There is an exemption to the federal antitrust laws for actions taken by states.
This is called the
Parker v. Brown immunity, after a famous 1943 case
upholding the right of California to enforce agreements to protect raisin
growers. [
Parker v. Brown, 317 U.S. 341 (1943)
] The agreements at issue in
the “raisin case” allocated market share to the various growers. This
guaranteed a profit to the growers in the scheme, artificially raised the prices
for raisins, and excluded new growers. Although it would have been illegal for
the growers themselves to have entered into these agreements, the Court
found that a state may proscribe competition among its own citizens. Several
courts tried to use this principle to block peer review lawsuits in states where
the board of medical examiners had some role in reviewing peer review
decisions.
This state action immunity was at issue in the much publicized case of
Patrick v. Burget, [
Patrick v. Burget, 486 U.S. 94 (1988)
.] which involved the sole
hospital in a small community. Because of geographic isolation, this hospital
had monopoly power in the local market. As a result of a business
disagreement, the other members of the medical staff conspired to terminate
Dr. Patrick’s staff privileges. This was a blatant conspiracy that included even
attempts to manipulate the state board of medical examiners. Dr. Patrick won
a multimillion-dollar verdict at trial, and the case was appealed to the federal
circuit court. Several medical groups filed briefs urging the court to overturn
the verdict, while acknowledging that the review itself was grossly unfair. The
appeals court found that the termination of Dr. Patrick’s staff privileges did
violate the antitrust laws. The court also found that the peer review process in
Oregon was not an independent activity conducted by private individuals but
an extension of state power and thus subject to active supervision by the
state. Based on this regulation by the state, which, on paper at least, is quite
detailed, the court found that the defendant’s conduct was immune from legal
challenge.
Dr. Patrick appealed the circuit court’s decision to the U.S. Supreme Court, with
his request for review supported by the Federal Trade Commission (FTC). The
FTC argued that there was insufficient state involvement to justify state action
immunity. The Supreme Court found:
Because we conclude that no state actor in Oregon actively supervises
hospital peer-review decisions, we hold that the state action doctrine
does not protect the peer-review activities challenged in this case from
application of the federal antitrust laws. In so holding, we are not
unmindful of the policy argument that respondents and their Amici have
advanced for reaching the opposite conclusion. They contend that
effective peer review is essential to the provision of quality medical care
and that any threat of antitrust liability will prevent physicians from
participating openly and actively in peer-review proceedings. This
argument, however, essentially challenges the wisdom of applying the
antitrust laws to the sphere of medical care, and as such is properly
directed to the legislative branch. [
Patrick at 105]
The Patrick case may be a classic example of the cliché that hard cases make
bad law. The egregious facts in the case made it unlikely that the Supreme
Court would find that Oregon supervised the review of Dr. Patrick’s
competence. To have accepted that the
Patrick case was a valid exercise of
state oversight would have only shifted the issue to a due process claim based
on improper state action. Although many physicians were concerned that the
Patrick holding would cripple peer review, the Health Care Quality
Improvement Act immunizes properly conducted peer review irrespective of
state action.
