decision on

remand, 671 F. Supp. 1465 (N.D. 111. 1987), aff'd 895 F.2d 352 (7th Cir. 1990), cert,

denied, 496 U.S. 927 (1990).

142. Until 1980, Principle 3 of the American Medical Association (AMA) Principles



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 81

practitioners (i.e., the chiropractors) were not members of the society
issuing the standard, it was arguably in every society member's self-

interest to pass a restrictive standard. Even when society members disagree
about a standard, presumably the best that can be done is to determine

whether it is preferred by a majority of society members. Enactment

of such a standard would still not meet antitrust requirements, for two

reasons.

First, any new practice technique adopted by professionals is intro-
duced first by a minority of professionals. There is no reason to suppose

that these innovative professionals are less able than others to determine

whether the new technique is safe. To the contrary, their experience
with the new technique places them in the best position to evaluate it.''*^
Furthermore, it is possible, if not hkely, that those professionals not

yet practiced in the new technique will be suspicious of it.''*^ Therefore,
given the uncertainty in evaluating any medical technique, a majority

(or even super-majority) vote is Hkely to reject most new techniques,
regardless of merit.

Second, and more important, the antitrust laws do not operate by
majority vote of producers, but by the market decisions of consumers.

One could certainly adopt the position that, given safety concerns, new
procedures should be adopted only when a majority of professionals
approve them, but that is not the position adopted by the Sherman Act.

The Supreme Court has never said that the choice in these matters

should not remain with consumers. It is especially unlikely that the

Court would allow a group of producers to decide on the proper form

of services to provide to consumers. In National Society of Professional

Engineers v. United States^^"^^ the Court said that, even in the absence

of a professional society's quality standards, quality goods could still

be produced because *'a purchaser might conclude that his interest in

quality—which may embrace the safety of the end product—outweighs

of Medical Ethics provided: "A physician should practice a method of healing founded
on a scientific basis; and he should not voluntarily professionally associate with anyone

who violates this principle." 719 F.2d at 231. The AMA at the time considered chiropractic
unscientific, and its official interpretation of Principle 3 described it as such, so Principle

3 discouraged physicians from associating with chiropractors. Id.

143. This is not to say that such groups will not have their own bias, probably in
favor of the new technique, or that they are the only ones who should be able to evaluate
it. The point is just that, given their experience with the technique, their views are likely

to be well informed and should not be permitted to be overwhelmed by the majority's

less informed perceptions. To the extent that the innovators made deceptive statements
regarding the technique, though, they would be liable on the same terms as the larger

group (assuming that they too had market power). See infra section III.A.

144. See supra note 15.

145. 435 U.S. 679 (1978).



82 INDIANA LAW REVIEW [Vol. 27:51

the advantages of achieving cost savings by pitting one competitor against

another. "''*^ The choice, therefore, should remain with consumers. When
the profession restricts the consumer's options by imposing norms for

the behavior of its members, it "imposes the Society's views of the costs

and benefits of competition on the entire marketplace."''*'' Similarly, the

Court in FTC v. Indiana Federation of Dentists^"^^ said that '*[a] refusal
to compete with respect to the package of services offered to customers,

no less than a refusal to compete with respect to the price term of an

agreement, impairs the ability of the market to advance social welfare."''*^

The Court again emphasized its concern that consumers have free choice:

*The Federation is not entitled to pre-empt the working of the market
by deciding for itself that its customers do not need that which they

demand. "»5o

These statements suggest that Allied Tube's emphasis on procedural

protections was due more to the actions of the defendant to ** 'subvert'
the consensus standard making process"'^' than to any unwillingness of

the Court to impose substantive requirements.'" Procompetitive standards

146

147

148

149

150

Id. at 694.

Id. at 695.

476 U.S. 447 (1986).

Id. at 459.

Id. at 462. The Court was actually somewhat equivocal on this question in

Indiana Federation of Dentists. When the federation attempted to use patient care as its
justification for declining to provide x-rays to insurers, the Court rejected the justification

because it was unsupported by any evidence that consumers had in fact been harmed. It

did not rule out a patient-care defense entirely, though, resting its decision on the facts

of the case "even if concern for the quality of patient care could under some circumstances

serve as a justification for a restraint of the sort imposed." Id. at 464. But the Court

has since categorically rejected a quality-of-care argument in another case involving the

medical profession (though not a professional society). In Jefferson Parish Hosp. Dist.

No. 2 V. Hyde, 466 U.S. 2 (1984), the plaintiff anesthesiologist claimed that a hospital's

contract with a single anesthesiology group was an illegal tie-in. The Court rejected the

claim, but said in a footnote that if there had been evidence of an illegal tying arrangement,

the reasons for its creation would have been irrelevant. The Court "reject[ed] the view

of the District Court that the legality of an arrangement of this kind turns on whether

it was adopted for the purpose of improving patient care." Id. at 25 n.41.

151. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 498 (1988).
152. As described in note 218 infra, the staff of the Federal Trade Commission in

1978 proposed substantive rules to prevent deception of consumers by standards, but

Congress withdrew the F.T.C.'s rule-making authority in this area. Following Congress's

action, the F.T.C. staff issued a final rule proposal that mandated only procedural processes

for complaint handling by standards organizations. See Bureau of Consumer Protection,

Federal Trade Commission, Standards and Certification: Final Staff Report 339-

44 (1983). In the end, even that rule was not issued, because the Commission decided to

use case-by-case enforcement in situations of anticompetitive standard-setting. See 50 Fed.

Reg. 44,971 (1985). The Commission noted that it made that decision in part because the



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 83

should therefore be required to meet a substantive test like the one

expressed in that case, where the Court said that standards should be

based on ''objective expert judgments.*''" Only then will the standards

promote, rather than hinder, the workings of the market. This test,

however, immediately raises the question of a conflict between the

antitrust laws and the First Amendment. Are professional societies not
free, as Judge Easterbrook says,'^^ to speak out regarding their services

regardless of whether their statements are false or misleading? The answer,

as the following section shows, is no.

D. The Antitrust Laws and Speech

The Sherman Act is, of course, subject to the Hmitations of the
Constitution. Part of that limitation is the First Amendment's protection
of freedom of speech, which must be considered in enforcing the antitrust

law. But a group cannot merely point to the First Amendment to
immunize speech that restrains trade:

[I]t has never been deemed an abridgment of freedom speech
or press to make a course of conduct illegal merely because the
conduct was in part initiated, evidenced, or carried out by means

of language, either spoken, written, or printed. . . . Such an

expansive interpretation of the constitutional guaranties of speech

and press would make it practically impossible ever to enforce
laws against agreements in restraint of trade as well as many
other agreements and conspiracies deemed injurious to society. '^^

The interrelationship of the antitrust laws and the First Amendment has
been explored almost exclusively in the context of "political" speech.

The two areas of law have been reconciled in the development of the

Noerr-Pennington doctrine, '^^ which provides immunity from the antitrust

laws for speech addressed to the government. Such speech, and other

activities seeking government action, are protected even if the activities

anticompetitive dangers presented by standards had decreased as a result of changes in

standards organizations' procedures following a Supreme Court decision that imposed

liability on a standard-setting society for the anticompetitive activities of its members. Id.

The decision to which the Commission referred was presumably American Soc'y of

Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982), which is discussed in

note 190 infra.

153. Allied Tube, 486 U.S. at 501.

154. See supra text accompanying note 102.

155. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 514

(1972) (quoting Giboney v. Empire Storage Co., 336 U.S. 490, 502 (1949)).

156. The application of the Noerr-Pennington doctrine to society standards is dis-

cussed in more detail in section IV.C infra.



84 INDIANA LAW REVIEW [Vol. 27:51

are motivated by an anticompetitive purpose. But even this First Amend-
ment protection is limited, and the nature of the limitation sheds light

on the permissible boundaries for standard-setting.

Noer-Pennington immunity has been held by the Supreme Court not

to extend to misrepresentations or fraud, at least in forums less political

than the legislature, such as the courts and administrative agencies. '^^

Significantly, the Court in Allied Tube focused on this exception in

denying Noerr-Pennington immunity in that case.'^* The Court reaffirmed

the exception to immunity for deceptive speech before courts and ad-

ministrative agencies, and even suggested, contrary to previous cases,

that it might extend to some legislative bodies. '^^ The Court then made
clear that deceptive speech is also unprotected in the private context. It

observed that because private standard-setting involves collaboration among
business competitors, **the standards of conduct in this context are, at

least in some respects, more rigorous than the standards of conduct

prevailing in the partisan political arena or in the adversarial process

of adjudication." ^^°

Thus, Allied Tube shows little tolerance for deception in the standard-

setting process. The Court's focus, however, was on proceedings before

the standard-setting body, not on the standards as they were addressed

to the public.'^' Therefore, Allied Tube does not necessarily show that

the Court's concern for substantive accuracy extends to speech directed

outside the organization,'" As it happens, a demand for accuracy from

157. California Motor Transport Co., 404 U.S. at 510-13.

158. The defendants there argued that, because their standards were enacted into

law by many local governments, their standard-setting efforts were "quasi-legislative."

The Court disagreed: "That rounding up supporters is an acceptable and constitutionally

protected method of influencing elections does not mean that rounding up economically

interested persons to set private standards must also be protected." Allied Tube & Conduit
Corp. v. Indian Head, Inc., 486 U.S. 492, 504 (1988).

159. Id. at 500 (citing California Motor Transport Co. v. Trucking Unlimited, 404

U.S. 508, 512-13 (1972)); id. at 504 (suggesting that "misrepresentations made under oath

at a legislative committee hearing" would not be protected).

160. Id. at 507.

161. See supra text accompanying notes 138-41.

162. At least one case suggests that the Court's standards for speech to the public

would be at least as strict as those for speech within the organization. In Noerr itself,

where a group of railroads were seeking legislative action to disadvantage the trucking

industry, the railroads also engaged in a campaign to persuade the public to support its

legislative efforts. Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365

U.S. 127, 142-44 (1961). The Court specifically noted though, that to the extent the

truckers suffered injury as a result of the publicity campaign, the injury was only incidental

to the railroads' efforts seeking legislative action. Id. at 143. It said that "[t]here [were]

no specific findings that the railroads attempted directly to persuade anyone not to deal

with the truckers." Id. at 142. Therefore, in a case like Schachar, where the societies



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 85

groups of professionals is supported by another line of Supreme Court

cases that requires such accuracy from individual professionals.

Individual professionals often make advertising claims for their serv-
ices not unHke the claims of professional societies. In the cases described

below, such advertising claims were challenged by professional societies

as violations of their codes of ethics. Because many of these professional
organizations, such as bar associations, are state agencies, their restric-

tions on members' speech are subject to the First Amendment. That is,
professional societies' rules regarding members' speech are subject to

much the same limitations as is antitrust regulation of the societies'
speech. Therefore, the Court's treatment of these cases should provide

insight into its views on collective professional speech as well.

In applying the First Amendment to professional advertising, the
Court has moved from an initially broad protection of speech to an
emphasis on accuracy that recognizes the element of trade regulation in

these cases. '^^ The evolution began in Virginia State Board of Pharmacy
V. Virginia Citizens Consumer Council, Inc.,^^ where the Supreme Court
held that the First Amendment protected the advertisement of drug prices
by pharmacists. In this case, there was no question of the advertisements'

accuracy, so the Court saw no reason to restrict them. It said, for

example, that the state-imposed restrictions rested on the assumption

that there were benefits from keeping the public in ignorance. '^^ However,

the Court recognized that commercial speech must be judged by its

commercial impact. It said that '^proper allocation of resources in a

free enterprise system" depends on the flow of information about the

operation of that system. *^^ Accordingly, the Court said that if the state

had chosen only to restrict
*

'false or misleading" speech, the First

Amendment would not have been an obstacle. '^^ The majority did not

specifically sought to influence the pubhc not to receive radial keratotomies outside their

own studies the Court would likely interpret the societies' First Amendment protections
narrowly.

163. Consider, for example, Ohrahk v. Ohio State Bar Ass'n, 436 U.S. 447 (1978),
where the Court rejected an attorney's argument that his in-person solicitation of potential

clients was protected by the First Amendment. The conduct is barely acknowledged to

have a speech component at all—the Court says that it is "only marginally affected with
First Amendment concerns" and compares it to direct selling techniques regulated by the
Federal Trade Commission. Id. at 459, 464-65. See also C. Lee Peeler & Michelle K.
Rusk, Commercial Speech and the FTC's Consumer Protection Program, 59 Antitrust

L. J. 985 (1991) (describing compatibility between the Supreme Court's protection of

commercial speech and the FTC's prohibition of deceptive advertising).

164. 425 U.S. 748 (1976).

165. Id. at 769-70.

166. Id. at 765.

167. Id. at 771-72. The Court said that, given both the verifiability provided by



86 INDIANA LAW REVIEW [Vol. 27:51

elaborate on this conclusion, but Justice Stewart, concurring, drew an

analogy to the speech of employers in labor relations, which must **be

carefully phrased on the basis of objective fact" and must avoid conscious

overstatement.'^* He emphasized that when the speaker has ''specific
and unique knowledge of the relevant facts," she has a special obligation

to avoid false or misleading speech. '^^

This concern regarding specialized knowledge came to the fore in
Bates V. State Bar of Arizona, ^''^ which followed Virginia Board of
Pharmacy in upholding advertising of routine legal services.*^' In doing

so. Bates made some observations that are particularly relevant to pro-
fessional standard-setting. Most importantly, it expressed concerns re-
garding claims of quality, and made clear that it would examine them
closely. '"^^ It said, for example, that "because the public lacks sophis-

tication concerning legal services, misstatements that might be overlooked

or deemed unimportant in other advertising may be found quite inap-
propriate in legal advertising."'^^ Two dissenting opinions would have
gone further and rejected any First Amendment protection for the ad-
vertising, on the grounds that legal services are too individualized to be

susceptible to non-misleading advertisement of prices.'^"*

The implications of these statements in Bates are as yet unclear,

because the Court has not yet addressed a case in which claims of

quality have been made.'^^ The closest it has come are two additional
cases involving lawyer advertising. In re R.M.J.^''^ and Peel v. Attorney

the familiarity of the speaker with his product and the strong commercial motivation for

it, it may be "less necessary to tolerate inaccurate statements for fear of silencing the
speaker." Id. at 772 n.24.

168. Id. at 778-79 (Stewart, J., concurring) (quoting NLRB v. Gissel Packing Co.,
Inc., 395 U.S. 575, 618 (1969)).

169. Id. at 779 (Stewart, J., concurring).

170. 433 U.S. 350 (1977).

171. The Court said that the conclusion in Bates "might be said to flow a fortiori''^

from that in Virginia Board of Pharmacy. Id. at 365.

172. Id. at 366 ("[W]e need not address the peculiar problems associated with

advertising claims relating to the quality of legal services. Such claims probably are not

susceptible of precise measurement or verification and, under some circumstances, might

well be deceptive or misleading to the public, or even false.").

173. Id. at 383 (footnote omitted); see also Virginia Board of Pharmacy, 425 U.S.

at 773 n.25.

174. 433 U.S. at 386-87 (Burger, C.J., dissenting), 389-96 (Powell, J., dissenting).

175. That is, the Court has not considered a case in which quality claims were the

center of the dispute. It has, of course, considered cases in which quality was used as a

justification for other society actions. See, e.g., FTC v. Indiana Fed'n of Dentists, 476
U.S. 447, 464 (1986); Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 25 n.41

(1984); National Soc'y of Professional Eng'rs, 435 U.S. 679, 694 (1978).

176. 455 U.S. 191 (1982).



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 87

Registration and Disciplinary Commission of Illinois.^'''' In In re R.M.J.

,

a lawyer had advertised that he was "Admitted to Practice Before THE
UNITED STATES SUPREME COURT/^'^s The Court said that the
statement **could be misleading to the general public unfamiliar with

the requirements of admission to the Bar of this Court. *''^^ However,

in the absence of findings in the record regarding whether the information

was misleading, the Court allowed the advertising. '^°

In Peel, the Court had the opportunity to consider a similar issue

on a more fully developed record. The petitioner had stated on his
letterhead, truthfully, that he was a civil trial specialist certified by the

National Board of Trial Advocacy ("NBTA''), a private group. The

Illinois attorney disciplinary commission found the advertisement to be

a violation of the state's code of professional responsibility, which

prohibited an attorney from advertising himself as
*

'certified'' or as a

**speciaHst." The Illinois Supreme Court adopted the commission's con-
clusion. The plurality opinion from the United States Supreme Court

rejected the state court's decision, focusing on the allegedly misleading

nature of the advertisement. The Court concluded that it was not actually
misleading because there was no showing that the advertisement produced

the impression among the public that the certification was by the state,
or that the public was unable to distinguish

*

'between statements of

opinion or quality and statements of objective facts that may support
an inference of quahty."'^' It acknowledged that the advertisement might

be potentially misleading, but said that, even assuming that some might

be misled, the blanket ban on such advertising was broader than rea-

sonably necessary to prevent that danger. ^^^ In drawing these conclusions,

however, the Court observed that the NBTA's "standards ... are
objective and demanding."'*^ Furthermore, a narrower constraint might

have been permissible. For example, the state could have required that

certification be based on "objective and consistently applied standards"

or that the advertisement include a disclaimer.'^'*

The plurality's emphasis on the need for objectivity in the advertised

standards highlights the evolution in commercial speech doctrine. The

concern regarding misleading speech has become a dominant issue in

the cases since its passing mention in Virginia Board of Pharmacy. In

177. 496 U.S. 91 (1990).

178. 455 U.S. at 197.

179. Id. at 205.

180. Id. at 205-08.

181. Peel, 496 U.S. at 101

182. Id. at 106-10.

183. Id. at 95.

184. Id. at 109-10.



88 INDIANA LAW REVIEW [Vol. 27:51

that case, the concern was overridden by the Court's belief that the

market depends on the flow of information about products. In Peel,

the focus has shifted to a concern with market failure due to deceptive

or misleading information. This brings the commercial speech test very

close to the antitrust test for association standards, which, as described

above, '^^ requires that standards be derived '*based on the merits of

objective expert judgments. "*^^ Thus, Peel gives no reason to beUeve

that a requirement of accuracy runs afoul of the First Amendment. This
is all the more true because Peel did not involve a true claim of quality.

In contrast, the medical standards at issue in, for example, Schachar,

purport to assess the quality or safety of a particular medical service.

The opportunity for deception with such a claim is, as the Court has

stated, much greater. Hence the Court would probably allow more
regulation of quality claims.

It is true that regulation of professional advertisements that may be
misleading—the commercial speech problem—is significantly different
from imposing antitrust liability, including possible treble damages, for

misleading standards. ^^"^ However, professional disciplinary proceedings

can also impose severe penalties, and the problem of evaluating the

statements in the two cases is similar. Professor Havighurst argues that

professional speech should not be subject to antitrust limitation because

it is difficult for courts to evaluate its accuracy. ^^^ But there are several

185. See supra section II.C.

186. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988)
(citation omitted).

187. On the other hand, deceptive standard-setting may present greater dangers than
deceptive advertising. This is true because, as described in the text accompanying notes

41-43 supra, professional standards, unlike most industrial standards, are generally set by

groups with economic interests in the standards. If consumers are unaware of this fact,

and interpret professionals standards as if they were set by disinterested groups, they may
give the standards more credence than they would advertising. On the same problem in
the related area of medical credentials, see Havighurst & King, supra note 4 (pt. 1), at
153 ("Consumers can readily perceive advertising's self-serving character and may con-
sequently greet it with a healthy skepticism. They may be significantly less skeptical toward
personnel credentialing as a result of its apparently objective and authoritative character,

the professional auspices under which credentials are granted, and the typical absence of

competing claims.")

188. His argument emphasizes both theoretical and practical considerations:

Antitrust courts are poorly equipped to evaluate the quality and honesty of

opinions and information generated by professional organizations. By hypothesis,

the issues are highly technical and controversial. Litigation closely examining

the merits of these issues, the circumstances and effects of various pronounce-

ments, the motives of the parties, the honesty of the opinions expressed, and

the accuracy and completeness of the facts reported would always be protracted

and costly. Yet it would usually be inconclusive on the central questions.

Havighurst, supra note 18, at 362.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 89

reasons for rejecting this argument. First, it is not clear that making

these judgments is significantly more difficult than other antitrust de-
cisions.'^^ Moreover, the antitrust laws operate by deterrence as well as

judicial enforcement, so they may have benefits beyond the courtroom
that outweigh the occasional difficulties encountered in litigation. More
importantly, the accuracy of the speech need not be determined in some
absolute sense. It is, after all, only the speech's effects on the market

that are important, so it is only those effects that must be evaluated.

This can be done by investigating the effects the speech has on the

choices of the decision-makers at whom it is directed. The standard
would be a potential violation only if the speech leads consumers to

make different choices based on a standard's subjective evaluations than
they would have made with the available objective facts.

III. Proposals

As part II described, a deceptive or misleading medical standard is
anticompetitive to the extent that it makes patients forgo services that

they would have purchased with accurate information (or at least in the

absence of the misleading information). The market does not gain from

purchasing decisions made incorrectly. I propose, therefore, that pro-
fessional societies be liable for economic injury suffered by their en-

actment of misleading standards. Although this may seem like a radical
proposal, it actually would result in liability in only a limited range of

cases. To establish a violation, a consumer or physician would be required
to satisfy the usual antitrust burdens of proof by showing that the society

possessed market power, that its standard was on balance anticompetitive

(/.e., misleading), and that he actually suffered injury as a result of the

society's standard. Not many society standards are so firmly expressed
and so publicly known that they will affect the demand for a particular
service, and presumably few of those are deceptive. Those that are,

however, are exactly the standards that are appropriate subjects of

concern.

189. For example, a typical rule of reason case under section 1 requires the assessment

of market power and the weighing of procompetitive and anticompetitive effects, both

tasks which are difficult and often inconclusive. That does not lead, however, to Professor

Havighurst's conclusion that the conduct challenged in such cases should be per se legal.

See id. at 362-63 n.82.

The dissent in Allied Tube made an analogous argument, objecting to the majority's
failure to define "workable boundaries" to the Noerr doctrine's distinction between political

and commercial speech, 486 U.S. at 513 (White, J,, dissenting). The Court acknowledged

the dissent's criticism of "the uncertainty of such a particularized inquiry," but said that

blanket immunity was inappropriate and evaluation must rest on "the context and nature

of the activity." Id. at 507-08 n.lO, 509.



90 INDIANA LAW REVIEW [Vol. 27:51

Standards can also influence the choices of consumers through their

effects on insurers. As Part I described, an insurer's unwillingness to
reimburse for a procedure is likely to discourage patients from seeking

it. Although such reimbursement decisions are generally the insurer's to

make as it chooses, they too can be improperly influenced by medical
societies. Therefore, I also propose that the societies be liable for an-

ticompetitive harm that is effected in form through insurers but in fact
by the societies.

Both of these topics—the skewing by medical societies of decisions
by patients and third-party payers—are discussed below. A third section
discusses a topic mentioned briefly earlier. If a medical society is suf-

ficiently concerned about encouraging or discouraging a particular prac-

tice, it can seek to have its position on that practice enacted into law.

Its efforts to do so will generally receive antitrust immunity under the

Noerr-Pennington doctrine. This then provides a legitimate, political

avenue for societies to impose the restrictions on patient choice that I

propose they should be forbidden to impose privately.

A. Speech Directed at Patients

Under the antitrust rule of reason, a violation of Section 1 of the

Sherman Act occurs when a group with market power agrees on conduct
that is, on balance, anticompetitive. Because the actions of a medical

society are by their nature the subjects of agreement, '^° proof that a

190. See supra note 7. Of course, an action taken by a society is actually effected
only by a subset of its members. The society is still liable for its actions, however. This

issue was considered by the Supreme Court in American Soc'y of Mechanical Eng'rs, Inc.

V. Hydrolevel Corp., 456 U.S. 556 (1982) {ASME), where it decided that normal agency

principles should apply.

In ASME, the anticompetitive activity was initiated by an executive of one of the
plaintiff Hydrolevel's competitors, McDonnell & Miller, Inc. (M&M). The executive was
vice-chairman of the ASME subcommittee responsible for standards governing two of the
companies' competing products. He and the chairman of the subcommittee drafted an
inquiry to the full committee questioning the safety of Hydrolevel's product. The inquiry

was sent to the ASME over the signature of M&M's president. Following standard
procedures, the ASME referred it back to the subcommittee, where the chairman "pre-
dictably" returned an unfavorable response. The chairman made the response "unofficial"

to avoid having to take it before the entire subcommittee, but it was signed by an employee

of the ASME and issued on ASME stationery. Id. at 560-64.
That the activity was anticompetitive was not at issue. The question on appeal was

the extent of the society's liability for its members' actions. The Court's strict approach

to trade associations is indicated by its willingness to find the society liable regardless of

whether it was an intended beneficiary of the anticompetitive practices: "The anticompetitive

practices of ASME's agents are repugnant to the antitrust laws even if the agents act
without any intent to aid ASME, and ASME should be encouraged to eliminate the



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 91

medical standard violates the antitrust laws requires proof (1) that the

society enacting and promoting it possesses market power, (2) that the

standard's effects are anticompetitive, and (3) that the plaintiff suffered

injury. These tests are neither particularly difficult to apply to society

speech nor as likely as societies claim to chill desirable information-

generating activity.

7. Market Power.—As described above, '^' the market in which pro-
fessional societies operate is not the same one in which their members
sell their services. Medical societies, with regard to standards, operate

in the market for medical information. Therefore, one could evaluate

societies' market power by directly evaluating the effects of their actions

in that information market. For example, one could estimate market

power from market share by evaluating whether a society that issued a

statement regarding a particular service provided a large fraction of the

information available regarding the subject of that standard. The problem
with this approach, though, is that a society could provide all of the

information regarding a service, and it could even be beHeved,^^^ but it
still might not affect the demand for the service. For example, the price
of a service could be so low, and its dangers, even as presented by a

society discouraging it, so minimal, that consumers would choose to
purchase it anyway. The information market, though it has the potential
to affect the medical services market, does not necessarily do so.

Therefore, a society's market power should be examined in the market

where the effects of its statements are ultimately felt, the market for

medical services. '^^ In this market, there must be proof a society standard

affected demand for a service. This approach, the proof of market power
by market effects, was the one adopted by the Supreme Court in the

anticompetitive practices of all its agents acting with apparent authority . ..." /t/. at 574.

The parallel to professional societies is clear: regardless of whether the society itself

benefits, or the benefits accrue only to some of its members, the society can be held

liable for its anticompetitive acts.

191. See supra section ILB.

192. That a society provides a large proportion of the information regarding a

service does not, by itself, establish that it has market power, only that it has market

share. But if the society's statements are accepted, so that it actually influences opinions

regarding the service, it has market power (in the market for information regarding that

service). It must be remembered, though, that it is not anticompetitive effect in the

information market that is of concern. A distortion of consumers' views regarding medical
services is only significant (in the view of antitrust law) if it affects purchasing decisions

for those services. Therefore, it is only if power in the information market is "leveraged"

into the service market that there is anticompetitive harm. See supra note 121 and

accompanying text.

193. Of course, a society presumably only issues and publicizes a standard because
it believes that it has the power to affect demand for its services. See supra sections LB
& ILB.



92 INDIANA LAW REVIEW [Vol. 27:51

only professional society case in which it examined market power, '^"^

FTC V. Indiana Federation of Dentists. ^'^^ That case challenged the
federation's rule prohibiting members from providing patients' x-rays to
insurers for evaluation of the services that the members provided. The
federation claimed that it lacked market power to enforce its rule.

However, the Court noted the FTC's finding that the federation's res-

trictions were adhered to by its members, and it said those effects were

**legally sufficient to support a finding that the challenged restraint was

unreasonable."'^^ Since a finding of market power is generally a question

of fact, the Court did not decide the question, but the discussion indicated

that the Court believed the federation had such power.
'^"^

In a professional standard case the effects at issue are the reduction

(or increase) in demand for a particular service as a result of the standard.
Therefore, the plaintiff has the burden of showing that the standard

had sufficient market power to influence potential consumers' decisions

regarding the services. There are at least two ways of making this showing.

Following Indiana Federation of Dentists, the plaintiff could show that

the issuance of the standard was followed by a reduction in demand
for the service. The plaintiffs in Schachar alleged such a reduction, and
the Seventh Circuit apparently acknowledged that it occurred, stating

that *'[s]peech informed, hence affected, demand for radial kerato-
tomy."**^^ Under those circumstances, market power would be estabHshed,
though it would remain to be shown that the power had an anticompetitive
effect.

Another means of showing market power would be to offer the
testimony of specific patients who were themselves influenced not to
purchase the services in question. This was the approach taken, though

not explicitly, by the plaintiff in Koefoot, who provided an affidavit
stating that potential patients had declined to use him as a surgeon

because of the allegations of unethical surgery. *^^ Proving market power

194. The issue of market power has not appeared in most professional society cases

heard by the Supreme Court because those cases have generally involved price restrictions.

In price cases, the Court has focused on the agreement among the members, and has
generally found a per se violation without making a specific finding of market power.

See, e.g., Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 348 (1982).
195. 476 U.S. 447 (1986).

196. Id. at 461.

197. Id. at 460 ("The Commission found that . . . Federation dentists constituted

heavy majorities of the practicing dentists and that as a result of the efforts of the

Federation, insurers in those areas were, over a period of years, actually unable to obtain

compliance with their requests for submission of x rays").

198. Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 397, 399-

400 (7th Cir. 1989).

199. See supra text accompanying notes 54-55. Dr. Koefoot's affidavit reported the



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 93

in this manner is analogous to the approach in tying cases, where actual

influence over purchasing decisions can show market power.^^ Although

the testimony of a '^handful" of patients is not sufficient,^^' the plaintiff

need not show that every buyer was affected. In Fortner Enterprises,
Inc. V. United States Steel Corp.,^^^ the Supreme Court said that in the

tying context "sufficient economic power" is present "whenever the
seller can exert some power over some of the buyers in the market,
even if his power is not complete over them and over all other buyers

in the market. "^^^ it must be remembered, though, that the power over

buyers must actually come from the seller. If particular buyers, for their
own reasons, find the seller's product uniquely attractive, and therefore
feel compelled to purchase it, that does not show market power. For

that reason, liability in Fortner was rejected by the Court. Despite

testimony from buyers that they were coerced, there was nothing that

indicated that the defendant had any special advantage that allowed it

to force customers to accept its products. ^^ The Court contrasted the

deficiency in proof in Fortner with the situation in Northern Pacific

statements made to him by patients, so the statements were hearsay. However, such
statements are admissible under the state-of-mind exception to the hearsay rule. Fed. R.

Evid. 803(3); see Hydrolevel Corp. v, American Soc'y of Mechanical Eng'rs, Inc., 635

F.2d 118, 128 ('"Statements of a customer as to his reasons for not dealing with a supplier

are admissible for this limited purpose . . . .'") (quoting Herman Schwabe, Inc. v. United
Shoe Machinery Corp., 297 F.2d 906, 914 (2d Cir. 1962), cert, denied, 369 U.S. 865

(1962) (citations and footnote omitted)), aff'd, 456 U.S. 556, cert, denied, 456 U.S. 989

(1982); see also Jack B. Weinstein & Margaret A. Berger, Weinstein's Evidence
t 803(3)[03] (1992) ("The declarant's state of mind may be an issue in a wide variety of
contexts. Statements may be admitted, for example, to show ... a customer's reason for
refusing to deal with a suppher . . . ." (footnote omitted)). In any event. Dr. Koefoot's

affidavit was submitted only in opposing summary judgment; he could presumably have

offered the patients' testimony directly at trial.

200. See, e.g., Eastman Kodak Co. v. Image Technical Servs., Inc., 112 S. Ct.

2072, 2080 (1992) ("Market power is the power 'to force a purchaser to do something

that he would not do in a competitive market.'") (quoting Jefferson Parish Hosp. Dist.

No. 2 V. Hyde, 466 U.S. 2, 14 (1984)); see also Herbert Hovenkamp, Economics and

Federal Antitrust Law^ § 8.10 (1985) ("[M]arket power is a necessary condition for

inefficient coercion . . . .").

201. See, e.g., Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 794-
97 (1st Cir. 1988).

202. 394 U.S. 495 (1965).

203. Id. at 502-03.

204. The defendant agreed to provide credit to the plaintiff for the purchase and

development of land, but only if the plaintiff would agree to purchase prefabricated homes

from the defendant. Although the credit terms offered by the defendant were apparently

not available elsewhere, the Court said that in the absence of evidence that the defendant

had any cost advantage in providing the credit, mere "uniqueness" of the credit arrange-

ments would not provide economic power over buyers. See United States Steel Corp. v.

Fortner Enterprises, Inc., 429 U.S. 610, 617-22 (1977).



94 INDIANA LAW REVIEW [Vol. 27:51

Railway Co. v. United States,^^^ where it said not only that '*[t]he very

existence of [the] host of tying arrangements [was] itself compelling

evidence of the defendant's great power/' but that the defendant * 'pos-

sessed substantial economic power by virtue of its extensive landhold-

ij^gs
"206 jj^g point of this distinction is that it is not sufficient to show

the simple fact of conformity to the seller's wishes; there must also be

some reason to think that the conformity was caused by the power of
the defendant. In this respect, the case of professional societies is more
akin to Northern Pacific than to Fortner, because the societies' large

numbers of members and general prestige lend them the ability to
influence patients .^^^

2. Anticompetitive Effect.—Proof of market power demonstrates
that the defendant has the potential to impose anticompetitive effects,

but a violation occurs only when that potential is realized. As described
above, 2^^ a society standard is anticompetitive when it is misleading or
deceptive. Because it is market effects that are important, the test for

deception is not a metaphysical search for truth, but only a test of

effect on consumers' decision-making. The Supreme Court, in its com-
mercial speech decisions, has indicated that empirical evidence of de-

ception can be used to make this determination.^^^ Such evidence could,
for example, be produced by a consumer survey of the kind used in

trademark cases. The two kinds of cases are in this respect quite similar,
since both involve the alteration of consumer choices by deceptive market

205. 356 U.S. 1 (1958).

206. Id. at 7-8. The United States government had granted to the defendant ap-

proximately forty million acres of land along the defendant's railroad tracks. Some of
the land contained valuable timber or mineral rights. Over the years the defendant sold

or leased many of the holdings. Some of the sales and lease agreements required use of
the defendant's services to ship products produced on the land, as long as its rates were

no worse than those of competitors. Id. at 3. No doubt it was not just the extent of
the defendant's holdings that concerned the Court, but also the fact that its means of

acquisition could not be duphcated by competitors.

207. The district court in Schachar addressed specifically this point:

However, in a case such as this where the statements are made by a large and
highly respected professional organization, factors other than the mere persuasive

power of its arguments render its statements influential. The views of such an

organization specializing in a field about which the general public is generally

uninformed, especially where the views are publically disseminated to potential

patients and third party payers, acquire significantly more weight and thus have

a more coercive effect than would the views of individuals.

Schachar v. American Academy of Ophthalmology, Inc., 1988-1 Trade Cases (CCH)

t 67,986, at 58,052 (N.D. 111.).

208. See supra section II.C.

209. See Peel v. Attorney Registration and Disciplinary Comm'n of Illinois, 496
U.S. 91, 108 (1990) (plurality opinion).



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 95

information.^'^ Surveys to determine whether consumers have in fact

been deceived have long been admissible in this context,^" and similar

surveys could be conducted to determine whether statements by medical

societies mislead consumers or potential consumers of medical services.

For example, a society pronouncement regarding the safety of a procedure

could be tested to determine whether it conveyed accurate information

about the procedure's dangers. If the pronouncement under- or over-

stated the dangers, either in frequency or in character, it would be

anticompetitive.^'^ Or, more to the point, a survey could be conducted
to determine whether a society statement has the same effect on a
consumer's likelihood of purchasing a service as does the objective

information available at the same time.^'^

One possible concern is that the evaluation of professional services,
unlike that of trademarks, can change over time. A procedure once
thought unsafe may later appear to be safe, and vice versa. It might
therefore seem that to subject a society to liability for standards later

found to be misleading is overly restrictive. However, the Court has

noted that in the commercial arena, unlike the political one, the danger

of overbroad restrictions is not a significant concern. ^'^^ It is therefore

210. See Havighurst & King, supra note 4 (pt. 1), at 136-37 (comparing medical
credentials to trademarks).

211. See, e.g., Zippo Mfg. Co. v. Rogers Imports, Inc., 216 F. Supp. 670, 680-86

(S.D.N.Y. 1963); see also Handbook of Recommended Procedures for the Trial of Pro-
tracted Cases, 25 F.R.D. 351, 426-29 (1960).

212. For example, in Koefoot, the defendant, the American College of Surgeons

(ACS), promulgated its view that the practice of "itinerant surgery" was "unethical,"

and said that it should be avoided in order to provide the highest quality of patient care.

See supra section l.A. Potential patients hearing the ACS's statements presumably formed

opinions regarding the safety of the practice. Although it might be difficult to quantify

those opinions, the patients could be surveyed to determine whether they understood

itinerant surgery to be unsafe, either in general or as practiced by Dr. Koefoot. If so,

and if the ACS could point to no objective facts to back up its statements, those statements
would have had anticompetitive effect. (Recall that even if the statements were anticom-

petitive, there would be no antitrust violation unless the ACS had sufficient market power
to affect Dr. Koefoot's business. See supra text accompanying notes 191-207.).

213. This test focuses more directly on the anticompetitive harm that a deceptive

standard may cause. It also allows the test to include deception due to factors other than
the substantive evaluation in the standard. For example, in Clamp-All Corp. v. Cast Iron

Soil Pipe Inst., 851 F.2d 478 (1st Cir. 1988), cert, denied, 488 U.S. 1007 (1989), discussed

in note 135 supra, the plaintiff's allegation was that a trade association's standard might

have misled consumers into thinking that the association was a "disinterested certifying

organization." Id. at 487. Deception of this type is as capable of causing anticompetitive

harm as is deception regarding particular services. The test in either case is whether the

standard distorts consumer choice.

214. See Bates v. State Bar of Arizona, 433 U.S. 350, 380 (1977) ("[T]he justification

for the application of overbreadth analysis applies weakly, if at all, in the ordinary

commercial context.").



96 INDIANA LAW REVIEW [Vol. 27:51

not too great a demand on societies that they ensure that they do not
mislead consumers. This is especially so because a society can avoid the

problem entirely by confining its pronouncements to objective facts. For

example, instead of issuing a statement that a medical procedure is

unsafe, it could simply report the results of a study without providing

a conclusive interpretation of those results. ^^^ Interpretation of the results

is then left to the individual patient and her physician.

3. Damages.—Finally, a plaintiff must prove she was damaged. This
requires that she show a loss in demand for her services as a result of
the society action. The proof is likely to be closely related to the plaintiff's
proof of market power. Both require estabhshment of the same sort of

connection between the defendant's actions and those of patients. Indeed,

if the proof of market power were made through the testimony of
coerced individuals, the evidence would also establish damages if the

testifying individuals were potential patients of the plaintiff. However,

if market power were proved by demonstration of a overall reduction

in demand, the plaintiff would also be required to show that she would

have been selected as the provider of the forgone services. This would

require, for example, that the plaintiff show that she had the skills and

facilities available to provide the service.

Meeting these burdens of proof to establish an antitrust violation

for issuing a deceptive standard is sufficiently difficult to discourage

frivolous claims. To appreciate this, consider that the tests provide two
"safe harbors" through which professionals can avoid all liability. First,

a single physician can say whatever she likes, as can a group of physicians

without market power.^'^ It is only market power that raises what would

215. To some extent, this is the practice currently used in many instances. Medical
journals often pubhsh an article reporting the quantitative results of a research study,

with the implications of those results examined in an accompanying editorial. This approach

was used, in fact, in reporting the results of the PERK study of radial keratotomy. See
George O. Waring III et al.. Results of the Prospective Evaluation of Radial Keratotomy

(PERK) Study 4 Years After Surgery for Myopia, 263 J. A.M.A. 1083 (1990); Perry S.

Binder, Radial Keratotomy in the 1990s and the PERK Study, 263 J. A.M.A. 1127 (1990).
216. See Wilk v. American Medical Ass'n, 719 F.2d 207, 226-27 (7th Cir. 1983)

("Clearly, an individual medical doctor is free to act on this belief [that chiropractic is

undesirable] by declining to associate with a particular chiropractor in the care of a

particular patient. It seems reasonable that two or three medical doctors, sharing this view

and working as a team in the care of a particular patient would be free to agree, and

to act on the agreement, to decline to associate with a particular chiropractor in the care

of that patient. The Sherman Act problem in the present case arises from the express

embodiment of this viewpoint in a formal set of ethical principles promulgated by a large

association of medical doctors, and by the alleged efforts of that association and kindred

associations to give effect to the exclusionary attitude in the setting of hospitals staffed

by medical doctors.").

There would no doubt be disputes regarding the status of particular statements. For



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 97

Otherwise be a breach of professional ethics or false advertising to a

subject of antitrust concern. ^^^ Second, even a society with market power

can freely issue statements of objective fact. That means, for example,

that it can publicize the results of research studies. It need only ensure

that it does not put a '*spin" on the facts that misleads patients. ^'^ It

example, is a statement by the president of a medical society, in which she refers to her

position in the society, a statement by the individual or by the society? Is a statement

by an individual that he has contacted most of the members of a medical society and

that most of them agreed that a particular procedure is unsafe a statement of the society?

These are fact-specific questions that cannot be answered here. Presumably they would

be resolved by determining whether the statements were made with the apparent authority
of the society. This test was established by the Supreme Court in American Soc'y of

Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982). See supra note 187.

217. Cf. Schachar v. American Academy of Ophthalmology, Inc., 870 F.2d 397,
400 (7th Cir. 1989) ("The Sherman Act is not a code of medical ethics or methodol-

ogy .. . .").

218. The staff of the Federal Trade Commission addressed precisely this problem

in a rule-making proceeding in 1978. The proposed rule included the following requirement:

A standard shall contain the following:
(a) a statement of its intended scope and use, including products and

product attributes intended to be covered by the standard;

(b) a disclosure of any products or product attributes not covered by the

standard that users of the standard would reasonably presume were covered;

(c) a disclosure of any serious risks or limitations associated with use of

products that conform to the standard, when such risks or limitations would

not be apparent to reasonable buyers; and

(d) a statement as to how persons voted on the standard if a list of persons
who participated in the development proceeding is printed with the standard.

Bureau of Consumer Protection, Federal Trade Commission, Standards and Cer-

tification: Proposed Rule and Staff Report (1978). The staff stated that the purpose

of these provisions was "to guard against deception and misreliance . . . which might

occur in their absence and thereby to ensure informed use of standards." Id. (footnotes

omitted).

The rule was never enacted. In 1980, Congress passed the Federal Trade Commission

Improvements Act of 1980, one section of which removed the F.T.C.'s authority to

establish rules regarding unfair or deceptive acts or practices in the development of

standards. See Pub. L. No. 96-252, § 7, 94 Stat. 374, 376 (1980). Interestingly, the

committee report for this statute expressed the view that an F.T.C. rule was unnecessary

because a deceptive standard would constitute a violation of the Sherman Act: "Given

that the rule is largely directed toward antitrust problems and the existence of adequate

remedies under the antitrust laws, the Committee beheves that there is insufficient jus-

tification for a rulemaking in this area." S. Rep. No. 500, 96th Cong., 2d Sess. 19,

reprinted in 1980 U.S.C.C.A.N. 1102, 1120. The specific antitrust doctrine to which

Congress referred was the prohibition of group boycotts. Id. However, so long as a

standards organization does not include consumers among its members, its standard-setting

activities will not constitute a boycott. See supra note 131. Therefore, a challenge to a

standard based on its deceptive or misleading effects must proceed on a different theory,

such as the one described in this paper. It is important to note, however, that Congress,

in precluding the F.T.C.'s rule-making, did not intend to discourage any such challenges



98 INDIANA LAW REVIEW [Vol. 27:51

is that sort of subjective and deceptive assessment that this proposal

seeks to prevent by requiring that a society with market power use it

wisely. 2*^

B. Speech Directed at Third-Party Payers

The competitive effects of society standards on third-party payers

are both similar to and different from their effects on individual patients.

The fundamental concern is still influence over patient choices, but the

mechanism by which those choices are influenced is entirely different.

In this case, patients' choices are influenced not by the standard itself

but by the insurer's response to it. If the insurer declines to reimburse

for a procedure, the cost to the patient rises from zero (or a small

insurance copayment) to the full price of the service. The likely result

is that the patient will be discouraged from receiving the procedure. Of
course, in general, an insurer is free to decide whether to reimburse for

a given service, and can make its decision on whatever basis it chooses.
A danger arises, though, when the insurer's power to make that re-
imbursement decision is controlled by a group of competing suppliers,

such as a medical society. If a society provides the insurer with infor-

mation that distorts its decisions, or if the insurer more directly defers

to the society in its reimbursement decisions, the result can be anticom-

petitive.

1. Market Power.—A medical insurer's decisions affect competition
in the market in which patients choose their medical services. The Supreme

Court considered this issue in Blue Shield of Virginia v. McCready,^^^

where the plaintiff's insurer had adopted a policy of reimbursing for

psychotherapy only if it was performed by a psychiatrist rather than a

psychologist. The plaintiff challenged the policy, which she alleged was
the result of a conspiracy between the insurer. Blue Shield, and psy-

chiatrists. Blue Shield argued that, because its policy's most direct effect

was on the terms of its contract with the plaintiff's employer, the relevant

market was that in which employers chose group health plans, not the

to specific deceptive standards; it specifically stated that its action did "not preclude the

Commission from engaging in case-by-case activities in this area." S. Rep. No. 500, 96th

Cong., 2d Sess. 19, reprinted in 1980 U.S.C.C.A.N. 1102, 1120.

219. The suggestion of Professor Havighurst that a society's acquisition of respect

and esteem—power in the information market—should not subject it to scrutiny is, needless
to say, contrary to this view. See Havighurst, supra note 18, at 362 ("To subject a

professional body to close judicial review solely on the basis of the influence it wields

might be seen as penalizing its success in establishing its credibility and earning the

confidence of independent decisionmakers."). Antitrust law is premised on obligations

imposed by the possession of market power.

220. 457 U.S. 465 (1982).



«

1993] MEDICAL SOCIETY ANTITRUST LIABILITY 99

one in which patients chose psychotherapy services. ^2' The Court disa-

greed, noting that the challenged act was the denial of reimbursement,

which affected the individual, not her health plan.^^^ The relevant market

was therefore that in which the effects of the denial of reimbursement

were felt, the market for medical services. As the Court observed, **the
goal of the competitors was to halt encroachment by psychologists into

a market that physicians and psychiatrists sought to preserve for them-

selves.
"^^^

Given, then, that insurers can affect the market for medical services,

how is it that medical societies influence insurers? As described above,^^'*
insurers often rely on evaluations by medical societies in making their
reimbursement decisions. One possibility, therefore, would be that dis-
cussed in the last section: the society could issue standards or statements

that mislead or deceive the insurer. However, the danger of deception

does not exist for insurers nearly to the extent that it does for consumers.

Insurers often have physicians on their staffs, or, if they do not, they

can afford to have doctors serve in an advisory role. Furthermore,

insurers, unlike patients, encounter the same procedure numerous times,

so they have more reason to incur the information costs of evaluating
the procedure themselves. Therefore, even if a society issues a standard

that misleads consumers, it is unlikely to mislead insurers.

The situation is different, however, if the insurer does not take an

active role in making its reimbursement decisions. It is possible for the

insurer just to defer to the conclusions reached by a medical society.

This was the situation alleged by the plaintiffs in Schachar, and the

district court accepted the possibility:

Defendants' evidence that some third party payers made their
decisions on whether radial keratotomy would be covered in-

dependent of defendants* statements merely highlights the pres-

ence of disputed facts. By this evidence defendants have shown

that while some third party payers may not have relied upon
defendants' statements, others may have relied in whole or in
part upon defendants' statements. ^^^

When an insurer relies **in whole" on a medical society's statement,
the decisions it reaches are not its own, but the society's. ^^^ One might

221. Id. at 479-81.

222. Id. at 480.

223. Id. at 478-79.

224. See supra text accompanying notes 83-85.

225. Schachar v. American Academy of Ophthalmology, Inc., 1988-1 Trade Cases
(CCH) t 67,986, at 58,051-52 n.4 (N.D. 111.).

226. A similar phenomenon was considered in a different context by the court in



100 INDIANA LAW REVIEW [Vol. 27:51

therefore hold the society responsible for the anticompetitive effects of

decisions made in that manner. That would be unfair, however. Although
society members typically agree on statements issued by the society,^^^

they do not necessarily seek to have those statements acted upon by a
third-party payer. The insurer may adopt the society's views for any of
a variety of reasons of its own. It may, for example, seek any available

excuse not to reimburse so as to minimize its costs, it may believe that
it is appropriate to defer to the expertise of medical professionals, or

it may just prefer the administrative convenience and reduced cost of
relying on the work of others.

A medical society should be liable for the effects of the adoption
of its statements by insurers only if it sought that adoption. That was

the case in Schachar, where the medical societies sought to have their

decisions put into effect by insurers.^^^ The societies there did not merely

say that radial keratotomy was as yet unproven. Instead, they issued

formal statements that the procedure was ** experimental," choosing to

apply the specific label on which insurers and hospitals based their

decisions.2^^ They issued their statements with the explicit direction that

they be announced to **third party insurers and payers. "^^^ Finally,

through the auspices of the Council of Medical Specialty Societies, they

represented radial keratotomy to health insurers as a procedure that

should not be routinely reimbursed. ^^^ All of these actions show an active

attempt to persuade insurers to adopt the societies' decisions. To the
extent that the attempt was successful, the societies exercised the insurers'

power in the medical services market.

The question that remains is that of determining the degree of market

power that medical societies can obtain by this means. Blue Shield did

not specifically address the market power issue, because its focus was

on the nature of the potential competitive injury caused by the insurer's

George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547 (1st Cir.

1974), cert, denied, 421 U.S. 1004 (1975). The plaintiff there alleged that the defendant

had restrained trade by influencing a state agency's specification regarding swimming-pool

recirculation systems. The court disagreed, stating that "the specifications were the product

of the judgment, not unduly influenced by [the defendant!, of the pool consultant." Id.

at 556. The court appeared to be sympathetic to the view that control over the decision-

making process could have been a Section 1 violation, see id. at 555-61, but because

"[the defendant! was not the operative cause of decision," there was no violation, id. at

559.

227. Even if not all of a society's members agree on a statement, the society is

still liable for its effects. See supra note 190.

228. See supra section LB.

229. See supra text accompanying notes 72-86.

230. See supra note 67.

231. See supra text accompanying notes 79-82.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 101

reimbursement decisions. Nevertheless, the Court's reference in that case

to the insurer's '^concerted refusal to reimburse under a Ihealth insurance]

plan"2^^ suggests that the Court viewed the market as one consisting

specifically of Blue Shield subscribers, the only group for which Blue

Shield had the power to make reimbursement decisions. Normally the
relevant market for antitrust purposes is not as narrow as the customers

of a single provider. However, the Court has recently accepted the

possibility of such a market in cases in which customers are **locked-

in" to one provider. ^^ The situation of insureds who are contractually
bound to their insurer is a quintessential example of lock-in, as the
Court observed in Blue ShieldP^ Given a market defined in this way,

i.e., as the subscribers of a single insurer, a medical society that could

influence the insurer's decisions would unquestionably have market power,

because it would control the reimbursement policy for virtually all that

insurer's subscribers.

Even in a broader market, though, a medical society could still

acquire significant market power. Consider, for example, the broadest

plausible market, which would be the entire market for the medical

service at issue. A medical society would control that share of that
market defined by the percentage of customers covered by insurers whose

decisions it influences. Since in many areas there are large insurers (e.g..
Blue Shield or popular HMOs) with appreciable market shares, to attain
a large market share a medical society would need to persuade only a

few of those insurers. Market share in these circumstances would provide

market power, due to the entry barriers created by the established

relationships between current medical societies and insurers. ^^^ Therefore,

a society could acquire a large degree of market power through its

influence over insurers.

2. Anticompetitive Effect.—To illustrate the inherent anticompetitive
potential that exists when medical societies have the power to make
reimbursement decisions, consider a scenario based on the facts of Blue

Shield. Assume that an insurer has decided that it will defer to the

judgment of the American Psychiatric Association (Association), as a

232. Blue Shield, 457 U.S. at 480.

233. See Eastman Kodak Co. v. Image Technical Servs., Inc., 112 S. Ct. 2072,
2087 (1992).

234. See Blue Shield, 457 U.S. at 480 n.l7 ("Although her employer's decision to

purchase the Blue Shield plan for her benefit was in some sense a factor that contributed

independently to [plaintiff's] injury, her coverage under the Blue Shield plan may, at this

stage of the litigation, properly be accepted as a given . . . .").

235. Recall the relationship discussed above between the Council of Medical Specialty

Societies and the Health Insurance Association of America. See supra text accompanying

notes 77-82.



102 INDIANA LAW REVIEW [Vol. 27:51

prominent and respected medical society, in deciding whether to reimburse

for psychotherapy services. Assume further that its intention to do so

is known to the Association. The Association then decides, in good faith
or otherwise, that psychotherapy services are only properly performed

by psychiatrists, not psychologists, and the insurer, accordingly, declines

to reimburse for psychotherapy provided by psychologists. Under these
circumstances, it is the Association that has exercised the decision-making

power of the insurer. Moreover, it has exercised that power in the market

for psychotherapy services, a market in which its members directly

compete. ^^^

The anticompetitive effects in these circumstances are very great. If
an insurer will not pay for a service, the patient must, and the price

of services to the patient therefore rises from zero (or near zero) to the

full price of the service.^^^ Thus, from the point of view of the patient,

who makes the purchasing decisions in the market at issue, a denial of
reimbursement is in effect a fixing of price.^^^ Again, this is not a

problem as long as the insurer makes the decision (i.e., sets the price)

itself, for it individually is free to make any pricing arrangements it
chooses. If, however, it is the medical society that is actually making

the reimbursement decision, it engages in a horizontal price-fixing agree-

236. A medical society might argue in this situation that, because its services (in
providing information) are used only by the insurer, not its insureds, it is the insurance

company market that is relevant. This is analogous to the defendant's unsuccessful argument

in Blue Shield that the relevant market in that case was for group health plans, and it

fails for the same reason: the intended and actual effect of the society's action is the

denial of reimbursement to the individual insured patients. See supra text accompanying

notes 220-23.

237. See Blue Shield of Virginia v, McCready, 457 U.S. 465, 483 (1982) ("Those

[Blue Shield] subscribers were compelled to choose between visiting a psychologist and

forfeiting reimbursement, or receiving reimbursement by forgoing treatment by the prac-

titioner of their choice. . . . [Plaintiff] did not yield to Blue Shield's coercive pressure,

and bore Blue Shield's sanction in the form of an increase in the net cost of her

psychologist's services.").

238. The most plausible alternative way to look at the arrangement is as a refusal

by insurers to deal with practitioners offering the non-reimbursed service. However, this

analysis is not as accurate, because there is no unwillingness to deal with those practitioners;

there is just a refusal to pay for a particular service. In any event, a refusal to deal,

like a fixing of price, would be an act by the medical society, not the insurer. Therefore,

it would be a concerted refusal to deal, or group boycott, which under these circumstances

would be treated as severely as price-fixing. See Northwest Wholesale Stationers, Inc. v.

Pacific Stationery and Printing Co., 472 U.S. 284, 294 (1985) (noting the Court's per se

treatment of cases involving joint efforts *'to disadvantage competitors by 'either directly

denying or persuading or coercing suppliers or customers to deny relationships the com-

petitors need in the competitive struggle'" (quoting Lawrence Anthony Sullivan, Hand-
book OF THE Law of Antitrust 261-62 (1977)).



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 103

ment as a group of professionals competing in the market at issue. "^

The society should be liable for the effects of that agreement.^'^^

Although imposing liability for a group's solicitation of action im-

plemented by a third party may seem severe, it is supported by a Supreme
Court decision from this past term. In FTC v. Ticor Title Insurance
Co.»^^^ the defendants were a group of title insurance companies that

formed state-licensed rating bureaus to propose rates for their services

to state insurance offices. ^"^^ The rates were proposed as part of a so-

called **negative option" system, under which rates became effective

unless the states rejected them.^"^^ The companies claimed that, because

these programs were authorized by the states, the price-fixing was immune
from the antitrust laws under the state-action doctrine, which exempts

certain government acts from antitrust liability. ^"^^ The Court rejected

239. A possible objection to this analysis is that there is no agreement between the
society and the insurer. But the absence of that agreement is irrelevant. The relevant

agreement is among the members of the society, who agree regarding the service and then
impose that agreement on their competitors via the intermediary of the insurer. See Business

Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 730 n.4 (1988) ("[A] facially

vertical restraint imposed by a manufacturer only because it has been coerced by a

'horizontal carte [1]' agreement among his distributors is in reality a horizontal restraint."
(interpreting Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself
288 (1978)).

The insurer's absence from the agreement does exempt it from Uability, however.

This is true even if the insurer is in favor of the society's decision, and is willing to rely

on it. So long as it acts independently and does not agree with the society, it is not

liable. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984) ("The

correct standard is that there must be evidence that tends to exclude the possibility of

independent action . . . .").

240. In these circumstances, that would probably require something approaching a

rule of reason inquiry. Although a per se rule still exists against blatant price-fixing, the

Supreme Court has applied a test between the per se rule and the rule of reason when

the challenged agreement is not so straightforward. See National Collegiate Athletic Ass'n

V. Board of Regents, 468 U.S. 85, 104 n.26 (1984) ("[Tlhere is often no bright Hne

separating per se from Rule of Reason analysis."); Broadcast Music, Inc. v. CBS, 441

U.S. 1 (1979), In the present case, because a medical society's actions persuading an

insurer to discontinue reimbursement could serve legitimate informational purposes as well

as illegitimate competitive ones, application of the per se rule would be inappropriate.

241. 112 S. Ct. 2169 (1992).

242. Id. at 2174.

243. Id.

244. The state action doctrine as originally estabHshed in Parker v. Brown, 317

U.S. 341 (1943), broadly exempted all actions of the states from antitrust HabiUty. The

doctrine was based on the view that in enacting the antitrust laws Congress did not intend

to restrain the states, and on more general notions of federalism. Since its establishment,

the doctrine has been narrowed. It now requires that for state actions to be exempt they
must be "clearly articulated and affirmatively expressed as state poHcy" and "actively

supervised" by the state. CaUfornia Retail Liquor Dealers Ass'n v. Midcal Aluminum,

Inc., 445 U.S. 97, 105 (1980) (quoting City of Lafayette v. Louisiana Power & Light
Co., 435 U.S. 389, 410 (1978) (plurality opinion)).



104 INDIANA LAW REVIEW [Vol. 27:51

immunity, stating that the negative option schemes did not provide the
*

'active supervision" by the states that is required by the doctrine.^"^^ It

described the reason for that requirement:

Its purpose is to determine whether the State has exercised

sufficient independent judgment and control so that the details

of the rates or prices have been established as a product of

deliberate state intervention, not simply by agreement among
private parties. Much as in causation inquiries, the analysis asks
whether the State has played a substantial role in determining

the specifics of the economic policy. The question is not how
well state regulation works but whether the anticompetitive scheme

is the State's own.^^

The parallels with the medical standard-setting in a case like Schachar^^"^
are clear. In both situations a private group agreed on a restriction for

the market in which its members sold their services. In both, the group
proposed that restriction for adoption by a third party with power in

its members' market. In both, the third party adopted the restriction.

In Ticor, there was no meaningful review of the restriction; in Schachar,

none was shown. The Supreme Court determined that the defendants

in Ticor were liable for the effects of their actions. In Schachar, where

the society sought and received similar action, it should also be liable,

especially because the action was effected by a private entity, not the

state.

3. Damages.—Damages for an antitrust violation of this kind could
be claimed either by patients or by practitioners. The injury to patients,

as in Blue Shield, would be the cost of medical services for which they

were not reimbursed because a society succeeded in having a decision

not to reimburse enacted. ^'^^ The injury to practitioners would be the

loss of business caused by the non-reimbursement decision.^"*^ One could

245. Ticor, 112 S. Ct. at 2178-80.

246. Id. at 2177. See also Patrick v. Burget, 486 U.S. 94, 101 (1988) ("The active

supervision prong of the Midcal test requires that state officials have and exercise power

to review particular anticompetitive acts of private parties and disapprove those that fail

to accord with state policy. Absent such a program of supervision, there is no realistic

assurance that a private party's anticompetitive conduct promotes state policy, rather than

merely the party's individual interests.").

247. See supra section I.B.

248. See supra text accompanying notes 220-23.

249. As described above, the defendant in Blue Shield argued that the plaintiff in

that case, a patient, did not have standing to bring the action. See supra text accompanying

notes 220-23. The defendant argued instead that the proper plaintiffs were the competing

practitioners (psychologists) who were harmed by its reimbursement decision. 457 U.S. at
478. The Supreme Court rejected the defendant's argument with regard to patients, but



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 105

also imagine a claim of damages by the insurer itself. In a situation

like that in Blue Shield, if the insurer adopted the decision not to

reimburse for psychologists' services as a result of the actions of the

psychiatrists, the insurer might in the end pay more to reimburse psy-
chotherapy services (if psychologists provide those services more cheaply).
The insurer might then have a colorable claim against the psychiatrists.
However, an insurer in this situation, claiming damages for what is, in

form if not in fact, its own act, is perhaps in an unsympathetic position. ^^^

Imposing liability on medical societies in the circumstances described

in this section may seem less justifiable than imposing it for the deception
of consumers. However, as in that context, the tests proposed here

provide easily reached safe harbors for the societies. The easiest is for
a society to refrain from soliciting particular reimbursement decisions

from insurers. Although the evaluation of a society's actions in this

respect will be a fact-specific inquiry, liability should normally be avoided

if the society avoided overt solicitation of insurer action like that in

Schachar. Alternatively, even if it solicits a particular decision, the society

need only ensure that the insurer actually gives serious consideration to

the decision and does not automatically enact it in response to the

society's solicitation. Neither of these approaches is particularly bur-

densome, as long as the society truly does not seek to impose its decisions

on the marketplace.

Notably, in this case, accuracy in the society's statements is not in

itself a defense because liability is based not on any objective validity

or invalidity of the society's reasons for its decision, but on the fact

that the reimbursement decision is not the society's to make. Paraphrasing

Ticor, '*[t]he question is not how well [the insurer's] regulation works
but whether the anticompetitive scheme is the [insurer's] own."^^^ The

rationale is no different from that which guides more typical antitrust

cases: market participants are not permitted to agree on restraints on

the market, no matter how objectively reasonable those restraints may
appear to them.^"

it did not disagree with the defendant's view regarding practitioners. Instead, it made

clear that both patients and competitors could recover: "[T]he remedy cannot reasonably

be restricted to those competitors whom the conspirators hoped to eliminate from the
market." Id. at 479 (footnote omitted).

250. Cf. Ticor, 112 S. Ct. at 2178 (noting that thirty-six states filed a brief as

amici curiae stating that broad state-action immunity for insurance companies operating

under the supervision of state insurance commissioners was not in the states' interests).

251. 112 S. Ct. at 2177. See supra text accompanying note 246.

252. See, e.g.. United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150, 221-

22 (1940) ("Any combination which tampers with price structures is engaged in an unlawful

activity. Even though the members of the price-fixing group were in no position to control



106 INDIANA LAW REVIEW [Vol. 27:51

C Speech Directed at the Government

The preceding sections argued that professional societies should not

be permitted to control buying decisions in the markets in which the

societies operate. However, at times the anticompetitive danger of such

control may be outweighed by legitimate public health concerns. Un-
scrupulous medical practitioners sometimes promote treatments that are

either worthless or actually harmful. When that occurs, medical profes-
sionals, and medical societies, have a legitimate role to play in dis-

couraging the practice of such **quack" treatments. Typically, that role

will take the form of disciplinary proceedings within the framework of

private membership or state licensing procedures. For example, a medical

society may enforce against its members the same prohibitions on pro-
fessional deception that this paper advocates be applied to the societies

themselves.2" Sometimes, however, as when the offending practitioner
is not a member of the society, internal procedures are not effective.
In that case, a society must resort to other attempts to discourage

performance of the service it believes to be unsafe. It does, however,

have an avenue to do so that does not implicate the dangers of anti-

competitive collusion addressed in this Article.^^'^

the market, to the extent that they raised, lowered, or stabilized prices they would be

directly interfering with the free play of market forces. . . . Congress has not left with

us the determination of whether or not particular price-fixing schemes are wise or unwise,

healthy or destructive. ... It has no more allowed genuine or fancied competitive abuse

as a legal justification for such schemes than it has the good intentions of the members

of the combination."); see also supra text accompanying notes 145-50.

253. See infra text accompanying notes 276-77.

254. One commentator has suggested that the public safety should be a defense to
an antitrust challenge of a standard. See Michael Goldenberg, Standards, Public Welfare

Defenses, and the Antitrust Laws, 42 Bus. Law. 629 (1987). He states that "[a] standard
having potential anticompetitive effects should be upheld only when the standards or-

ganization can demonstrate that the standard is reasonably necessary to protect the public."

Id. at 650 (footnote omitted). Mr. Goldenberg's concern is with standards that effectively

exclude products from the market, id. at 632-33, 650-51, so his focus is narrower than

that of this Article, which includes standards and statements that discourage but do not

actually exclude products. Nevertheless, the specific test that he describes is a more lenient

one than that presented in this Article. To determine whether an exclusionary standard
is "reasonably necessary" for public safety, Mr. Goldenberg proposes the application of

eight criteria. Id. at 653-65. Four of these criteria define a more-or-less substantive test

for safety-related standards, and it is those four that will be considered here. (As to the

remaining factors, one, safety-relatedness, is basically a prerequisite for application of the

test at all. See id. at 653-55. Another, anticompetitive intent, is discussed only briefly

and is apparently included largely because it may cast light on the other factors. See id.
at 660. There are also two procedural factors, one requiring that a standard be applied

non-discriminatorily and the other demanding that the standard-setting organization's

procedures be reasonable. See id. at 657-58, 662-65. These two criteria are subject to the



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 107

If a society believes that any of the services of its profession, or

related professions, are undesirable because of safety or other reasons,

objections to procedural protections that were discussed above. See supra text accompanying

notes 141-53.)

Two of the substantive criteria address the issue of information availability. One says
that a standard should not be permitted to pre-empt consumer choice when consumers

have, or should have, access to the relevant information for making that choice. 42 Bus.

Law^, at 655-56. The other says that a standard should not be permitted to exclude a

product if a less restrictive alternative to exclusion is available. The most plausible such

alternative, and the one on which Mr. Goldenberg focuses, is the provision of relevant

safety information to consumers. Id. at 656-57. Considering these two factors together

makes clear that the only circumstance in which an exclusionary standard would be

permissible is when an organization was justified in not merely informing consumers of

any danger in the product in question. Mr. Goldenberg touches on this issue and notes

that in some cases "consumers and public officials may be unable to obtain all information

about a product and even the attempt to obtain such information may be costly," so
that a product ban may be the more efficient approach. Id. at 649; see also id. at 633-

35. He does not, however, discuss how to determine when that is the case, so these
criteria of his test provide little real guidance.

The other two substantive criteria more directly address the reasonableness of stan-

dards. One requires that an exclusionary standard be based on objective evidence, and

Mr. Goldenberg states that "the evidence at a minimum needs to be substantial enough

to have convinced most consumers not to use the product, had they been aware of the

evidence." Id. at 658. Somewhat similar is the last factor, in which Mr. Goldenberg

proposes to use "knowledgeable and reputable purchasers or other industry members" as

proxies for "reasonable consumers" in their purchasing decisions, because "a standard

should not be considered reasonable if consumers, with knowledge, would decide to purchase

the excluded product." Id. at 661. If these consumer proxies would use the product, he

says, exclusion of it is likely to be unreasonable, id. at 661-62; though he does not say

so, presumably acquiescence by a consumer group in an exclusionary standard would be

evidence that the standard is reasonable. These tests bear a surface similarity to the test

described in this Article, which proposes treating a standard or statement issued by a

group with market power as anticompetitive if it is deceptive, as evaluated by a survey

of consumer perceptions. See supra text accompanying notes 208-15. However, the two

tests are actually very different. This Article proposes making a determination of whether

a statement conveys accurate information for consumers to use in making purchasing

decisions; it does not propose removing the decision from consumers. Mr. Goldenberg,

in contrast, proposes excluding a product if most consumers, or perhaps a consumer

representative, given the relevant information, would opt not to purchase it. In other

words, Mr. Goldenberg would allow the removal of a product from the market by a

majority of consumers, or by a consumer group. But the antitrust laws do not permit

the market to be pre-empted by a majority vote of consumers, any more than they allow

such an action by a majority of producers. The market works through the choices of all

consumers, not just a majority of them. Recall that the Supreme Court has said that "a

purchaser might conclude that his interest in quality—which may embrace the safety of

the end product—outweighs the advantages of achieving cost savings by pitting one

competitor against another." National Soc'y of Professional Eng'rs v. United States, 435

U.S. 679, 694 (1978). It is implicit in that statement that a purchaser instead might, and

should be permitted to, choose cost savings over the safety of the product. See supra



108 INDIANA LAW REVIEW [Vol. 27:51

SO that they should not be available, it can attempt to persuade the

state to impose the restrictions it desires. ^^^ Activities petitioning the

government, even if for an anticompetitive purpose, are protected from

antitrust liability by the Noerr-Pennington doctrine. The foundations of

the doctrine were laid in Eastern Railroad Presidents Conference v. Noerr

Motor Freight, Inc.,^^^ where the Supreme Court held that the Sherman
Act does not prohibit an association's attempt to persuade the legislative

or executive branches^^^ to take actions restraining trade. ^^^ Even if a

group's motive in petitioning the government is to provide advantage

to itself and disadvantage to its competitors, legitimate petitioning activity

does not violate the Sherman Act.^^^ The Noerr-Pennington doctrine thus
provides a broad immunity from antitrust liability for actions to influence

public officials.

As described above,^^ there are some Hmitations on permissible

speech under the Noerr-Pennington doctrine. To a large extent, these
restrict only the use of misrepresentation or fraud in less political forums

text accompanying notes 145-50. A group of market participants must not interfere with
that choice. Such a group can properly seek to exclude a product only through the public

avenues provided by the state-action and Noerr-Pennington doctrines. See Allied Tube &
Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988) ("'We may presume,
absent a showing to the contrary, that [a government] acts in the public interest. A private
party, on the other hand, may be presumed to be acting primarily on his or its own
behalf.'") (quoting Hallie v. Eau Claire, 471 U.S. 34, 45 (1985) (interpolation in Allied

Tube)).

255. It is possible that some insurers' actions, and even perhaps some professional

societies' actions, might be immune from antitrust liability if directed by regulations of
a federal agency, such as HCFA's coverage guidelines. See generally 1 Phillip E. Areeda
& Donald F. Turner, Antitrust Law t1 222-27 (1978). However, liability would still
attach for effects on privately insured patients.

256. 365 U.S. 127 (1961).

257. Noerr*s basic holding was later extended to administrative and adjudicative

settings, albeit perhaps with more restrictions, in California Motor Transport Co. v.

Trucking Unlimited, 404 U.S. 508 (1972).

258. The Court supported its holding on two grounds. First, it said that since the

government has the power to restrain trade, the people should be able to make known
their wishes regarding such restraints. Noerr, 365 U.S. at 137. Second, it said that to

hold otherwise would raise constitutional questions of the right to petition, and that the

Court "cannot . . . lightly impute to Congress an intent to invade [that right]." Id. at

137-38.

259. Id. at 138-39. The Court has since held, though, that legitimate petitioning

activity may be relevant for proof of the anticompetitive intent of other activities. United
Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965). Evidence relating to government
petitioning may be admitted "if it tends reasonably to show the purpose and character
of the particular transactions under scrutiny." Id. at 670-71 n.3 (quoting FTC v. Cement
Institute, 333 U.S. 683, 705 (1948)) (citations omitted). Admission of such evidence is

subject only to the usual limitation that it be probative and not unduly prejudicial. Id.

260. See supra text accompanying notes 157-60.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 109

than the legislature, such as the courts and administrative agencies. ^^^

Although the Supreme Court in Allied Tube suggested that this limitation

might extend to legislative committees,^" it has imposed no general

accuracy requirement in the legislative arena. The reason for its reluctance

is its view that Congress in the Sherman Act did not intend to regulate

political activities.^" Nevertheless, it is clear that where a private petitioner

possesses the information advantages of a professional society, advantages

that may not be shared by any other party, speech intended by the
society to persuade the government presents many of the same dangers
as does (other) commercial speech. ^^

Therefore, several commentators have proposed that commercial

speech standards be applied to Noerr-Pennington immunity, either by

eliminating Noerr-Pennington immunity as an independent doctrine^^^ or

261. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 512-13

(1972).

262. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 504 (1988).
263. Noerr, 365. U.S. at 140-41; see also California Motor Transport Co., 404 U.S.

at 512-13.

264. The informational advantages of professional societies present problems even

in the absence of any intent to deceive. See, e.g., Anthony Downs, An Economic Theory
OF Democracy 255 (1957):

[Tlhe cost of acquiring information and communicating opinions to government

determines the structure of political influence. Only those who can afford to
bear this cost are in a position to be influential.

A striking example of this fact is the failure of consumers-at-large to
exercise any cogent influence over government decisions affecting them. For

instance, legislators are notorious for writing tariff laws which favor a few

producers in each field at the expense of thousands of consumers. On the basis
of votes alone, this practice is hardly compatible with our central hypothesis

about government behavior. But once we introduce the cost of information, the

explanation springs full-armed from our theory. Each producer can afford to

bring great influence to bear upon that section of the tariff law affecting his

product. Conversely, few consumers can bring any influence to bear upon any

parts of the law, since each consumer's interests are spread over so many

products.

The possibility of deception is, a fortiori, of greater concern.

265. See Ernest Gellhorn, Another Perspective on Antitrust Immunity for Petitions

to Government, in The Political Economy of Regulation: Private Interests in the

Regulatory Process 89 (1984). Professor Gellhorn proposed what he called "a merger

of the developing doctrine of commercial speech under the first amendment with the

doctrine of immunity for petitions to government under the antitrust laws." Id. at 90

(footnote omitted). He referred to the similarities in function between the antitrust laws
in preserving an open private market with vigorous product competition and the first

amendment in maintaining an open political "market" with "competition in ideas and

interests." Id. at 91. The approach that he proposed was basically to apply traditional

first amendment tests of time, place, and manner to government regulations of speech

for antitrust purposes, though he would have also allowed more strict commercial speech

standards to be applied as they developed. Id.



no INDIANA LAW REVIEW [Vol. 27:51

by applying it only where the speech is not commercial.^^^ Both of these

approaches, however, are undesirable because it is unwise to base antitrust

immunity purely on the evolving commercial speech standard. It is not

impossible that the Supreme Court could decide that commercial speech

is not worthy of protection at all.^^^ Even if that were to happen, Noerr-

Pennington speech, because it is directed at the government, would still

have an undeniably political component that would remain worthy of

protection. Commercial entities should continue to be able to petition

for government action favorable to their competitive positions inde-

pendent of any restrictions that may be imposed on their speech in the
marketplace.

I suggest, however, that professional societies should be liable for

intentional deception in their government petitioning. In California Motor
Transport Co. v. Trucking Unlimited,^^^ the Supreme Court said that

practices such as perjury or patent fraud could be an abuse of govern-

mental processes sufficient to remove them from Noerr-Pennington im-

munity. ^^^ The Court there limited this exception only to administration

266. See Natalie Abrams, Note, The Sham Exception to the Noerr-Pennington
Doctrine: A Commercial Speech Interpretation, 49 Brook. L. Rev. 573 (1983). The author
there suggested that "legislative petitioning be considered commercial speech if it (1)

involves the business of the entity, and (2) if effective, would result in an economic

benefit to the speaker." Id. at 596. She recognized, though, that this test could have

encompassed some speech that would have typically been thought of as political, not

commercial. Id. See also Central Hudson Gas & Elec. Corp. v. Public Serv, Comm'n of
N.Y., 447 U.S. 557, 563 n.5 (1980) ("[M]any, if not most, products may be tied to public
concerns with the environment, energy, economic policy, or individual health and safety.").

To meet this problem, she said that it could also be required that the speech be of the
character that the Court said in Virginia Board of Pharmacy justified the lesser restriction

on commercial speech: that is, first, that it be easily verifiable by the speaker and, second,

that the speaker have a significant commercial motivation to make it so that he is less
likely to be deterred by regulation. Note, supra, at 596. See also supra note 164 and

accompanying text. But her proposed test was then no more than a restatement of the

second of the requirements of the Court. After all, if the speaker is strongly motivated

to make the speech for commercial reasons, it must concern his business and be to his
economic benefit. This is not to deny that businessmen and businesswomen might sometimes

make speech related to their businesses that is not to their benefit, but presumably the

Virginia Board of Pharmacy Court's concern for strong commercial motivation would not

be met in such a case. For similar views, see also James D. Hurwitz & Debra Simmons
Neveu, The Noerr Doctrine: Its Significance and Current Interpretation, in The Political
Economy of Regulation: Private Interests in the Regulatory Process 33 (1984), and
James D. Hurwitz, Abuse of Governmental Processes, the First Amendment, and the

Boundaries of Noerr, 74 Geo. L.J. 65 (1985).

267. This possibility appears unlikely in light of the Court's most recent discussion

of the issue. See Cincinnati v. Discovery Network, Inc., 113 S. Ct. 1505 (1993).

268. 404 U.S. 508 (1972).

269. Id. at 512.



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 111

or judicial processes. ^^^ However, at least for professionals, who possess
specialized knowledge that makes their statements difficult, if not im-
possible, for others, such as legislators, to evaluate, the fraud exception

to Noerr-Pennington immunity should be extended to the legislative arena.
Allied Tube apparently supported this view in its dicta to the effect that
misrepresentations to legislative committees would be impermissible. 2^'

This restriction on immunity should, however, be confined to active
misrepresentations, as Allied Tube appears to contemplate. This would
allow societies to petition the government with statements that were
inaccurate at the time of the petitioning or were later found to be
misleading, so long as the societies were unaware of the inaccuracies.
Such a rule would provide sufficient protection to encourage professionals

to seek government action based on legitimate concerns of safety.

IV. Conclusion

There is **no basis for believing that professionals act without regard

for their own economic interests and, therefore, no basis for antitrust
purposes of a broad distinction between ^professional' and 'business'

conduct. ''2^2 If members of a non-professional business group with market
power joined together to make deceptive or misleading statements about
competitors' products, and consumers were in fact dissuaded from pur-
chasing those products, or if the group through a third party was able

to raise the products' prices to consumers, the group would be subject

to antitrust liability. ^''^ There is no reason not to apply the same rule

to professional groups, especially since the specialized knowledge that

professionals possess makes it difficult for others to evaluate their state-
ments.

The basic rationale animating the proposals in this paper is that a
professional group should not be able to distort the workings of the

market through its private decisions .^'''^ Restraints enacted by a private

society are ''imposed by persons unaccountable to the public and without

270. Id.

271. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 504 (1988).
272. Thomas E. Kauper, Antitrust and the Professions: An Overview, 52 Antitrust

L.J. 163, 172 (1983); see also Philip C. Kissam, Antitrust Law and Professional Behavior,
62 Tex. L. Rev. 1, 11 (1983) C*[S]everal 'Chicago school' economists studying the

professions assume that professionals have the same profit-maximizing interests as people

in other businesses and that professional self-regulation, like any regulatory legislation, is

more likely to result from 'interest group' bargaining than from a principled consideration

of the public interest." (footnote omitted)).

273. As described in notes 121, 213 & 226 supra, several cases have, at least in
principle, accepted these damage theories in cases involving non-professional groups.

274. See supra text accompanying notes 145-50.



112 INDIANA LAW REVIEW [Vol. 27:51

official authority, many of whom have personal financial interests in
restraining competition. ''^^^ The other side of this rule is that a society

should be permitted to seek state-imposed restraints. By requiring the
organization to take that route, its proposed standards are made subject
to the scrutiny (such as it is) that results from any attempt to obtain

government action, and they are subject to question from other segments

of society. Standards established through this process are more likely

to benefit all of society, not just the profession.

The elimination of all but governmentally-adopted professional stan-

dards need not ehminate the traditional self-policing role of the profes-

sions. It would, however, shift its focus. Under this approach, a

professional association's self-policing activities would be confined to

the investigation of individual cases in which unprofessional activity is

alleged. It could, for example, enforce prohibitions against deceptive

practices by its members. ^'^^ This would allow it to discipline members

who were misleading patients regarding the risks of procedures that the
society believed were dangerous, and would therefore obviate much of
the need for possibly deceptive speech by the society discouraging those

procedures. Furthermore, this sort of disciplinary proceeding would re-

quire specific evidence of a violation of professional standards, as well

as a process providing quasi-judicial procedural protections, so it would

eliminate much of the anticompetitive danger created by purely internal
society proceedings.^^^

As to the undesirability of an association supporting sanctions against

its members, such a practice would seem to be an essential function of

a self-poHcing profession. Indeed, it is just the professions' failure to

275. Allied Tube & Conduit Corp., 486 U.S. at 502.
276. The right of medical societies to perform this function was upheld in American

Medical Ass'n v. F.T.C., 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided Court

per curiam, 455 U.S. 676 (1982). In that case, the American Medical Association (AMA)
and two local medical societies challenged an FTC cease and desist order that prohibited
them from effecting restraints on advertising, solicitation, and contracting by physicians.

The order allowed the AMA to enforce prohibitions on false and deceptive advertising
by its members, but the AMA contended that that exception afforded it insufficient
protection in case it initiated enforcement proceedings against advertising that was later

determined not to be deceptive. Id. at 452. In response, the court amended the order to

allow the AMA to '*enforc[e] reasonable ethical guidehnes governing the conduct of its
members with respect to representations, including unsubstantiated representations, that

[the AMA] reasonably believes would be false or deceptive within the meaning of Section
5 of the Federal Trade Commission Act." Id. (emphasis in original). This standard gives

medical societies considerable freedom to control attempts by their members to promote

unproven or dangerous procedures.

277. Id. at 450 (noting that the FTC's Order ** require[d] AMA in any proceeding
involving violations of its ethical standards to provide (A) reasonable notice, (B) a hearing,

and (C) written findings and conclusions.").



1993] MEDICAL SOCIETY ANTITRUST LIABILITY 113

perform this function, the tendency of professions to
*

'protect their

own," that has caused much of their loss of public trust and esteem.
In addition, any argument by a profession that such a practice is

undesirable for professional morale is too self-serving to be given much
credence. On the contrary, it should greatly benefit professional morale
to ensure that the standards of the profession are maintained by sanc-

tioning those who do not meet them.
These changes to current rules would therefore result in a somewhat

different role for professional societies. Instead of functioning as quasi-

legislatures deciding how their professions should be practiced, as they
often do now, they would serve more as information clearinghouses,^^®

and decisions regarding particular practices would be made by individual
professionals.^^^ The result would be a much more open professional

^

environment, with greater opportunity for procompetitive development
J

of new techniques and, consequently, better long-range health for the ^

professions. ,

278. Nothing in this Article prevents professional societies from communicating

objectively supported information to the public or to insurers. See supra sections II.C &
II.D.

279. See Clark C. Havighurst, Professional Restraints on Innovation in Health Care

Financing, 1978 Dxjke L.J. 303, 346-47 n.l84 (The author "would permit professional

groups to emphasize positive professional values but would encourage courts to regard

with suspicion collective actions to denigrate alternative approaches or to focus professional

disapproval on a specific competitor or would-be innovator.").