Federal Trade Commission v. Indiana Federation of Dentists

PETITIONER:Federal Trade Commission
RESPONDENT:Indiana Federation of Dentists
LOCATION:Hardwick’s Apartment

DOCKET NO.: 84-1809
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 476 US 447 (1986)
ARGUED: Mar 25, 1986
DECIDED: Jun 02, 1986

ADVOCATES:
Bruce W. Graham – on behalf of the respondent
Marcy J.K. Tiffany – on behalf of the petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – March 25, 1986 in Federal Trade Commission v. Indiana Federation of Dentists

Warren E. Burger:

We will hear arguments next in the Federal Trade Commission against Indiana Federation of Dentists.

Ms. Tiffany, I think you may proceed whenever you are ready.

Marcy J.K. Tiffany:

Mr. Chief Justice, and may it please the Court, this case involves a conspiracy by Indiana dentists to refuse ex-rays requested by group dental health care insurers.

The insurers needed the ex-rays to detect instances of fraudulent claims and overtreatment of dental patients.

Their goal was to contain the cost of the insurance programs they were administering, a goal that was shared, indeed, insisted upon by those who were footing the bill for the programs, the employers, and unions who had negotiated the dental benefits.

The attitude of the dentists toward this cost containment effort was best summed up in the words of Dr. David McClure, one of the chief organizers of the conspiracy here.

Dr. McClure characterized the situation as, and I quote,

“economics war where the name of the game is money. “

And like all wars, this one had its victims.

Here they were the patients, the consumers, who were deprived of the benefits of the cost containment efforts of the insurance companies.

The dentists’ response to the insurance companies’ cost containment efforts should not be surprising, since from their perspective cost containment essentially means fewer dollars for the dentists.

To again quote Dr. McClure,

“Management, government, labor, and the insurance industry are determined to reduce the cost of the dental health dollar at the expense of the dentist. “

Now, a third party payer faces a difficult problem with respect to cost containment.

In the normal purchase transaction the individual consumer has an interest in making sure that he is not paying for more than he needs.

However, when an insurer is picking up the tab, consumer self-interest tends to coincide with that of the seller, which is to say, get as much as possible cut of the insurance company.

Thus, the responsibility is left to the plan administrator for finding some way of making sure that it is paying only for services that are covered under the contract.

In this case the dentists were well aware that the ex-rays were needed for this purpose.

To quote Dr. McClure yet again,

“The fight for ex-rays will continue, because this is the only way insurance companies can control their costs. “

The fight began with the Indiana Dental Association, which is composed of 85 percent of all licensed dentists in the state of Indiana.

This group organized the boycott, and did so very effectively.

They adopted a set of principles of acceptability which specified that insurance plans requiring ex-rays to be submitted would not be acceptable.

They distributed a form letter to their members to give to the patients saying that they would not provide the ex-rays.

They also initiated a pledge–

Byron R. White:

That was the extent of their boycott, wasn’t it, just not providing the ex-rays?

Marcy J.K. Tiffany:

–That was the extent of the boycott.

They refused to provide the ex-rays.

They initiated a pledge campaign for dentists to agree in writing that they would abide by the IDA’s principles of acceptability.

Byron R. White:

They didn’t refuse to serve patients that were covered by these health plans?

Marcy J.K. Tiffany:

No, they would continue to serve patients.

They just wouldn’t give the ex-rays to the insurance companies so they could determine whether the claim should be paid.

The efforts were very successful, and the Administrative Law Judge found that eventually most Indiana dentists were refusing to provide the ex-rays to the insurers.

Now, about that time this Court decided the Goldfarb case, which of course held that professions do not enjoy any special immunity from the antitrust laws.

The leaders of the IDA boycott were understandably nervous about their possible antitrust liability.

The response was to form the Indiana Federation of Dentists under the mistaken belief that if they styled themselves as a union they would be immune from the antitrust laws.

To once more quote the irrepressible Dr. McClure, who was the first president of the Indiana Federation of Dentists,

“They would no longer have the antitrust albatross around their necks. “

The mandate of IFD was clear, to continue and intensify the boycott that was begun by IDA.

Equally clear was the economic motivation for the formation of IFD, as evidenced by, among other things, the constitution and bylaws.

They explicitly stated that IFD was organized to represent the socioeconomic and political interests of the dentists.

The constitution and bylaws authorized strikes, job actions, or other forms of economic pressure, and they provided for discipline of non-conforming members.

Based on a record developed after six weeks of trial, the Commission concluded that this conduct reduced or eliminated competition among dentists as to their policy in dealing with third party insurers.

William H. Rehnquist:

Ms. Tiffany, the Commission refused to find that it had the result of diminishing competition among insurers, did it not?

Marcy J.K. Tiffany:

The Commission declined to find that it diminished competition among insurers.

Sandra Day O’Connor:

The Commission seems to have conducted a sort of abbreviated rule of reason analysis here, not really doing a full-blown inquiry into the economic effects of the boycott, as I understand it.

Marcy J.K. Tiffany:

That’s correct.

The rule of reason analysis was applied here, although the Administrative Law Judge had found that a per se analysis would have been appropriate to this conduct.

The line, however, between per se and rule of reason is not always a clear one, as this Court noted in the ICAA case, and–

Sandra Day O’Connor:

Do you think an abbreviated rule of reason analysis is justified?

Marcy J.K. Tiffany:

–I don’t believe we would refer to it as an abbreviated rule of reason.

The analysis was conducted… a rule of reason analysis was conducted, and it was extensive enough, given the facts in this case, to reach the conclusions that the Commission reached.

This restraint was very much like this Court has held… restraints this Court has held to be illegal without an elaborate market analysis.

Paramont Famous Lasky is a case in point.

That case, like this one, involved horizontal competitors who were refusing to deal with third parties except on terms and conditions that they had agreed to, that they had specified between themselves.

It is also very much like the Professional Engineers case.

Here, the dentists were restricting the flow of price-related information.

If this information had been provided, it would have enabled insurers to determine whether the dentists are overtreating, which is the economic functional equivalent of overcharging.

This in turn would have enabled the insurers to make purchasing determinations that would have lowered their costs.

Thus, as was the case in Professional Engineers, while this is not a naked price restraint, it is a restraint that directly impacts price.

Marcy J.K. Tiffany:

Without this type of restraint, decisions as to the types of services purchased would have been made as a function of the interplay of the market forces.

Now, the Seventh Circuit did reject the Commission’s findings on an evidentiary basis, finding that there was insubstantial evidence to show that the boycott restrained trade.

This holding of the Seventh Circuit means that there is really a very narrow issue facing this Court, and that is whether the Court of Appeals misapplied the standard review when it reversed the Commission’s decision.

The importance of this case, however, goes far beyond the narrow legal issue to be resolved here.

The problem of cost containment in the context of third party insurers is a large one.

It has dimensions that really dwarf the facts in this particular case.

As amicus briefs point out, the serious problem of rapidly rising health costs is one that is here to stay.

Indeed, problems similar to those encountered by the insurance companies in Indiana are being faced throughout the country.

Byron R. White:

Well, is there something in this record that indicates that furnishing these ex-rays would be a step to contain costs?

Marcy J.K. Tiffany:

The cost containment–

Byron R. White:

Did the Commission make any findings about that?

Marcy J.K. Tiffany:

–The Administrative Law Judge made a finding that the cost containment efforts were generally… in general experience were effective ones.

With respect to Indiana, it was difficult–

Byron R. White:

Well, with respect to the ex-rays.

Marcy J.K. Tiffany:

–The ex-rays were needed to do the cost containment.

The ex-rays were needed to do the alternate benefit determination, and the Administrative Law Judge did find that in general experience alternate benefit determinations have been effective in containing costs.

William H. Rehnquist:

Did the Commission uphold that finding?

Marcy J.K. Tiffany:

The Commission basically took the position that it really wasn’t necessary to establish one way or the other that the cost containment efforts were in fact effective in this particular case, rather, that the insurance companies were entitled to give an innovative cost containment effort a chance to operate, which they did not have here, and in fact that was one of the difficulties of getting evidence in Indiana, because right about the same time the insurance companies started the alternate benefit programs, the boycott began.

So with respect to Indiana itself the evidence is not complete.

However, there certainly was evidence of similar restraints being used in other parts of the country.

In fact, the Commission had entered a consent agreement in Texas involving dentists who had been involved in the very same conduct.

In fact, there was some evidence that the Indiana dentists were attempting to export their boycott to other states.

Sandra Day O’Connor:

How widespread is this practice?

Marcy J.K. Tiffany:

You mean throughout the country or in Indiana?

The references to the concerns throughout the country are fairly oblique in the record.

It is enough to give the indication that these were nationwide insurance programs, and that they faced problems in other states.

I do not know from the record how extensive the boycotts are, although there clearly was one in Texas.

In this case, this Court has the opportunity to send a clear message to professionals that they will not be permitted to act in concert to obstruct the innovative cost containment initiatives, and that lower courts may not accept unsubstantiated assertions of professional judgment by refusing to apply appropriate standards of review to the determinations of government agencies regarding–

Byron R. White:

Well, that may be a desirable goal or policy, but you were going to get around to saying how that restrains competition.

Marcy J.K. Tiffany:

–Yes.

Byron R. White:

I mean, how their conduct restrains competition, even if it maybe isn’t in the public interest in terms of cost containment.

Marcy J.K. Tiffany:

Well, there were several effects on competition, several ways that competition was restrained.

First of all, it did interfere with… the boycott interfered with the ability of the insurers to make these determinations as to whether they were being overcharged.

William H. Rehnquist:

I know, but–

–How would that affect the competition among dentists?

Marcy J.K. Tiffany:

The competition among the dentists was certainly both for dollars and for patients.

Patients were deprived of the ability to pick a dentist who would cooperate with their insurance company’s cost containment programs, and as a result were deprived of the benefits of the cost containment efforts that their insurance companies were attempting to undertake.

Byron R. White:

Well, is that an injury to competition?

Marcy J.K. Tiffany:

When the cost of insurance–

Byron R. White:

When the patient can’t find a dentist who will send his ex-rays in?

Does that restrain competition?

Marcy J.K. Tiffany:

–The competition was… yes, in fact I believe it would be a restraint on competition.

The competition was with respect to the policy of dealing with third party payers.

William H. Rehnquist:

Ms. Tiffany, Judge Fairchild’s concurring opinion, he didn’t join Judge Coffey’s opinion, he says pretty clearly that no evidence was developed on the validity of an assumption that a dentist’s policy of refusal of cooperation has any significance in competition among dentists, and the FTC decision fails to analyze the proposition.

I take it you disagree with his opinion.

Marcy J.K. Tiffany:

Yes, we do disagree with his opinion, Justice Rehnquist.

William H. Rehnquist:

It seems to me that the two… talks about, you know, this is the battle for cost containment and this is the big picture.

We have to figure out what evidence was developed right here in this case, and not go to generalizations.

Marcy J.K. Tiffany:

In the Professional Engineers case there was a restraint that dealt with bidding.

Because of this restraint, the purchasers of the information… of the services were not able to get information that would allow them to cost compare.

Here, the purchasers have to be understood in the context both of the patients who are purchasing and the third party insurer who is paying for it.

The effect is essentially to have a bifurcated purchaser.

You have one person who is going in and getting the service and the other who is making the decision as to whether they are going to buy that service and pay for it.

Insofar as this restraint made it impossible for the insurance companies to do their part, to be able to make the determinations that they were willing to purchase this service, yes, it affected competition.

William H. Rehnquist:

But how about the failure of the FTC to make a finding that it affected competition among insurers?

Marcy J.K. Tiffany:

The–

William H. Rehnquist:

Aren’t you just trying to come in the back door with something the FTC refused to let in the front door?

Marcy J.K. Tiffany:

–That really would be a very secondary finding.

Just as in the Professional Engineers case, I mean, arguably the people who were purchasing the services from the engineers were going to be selling their buildings.

The Commission by parallel didn’t find that it would interfere in their ability to sell buildings.

Marcy J.K. Tiffany:

Similarly the Commission didn’t find that it would interfere in the insurance company’s ability to sell insurance overall.

It nevertheless did interfere with their ability to buy the services.

William H. Rehnquist:

Now, what the FTC declined to find was that the dentists’ concerted action reduced competition among insurers.

Now, it seems to me when you say that the insurer is really another buyer and he was competing as a buyer, you are insisting there was a finding that the FTC refused to make.

Marcy J.K. Tiffany:

Oh, no, Justice Rehnquist.

What the Commission was really referring to there was the fact that lower prices for selling the insurance would make insurers more competitive between each other.

That is the restraint between insurers that the Commission was referring to.

Sandra Day O’Connor:

Who is the buyer here?

Is it the ultimate patient who wants dental services?

Marcy J.K. Tiffany:

The buyer is really a bifurcated one.

It is the patient who is getting the services and it is the insurer who is paying for them.

Sandra Day O’Connor:

What is the product here?

Is it the advice necessary in order to monitor dental services?

Marcy J.K. Tiffany:

No.

Sandra Day O’Connor:

Is that the product?

Marcy J.K. Tiffany:

No, Justice O’Connor.

Sandra Day O’Connor:

No?

Marcy J.K. Tiffany:

The product is dental services.

And a decision has to be made as to whether those dental services will be purchased.

That decision is being made both by the insurance company and the consumer.

The patient goes in and has a problem.

They want to purchase the service.

The insurance company has to make a determination as to whether they are willing to pay for the service, whether they indeed are willing to purchase the service.

When those two coincide, there is a transaction.

Sandra Day O’Connor:

I would have thought perhaps the product was the advice or evaluation services that insurers provide in competition with dentists.

Marcy J.K. Tiffany:

There certainly is an element of the insurer providing a second opinion, if you will, to the patient, and that was a loss to the patient, not having the benefit of this second opinion.

However, that was only one of the many effects, and certainly the–

Sandra Day O’Connor:

Well, maybe it is just a product effect, not a price effect.

Marcy J.K. Tiffany:

–I think that’s right.

The price effect had to do with not giving the insurers the information they needed to purchase the product.

Marcy J.K. Tiffany:

The Commission had substantial evidence of the anti-competitive effects in this case to support their conclusions.

Byron R. White:

Among dentists?

Competition between dentists, among dentists?

Is that it?

Marcy J.K. Tiffany:

The–

Byron R. White:

That is all they really find, is, it resulted in reducing or eliminating competition among dentists as to their policy of dealing with third party payers.

Marcy J.K. Tiffany:

–Yes, the–

Byron R. White:

That is what they really focused on, isn’t it?

Marcy J.K. Tiffany:

–That is correct, Justice White, and they had substantial evidence to reach that conclusion.

The market power here was substantial both for the Indiana Dental Association and the Indiana Federation of Dentists.

With respect to the Indiana Dental Association, 85 percent of all dentists in Indiana belonged, and the Administrative Law Judge Teeter found that virtually all of them participated in the boycott.

Byron R. White:

Well, spell that out a little.

How did eliminating competition with respect to their policy dealing with third party payers, how did that reduce competition among dentists?

Is it that if some dentists furnished ex-rays and some didn’t, the ones that furnished them might get more patients?

Marcy J.K. Tiffany:

Absolutely.

Byron R. White:

Because the word would get around that here these hardnoses won’t really cooperate with my insurance company?

Marcy J.K. Tiffany:

Absolutely, Justice White, and there is evidence in the record to support that.

There was evidence of patients who, for example, crossed the Ohio River and went into Kentucky to find a dentist who would cooperate.

The unions, who were very interested in promoting these plans and making these plans work–

Byron R. White:

Well, the Commission could have said a little more than it did, it seems to me.

Marcy J.K. Tiffany:

–Justice White, in hindsight, we all perhaps could be more clear, and so, too, the Ccmmission, but the evidence is there, and it is there in the record, and it is referenced in the Commission’s opinion.

Byron R. White:

One of the rules around in agencies, and I take it the FTC is an agency–

Marcy J.K. Tiffany:

Yes, sir.

Byron R. White:

–One of the administrative rules is that you explain what you do.

Marcy J.K. Tiffany:

That is correct.

Byron R. White:

Adequately.

Marcy J.K. Tiffany:

And the Commission–

Byron R. White:

Whether there is evidence in the record or not.

Marcy J.K. Tiffany:

–The Commission did explain what it did, perhaps not as crystal clearly as it could have, but the explanation is there, and moreover the evidence is there to support the conclusions that the Commission reached.

Let me address for a moment the legal, moral, and ethical justifications that have been raised in this case.

Marcy J.K. Tiffany:

The Commission gave the dentists every opportunity to come forward with a pro-competitive quality justification for their no ex-ray policy.

The Commission concluded, however, that the respondents failed to present any evidence of such quality justifications.

Indeed, they did not even establish a logical nexus between the no ex-ray policy and any possible patient quality of care concerns that they might have.

This was not a case where the dentists were being asked to do anything improper with respect to the patients.

The ex-rays they were being asked to submit had already been taken as part of the diagnostic procedures.

With respect to the lay examiners who–

Byron R. White:

To whom do the ex-rays belong?

To the patient or the dentist?

Do you know?

Marcy J.K. Tiffany:

–I believe under Indiana law they are accessible… Indiana law has been revised since then.

They are now accessible to the patient.

Byron R. White:

If the… would the dentist have broken some ethical rule if the patient had directed him to send the ex-rays to the insurer and he had refused?

Marcy J.K. Tiffany:

Only one that was constructed by the Indiana Dental Association pursuant to this boycott.

They established it as some kind of ethical rule.

But certainly there was nothing in Indiana law that would have prohibited them from sending the ex-rays.

Byron R. White:

Well, I know, but if a patient comes in and says, I want the ex-rays you took of me, will the dentist give it to him?

Marcy J.K. Tiffany:

Under Indiana law they now are required to give them to the patients.

Byron R. White:

Now.

Marcy J.K. Tiffany:

Yes.

Byron R. White:

Were they?

Marcy J.K. Tiffany:

I think at that time the law did not address it one way or the other.

It didn’t say they could not.

Warren E. Burger:

Does not the dentist have a professional interest in maintaining the ex-rays, at least by copy, in case he is conceivably sued for malpractice later, and he needs the ex-rays to defend himself?

Marcy J.K. Tiffany:

That is absolutely correct, Mr. Chief Justice, and the record shows that the insurance companies were sensitive to that, indeed, in some instances, in trying to negotiate a plan that would be more acceptable, had agreed to do a double pack ex-ray, where the pack would take two ex-rays at the same time, allowing the dentist to have one copy and sending the other copy in to the insurer, and the insurer was willing to pay for the extra cost of that type of ex-ray pack, which was not really very substantial in any case.

As to the lay examiners that were reviewing these claims, much has been made of lay examiners looking at ex-rays, but the truth of the fact is that the lay examiners could only approve claims.

They could not deny claims.

It is difficult to imagine how having an insurance company approve the claim submitted by the treating dentist could in any way cause harm to a patient.

As to the dental consultants who were reviewing the more questionable ex-rays, these were licensed dentists.

Contrary to respondent’s assertions in its brief, the dentists did not rely on the ex-rays alone when making determinations as to the alternate benefits.

Rather, they could and did consult with treating dentists before determining the alternate benefit determinations, and moreover, these were professionals.

Marcy J.K. Tiffany:

They used their own professional judgment as to what additional information they needed, and in fact were able to access the information.

There is nothing in the record that indicates that there was any restraint that they could not look at anything but ex-rays.

Indeed, there was no evidence here of any alternate benefit determination that was even medically erroneous.

Moreover, nothing in Indiana law exists to justify this boycott.

There is no express prohibition on lay persons screening the ex-rays, and even if so, there was nothing in Indiana law that would authorize this kind of vigilante group boycott to enforce the law.

If you strip away this legal, moral, and ethical veneer that the Seventh Circuit applied to this case, you really are left very much with a case like Professional Engineers, where the professionals were saying, we are the professionals, we know how to do things better than the antitrust laws do, better than the competitive market.

We should not be subject to those constraints.

Where legitimate pro-competitive justifications exist, this Court has indicated every willingness to countenance them.

But professionals, like other entrepreneurs, have a direct economic incentive to keep the costs of their services high.

This Court accordingly must demand more of professionals than a bare assertion that they know what is best.

As I noted at the outset, this is a war, and the stakes are high.

The cost of health insurance in general and dental health insurance in particular are extremely high and rising.

If these dentists can successful engage in this kind of obstructionist conduct in the face of the abundant record evidence to support the Commission’s conclusion of the existence of an antitrust violation here, cost containment efforts in the health care field may well suffer a serious setback.

Accordingly, the Commission respectfully requests this Court to reverse the decision of the Seventh Circuit below and direct that court to affirm and enforce the order of the Federal Trade Commission.

If there are no other questions, I will reserve my time.

Warren E. Burger:

Very well.

Mr. Graham.

Bruce W. Graham:

Mr. Chief Justice, may it please the Court, contrary to the theme of the Commission, this case should not be viewed as a crusade to lower dental costs.

The Commission has not evidenced that these cost containment provisions did contain costs, and specifically refused to do so at the administrative hearing.

The focus of this case should be the proper application to a non-price restraint wherein there are involved valid health care concerns promulgated here by a small group of Indiana dentists, the IFD, and particularly the review that an appellate court should apply in reviewing the application of a rule of reason under these circumstances.

Now, as we know, the Seventh Circuit clearly decided that the Commission had failed to evidence anticompetitive effect in a relevant market.

Thus, absent the rare instance where the Court of appeals grossly misapplied the substantial evidence standard, the Commission should not prevail today, and the Seventh Circuit’s decision should stand.

I think it is important to kind of look at this from the perspective of the Seventh Circuit as they were analyzing this case initially.

They saw 88 dentists which compromised the IFD who had allegedly engaged in a restraint of trade.

These 88 dentists were scattered around three parts of Indiana, and specifically in Fort Wayne there were 19 IFD dentists out of 139 in the Fort Wayne area.

The Commission in their opinion stated that they were applying a rule of reason analysis.

The Seventh Circuit expected them to demonstrate a relevant market and anticompetitive effect in that market.

They didn’t do that.

Byron R. White:

Well, the Commission at least said that no elaborate analysis was necessary to define the market, that this group spanned the state, and it was the state that was the relevant market.

I grant you it was in a footnote, but they said it anyway.

Bruce W. Graham:

Well, that’s right, they spoke briefly to market power, and attributed the market power of Indiana Dental Association–

Byron R. White:

They spoke briefly to the definition of the market, the geographical market, anyway, and certainly there wasn’t much question about what the product market was, is there?

Bruce W. Graham:

–Well, I am not certain.

I don’t think they ever defined exactly what the product market was, and that is one of the problems in this case.

I believe that the Commission’s core dispute actually at this point in time is that the Seventh Circuit required a full competitive rule of reason analysis, and that in that analysis they considered IFD’s quality of care justifications.

John Paul Stevens:

Mr. Graham, can I ask a kind of preliminary question?

As I understand it, this was a proceeding under Section 5 of the Federal Trade Commission Act.

And the conclusion of the Commission was that there was… an unfair method of competition had been found.

There wasn’t really a Sherman Act issue on its own terms in the case, was there?

Bruce W. Graham:

Well, I believe the Commission stated that they were applying Sherman Act principles.

John Paul Stevens:

I notice they cited some Section 1 cases, but the section of the legal discussion is all under the rubric of Section 5.

Do you think that makes any difference?

I don’t know whether it does or not.

Bruce W. Graham:

Well, no, and I believe the Seventh Circuit proceeded under the same theory I am, that the Commission stated they were employing Sherman Act principles, anticompetitive… antitrust principles, and that is how the case was analyzed by the Commission.

John Paul Stevens:

Do you think it is necessary to find a Section 1 violation in order for there to have been a Section 5 violation?

Bruce W. Graham:

Yes, I do.

That is what they stated they were doing, so that is what I expected in the Seventh Circuit also.

Definitely in this particular case a rule of reason analysis, a full competitive rule of reason analysis was really required, and I think that is evidenced by a number of things.

Initially we find in the initial decision by the Commission a determination that IFD’s actions were per se restraint of trade.

Although the initial decision tees the idea that a rule of reason might be applicable in this case, they said there were no factors to outweigh the clearly anticompetitive effects that had been evidenced.

Unfortunately, the initial decision never indicated what those were, just continually referred to clearly anticompetitive effects.

The final order of the Commission upon the urging of the IFD agreed that a rule of reason analysis should be applied, and they specifically stated a number of reasons why that is so.

The Commission stated specifically the conduct involved in by IFD was not aimed primarily at excluding competitors, it was not wholly motivated by an anticompetitive purpose, and was a very limited refusal with regard to insurance company mandates.

Only the ex-ray was withheld.

All other aspects of the insurer-dentist transaction continued.

These are the Commission’s findings.

Now, as to why they applied a rule of reason and rejected per se there are other findings in the Commission’s decision which also support application of a rule of reason.

They found that… they refused to make a finding that there was any unfairness to consumers.

They correctly found that the insurers were neither a customer nor a competitor of the dentist.

And they found that in essence there was no impact on price, and the Commission failed to evidence any impact on price in the dental industry.

John Paul Stevens:

Do you think that is a necessary element of their case?

Bruce W. Graham:

It is if they are trying to analogize this to a price case.

I think they should demonstrate–

John Paul Stevens:

In a price case would it be necessary to show that there was an impact on price?

Bruce W. Graham:

–Especially–

John Paul Stevens:

If you prove an agreement to fix price, do you have to prove anything more?

Bruce W. Graham:

–If you demonstrate… I think if you demonstrate price-fixing, you are at least… you are either probably in a per se rule or, if it exists, some kind of truncated rule of reason analysis, which apparently they are touting now.

John Paul Stevens:

It is part of your submission that they must prove an impact on price in this case?

Bruce W. Graham:

If it is a price case, or as if they are saying that we can apply somewhat of a truncated rule of reason now.

You know, they are analogizing this case to Professional Engineers, is what they are doing.

John Paul Stevens:

Did they prove an impact on price in Professional Engineers?

Bruce W. Graham:

I think Professional Engineers was an absolute ban on competitive bidding.

I think it was facially, for all intents and purposes–

John Paul Stevens:

But did they prove an impact on price?

Bruce W. Graham:

–Well, I don’t think they necessarily had to, because–

John Paul Stevens:

But you think they have to in this case?

Bruce W. Graham:

–In a rule of reason case I think they–

John Paul Stevens:

Well, whatever you call this case, do you think it is an essential ingredient of the Commission’s case that they prove an impact on price in this case?

Bruce W. Graham:

–Well, or other anticompetitive effects.

I think it is essential they prove something like competitive effects.

John Paul Stevens:

Of course, they claim they did.

Bruce W. Graham:

I know they claim that.

John Paul Stevens:

But what I am really trying to find out is whether you think they had to prove an impact on price.

Bruce W. Graham:

No, I don’t think it was… had anything to do with this case, because this case is not a price case.

Clearly the Commission rejected per se analysis and stated, we are applying a rule of reasons, and cited to Chicago Board of Trade, which basically delineates the typical considerations to be analyzed in a rule of reason case.

Unfortunately, they failed to carry out a proper rule of reason analysis, and the Seventh Circuit pointed this out to them.

Now, only after the Seventh Circuit vacated the opinion, we see a new theory evolving on appeal.

We see in the petition for rehearing in the Seventh Circuit the Commission now stating that no elaborate analysis was necessary, and that there are certain types of anticompetitive conduct that can be observed in the twinkling of an eye, and apparently ever now in their reply brief apparently the Commission applied some kind of truncated, slight in scale rule of reason analysis.

These are inventions of appellate counsel, because they are not in the Commission’s final order, and that is what the Seventh Circuit was reviewing.

I think it is clear that a complete competitive rule of reason analysis was necessary here, aside from the fact that the Commission themselves indicated… this is a novel case.

Bruce W. Graham:

The relationships in this case are not traditional.

There is at least a three-party situation involving a patient, the dentist, the insurer, and possibly the employer of the patient who is paying for the dental services.

Aside from all this, IFD presented valid, reasonably objective medical concerns about the practices of the dental insurers, which basically were that insurance companies were giving another opinion as to the necessity and adequacy of the treatment being provided by the dentist.

I think this is clear.

They were diagnosing.

I think the initial decision admits this.

The initial decision further indicates–

William H. Rehnquist:

Why shouldn’t an insurance company at least have a backup diagnosis of its own if it is going to pay the bill?

Bruce W. Graham:

–Well, I don’t think that our clients have ever had any problem having an insurance company do that, if they do it properly.

The problem was, the insurance companies were taking a single diagnostic aid, the ex-ray, and dentists would look at that and say, well, this treatment is unnecessary.

William H. Rehnquist:

Well, now, your opposing counsel said that these dentists assisting the insurance companies didn’t use just the ex-ray.

Bruce W. Graham:

Well, I beg to differ.

I will point to… defer to the initial decision finding that… on Page 241A of the appendix where the Administrative Law Judge admits it is not known what supplementation for diagnosis is being made by the insurance companies in Indiana, and not only is he admitting that they are diagnosing, but he is admitting, I don’t know on what basis.

William H. Rehnquist:

Why can’t an insurance company say, all right, we don’t have as much time as the dentist to spend on these individual cases, we have got to process them, we are going to make our backup judgment just on the basis of ex-rays?

Bruce W. Graham:

Because… that would be fine if they were just trying to decide what their limits were on a particular case, if it is a $50 case or a $100 case.

What they were doing was imposing less expensive but supposedly adequate treatment, and then they would inform the patient, we are only going to pay for the treatment that is less expensive but adequate in our opinion.

William H. Rehnquist:

You can’t say that is not cost containment.

Bruce W. Graham:

I don’t think it contains costs.

What it does is reduces treatment, because a patient is not going to opt to have treatment done when somebody else has told him that it is not necessary, it is not warranted.

William H. Rehnquist:

He is probably not going to opt to have treatment done if the insurance company won’t pay for it.

Bruce W. Graham:

That is true.

That is also true.

What it does is, it works… it changes the originally prescribed treatment plan based on an improper diagnosis, without ever looking at the patient.

William H. Rehnquist:

Well, but how can you say the diagnosis is improper?

Bruce W. Graham:

Because the work rule, the evidence at trial was uncontradicted.

In fact, the Administrative Law Judge made a finding that the experts which we presented and others all agreed that an ex-ray or any single diagnostic aid is not enough to make a proper diagnosis.

That was the Commission’s finding.

John Paul Stevens:

Yes, but that is a proper diagnosis for prescribing treatment, isn’t it?

Is there something unethical or improper about an insurance company writing a policy saying that when there are two alternate methods of treatment, we will reserve the right to decide which one we will pay for?

Bruce W. Graham:

No, but if you decided that there is a treatment that is adequate based on a very poor and medically unsound basis–

John Paul Stevens:

Well, adequate for determining what they will pay for.

Don’t they have that right?

I don’t understand this.

Bruce W. Graham:

–They have a right to determine what they are going to pay for, but they don’t have a right to indicate that there are other treatments.

John Paul Stevens:

Can’t they say, the reason we won’t pay for a gold filling is because we think a plastic filling is cheaper and that that is adequate?

Can’t they say that?

Bruce W. Graham:

Not on the basis of an ex-ray, they can’t.

That is the problem.

An ex-ray won’t reveal what type of… sort of material necessarily need be utilized without–

John Paul Stevens:

Who should determine… do you think they must, there is some legal rule they have to say whatever the doctor… for whatever the dentist thinks is appropriate?

Bruce W. Graham:

–No.

The Indiana Federation of Dentists never opposed cost containment by the insurance companies.

What they opposed was their method of making a–

John Paul Stevens:

They thought the insurance company ought to send a dentist out and review the files on every patient, and the insurance company said, that would be much more expensive, and will run up the cost of insurance.

Isn’t that what it is all about?

Bruce W. Graham:

–If the insurance company is going to diagnose, I think they ought to do it properly.

John Paul Stevens:

Even though it is a more expensive way and the cost of insurance would go up.

Bruce W. Graham:

Well, that was never established.

John Paul Stevens:

Well, I think there were findings to the effect that the processing method of going to the office by individual dentists would be a good deal more expensive.

I thought that was in the… even Judge Coffey acknowledge that, I thought.

Bruce W. Graham:

There was evidence that it costs $10 a patient to do that.

Aetna did that on a one-shot basis.

There was also evidence that the cost to the dentist to comply with the insurance company forms and… costs them money, too.

John Paul Stevens:

And that’s why they didn’t want to supply the ex-rays.

Bruce W. Graham:

They supplied everything but the ex-rays.

They supplied claim forms, narratives.

They would speak to the insurance company on the phone.

John Paul Stevens:

Would you tell me again, just so I have it, why did the… what was the purpose of this refusal to supply ex-rays, in a nutshell?

Why didn’t the dentists want to do it?

Bruce W. Graham:

Because the insurance companies were making diagnoses.

John Paul Stevens:

They didn’t want the insurance companies to engage in unethical practice of dentistry.

Bruce W. Graham:

It was a second opinion based on an ex-ray.

John Paul Stevens:

Is that the basic reason, they thought it was… the insurance companies would be unlawfully engaged in the practice of dentistry if they cooperated?

Bruce W. Graham:

That’s right, and that concern is evidenced additionally by the Indiana State Board of Dental Examiners since at least 1974–

Sandra Day O’Connor:

Didn’t the dentists submit a narrative explanation of what work they were proposing would be done?

Bruce W. Graham:

–The dentist would–

Sandra Day O’Connor:

And isn’t that available to the insurance company to review?

Bruce W. Graham:

–Yes, they did that openly.

Sandra Day O’Connor:

So they aren’t relying just on the ex-ray at all.

They have the benefit of the narrative explanation.

Isn’t that so?

Bruce W. Graham:

Yes, but the narrative is not… it goes much farther than that in making a diagnosis, and I believe the Indiana Federation of Dentists work rule delineates what all the experts indicated was true.

You can’t just look at a single diagnostic aid or summary in a claim form and decide that this treatment is not necessary, this treatment is not warranted, as the Commission refers to it themselves.

Sandra Day O’Connor:

But from what you have said, there was more supplied to the insurance company than just the ex-ray.

There was the proposed work, the outline of the work to be done and the narrative description and the opinion of the examining dentist, so the insurance company has all that available plus the ex-ray if it is furnished.

Bruce W. Graham:

And the evidence was that that was not sufficient to effect another diagnosis.

Harry A. Blackmun:

Well, what else would they get by going to the dentist’s office?

Bruce W. Graham:

There is–

Harry A. Blackmun:

Which was acceptable to the Indiana group?

Bruce W. Graham:

–Well, they could have all the diagnostic aids.

There could be models, impressions.

There could be an oral exam, which Aetna conducted for some while on 4,700 patients, I believe.

You can’t… you are unable to observe the health conditions of the patient and how well he takes care of his teeth.

There are a number of factors going into–

Sandra Day O’Connor:

Well, you don’t propose that the insurance company has to physically examine the patient, surely.

Bruce W. Graham:

–No, all I propose is that they not diagnose unless they know what they are doing, and that is what the Federation of Dentists have contended.

John Paul Stevens:

May I follow up with just one question on that, Mr. Graham?

Mr. Graham, it is your position if they supplied the ex-rays, that might lead to the unethical practice of dentistry.

What if they supplied everything but the ex-rays, and then the insurance companies did the best they could without the ex-rays?

Would that be the unethical practice of dentistry by the insurance companies?

Bruce W. Graham:

Well, I believe so.

John Paul Stevens:

But weren’t they willing to do that, supply everything else they wanted except the ex-rays?

Bruce W. Graham:

In the office, along with an oral examination.

John Paul Stevens:

Was it the dentists who insisted on having an insurance company person come to the office?

Weren’t they willing to send in a partial file just excluding the ex-ray?

Bruce W. Graham:

They did that, yes.

John Paul Stevens:

Why didn’t that raise exactly the same ethical problem as sending in the ex-rays without more material?

Bruce W. Graham:

Because it was a narrative on a claim form.

It wasn’t a diagnostic aid that was being misused by the dentist at the insurance company.

John Paul Stevens:

In both instances the insurance company was trying to decide whether to pay the claim, wasn’t it, whether it had the ex-ray or not?

Bruce W. Graham:

No, they were trying to decide what treatment was–

John Paul Stevens:

What treatment they would pay for.

Bruce W. Graham:

–The cheapest treatment that they decided was adequate, is what they were doing.

In any event, these… there were at least valid medical concerns here by IFD that should have been looked at by the Commission, and they weren’t.

The entire case was short-shifted.

It was, as we know now, a truncated rule of analysis.

Sandra Day O’Connor:

Has this sort of a boycott by dentists spread to other states?

Do you know?

Bruce W. Graham:

There was similar concerns in the state of Texas and, I believe, Pennsylvania.

The record doesn’t really reflect this.

It does seem evident that right now the Commission is now asking in the reply brief on Page 10 that no elaborate industry analysis is required to demonstrate the anticompetitive effect of IFD’s actions, citing Professional Engineers.

This is a per se test that they are citing here.

It seems to me that in an attempt to avoid their evidentiary requirements and prove anticompetitive effect, they are now saying, well, I think we can presume anticompetitive effect.

It is apparently now a per se case again, because they are citing a per se test.

I think it is pretty evident what the Commission did in this case was, they stated they were going to apply a rule of reason, but they presumptively concluded IFD had engaged in anticompetitive conduct and then looked for proof of procompetitive effects.

Well, I don’t think that’s the way it works, especially in a novel case involving health care concerns.

The rule of reason requires an analysis of the reasons for the restraint, the history of it, the facts peculiar to the business.

That was not engaged in.

Why do all these things need to be done?

To determine the competitive significance.

Bruce W. Graham:

We need to find out who is competing with who on what basis, in what market, and for what reasons.

Why?

So that there can be demonstration of anticompetitive effect in a relevant market, as this Court, I believe, has recently indicated again in Jefferson Parish.

These are the same concerns the Seventh Circuit had.

Where is the evidence of anticompetitive effect?

What is the market that was affected?

Well, the Seventh Circuit observed that the Commission held that competition was lessened amongst dentists in their policy of dealing with third party payer insurers.

That was the gist of their holding.

The Seventh Circuit delineated a series of factors that the Commission had failed to even address in their series of conclusory assumptions about the market and competition.

They pointed out that the Commission had failed to define the market and competitive forces.

They pointed out that there was no real analysis of the total number of dental patients within the relevant market, or the percentage of those covered by insurance in the relevant market, the availability and proximity of other dentists, the fees charged insured patients as opposed to uninsured patients, the policy of non-FDI member dentists in dealing with insurers, or the policy of insurers in evaluating dental treatment plans.

There was no analysis of the additional cost to dentists to process claim forms.

There was no analysis of potential disincentives posed to dentists for submitting diagnostic aids in violation of fairly well delineated state policies against it dating back to 1974.

No evidence of price alteration, price stabilization.

Now, in short, I believe that the Seventh Circuit found that competitive… competition at issue was not defined.

They didn’t know who competed with who for what, for what reason.

Very little attention has been paid to the patient in this case, which is actually the ultimate consumer of dental benefits.

They didn’t demonstrate an effect on an undefined market.

In conclusion, I believe that the Seventh Circuit… the Commission stated, we are applying a rule of reason analysis.

Under the circumstances, it needed to be a rule of reason analysis.

Thus they had a burden to establish anticompetitive effect in the relevant market.

The Commission is stating something differently now.

They are asking for, I believe, a per se application, or at least some kind of truncated rule of reason application.

Well, the Seventh Circuit found their analysis wholly deficient.

They said rule of reason.

They were obligated to establish the effects.

And there simply is not a gross misapplication of the substantial evidence test by the Seventh Circuit.

For those reasons, we believe that the Commission should not prevail on their petition.

Thank you.

Warren E. Burger:

Very well.

Warren E. Burger:

Do you have anything further, Ms. Tiffany?

Marcy J.K. Tiffany:

Unless there are further questions from the bench, Mr. Chief Justice, I do not.

Warren E. Burger:

Thank you, counsel.

The case is submitted.

The Honorable Court is now adjourned until tomorrow at 10:00.