State Action Immunity
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.