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Subject: 89-1679 -- OPINION, SUMMIT HEALTH, LTD. v. PINHAS




NOTICE: This opinion is subject to formal revision before publication in
the preliminary print of the United States Reports.  Readers are requested
to notify the Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print goes to
press.
SUPREME COURT OF THE UNITED STATES


No. 89-1679



SUMMIT HEALTH, LTD., et al., PETITIONERS v. SIMON J. PINHAS

on writ of certiorari to the united states court of appeals for the ninth
circuit

[May 28, 1991]



    Justice Stevens delivered the opinion of the Court.
    The question presented is whether the interstate commerce requirement
of antitrust jurisdiction is satisfied by allegations that petitioners
conspired to exclude respondent, a duly licensed and practicing physician
and surgeon, from the market for ophthalmological services in Los Angeles
because he refused to follow an unnecessarily costly surgical procedure.
    In 1987, respondent Dr. Simon J. Pinhas filed a complaint in District
Court alleging that petitioners Summit Health, Ltd. (Summit), Midway
Hospital Medical Center (Midway), its medical staff, and others, had
entered into a conspiracy to drive him out of business "so that other
ophthalmologists and eye physicians [including four of the petitioners]
will have a greater share of the eye care and ophthalmic surgery in Los
Angeles."  App. 39.  Among his allegations was a claim that the conspiracy
violated MDRV 1 of the Sherman Act. {1}  The District Court granted
defendants' (now petitioners') motion to dismiss the First Amended
Complaint (complaint) without leave to amend, App. 315, but the United
States Court of Appeals for the Ninth Circuit reinstated the antitrust
claim.  894 F. 2d 1024 (1989). {2}  We granted certiorari, 496 U. S. ---
(1990), to consider petitioners' contention that the complaint fails to
satisfy the jurisdictional requirements of the Sherman Act, as interpreted
in McLain v. Real Estate Bd. of New Orleans, Inc., 444 U. S. 232 (1980),
because it does not describe a factual nexus between the alleged boycott
and interstate commerce.

I
    Because this case comes before us from the granting of a motion to
dismiss on the pleadings, we must assume the truth of the material facts as
alleged in the complaint.  Respondent, a diplomat of the American Board of
Ophthalmology, has earned a national and international reputation as a
specialist in corneal eye problems.  App. 7.  Since October 1981, he has
been a member of the staff of Midway in Los Angeles, and because of his
special skills, has performed more eye surgical procedures, including
cornea transplants and cataract removals, than any other surgeon at the
hospital.  Ibid. {3}
    Prior to 1986, most eye surgeries in Los Angeles were performed by a
primary surgeon with the assistance of a second surgeon.  Id., at 8.  This
practice significantly increased the cost of eye surgery.  In February of
that year, the administrators of the Medicare program announced that they
would no longer reimburse physicians for the services of assistants, and
most hospitals in southern California abolished the assistant surgeon
requirement.  Respondent, and certain other ophthalmologists, asked Midway
to abandon the requirement, but the medical staff refused to do so.  Ibid.
Respondent explained that because Medicare reimbursement was no longer
available, the requirement would cost him about $60,000 per year in
payments to competing surgeons for assistance that he did not need.  Id.,
at 9.  Although respondent expressed a desire to maintain the preponderance
of his practice at Midway, he nevertheless advised the hospital that he
would leave if the assistant surgeon requirement were not eliminated.
Ibid.
    Petitioners responded to respondent's request to forgo an assistant in
two ways.  First, Midway and its corporate parent offered respondent a
"sham" contract that provided for payments of $36,000 per year (later
increased by oral offer to $60,000) for services that he would not be asked
to perform.  Ibid.  Second, when respondent refused to sign or return the
"sham" contract, petitioners initiated peer-review proceedings against him
and summarily suspended, and subsequently terminated, his medical staff
privileges. {4}  Id., at 10.  The proceedings were conducted in an unfair
manner by biased decisionmakers, and ultimately resulted in an order
upholding one of seven charges against respondent, and imposing severe
restrictions on his practice. {5}  When this action was commenced,
petitioners were preparing to distribute an adverse report  {6} about
respondent that would "preclude him from continued competition in the
market place, not only at defendant Midway Hospital [but also] . . . in
California, if not the United States."  Id., at 40.  The defendants
allegedly planned to disseminate the report "to all hospitals which Dr.
Pinhas is a member, and to all hospitals to which he may apply so as to
secure similar actions by those hospitals, thus effectuating a boycott of
Dr. Pinhas."  Ibid.
    The complaint alleges that petitioner Summit owns and operates 19
hospitals, including Midway, and 49 other health care facilities in
California, six other States, and Saudia Arabia.  Id., at 3.  Summit,
Midway, and each of the four ophthalmic surgeons named as individual
defendants, as well as respondent, are all allegedly engaged in interstate
commerce.  The provision of ophthalmological services affects interstate
commerce because both physicians and hospitals serve nonresident patients
and receive reimbursement through Medicare payments.  Reports concerning
peer-review proceedings are routinely distributed across state lines and
affect doctors' employment opportunities throughout the Nation.
    In the Court of Appeals, petitioners defended the District Court's
dismissal of the complaint on the ground that there was no allegation that
interstate commerce would be affected by respondent's removal from the
Midway medical staff.  The Court of Appeals rejected this argument because
" `as a matter of practical economics' " the hospital's "peer review
process in general" obviously affected interstate commerce.  894 F. 2d, at
1032 (citation omitted).  The court added:


"Pinhas need not, as appellees apparently believe, make the more
particularized showing of the effect on interstate commerce caused by the
alleged conspiracy to keep him from working.  [McLain v. Real Estate Bd. of
New Orleans, Inc., 444 U. S.,] at 242-243.  He need only prove that
peer-review proceedings have an effect on interstate commerce, a fact that
can hardly be disputed.  The proceedings affect the entire staff at Midway
and thus affect the hospital's interstate commerce.  Appellees' contention
that Pinhas failed to allege a nexus with interstate commerce because the
absence of Pinhas's services will not drastically affect the interstate
commerce of Midway therefore misses the mark and must be rejected."  Ibid.


II
    Congress enacted the Sherman Act in 1890. {7}  During the past century,
as the dimensions and complexity of our economy have grown, the federal
power over commerce, and the concomitant coverage of the Sherman Act, have
experienced similar expansion. {8}  This history has been recounted before,
{9} and we need not reiterate it today. {10}
    We therefore begin by noting certain propositions that are undisputed
in this case.  Petitioner Summit, the parent of Midway as well as of
several other general hospitals, is unquestionably engaged in interstate
commerce.  Moreover, although Midway's primary activity is the provision of
health care services in a local market, it also engages in interstate
commerce.  A conspiracy to prevent Midway from expanding would be covered
by the Sherman Act, even though any actual impact on interstate commerce
would be " `indirect' " and " `fortuitous.' "  Hospital Bldg. Co. v. Rex
Hospital Trustees, 425 U. S. 738, 744 (1976).  No specific purpose to
restrain interstate commerce is required.  Id., at 745.  As a "matter of
practical economics," ibid., the effect of such a conspiracy on the
hospital's "purchases of out-of-state medicines and supplies as well as its
revenues from out-of-state insurance companies," id., at 744, would
establish the necessary interstate nexus.
    This case does not involve the full range of activities conducted at a
general hospital.  Rather, this case involves the provision of
ophthalmological services.  It seems clear, however, that these services
are regularly performed for outof-state patients and generate revenues from
out-of-state sources; their importance as part of the entire operation of
the hospital is evident from the allegations of the complaint.  A
conspiracy to eliminate the entire ophthalmological department of the
hospital, like a conspiracy to destroy the hospital itself, would
unquestionably affect interstate commerce.  Petitioners contend, however,
that a boycott of a single surgeon has no such obvious effect because the
complaint does not deny the existence of an adequate supply of other
surgeons to perform all of the services that respondent's current and
future patients may ever require.  Petitioners argue that respondent's
complaint is insufficient because there is no factual nexus between the
restraint on this one surgeon's practice and interstate commerce.
    There are two flaws in petitioners' argument.  First, because the
essence of any violation of MDRV 1 is the illegal agreement itself --
rather than the overt acts performed in furtherance of it, see United
States v. Kissel, 218 U. S. 601 (1910) -- proper analysis focuses, not upon
actual consequences, but rather upon the potential harm that would ensue if
the conspiracy were successful.  As we explained in McLain v. Real Estate
Bd. of New Orleans, Inc., 444 U. S. 232 (1980):

"If establishing jurisdiction required a showing that the unlawful conduct
itself had an effect on interstate commerce, jurisdiction would be defeated
by a demonstration that the alleged restraint failed to have its intended
anticompetitive effect.  This is not the rule of our cases.  See American
Tobacco Co. v. United States, 328 U. S. 781, 811 (1946); United States v.
Socony-Vacuum Oil Co., 310 U. S. 150, 225, n. 59 (1940).  A violation may
still be found in such circumstances because in a civil action under the
Sherman Act, liability may be established by proof of either an unlawful
purpose or an anticompetitive effect.  United States v. United States
Gypsum Co., 438 U. S. 422, 436, n. 13 (1978); see United States v.
Container Corp., 393 U. S. 333, 337 (1969); United States v. National Assn.
of Real Estate Boards, 339 U. S. 485, 489 (1950); United States v.
SoconyVacuum Oil Co., supra, at 224-225, n. 59."  Id., at 243.


Thus, respondent need not allege, or prove, an actual effect on interstate
commerce to support federal jurisdiction. {11}
    Second, if the conspiracy alleged in the complaint is successful, " `as
a matter of practical economics' " there will be a reduction in the
provision of ophthalmological services in the Los Angeles market.  McLain,
444 U. S., at 246 (quoting Hospital Building Co. v. Rex Hospital Trustees,
425 U. S., at 745).  In cases involving horizontal agreements to fix prices
or allocate territories within a single State, we have based jurisdiction
on a general conclusion that the defendants' agreement "almost surely" had
a market-wide impact and therefore an effect on interstate commerce, Burke
v. Ford, 389 U. S. 320, 322 (1967) (per curiam), or that the agreement
"necessarily affect[ed]" the volume of residential sales and therefore the
demand for financing and title insurance provided by out-of-state concerns.
McLain, 444 U. S., at 246.  In the latter, we explained:

    "To establish the jurisdictional element of a Sherman Act violation it
would be sufficient for petitioners to demonstrate a substantial effect on
interstate commerce generated by respondents' brokerage activity.
Petitioners need not make the more particularized showing of an effect on
interstate commerce caused by the alleged conspiracy to fix commission
rates, or by those other aspects of respondents' activity that are alleged
to be unlawful."  Id., at 242-243.


    Although plaintiffs in McLain were consumers of the conspirators' real
estate brokerage services, and plaintiff in this case is a competing
surgeon whose complaint identifies only himself as the victim of the
alleged boycott, the same analysis applies.  For if a violation of the
Sherman Act occurred, the case is necessarily more significant than the
fate of "just one merchant whose business is so small that his destruction
makes little difference to the economy."  Klor's, Inc. v. Broadway-Hale
Stores, Inc., 359 U. S. 207, 213 (1959) (footnote omitted).  The case
involves an alleged restraint on the practice of ophthalmological services.
The restraint was accomplished by an alleged misuse of a congressionally
regulated peer-review process, {12} which respondent characterizes as the
gateway that controls access to the market for his services.  The gateway
was closed to respondent, both at Midway and at other hospitals, because
petitioners insisted upon adhering to an unnecessarily costly procedure.
The competitive significance of respondent's exclusion from the market must
be measured, not just by a particularized evaluation of his own practice,
but rather, by a general evaluation of the impact of the restraint on other
participants and potential participants in the market from which he has
been excluded.
    We have no doubt concerning the power of Congress to regulate a
peer-review process controlling access to the market for ophthalmological
surgery in Los Angeles.  Thus, respondent's claim that members of the
peer-review committee conspired with others to abuse that process and
thereby deny respondent access to the market for ophthalmological services
provided by general hospitals in Los Angeles has a sufficient nexus with
interstate commerce to support federal jurisdiction.

    The judgment of the Court of Appeals is affirmed.

It is so ordered.







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1
    Section 1 of the Sherman Act, 26 Stat. 209, as amended, provides in
relevant part:

"Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several States, or
with foreign nations, is declared to be illegal."  15 U. S. C. MDRV 1.

2
    Although the complaint alleged five claims, only the "Fourth Claim for
Relief," the antitrust claim, is before us now.
    The complaint also named as a defendant the California Board of Medical
Quality Assurance (BMQA).  The BMQA, however, was dismissed by stipulation.
See 894 F. 2d, at 1027, n. 2.

3
    "One of the reasons for his success is the rapidity with which he, as
distinguished from his competitors, can perform such surgeries.  The speed
with which such surgery can be completed benefits the patient because the
exposure of cut eye tissue is drastically reduced.  Some of Dr. Pinhas'
competitors regularly require, on the average, six times the length of
surgical time to complete the same procedures as Dr. Pinhas."  App. 7.

4
    Respondent was notified, by a letter dated April 13, 1987, that such
actions were the result of a "Medical Staff review of [his] medical
records, with consideration as to the questions raised regarding:
indications for surgery; appropriateness of surgical procedures in light of
patient's medical condition; adequacy of documentation in medical records;
and ongoing pattern of identified problems."  Id., at 93.

5
    After the Governing Board of Midway affirmed the decision of the
peer-review committee, but imposed even more stringent conditions on
respondent than the committee had imposed, respondent filed a petition for
writ of mandate, pursuant to Cal. Civ. Proc. Code Ann. MDRV 1094.5 (West
Supp. 1991).  894 F. 2d 1024, 1027 (CA9 1989).  On May 17, 1989, the
Superior Court of California denied respondent's request for further
relief.  App. to Pet. for Cert. A30-A35.

6
    Petitioners had already distributed the report, a Business and
Professions Code 805 Report, to Cedars-Sinai Medical Center in Los Angeles,
which then denied respondent medical staff privileges there.  App. to Brief
for Respondent A-3.  Cedars-Sinai, like Midway, had refused to abolish the
assistant surgeon requirement.  App. 8.

7
    Act of July 2, 1890, ch. 647, MDRV 1, 26 Stat. 209.  The floor debates
on the Sherman Act reveal, in Senator Sherman's words, an intent to "g[o]
as far as the Constitution permits Congress to go . . . ."  20 Cong. Rec.
1167 (1889).  For views of the enacting Congress toward the Sherman Act,
see 21 Cong. Rec. 2456 (1890); see also United States v. South-Eastern
Underwriters Association, 322 U. S. 533, 555-560 (1944); Apex Hosiery Co.
v. Leader, 310 U. S. 469, 493, n. 15 (1940).

8
    The Court's decisions have long "permitted the reach of the Sherman Act
to expand along with expanding notions of congressional power.  See Gulf
Oil Corp. v. Copp Paving Co., 419 U. S. [186,] 201-202 [(1974)]."  Hospital
Bldg. Co. v. Rex Hospital Trustees, 425 U. S. 738, 743, n. 2 (1976).

9
    See, e. g., Mandeville Island Farms, Inc. v. American Crystal Sugar
Co., 334 U. S. 219, 229-235 (1948).

10
    It is firmly settled that when Congress passed the Sherman Act, it
"left no area of its constitutional power [over commerce] unoccupied."
United States v. Frankfort Distilleries, Inc., 324 U. S. 293, 298 (1945).
Congress "meant to deal comprehensively and effectively with the evils
resulting from contracts, combinations and conspiracies in restraint of
trade, and to that end to exercise all the power it possessed."  Atlantic
Cleaners & Dyers, Inc. v. United States, 286 U. S. 427, 435 (1932).

11
    Cf. United States v. Staszcuk, 517 F. 2d 53, 60, n. 17 (CA7) (en banc)
("The federal power to protect the free market may be exercised to punish
conduct which threatens to impair competition even when no actual harm
results"), cert. denied, 423 U. S. 837 (1975).

12
    See Health Care Quality Improvement Act of 1986, 100 Stat. 3784, 42 U.
S. C. MDRV 11101 et seq.  The statute provides for immunity from antitrust,
and other, actions if the peer-review process proceeds in accordance with
MDRV 11112.  Respondent alleges that the process did not conform with the
requirements set forth in MDRV 11112, such as adequate notice,
representation by an attorney, access to a transcript of the proceedings,
and the right to cross-examine witnesses.  According to the House sponsor
of the bill, "[t]he immunity provisions [were] restricted so as not to
protect illegitimate actions taken under the guise of furthering the
quality of health care.  Actions . . . that are really taken for
anticompetitive purposes will not be protected under this bill."  132 Cong.
Rec. H9957 (Oct. 14, 1986) (remarks of Rep. Waxman).