## Facts

- Blue Shield operated a Massachusetts health insurance plan that paid physicians for services rendered to subscribers.
- Physicians could become “participating” providers by contracting with Blue Shield.
- Participating physicians were required to accept Blue Shield’s payment as full compensation and could not bill the subscriber for any additional amount (“ban on balance billing”).
- Blue Shield set maximum reimbursement levels through its payment schedule and conditioned payment on compliance with the no-additional-billing requirement.
- A group of Massachusetts physicians (and intervenors including a medical society) sued, alleging the ban effectively fixed physician prices and suppressed compensation below market levels.
- Massachusetts heavily regulated health insurance, including oversight by the Commissioner of Insurance, who intervened in support of the challenged practices.
- After a 37-day bench trial, the district court held the ban was an unreasonable restraint of trade under Sherman Act § 1 but rejected a Sherman Act § 2 monopolization theory.
- Blue Shield appealed the § 1 ruling; plaintiffs and the Commissioner also appealed aspects of the judgment.

## Issues

1. Whether Blue Shield’s contractual requirement that participating physicians accept insurer payment as payment in full and not balance bill subscribers is an unreasonable restraint of trade under Sherman Act § 1.
2. Whether the practice supports a Sherman Act § 2 monopolization or attempted monopolization claim.

## Decision

- The First Circuit reversed the judgment imposing § 1 liability.
- The court held the ban on balance billing did not violate Sherman Act § 1.
- The court left undisturbed the rejection of the Sherman Act § 2 claim.
- No antitrust injunction issued against Blue Shield’s practice.

## Legal Principles

- A purchaser generally may set the terms on which it will buy services, including insisting on a maximum price it will pay, without thereby creating a § 1 restraint.
- A set of vertical agreements between a buyer and separate sellers, without a horizontal agreement among sellers, is not treated as classic price-fixing.
- Sherman Act § 1 condemnation requires more than a buyer’s bargaining power; plaintiffs must show unreasonable, anticompetitive effects (such as reduced output, diminished quality, or exclusionary impact) on the record.
- The existence of meaningful alternatives—such as a seller’s ability to refuse participation and transact on other terms—cuts against finding an unreasonable restraint.
- In a heavily regulated industry, the regulatory setting may inform the competitive assessment of challenged conduct, even where the decision does not turn on formal immunity.

## Conclusion

The court held that Blue Shield’s ban on balance billing was a lawful condition of participation reflecting a buyer’s choice of purchase terms, and, absent collusion among physicians or proof of substantial anticompetitive effects or exclusionary conduct, it did not constitute an unreasonable restraint of trade under Sherman Act § 1.


Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922 (1st Cir. 1984)