Petition for Review of an Order of the Federal Trade Commission.
Before PELL and COFFEY, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.
The Indiana Federation of Dentists ("IFD") petitions this court to review an order of the Federal Trade Commission ("Commission") requiring the IFD and its member dentists to "cease and desist from engaging" in a collective refusal to comply with the group dental health care insurers' directive to submit copies of a patient's dental radiographs along with the patient's insurance claim form. We conclude that under a rule of reason analysis, the evidence presented at the administrative hearing failed to establish that the conduct of the IFD and its member dentists had an anticompetitive effect in a relevant market. Accordingly, we vacate the Commission's "cease and desist" order.
The parties admit that the controversy in this case arises from two alleged cost-containment provisions that insurance companies include within their group dental health care plans.*fn1 These provisions are entitled "pre-determination of claims" and "least expensive adequate course of treatment." According to the former plan, the dentist and patient may, at their discretion, submit a proposed course of dental treatment to the insurer for review. The insurer, in turn, will provide the dentist and patient with an estimate of the insurance benefits to be paid for the proposed treatment. The "least expensive adequate course of treatment" plan provides that for all courses of dental treatment, whether proposed or completed, the group dental health care insurer will pay benefits only for the least expensive treatment that is "commonly accepted as providing good dental care." Indiana Federation of Dentists, 101 F.T.C. 57, 159 n.4 (1983).
In an effort to enforce these alleged cost-containment provisions, the group dental health care insurers direct dentists to submit copies of a patient's dental radiographs ("x-rays") along with the patient's insurance claim form. The claim form and x-rays, if submitted, are initially reviewed by lay personnel employed by the insurance company.*fn2 These lay employees have the authority to approve the proposed or completed course of dental treatment. If an insurer's lay employee questions a particular course of treatment, the claim form and x-rays are transmitted to a licensed dentist, selected and hired by the insurer to review dental claims. Based upon an analysis of the claim form and x-rays alone, without a patient case history much less a complete dental examination, the insurer's employed dentist determines the least expensive type of treatment that will, from the insurer's standpoint, provide "good dental care."
The instant case concerns the practice of the 84 current and 8 former IFD member dentists who collectively refused to comply with the group dental health care insurers' directive to submit copies of a patient's dental x-rays along with the patient's insurance claim form. The IFD maintains that "proper diagnosis and treatment planning predicates the doctor correlating all diagnostic aids, with a history and with all clinical findings." Id. at 119, 129 (emphasis added). In accord with this policy of quality and proper dental care, the IFD member dentists "provide all diagnostic aids [including x-rays] to third parties on an in-office basis and with the consent of the patient." Id. at 121-22.*fn3 Furthermore, it is the IFD policy that the insurers' employed dentists conduct this examination and review of all diagnostic and clinical aids used in formulating a proper course of dental treatment. Pursuant to Indiana law, "any person . . . who . . . offers to diagnose or professes to diagnose . . . any of the lesions or diseases of the human oral cavity, teeth, gums, maxillary or mandibular structures" is practicing dentistry and must be licensed. Ind. Code §§ 25-14-1-1, 25-14-1-23 (1982). The IFD asserts that the unlicensed lay personnel employed by group dental health care insurers to review claims engage in the unlawful practice of dentistry when they examine and "diagnose" dental x-rays for purposes of benefit determination. Thus, the IFD concludes that the submission of dental x-rays to unlicensed lay personnel for diagnostic procedures is aiding and abetting the unlicensed practice of dentistry in violation of Indiana state law.*fn4
According to the findings of fact of the Administrative Law Judge ("ALJ"), as adopted by the Commission, there were 3,100 licensed dentists practicing within the State of Indiana in 1974 and 85-88 percent of those dentists belonged to the Indiana Dental Association ("IDA"). The IDA had an official "Manual on Group Funded Dental Care Programs" ("Manual") recommending the procedures that member dentists follow when treating patients covered by a group dental health care insurance plan. The Manual included a section entitled "I.D.A. Policy Regarding Group Dental Care," providing in pertinent part:
"The method of authorization of dental health care under pre-payment plans should be limited to determining the eligibility of the patient and extent of liability of the plan and should prevent any interference with the dentist-patient relationship or with the judgment and decision of the dentist. The plan must not require the dentist to submit radiographs (x-rays) to a third party."
Indiana Federation of Dentists, 101 F.T.C. at 83 (emphasis original) (footnote omitted). The Manual also contained a form letter, entitled "To All My Patients," that provided in pertinent part:
"Dental radiographs (x-rays) are a part of the dentist's legal health records. They are available for valid review by a qualified (representatives) of your insurance company in this office. Radiographs (x-rays) will not be submitted to third parties for their use in determination of benefits (e.g., least expensive adequate procedure, or optional course of treatment) because a determination of an adequate treatment plan can only be made after a knowledge of the following:
A. Complete patient evaluation.
C. Additional diagnostic procedures as required."
Id. at 83, 162-63. In addition to formulating these guidelines for member dentists, the IDA undertook a pledge project in 1973 to obtain written pledges from their members that they would not participate in group funded dental health care plans unless such plans were previously approved by the IDA. It was the IDA's position that "proper dental treatment is predicated on a diagnosis from many types of examination and not radiographs alone." Id. at 90. According to the IDA statistics, approximately 85 percent of the member dentists agreed to support the IDA policy.
The ALJ found that the "smaller insurers had generally gone along with the Indiana dentists' demands" to not require the submission of dental x-rays alone, but to review all diagnostic aids in determining a proper course of dental treatment. The ALJ further found that in July 1971, Aetna Life and Casualty Insurance Co. ("Aetna") insisted that Indiana dentists submit copies of dental x-rays for patients covered under Aetna's group dental plan with International Harvester and the United Auto Workers. Only a "small percentage of dentists" in the Allen County-Fort Wayne, Indiana area complied with Aetna's directive. By mid-1972, some 600 unpaid dental claims had accumulated and "[i]t was the consensus of Harvester, U.A.W. and Aetna that many of these 600 claims were probably meritorious and that they had to be taken care of in some way." Id. at 98, 172. Accordingly, Aetna selected and retained a dentist and "arranged for him to go to the office of each dentist concerned and work with the relevant x-rays and any other diagnostic aids in the dentist's files." Id. The ALJ found that "this modus operandi, of course, came quite close to meeting IDA's unrealistic terms for insurer access to x-rays: "qualified" personnel to come to the treating dentist's office." Id. Similarly, in October 1974, Connecticut General Life Insurance Company, ("Connecticut General") required that Indiana dentists submit copies of dental x-rays for patients covered under Connecticut General's group dental plan with General Motors and the United Auto Workers. The IDA member dentists objected to Connecticut General's policy and eventually the parties entered into a " gentlemen's agreement" whereby the IDA member dentists were merely asked to submit copies of a patient's dental x-rays but were not required to do so. Nonetheless, General was receiving about 70 percent of its needed x-rays except in the Madison County-Anderson, Indiana area where only "about 2 to 4 out of 40 dentists -- would ever submit x-rays when requested" by Connecticut General. Id. at 109, 172.
In August 1976, the petitioner, IFD, was formed as a separate and distinct association of Indiana dentists.*fn5 The IFD's constitution and by-laws provided that:
"The Indiana Federation shall represent, protect, maintain, and advance, through activities accomplished by relevant techniques which may lawfully be engaged in by a labor organization, the interests of the dentists within its jurisdiction. The objectives of this Federation shall include, but not be limited to the following:
a.) To represent dentists in all socio-economic matters, negotiations and grievances with employers, third, and fourth parties or any group that is involved in financing or delivery of dental care. The ultimate purpose being to promote better patient care and to prevent abuses and correct inequities in the delivery of dental care to the public."
Id. at 74-75, 118, 171. As of February 1979, the IFD had 84 current and 8 former members concentrated within the localities of its three chapters: Anderson, Indiana and surrounding Madison County (46 members); Ft. Wayne, Indiana and surrounding Allen County (19 members); and Lafayette, Indiana and the surrounding counties of Carrol, Clinton, Tippecanoe, and White (27 members). Two of the dentists largely responsible for organizing the IFD, Dr. David McClure of Anderson, Indiana and Dr. Dan Rohn of Anderson, Indiana, had served on the Council of Dental Care Programs for the IDA formulating "policies, standards and principles for evaluating group-funded dental care programs," and in that capacity had co-chaired the IDA's pledge project.
In April 1977, the IFD member dentists adopted a "work rule" setting forth the IFD's policy that a proper dental diagnosis and treatment planning requires a review of all diagnostic and clinical aids, not simply a review of the patient's x-rays and insurance claim form. According to the IFD:
"Proper diagnosis and treatment planning predicates the doctor correlating all diagnostic aids, with a history and with all clinical findings. No one facet of this process is now, or ever has been recognized by the profession as a substitute for the complete process. To represent otherwise would subject the patient to substandard care.
The patient's dentist, therefore, has a moral and legal responsibility to not allow a determination of his patient's condition to be made for any purpose, without the benefit of a complete examination which takes into account all of the elements described."
Id. at 119, 129, 176 (emphasis added). Additionally, the IFD drafted a form letter for its members use when replying to a group dental health care insurer's request to submit copies of a patient's dental x-rays along with the patient's insurance claim form. The letter provided:
"Reference your request for x-rays for the above named patient. It is the policy of this office to provide all diagnostic aids to third parties on an in-office basis and with the consent of the patient. It is my belief that proper diagnosis and treatment planning predicates the doctor correlating all diagnostic aids with a history and all clinical findings. No one facet of this process is now, or ever has been recognized by the profession as a substitute for the complete process. To represent otherwise would subject the patient to substandard care.
If you will have your consultant contact my office to set up an appointment, I will furnish records and ask the patient to be present for an examination. If you do not feel that this is possible, the Indiana Federation of Dentists, of which I am a member, will help you, if possible, to provide a local consultant." Id. at 122 (emphasis added).
The ALJ found that in January 1977, Connecticut General breached its "gentlemen's agreement" with the IDA and instituted a practice of insisting that Indiana dentists submit copies of a patient's dental x-rays along with the patient's insurance claim form. Dr. Rohn and other officers of the IFD immediately confronted the Connecticut General management to voice their disapproval over this change in policy. Following this meeting, Connecticut General "refrained from making any further requests for x-rays from Madison County (the Anderson area) for fear of a confrontation which would end all existing cooperation and snarl the payment of GM worker's claims." Id. at 123, 172. The ALJ further found that between April 1976 and January 1978, Metropolitan Life Insurance Co. of New York ("Metropolitan"), the group dental health insurer for the 450-500 employees of Brockway Glass in Madison County, directed Indiana dentists to submit copies of their patient's dental x-rays for benefit determination. The IFD member dentists refused to comply with this directive, and according to the ALJ, "Metropolitan simply declined to pay on claims when x-ray requests were refused." Id. at 123. In response, the personnel manager of Brockway Glass and the local union president "made efforts to talk IFD's Dr. McClure into submitting x-rays but were unsuccessful." Id. at 123-24, 172-73.
In October 1978, the Commission issued a complaint against the IFD, charging it with a violation of the Federal Trade Commission Act § 5, 15 U.S.C. § 45(a)(1), which provides that "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful."*fn6 The complaint alleged that the IFD and its members had "engaged in acts, practices, and methods of competition to eliminate, prevent, or hinder competition among dentists with respect to cooperation by dentists with dental health care benefits programs containing predetermination and least expensive adequate course of treatment provisions." Id. at 59, 165-66. Specifically, the Commission alleged that the IFD was:
"Promulgating, adopting, publishing, and distributing to its members a purported "work rule" that details certain uniform courses of conduct for dentists in their dealings with third party payers; and
Urging payers, purchasers and beneficiaries of dental health care benefits plans to eliminate provisions of such plans ...