Plaintiffs, County of Tuolumne (the “County”) and Dr. Eric Runte, a family practitioner, appeal the district court’s grant of summary judgment in favor of defendants on their claims of antitrust violations under Section 1 of the Sherman Act, 15 U.S.C. § 1, for restraint of trade, conspiracy to boycott, and illegal tying.
For the reasons discussed below, we affirm the district court’s grant of summary judgment for defendants.
I. FACTUAL AND PROCEDURAL BACKGROUND
Sonora, California, has two hospitals, defendant SCH and Tuolumne General Hospital (“TGH”). SCH, a non-profit, private hospital, has the second highest C-section rate in the Adventist West Health Care System, of which it is a part. Dr. Christopher Mills and defendant obstetricians, Drs. Teel, Lawrence Brunei, and Louis Erich (“defendant OBs”), have privileges to perform C-sections at SCH.
TGH is operated by the County. It closed its obstetrics facility in 1982 because, according to plaintiffs’ expert, it was uneconomical. TGH considered re-opening its inpatient obstetrics facility in the early 1990s, but a feasibility study concluded that it would not be cost-effective, given the anticipated number of deliveries and the other demands on the hospital’s resources. TGH, however, operated an Ambulatory Care Clinic (the “Clinic”). The Clinic was staffed by a nurse midwife and primarily provided prenatal services for women entitled to Medi-Cal,
In 1994, TGH hired Dr. Runte as Medical Director of the Clinic and terminated its contract with the OBs. Dr. Runte is not an employee of SCH, but is a member of SCH’s General Family Practice Department (“FP Department”), of which Dr. Charles Waldman is chair. Dr. Runte does deliver babies and charges only $1,255 for vaginal deliveries, while Drs. Brunei, Teel, and Erich charge $1,500. Dr. Runte had performed around 110 C-sections during his family practice residency program. To gain more experience, Dr. Runte took additional night and weekend calls during his residency, which he completed in 1993.
Dr. Runte applied for privileges to perform C-section deliveries at SCH in February, 1994. SCH was in the process of approving new criteria restricting who could obtain C-section privileges. Under the new privileging criteria, C-sections could only be performed by Board-certified or Board-eligible obstetricians or by those doctors who had completed a 36-month residency program in obstetrics-gynecology. Dr. Runte did not meet these criteria and was denied C-section privileges.
At SCH, privileging criteria, including the C-section' privileges at issue in this case, are generally drafted by the relevant department. The criteria must be approved by the Medical Executive Committee (the “MEC”) and SCH’s Governing Board (the “Board”). The MEC is comprised of the department chairs, several committee chairs, the Chief of Staff (who is also a Board member), and the administrator, Lary A. Davis, who does not vote. Two of the three defendant OBs, Drs. Erich and Brunei, were members of the MEC when it recommended the C-section privileging criteria to the Board; FP Department Chair Dr. Waldman was also on the MEC.
In 1993, Kathleen Mutchler, SCH Medical Staff Coordinator, had recommended that all departments adopt “bundled” privileges lists, which would group privileges into categories depending on the training and skill required. Dr. Brunei, who became OB Department Chair in 1994, drafted the department’s privileging list and placed C-sections in the category of procedures involving high risk and/or requiring special training. The OB Department voted to recomment the draft privilege criteria to the MEC. Dr. Brunei presented the draft privileging criteria to the MEC in July 1995. Dr. Runte gave a presentation to the MEC, opposing the proposed privileging criteria. At Dr. Runte’s urging, the MEC formed a task force to advise it on the privileging criteria. The task force was comprised of members of the California Academy of Family Practitioners and the American College of Obstetrics and Gynecology. The MEC made it clear that neither it nor the Board would be bound by the task force’s recommendation. In the following months, Mutchler also conducted a telephone survey of seven regional hospitals and found that none granted C-section privileges to family practitioners. In addition, Drs. Brunei, Erich, and Karen Wright wrote letters to SCH, stating that Board certification in obstetrics was a proper standard for eligibility.
When the MEC met to vote in early November 1995, the task force report had not yet been completed. The task force did, however, furnish the MEC with a summary of its findings. It advised that privileges should be based on competence, training, and expertise, rather than specialty. The task force recommended that Dr. Runte be eligible for C-section privileges.
At the November meeting, Dr. Runte opposed the OB Department’s proposed privileging criteria. Dr. Teel also addressed the MEC and read a letter to it that he had written. In it, he stated that Dr. Runte did not have enough surgical experience to perform C-sections and asserted that “[i]f the committee proceeds with granting these privileges [to Dr. Runte], each of us [in the OB Department] will then have to individually re-evaluate our present relationship with Sonora Community Hospital.” The district court found that the “MEC devoted more time to this privileging issue than to any other issue in recent memory.” By a 6-1 vote, the MEC recommended that the Board approve the privilege list. In their declarations, the MEC members gave various reasons for their respective votes, including a belief that the standards would provide an optimal level of care for patients.
In late November 1995, the Board met to address the MEC’s recommendation. Administrator Davis reminded the Board members of their responsibility to study carefully all issues that the MEC recommendation raised and to make their final decisions in the best interest of patient care at the hospital. The Board members were provided with 160 pages of documents. They tabled the matter until January 1996, to allow members more time to carefully study the material. The Board also had further information gathered. Mutchler expanded her survey to nine additional regional hospitals and expanded her questions. She found that 13 of the 16 hospitals surveyed did not grant C-section privileges to family practitioners.
The Board met to vote in January 1996. Dr. Runte had sent a letter, and both Dr. Runte and FP Department Chair Dr. Waldman addressed the Board to oppose the proposed privileging criteria. Dr. Runte acknowledged that certain C-section complications could arise that would require him to request assistance from an obstetrician. Dr. Teel made a presentation in favor of the proposed criteria. The district court found that “Board spent more time on this privileging issue than on
The Board members’ decisions, as stated in their declarations, were affected by the fact that adequate, superior care already existed and thus there was no need to lower the standard and potentially compromise patient care. They were also concerned that the hospital itself could be subject to liability if it acted in a manner that was not in the best interest of its patients by lowering the standard for C-section privileges.
Plaintiffs filed this action alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, for restraint of trade, conspiracy to boycott, and illegal tying. Plaintiffs also claimed violations of Section 2 of the Sherman Act, 15 U.S.C. § 2, for attempted monopolization and conspiracy to monopolize. Plaintiffs further alleged state-law antitrust violations under the Cartwright Act, Cal. Bus. & Prof.Code § 16700 et seq., unfair competition, tortious interference with prospective economic advantage, and defamation of Dr. Runte by Dr. Teel.
The district court granted summary judgment for defendants on the all of the federal and state antitrust claims, the unfair competition claim, and, in a separate order, the defamation claims. The district court denied defendants’ summary judgment motion on the state law tortious interference claim. Pursuant to a stipulation between the parties, plaintiffs voluntarily dismissed the tortious interference claim, and the district court entered judgment dismissing the action on the merits. Plaintiffs filed a timely notice of appeal.
II.JURISDICTION
The district court had jurisdiction over the federal antitrust claims under 28 U.S.C. §§ 1331, 1337 and 15 U.S.C. § 26, and supplemental jurisdiction over the state law claims under 28 U.S.C. § 1367(a).
The district court’s judgment dismissing the action on the merits is a final judgment over which we have jurisdiction under 28 U.S.C. § 1291.
III.STANDARD OF REVIEW
We review de novo the district court’s grant of summary judgment. See Margolis v. Ryan,
In the context of antitrust cases, the Supreme Court has clarified that “[wjhere the record taken as a whole could not lead a rational trier of Tact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
IV.DISCUSSION
We have held that the “antitrust laws apply to hospitals in the same manner
To establish a claim under Section 1 of the Sherman Act, Plaintiffs must show “1) that there was a contract, combination, or conspiracy; 2) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and 3) that the restraint affected interstate commerce.” Bhan,
A. Conspiracy
The district court properly granted summary judgment for defendants on the conspiracy claims because plaintiffs did not adduce prima facie proof of the existence of a conspiracy. Plaintiffs cannot survive summary judgment because they have presented neither direct nor circumstantial evidence that reasonably tends to prove that defendants “had a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto Co. v. Spray-Rite Serv. Corp.,
1. Direct Evidence
A claim will survive a motion for summary judgment if there is direct evidence of a conspiracy. See Arizona v. Standard Oil Co. (In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig.),
In Oltz v. St. Peter’s Cmty. Hosp.,
Plaintiffs rely on the letter written by Dr. Teel, which he read aloud at the November 1995 MEC meeting and submitted to the Board. It states:
The Obstetricians and the Department of Obstetrics and Pediatrics wants this committee to be aware that we are opposed to this expansion of privileges. We want to be sure that the record reflects our opposition and that we, as individuals and/or as a department, do not wish to bear the responsibility of such a decision.
If the committee proceeds with granting these privileges, each of us will then have to individually re-evaluate our present relationship with Sonora Community Hospital.
The Supreme Court held in Monsanto that' threats that were followed through can constitute direct evidence that “is relevant and persuasive as to a meeting of minds.” Id. at 765,
2. Circumstantial Evidence
Even though we find no direct evidence of a conspiracy, we must determine whether the evidence establishes a conspiracy through circumstantial evidence. We conclude that it does not.
Relying on the Supreme’s Court analysis in Matsushita,
Defendants have shown a “plausible and justifiable reason” for establishing the privileging criteria. Id. The setting of privileging criteria by a hospital is consistent with providing quality patient care and keeping insurance costs manageable. The burden, therefore, shifts back to plaintiffs to “provide specific evidence tending to show that the [defendants were] not engaging in permissible competitive behavior ... [and] tending to exclude the possibility that defendants acted independently.” Id. at 1094, 1096. Even viewed in the light most favorable to plaintiffs, none of the evidence excludes the possibility that the Board acted independently. The MEC and the Board spent more time on the privileging issue than on any other in the past. They had multiple meetings, heard extensive testimony, and reviewed numerous documents.
As the Eleventh Circuit has noted, simply because the “board is likely to follow the recommendations of the medical staff does not establish, or even reasonably suggest, the existence of a conspiracy. The plaintiffs argument eviscerates the agreement requirement of section 1.” Todorov v. DCH Healthcare Auth.,
B. Tying
Plaintiffs also assert a claim against SCH for illegal tying. We conclude that the district court did not err in granting SCH summary judgment on the tying claim because plaintiffs failed to raise any genuine issue of material fact under either a per se or rule of reason analysis.
A tying arrangement exists when a seller conditions the sale of one product or service (the tying product or service) on the buyer’s purchase of another product or service (the tied product or service). See Northern Pac. Ry. v. United States,
[T]he essential characteristic of an invalid tying arrangement lies in the seller’s exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.
Jefferson Parish,
The district court properly summarized plaintiffs’ tying claim as follows: “SCH has market power in the tying product, hospital obstetrical services. The tied product is c-section services, performed by the obstetricians. If a patient wants to purchase hospital obstetrical services and a c-section is required, the hospital forces the patient to purchase the c-section from Defendant Obstetricians.”
Tying can be either a per se violation or a violation under the rule of reason. A per se tying violation “is proscribed without examining the actual market conditions, when the seller has such power in the tying product or service market that ‘the existence of forcing is probable,’ ... and there is ‘a substantial potential for impact on competition.’ ” Beard v. Parkview Hosp.,
I. Per Se Illegal Tying
To establish that a tying arrangement is illegal per se, plaintiffs must prove three elements: (1) a tie between two separate products or services sold in relevant markets; (2) sufficient economic power in the tying product market to affect the tied market; and (3) an effect on a not-insubstantial volume of commerce in the tied
The district court also analyzed a fourth element: whether the defendant has an economic interest in the tied product. See id. The economic interest requirement is based on the theory that “if the tying entity receives no economic benefit from the tie, then we can safely presume that it is not attempting to spread its power into the tied-product market, and we need not strike the arrangements down as an illegal tie under the antitrust laws.” Gonzalez v. St. Margaret’s House Hous. Dev. Fund Corp.,
We conclude that there is no genuine issue of material fact about whether SCH received a “direct economic benefit” from C-sections performed by defendant OBs. Beard,
Plaintiffs argue that SCH received some indirect economic benefits by capturing the pediatric business referred by defendant OBs and by preventing TGH from entering the market. TGH, however, withdrew from and decided against re-entering the market even before SCH established its C-section privileging criteria. Plaintiffs’ expert testified that the number of births in the County can only support inpatient obstetrical service at one hospital. TGH conducted an independent study and concluded that it was not economically feasible for TGH to re-open its obstetrical unit. Because they are so attenuated, any indirect economic benefits simply do not raise a genuine issue of material fact under the “direct economic interest” requirement. Id. In sum, no genuine issue of material fact exists on the per se tying claim.
2. Rule of Reason Analysis
Even though the tying arrangement survives per se scrutiny, it still must be assessed for invalidity under the rule of reason. See Jefferson Parish,
The Supreme Court has explained that “the inquiry mandated by the Rule of Reason is whether the challenged agreement is one that promotes competition or one that suppresses competition.” National Soc’y of Prof'l Eng’rs,
Defendants argue that plaintiffs’ tying claim must fail under the rule of reason because plaintiffs have proven no more than injury to one competitor, not to competition itself. This court has held that “the elimination of a single competitor, standing alone, does not prove anti-competitive effect.” Austin v. McNa
Under the rule of reason burden-shifting scheme, plaintiffs first must “delineate a relevant market and show that the defendant plays enough of a role in that market to impair competition significantly.” Bhan,
The burden then shifts to defendants to offer “evidence that a legitimate objective is served by the challenged behavior.” 7 Areeda ¶ 1502, at 372. Here, the Board’s concerns for optimizing patients’ health, by requiring certain, minimum training for doctors who perform C-sections, certainly are legitimate.
The burden then shifts back to plaintiffs to demonstrate that there were less restrictive alternatives to the privileging criteria. See Bhan,
As part of their burden to show the existence of less restrictive alternatives, however, plaintiffs must also show that “an alternative is substantially less restrictive and is virtually as effective in serving the legitimate objective without significantly increased cost.” 10 Areeda f 1760d, at 369 (emphasis added).
It is difficult to see how a hospital, acting independently and relying solely on letters of recommendation and surgical reports, can assure itself that a physician has the surgical competence represented by Board certification or the supervised experience of a 36-month residency program. Such a substitute, of a hospital independently evaluating a physician’s skill in the operating room, can be made effective only by the hospital’s incurring substantial costs. The issue, after all, is professional standards in potentially life-threatening situations. Plaintiffs have adduced virtually no evidence to show that their proposed alternatives are as effective as and, at the same time, not significantly more costly than SCH’s credentialing policy. Thus, plaintiffs have failed to raise an issue of fact as to whether their proposed less re
Because plaintiffs have failed to meet their burden of advancing viable less restrictive alternatives, we reach the balancing stage. See 7 Areeda ¶ 1507b, at 397. We must balance the harms and benefits of the privileging criteria to determine whether they are reasonable. In this case, any anticompetitive harm is offset by the procompetitive effects of SCH’s effort to maintain the quality of patient care that it provides. See, e.g., Weiss v. York Hosp.;
C. State Antitrust Claims
The analysis under California’s antitrust law mirrors the analysis under federal law because the Cartwright Act, Cal. Bus. & Prof.Code § 16700 et seq., was modeled after the Sherman Act. See Nova Designs, Inc. v. Scuba Retailers Ass’n,
V. CONCLUSION
The district court’s grant of summary judgment on plaintiffs’ federal and state antitrust claims alleging restraint of trade, conspiracy, and tying is
AFFIRMED.
Notes
. Dr. Runte also asserted state law defamation claims against defendant Dr. Donovan Teel. We dispose of the appeal as to those claims in an unpublished memorandum disposition filed concurrently herewith.
. Dr. Merle Patterson, an orthopedic surgeon, has privileges to perform emergency C-sections, but emergency C-sections are not at issue in this case.
. ''Medi-Cal” is California’s denomination of Medicaid.
. On appeal, plaintiffs do not pursue their claims under § 2 of the Sherman Act and under state unfair competition law.
. Given that plaintiffs’ “cat’s paw” theory cannot even serve as circumstantial evidence of a conspiracy, we find no merit to plaintiffs’ argument that it is direct evidence of a conspiracy.
. Defendants do not specifically contest this characterization, and thus have waived any argument challenging it. See Smith v. Marsh,
. The Second Circuit interprets Jefferson Parish as not recognizing economic interest as a requirement of a per se illegal tying arrangement. See Gonzalez,
. We note that the Sixth Circuit has held, in a case involving hospital services, that failure to establish a direct economic benefit can be fatal to a tying claim under either a per se or rule of reason analysis. See Beard,
. Even though there is evidence that women with "high risk” pregnancies travel to Modesto, we must view the evidence in the light most favorable to plaintiffs on summary judgment. See Anderson,
. The nearest hospital with obstetrical services is 40 miles away, in Oakdale, and there is no main highway linking these communities.