## Facts

- Blue Cross and Blue Shield of Indiana (collectively, Blue) offered a preferred provider organization (PPO) plan in which enrollees paid a monthly fee for coverage with reduced out-of-pocket costs when using “preferred” hospitals.
- To form the preferred provider network, Blue invited bids from all 115 acute-care hospitals in Indiana; 91 submitted bids, and Blue selected 61 hospitals.
- Hospitals not selected as preferred providers, along with some selected hospitals dissatisfied with the terms, alleged the PPO’s selective contracting and patient-steering mechanisms harmed competition.
- The hospitals asserted that Blue’s substantial share of health insurance sales in Indiana allowed it to obtain control of the health-care financing services market and impose adverse reimbursement terms.

## Issues

1. Whether Blue’s PPO selective contracting and steering mechanisms constituted an unreasonable restraint of trade under the Sherman Act under the rule of reason, including whether Blue possessed sufficient market power in a properly defined relevant market.
2. Whether the hospitals showed antitrust injury—harm to competition (e.g., higher prices, reduced output, diminished consumer welfare)—rather than harm only to particular competitors.

## Decision

- The Seventh Circuit affirmed judgment for Blue.
- The court held the hospitals did not prove Blue had market power, emphasizing that ease of entry and limited barriers to entry undermined an inference of durable power from market share alone.
- The court held the hospitals failed to prove antitrust injury because their asserted harms largely reflected loss of business or worse contractual terms, not harm to competition or consumers.
- The court treated the PPO under the rule of reason and declined to treat it as per se unlawful.

## Legal Principles

- Under the rule of reason, market power is a required element; absent market power, a defendant generally bears no burden to justify the challenged conduct.
- Market share figures, standing alone, are insufficient to establish market power; courts must assess competitive constraints such as barriers to entry and the ability of rivals to enter or expand.
- Antitrust injury requires harm of the type the antitrust laws target—typically higher prices, reduced output, or comparable consumer harm—not merely harm to individual competitors.
- Selective contracting and steering mechanisms in a PPO can be consistent with competition when they facilitate discounting and cost reductions and are not shown to exclude rivals in a way that preserves or creates market power.

## Conclusion

The court upheld Blue’s PPO because the hospitals did not establish market power in the relevant market or antitrust injury, and the selective contracting structure, evaluated under the rule of reason, was not shown to harm competition or consumers.


Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325 (7th Cir. 1986)