Appeal from an order of the United States District Court for the Southern District of New York, Lee P. Gagliardi, Judge, [1979-2] Trade Cas. (CCH) P62,758 (1979), granting summary judgment dismissing complaint seeking injunctive and declaratory relief under the Sherman Act, 15 U.S.C. §§ 1 et seq., and damages under state libel law. Reversed and remanded.
Before Kaufman, Kearse, and Bright,*fn* Circuit Judges.
This appeal by plaintiff-appellant A. Alexander Pireno, a chiropractor, requires us to determine whether the exemption from the federal antitrust laws created for "the business of insurance" by § 2(b) of the McCarran-Ferguson Act (the "Act"), 15 U.S.C. § 1012(b) (1976), applies to an insurer's practice of submitting claims for chiropractic services to a peer review committee, composed of chiropractors, which opines whether the services rendered and fees charged are "usual," "reasonable," "customary," or the like, within the meaning of the insurance policy. The district court held that the peer review practice instituted by defendant-appellee New York State Chiropractic Association ("NYSCA"), and availed of by defendant-appellee Union Labor Life Insurance Company ("ULL"), was exempt from antitrust scrutiny under § 2(b), and therefore granted summary judgment dismissing Pireno's complaint for injunctive and declaratory relief under the federal antitrust laws and for damages under state libel law. (1979-2) Trade Cas. (CCH) P 62,758 (S.D.N.Y.1979). Our own reading of § 2(b) in light of the Supreme Court's decision in Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S. Ct. 1067, 59 L. Ed. 2d 261 (1979) ("Royal Drug"), persuades us that the § 2(b) exemption does not shield the peer review procedure from examination under the antitrust laws. Accordingly, we reverse the order and remand the matter for further proceedings.
I. FACTS AND PRIOR PROCEEDINGS
This case arises from the efforts of the chiropractic profession to obtain for its practitioners and their patients the benefits of contemporary health insurance programs. Until the early 1970's, many health insurance carriers excluded chiropractic services from coverage under their policies. Although New York amended its insurance laws in 1971 to require health insurance carriers to pay certain claims for services performed by a chiropractor, see N.Y.Ins.Law § 221(5)(e) (McKinney Supp.1980-1981), carriers and their medical advisors were frequently unfamiliar with chiropractic, and they therefore found it difficult to determine whether the services rendered and fees charged to insurance claimants were "usual," "customary," and "reasonable" within the limitations of typical health insurance policies. Responding to this situation, which adversely affected the chiropractors' livelihood and their patients' ability to obtain needed services, NYSCA, a nonprofit New York corporation, established a peer review committee in 1971.
The peer review committee, comprised of ten New York chiropractors, was intended primarily to aid insurers in evaluating claims for chiropractic services. Under the procedures it eventually adopted, the committee renders an opinion on the reasonableness of a chiropractor's treatment and charges in a given case at the request of the insurer; the assessment of the treatment is based on information concerning the patient supplied by the insurance carrier and the treating chiropractor, while the assessment of fees takes into account a variety of factors, including the amount and type of care provided, the condition and history of the patient, and the location and training of the treating chiropractor. Opinions of the committee are not binding unless the parties agree beforehand that they will be. Although the committee's review procedure is used primarily by insurers, it is also available to patients, governmental agencies, and chiropractors themselves. In addition to reviewing claims, the committee serves to some extent as a monitor of professional ethics and as a public relations organ.
ULL, a Maryland insurer doing business in New York, has been using the committee's claims review procedure since January 1973. ULL issues several types of policies that cover chiropractic services, all or most of which contain some sort of "reasonableness" limitation on the coverage provided. For example, its "major medical" and "basic" health care policies limit coverage to "reasonable charges for necessary medical care and services," and its "supplemental accident expenses" plan limits coverage to charges "not in excess of the regular and customary charges for the services and treatment furnished." When ULL determines that a particular claim is substantially above past chiropractic claims it has received for similar services, it refers the matter to the committee for review in accordance with the procedures described above. Although ULL apparently has never entered into an agreement with a claimant whereby it would accept the committee's determination as binding, plaintiff contends that ULL undeviatingly abides by such determinations.
Pireno has been the subject of peer review proceedings on a number of occasions.*fn1 The defendants assert that Pireno treats his patients in a manner calculated to maximize the number of treatments for a particular condition, and that his fees for these treatments are unusually high. For his part, Pireno contends that the committee members, who are not named as defendants in this action, practice "antiquated" techniques that they seek to impose on their more innovative competitors. The dispute between Pireno and NYSCA culminated in the filing of the present lawsuit by Pireno in September 1976.*fn2
In his complaint, Pireno alleged that ULL, NYSCA, and other unidentified persons had combined to restrain trade in chiropractic services in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1976). Specifically, Pireno alleged that NYSCA and ULL conspired to employ the peer review committee and its claims review procedure as a means of fixing prices for chiropractic services. Plaintiff sought declaratory and injunctive relief against the alleged conspiracy. In addition, he asserted that NYSCA had libeled him by sending copies of the committee's opinion letters concerning his charges and methods of practice to his patients.*fn3 He sought $1 million in damages for the alleged defamations.
After extensive discovery, NYSCA and ULL moved for summary judgment dismissing the complaint. The motions were granted on the ground that the defendants' actions were exempt from the antitrust laws by virtue of § 2(b) of the McCarran-Ferguson Act. While recognizing that the Supreme Court's decision in Royal Drug, supra, had narrowed the § 2(b) exemption for the "business of insurance" to such core insurance functions as the underwriting and spreading of risk, the district court held that the defendants used the peer review procedure for underwriting and risk-spreading purposes, and that the procedure therefore constituted the "business of insurance." In addition, the court held that the procedure was sufficiently regulated by state law to come within the § 2(b) exemption, and that Pireno had failed to produce sufficient evidence that the procedure entailed a "boycott, coercion or intimidation" subject to the antitrust laws under § 3(b) of the McCarran-Ferguson Act, 15 U.S.C. § 1013(b). Finding the defendants' antitrust immunity therefore complete, the court dismissed Pireno's Sherman Act claim, and declined to retain jurisdiction over his state law libel claim.*fn4
On appeal, Pireno contends that the defendants' use of the peer review procedure is not entitled to antitrust immunity, arguing principally that peer review is not the "business of insurance" within the Supreme Court's interpretation of that phrase in Royal Drug, supra. We agree, and we reverse the order of the district court and remand the action for further proceedings.*fn5
A. McCarran-Ferguson and Royal Drug
Enacted in response to the Supreme Court's decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), which overturned settled precedent by holding that the writing of insurance was "commerce" subject to federal regulation under the Commerce Clause of the Constitution,*fn6 the McCarran-Ferguson Act expresses a strong federal policy favoring state regulation of the insurance industry. In § 1 of the Act, Congress declared "that the continued regulation and taxation by the ...