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Marrese v. Interqual Inc.

November 6, 1984


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 82 C 4296 -- George N. Leighton, Judge.

Author: Coffey

Before BAUER, COFFEY, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

COFFEY, Circuit Judge. Plaintiffs-Appellants, R. Anthony Marrese, M.D., and Bone & Joint Surgeons, Inc., appeal the judgment of the United States District Court for the Northern District of Illinois dismissing the plaintiffs' claims under of the Sherman Act §§ 1, 2, 15 U.S.C §§ 1, 2, for lack of subject matter jurisdiction. We conclude that the defendants' conduct in reviewing Dr. Marrese's surgical procedures and recommending that his clinical privileges at Deaconess Hospital, in Evansville, Indiana, be revoked, is exempt from the Federal antitrust laws under the doctrine of "state action," and thus we affirm the dismissal of the plaintiffs' claims under the Sherman Act §§ 1, 2.


The record reveals that Dr. R. Anthony Marrese, is a Board certified orthopedic surgeon who specializes in the treatment of spinal disorders. Dr. Marrese is the sole shareholder of Bone & Joint Surgeons, Inc., an Indiana corporation with its principal office in Evansville, Indiana. He is licensed to practice medicine in the states of Illinois and Indiana and, at the commencement of this lawsuit, had clinical privileges to practice at Deaconess Hospital, a non-profit corporation located in Evansville, Indiana.*fn1

In February 1978, a Special Ad Hoc Committee ("SAHC") comprised of selected members of the medical staff at Deaconess Hospital conducted an audit of the surgical "back" procedures performed at Deaconess.*fn2 The results of that audit raised questions concerning the "appropriateness of the surgeries performed by Dr. Marrese." Accordingly, the SAHC recommended to the medical staff at Deaconess that all of Dr. Marrese's lumbar laminectomy and spinal fusion cases be monitored, and that any case without a positive radiological finding be subjected to a mandatory second opinion. In August 1980, the SAHC retained Interqual, Inc., an independent, nonaffiliated company engaged in the business of performing medical audits, to conduct a further audit of Dr. Marrese's lumbar and cervical surgical procedures. Based upon the findings of the Interqual audit, the SAHC recommended to the Medical Staff Executive Council at Deaconess that Dr. Marrese's clinical privileges be revoked. On April 23, 1982, the Medical Staff Executive Council adopted the recommendation of the SAHC but stayed implementation of Dr. Marrese's clinical privileges revocation, pending a hearing as required by the hospital's Fair Hearing Plan.

The Fair Hearing Plan at Deaconess was adopted by the medical staff in June 1979 "to provide every practitioner with one evidentiary hearing and with one appellate hearing in the event that any action is taken [including revocation of clinical privileges] by the Medical Staff Executive Council . . . or the Board of Directors of the Hospital." The medical staff's authority to review professional practices within its hospital is provided for in the State of Indiana statutory code:

"The governing board of the hospital shall be the supreme authority in the hospital

The medical staff of a hospital shall be an organized group which shall be responsible to the governing board . . . and shall have the responsibility of reviewing the professional practices in the hospital for the purpose of reducing morbidity and mortality, and for the improvement of the care of patients in the hospital. This review shall include, but shall not be limited to, the quality and necessity of the care provided patients. . . ."

Ind. Code § 16-10-1-6.5 (1982) (emphasis added). The Indiana statutory scheme for quality control of the medical profession further provides that the personnel of:

"a committee having the responsibility of evaluation of qualifications of a professional health care providers, or of patient care rendered by professional health care providers, or of the merits of a complaint against a professional health care provider that includes a determination or recommendation concerning the complaint

shall be immune from any civil action arising from any determination made in good faith in regard to evaluation of patient care. . . ."*fn3

Ind. Code §§ 34-4-12.6-1(c), 34-4-12.6(c) (1982).*fn4 The procedure to be followed in reviewing professional practices within a hospital is set forth in Ind. Code § 34-4-12.6-2(b):

"Any professional health care provider under investigation shall be permitted at any time to see any records accumulated by a peer review committee pertaining to his personal practice and shall be offered the opportunity to appear before the peer review committee with adequate representation to hear all charges and findings concerning his practice and to offer rebuttal information, which shall be a part of the record before any disclosure of the charges and findings hereunder."

The Fair Hearing Plan adopted by the medical staff at Deaconess affords any practitioner adversely affected by a recommendation or action of the Medical Staff Executive Council or the Board of Directors, the right to an evidentiary hearing.*fn5 The hearing is conducted before an evidentiary hearing committee, comprised of five members of the senior or active medical staff.*fn6 The practitioner may request to be represented by an attorney and/or may be accompanied by a member of the medical staff, and shall also be allowed to:

"(a) call and examine witnesses

(b) introduce exhibits

(c) cross-examine any witness on any matter relevant to the issues

(d) question the qualifications of any witness

(e) rebut any evidence

(f) request that the record of the hearing be made by use of a court reporter or an electronic recording unit."

At a hearing to review the revocation of a practitioner's clinical privileges, "the body whose adverse recommendation or action occasioned the hearing shall have the initial obligation to present evidence" in support of its recommendation. According to the Fair Hearing Plan at Deaconess, the burden then shifts to the practitioner to show "by a preponderance of the evidence that the grounds [for revocation] lack any substantial basis or that such basis or the conclusions drawn therefrom are either arbitrary, unreasonable, or capricious." Following this hearing, the committee compiles its findings and submits them along with a recommendation to either the Medical Staff Executive Council or the Board of Directors, depending upon which body initiated the adverse recommendation or action. After reviewing the committee's findings and recommendation, the council or hospital board affirms, modifies, or reverses the recommendation. If the decision is adverse to the practitioner, he has a right of review before the joint conference committee of the hospital. The Fair Hearing Plan at Deaconess provides that "[t]he practitioner seeking the review may submit a written statement detailing the findings of fact, conclusions and procedural matters with which he disagrees, and his reasons for disagreement." Following submission of the practitioner's statement, the joint conference committee conducts a review hearing and based upon its findings, recommends to the hospital board that the adverse decision be affirmed, modified, or reversed. The board issues a final written decision and if the practitioner's hospital staff privileges are, in fact, revoked, he is entitled to appeal that decision through the Indiana state court system and challenge the "good faith" of the hospital staff members in reaching their conclusion. See, e.g., Kiracofe v. Reid Memorial Hosp., 461 N.E.2d 1134, 1139-41 (1984); Yarnell v. Sisters of St. Francis Hlth. Serv., 446 N.E.2d 359, 361-63 (1983).*fn7

In July 1982, before the Board of Directors at Deaconess had issued their final decision revoking Dr. Marrese's clinical privileges, the plaintiffs (Dr. Marrese and his solely owned company, Bone & Joint Surgeons, Inc.) filed suit in the United States District Court for the Northern District of Illinois against Interqual, Inc., Deaconess Hospital and its Board of Directors in their individual capacity, and members of the SAHC and Executive Committee at Deaconess, including seven doctors, one hospital administrator, and one attorney.*fn8 The suit alleged that the defendants had conspired to restrain trade in violation of the Sherman Act § 1, had monopolized the market for orthopedic and neurological spinal surgical procedures in Evansville, Indiana in violation of the Sherman Act § 2, and violated 42 U.S.C. § 1983 by adopting an anticompetitive, unfair and unconstitutional Fair Hearing Plan under color of the Indiana medical peer review statute, Ind. Code § 34-4-12.6-1 et seq.*fn9 According to the plaintiffs' first amended complaint, "beginning in early 1978 and continuing thereafter to the present, the Defendants have engaged in an unlawful conspiracy to exclude DR. MARRESE from the Evansville, Indiana marketing area by falsely charging that he is unqualified to practice and compete therein." The complaint alleged that the defendants "formulat[ed] and effectuat[ed]" this conspiracy through their actions as members of or consultants to the hospital board, the SAHC, and the Medical Staff Executive Council at Deaconess. The plaintiffs sought money damages for the alleged Federal antitrust violations and, pursuant to the Clayton Act § 16, 15 U.S.C. § 26, a permanent injunction restraining defendants from continuing to engage in Federal antitrust violations. In addition, the plaintiffs requested a permanent injunction "enjoining the President of the Medical Staff . . . from naming a committee to sit in review of the recommendation of the Executive Committee of the Medical Staff."

For purposes of establishing the district court's subject matter jurisdiction over the alleged violations of the Sherman Act §§ 1, 2, the plaintiffs claimed that the defendant" activities had a substantial and adverse effect upon interstate commerce. In support of this position, the plaintiffs alleged that:

"Approximately 45% of the patients treated by DR. MARRESE travel from Western Kentucky and Southern Illinois into the State of Indiana and the vast majority of those patients are treated by DR. MARRESE at DEACONESS HOSPITAL. . . . In addition, DR. MARRESE is a team surgeon for an Illinois high school, and in this capacity has occasion to travel into the State of Illinois, treat injured athletes and when necessary brings them back to the DEACONESS HOSPITAL for the purpose of providing medical treatment for them. In the regular course of his treatment of both his interstate and in-state patients, Plaintiff, DR. MARRESE, through Plaintiff's Bone & Joint Surgeons, Inc. purchases medicine, equipment and related supplies from out-of-state purveyors, derives revenue from the Federal Health Care Program commonly known as Medicare and Medicaid as well as from private out-of-state insurance companies and pays management and accounting fees to various out-of-state consultants. The total amount of said out-of-state purchases, revenues, and fees exceed the sum of $500,000.00 [annually]."

If Defendants' conspiracy is successful in its ultimate objective of driving DR. MARRESE from the Evansville, Indiana marketing are, he will . . . be unable to practice orthopedic medicine anywhere in the continental United States because of the cost of medical malpractice insurance, and because no other hospital could afford the risk of accepting DR. MARRESE on its staff."*fn10

The plaintiffs further alleged that:

"Approximately 25% of the HOSPITAL'S patients travel from Kentucky and Illinois to the HOSPITAL for the purpose of receiving medical and surgical care from its professional staff.

The HOSPITAL'S regular billings with respect to said out-of-state patients are not less than TEN MILLION DOLLARS ($10,000,000.00) per year.

The HOSPITAL also purchases medical supplies and equipment in an amount not less than FIVE MILLION DOLLARS ($5,000,000.00) per year ...

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