2 At the turn of the century, at least two common forms of third-party payment for medicine bore striking similarity to modern HMOs. The first form is contract practice, in which corporations employed physicians to meet the medical needs of employees. See JAMES G. BURROW, ORGANIZED MEDICINE IN THE PROGRESSIVE ERA 119-20 (1977); JOHN S. HALLER, JR., AMERICAN MEDICINE IN TRANSITION, 1840-1910, at 245-47 (1981). The second form is corporate practice, in which for-profit corporations employing physicians marketed medical services to the public. See PAUL STARR, THE SOCIAL TRANSFORMATION OF AMERICAN MEDICINE 204 (1982). In addition to being structured similarly to modern HMOs, these arrangements frequently employed cost-control mechanisms similar to those employed by HMOs, including second opinions before surgery, review of hospital length of stay, and refusal to pay for services deemed unnecessary. See id. at 205.

3 See HEALTH INSURANCE ASSOCIATION OF AMERICA, SOURCE BOOK OF HEALTH INSURANCE DATA 19-20 (1991) [hereinafter HIAA SOURCE BOOK] ([HMO] enrollment increased from less than two million in the early 1970s to almost 34 million by June 1990. (citing 1990 Study by The InterStudy Edge)). A subsequent study by The InterStudy Competitive Edge (the group changed its name) reports total HMO enrollment of more than 42 million as of July 1993. See THE INTERSTUDY COMPETITIVE EDGE, 3 BIANNUAL REPORT OF THE MANAGED HEALTH CARE INDUSTRY no. 2, 1 (1994) [hereinafter 1994 INTERSTUDY REPORT]. By January 1, 1995, 562 HMOs served more than 46 million enrollees. See THE INTERSTUDY COMPETITIVE EDGE, 5.2 HMO INDUSTRY REPORT 1 (Nov. 1995) [hereinafter 1995 INTERSTUDY REPORT].

4 See Alain C. Enthoven, The History and Principles of Managed Competition, HEALTH AFF., Supp. 1993, at 25 (describing shortcomings of traditional health insurance, characterized by fee-for-service reimbursement, numerous solo practitioners, unlimited choice of provider, and remote third party payment).

5 See id. at 40 (describing existing health care system as an extremely wasteful and inefficient system that has been bathed in cost-increasing incentives for over fifty years); see also Jonathan E. Fielding & Thomas Rice, Can Managed Competition Solve the Problems of Market Failure?, HEALTH AFF., Supp. 1993, at 225 (concluding that increased, though not absolute, competition has potential to foster system-wide efficiency in health care market).

6 See Paul M. Ellwood et al., Health Maintenance Strategy, 9 MED. CARE 291, 291 (1971) (noting that health policy advocates called for wider utilization of HMOs as solution to growing problems of health care cost and access); Enthoven, supra note 4, at 27-28 (stating that in 1973, efforts of many health policy advocates paid off when Congress adopted Health Maintenance Organization Act of 1973).

7 42 U.S.C. '' 300e to 300e-17 (1994).

8 The Health Maintenance Organization Act of 1973 requires that all employers of 25 or more employees include HMO enrollment as an option in any employer-sponsored health benefit plan. See id. ' 300e-9. In addition, The Act places minimum coverage and operating requirements on HMOs. See id. '' 300e to 300e-1.

9 See PROSPECTIVE PAYMENT ASSESSMENT COMM'N, MEDICARE AND THE AMERICAN HEALTH CARE SYSTEM: REPORT TO THE CONGRESS 23 (1995) (stating that in 1988, 73% of individuals insured by private health insurance had traditional indemnity coverage, and 27% were covered by HMOs and other forms of managed care). By 1993, indemnity insurance accounted for only 33% of the private health insurance market, with HMOs and other forms of managed care claiming 65% of the market. See id. Hybrid plans, such as Point of service plans, which combine gatekeeper or network functions of HMOs with partial coverage of out-of-network services, accounted for the remaining portion of the market. See id. This trend was largely a response to demands by employers and employees to curb soaring health insurance premiums. See id.

10 See Robert E. Bloch & Donald M. Falk, Antitrust, Competition and Health Care Reform, 13 HEALTH AFF., Spring (I) 1994, at 206, 207-08 (observing that bringing large groups of consumers and providers together under managed care will introduce substantial market efficiencies, but will pose equally substantial antitrust risks). Two potential anticompetitive consequences of managed care include: (1) alliances of health care providers will have substantial market power, see id. at 209; and (2) large health plans will have the potential to foreclose competition from rivals, see id. at 212.

11 Although there are many definitions of optimum efficiency, common ideas embodied in most definitions include: (1) numerous sellers and consumers; (2) homogenous products and services; (3) readily available information about quality and price; (4) ease of entry into the market for sellers; (5) consumer ability to change among like products or services; and (6) low transaction costs, or externalities. See Michael S. Jacobs, Market Power Through Imperfect Information: The Staggering Implications of Eastman Kodak Co. v. Image Technical Services and a Modest Proposal for Limiting Them, 52 MD. L. REV. 336, 345 (1993) (citing HERBERT HOVENKAMP, ECONOMICS AND FEDERAL ANTITRUST LAW 1-2 (1985); GEORGE J. STIGLER, THE THEORY OF PRICE 87 (3d ed. 1966)); Fielding & Rice, supra note 5, at 216-17 (citing J.M. HENDERSON & R.E. QUANDT, MICROECONOMIC THEORY: A MATHEMATICAL APPROACH (1971)).

12 See Rick Loomis, Will Giant HMOs Help Health Care?, L.A. TIMES, Apr. 10, 1995, at D1 (questioning whether pending HMO merger resulting in 4.4 million members, $5.4 billion in revenues, and gains for executives of more than 10,000% on company shares will work to detriment or benefit of consumers, competition, and cost).

13 See MARK A. HALL & IRA MARK ELLMAN, HEALTH CARE LAW AND ETHICS 186 (1990) (noting that, until 1980s, antitrust suits rarely were seen in health care industry). Antitrust litigation now is among the most rapidly growing areas of health care law. See id.

14 See Jon Christianson, Can HMOs Contain Workers' Compensation Medical Care Costs?, in REVIEW, REGULATE OR REFORM? WHAT WORKS TO CONTROL WORKERS' COMPENSATION MEDICAL COSTS 146, 153-54 (Workers' Compensation Res. Inst., Thomas W. Granneman ed., 1994) (noting that from 1988 to 1993, HMO premiums increased at average annual rate of two percent to five percent less than premiums for traditional indemnity insurance or PPO plans despite offering richer benefits, less consumer cost sharing, and no pre-existing condition exclusions). Although some studies suggest HMOs will effect only a temporary reduction in health care inflation, others have shown HMO premium increases as much as 40% below those of standard indemnity plans. See id.; see also Barbara Sande Dimmitt, Managed Care Has Become the Dominant Mode of Health Care Delivery in the United States, and Providers Must Deliver Not Only on Price, But Also on Value, Quality, and Performance, BUS. & HEALTH, Jan. 1995, at 24 (noting that consumer demand continues to force health care industry to restructure itself to meet imperatives of managed care); cf. Health Maintenance Organization Act of 1973, Pub. L. No. 93-222, 87 Stat. 914 (1973) (codified as amended at 42 U.S.C. '' 300e to 300e-17 (1994)) (requiring employers of 25 or more employees to offer HMO coverage option to employees).

15 HMOs can be divided into five categories depending on the kind of arrangements under which they contract with providers. See Christianson, supra note 14, at 148. These arrangements include: (1) the staff model HMO, which delivers care through physicians who are employees of the HMO; (2) the group model, which contracts with a single multispecialty group of providers to deliver services; (3) the network model, which contracts with multiple groups of physicians, as well as individual physicians; (4) the independent practice association, or AIPA, which contracts directly with individual physicians or physician associations; and (5) the mixed model, which contains elements of the other models. See id.

16 See id. at 149. The three strategies HMOs use to reduce costs include: (1) reducing health care utilization by enrollees relative to usage by enrollees in fee-for-service plans; (2) negotiating with contracting providers to pay less for services than fee-for-service plans would pay; and (3) enrolling relatively healthy people who have need for fewer services. Id.

17 HMOs negotiate with diversely structured groups of health providers over price and terms of membership on HMO panels. See U.S. DEPARTMENT OF JUSTICE & FEDERAL TRADE COMMISSION, 1996 STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN HEALTH CARE, 4 Trade Reg. Rep. (CCH) & 13,153, at 20,826-35 [hereinafter DOJ & FTC, ENFORCEMENT POLICY]. These groups are divided into two basic categories for purposes of antitrust review: (1) those involving horizontal agreements between or among competitors; and (2) those involving vertical agreements between or among parties that are not competitors. See id. at 20,828. Each type of group has a different competitive impact and is viewed by enforcers under varying levels of scrutiny. See id.

18 See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 591 (1st Cir. 1993) (stating that HMOs negotiate lower payment rates with health providers who, in turn, become members of plan's panel and receive higher patient volume).

19 See David R. Olmos & Michael A. Hiltzik, Doctors' Authority, Pay Dwindle Under HMOs, L.A. TIMES, Aug. 29, 1995, at A1 (describing extreme pressure on doctors to join managed care networks to maintain needed patient base, and loss of autonomy once in network).

20 See infra notes 21-22 and accompanying text (comparing rise in HMO-related antitrust litigation to rise in nationwide HMO enrollment).

21 A LEXIS search of federal cases reveals that HMOs were involved in 50 cases brought to trial in federal courts involving antitrust claims under the Sherman or Clayton Acts from January 1, 1970 to January 1, 1994. For the 30-month period from January 1, 1994 to July 1, 1996, the search revealed 12 cases, or a six-year average of approximately 50 cases. The search was performed in five six-year increments and yielded the following results:

January 1, 1970 to January 1, 1976 No cases

January 1, 1976 to January 1, 1982 9 cases

January 1, 1982 to January 1, 1988 13 cases

(a 45% increase)

January 1, 1988 to January 1, 1994 28 cases

(a 115% increase)

January 1, 1994 to July 1, 1996 50 cases

(six-year average) (an 80% increase).

Search of LEXIS, Genfed Library, Courts File (search criteria: antitrust and (health maintenance organization or HMO) and (Sherman or Clayton)).

22 Enrollment in HMOs and other types of managed care as a percentage of overall private insurance coverage increased from approximately 27% in 1988 to 65% in 1993. See PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 9, at 23. Overall enrollment in managed care increased 2200% between 1970 and 1995. See supra note 3 (citing studies plotting HMO enrollment from early 1970s to January 1995). HMO enrollment increased at an annual rate of 9.2% from January 1, 1994, to January 1, 1995. See 1995 INTERSTUDY REPORT, supra note 3, at 1.

23 See Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1411-13 (7th Cir. 1995) (finding HMO not liable for monopolization because of lack of market power within relevant product market), cert. denied, 116 S. Ct. 1288 (1996); U.S. Healthcare, 986 F.2d at 597-99 (finding that HMO lacked sufficient market power within relevant product market to form monopoly).

24 See Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101, 1109-11 (1st Cir. 1989) (holding insurer not liable in suit brought by HMO under Sherman Act ' 2 for setting maximum insurance reimbursement at no greater than payment by competing HMO).

25 See Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335-36 (7th Cir. 1986) (holding that formation of preferred provider organization (APPO) by large insurer did not violate Sherman Act ' 2 in suit brought by hospital because, inter alia, ease of entry for competing HMOs prevented attainment of market power); Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922, 927, 933 (1st Cir. 1984) (stating that despite market power, insurer's prohibition of balance billing by participating physicians does not violate Sherman Act ' 2 unless payments fall so low as to constitute predatory pricing).

26 See Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., No. 95-1698, 1996 U.S. Dist. LEXIS 6480, at *16-22 (E.D. Pa. May 13, 1996) (denying motion for summary judgment by defendant HMO, U.S. Healthcare, and holding that plaintiff HMO, Brokerage Concepts, presented legally sufficient evidentiary basis for a reasonable jury to find that U.S. Healthcare implemented tying arrangement to obtain enrollees).

27 See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 31-32 (1984) (holding hospital not liable for tying arrangement in violation of Sherman Act '' 1 and 2 after hospital awarded exclusive contract for anesthesiology services to group practice). A tying arrangement occurs when a supplier uses market power over one product to attain power or to otherwise manipulate competition over another product. See id. at 12-13 (citing Fortner Enters. v. United States Steel Corp., 394 U.S. 495, 512-14 (1969) (White, J., dissenting)). Such an arrangement exists when the practice in question link[s] two distinct markets for products that were distinguishable in the eyes of buyers. Id. at 19 (citing Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 600 (1953)).

28 See Weiss v. York Hosp., 745 F.2d 786, 815 (3d Cir. 1984) (holding physician members of hospital medical staff liable for Sherman Act ' 1 group boycott after they denied peer medical staff privileges at hospital, but finding medical staff incapable of conspiring with hospital). But see Bolt v. Halifax Hosp. Med. Ctr., 851 F.2d 1273, 1280 (11th Cir. 1988) (holding that hospital and medical staff are legally capable of conspiring in Sherman Act ' 1 violation). Although the courts in Weiss and Bolt based their analyses primarily on Sherman Act section 1, group boycotts also are prohibited by section 3 of the Clayton Act. See 15 U.S.C. ' 14 (1994).

29 See Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 965-66 (10th Cir. 1990) (finding insurer liable for horizontal group boycott in violation of Sherman Act ' 1 under rule of reason when it threatened to terminate contract of hospital recently acquired by competitor and lowered reimbursement of other providers doing business with competitor). But see U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 592-93 (1st Cir. 1993) (finding HMO not liable for horizontal group boycott under per se analysis when it offered higher reimbursement to physicians for agreeing not to provide services to any other HMOs).

30 See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 458-66 (1986) (holding that group of dentists violated Sherman Act ' 1 when it concertedly refused to provide x-rays to insurers). The Court in Indiana Federation of Dentists struggled with the question of whether the case fit into the group boycott pigeonhole, id. at 458, or whether it was a price-fixing case. See id. at 459-61. The Court, however, was interested more in avoiding application of a strict per se test than in finding a perfect label for the case. See id. at 458-59. Ultimately, the Court found that it was not a matter of any great difficulty to apply a rule of reason balancing test to the facts of the case. Id. at 459. The Court thereby engaged in an early application of what now is known as the quick look test for determining violations of Sherman Act section 1. See U.S. Healthcare, 986 F.2d at 594 (citing Indiana Fed'n of Dentists as early example of quick look formulation).

Another line of cases involves suits brought by the FTC against the American Medical Association (AAMA) for its attempts to suppress the growth of HMOs and against other health care financing arrangements that restrict choice of provider or promote fee discounts. See BARRY R. FURROW ET AL., HEALTH LAW: CASES, MATERIALS AND PROBLEMS 868-69 (2d ed. 1991); see also AMA v. United States, 317 U.S. 519, 526 (1943) (holding that AMA violated Sherman Act ' 3, which applies Sherman Act ' 1 to District of Columbia, when it prevented physicians from accepting employment with or consulting for staff-model HMO); AMA v. FTC, 638 F.2d 443, 450 (2d Cir. 1980) (holding AMA liable for violation of ' 5 of Federal Trade Commission Act, 15 U.S.C. ' 45(a)(1) (1994), when it adopted ethical guidelines discouraging participation in managed care arrangements), aff'd by an equally divided court, 455 U.S. 676 (1982).

31 See Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 342-57 (1982) (holding doctor-initiated PPO liable for per se offense of price fixing under Sherman Act ' 1, after physician members of PPO comprising 70% of all those practicing in county, set maximum reimbursement rates); Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1415-16 (7th Cir. 1995) (finding HMO liable for per se offense of market division and price fixing in violation of Sherman Act ' 1), cert. denied, 116 S. Ct. 1288 (1996); cf. DOJ & FTC, ENFORCEMENT POLICY, supra note 17, at 20,826 (announcing antitrust enforcement policies relating to collaborative efforts among providers).

32 See Coffey v. Healthtrust, Inc., 955 F.2d 1388, 1392-93 (10th Cir. 1992) (holding that there was no group boycott in violation of ' 1 of Sherman Act when partnership of radiologists was excluded from exclusive contract to provide services for hospital). Exclusion of the partnership followed closely on the heels of the partnership's expansion of services to include services formerly available only to inpatients at the Healthtrust-owned hospital. See id. at 1390. The reason for the partnership's expansion of services was to attract HMO and PPO clients. See id.

33 Price fixing and market division generally are held to be illegal per se under Sherman Act section 1. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218 (1940). This rule obviates the need for a plaintiff to show that a defendant possessed market power and eliminates defenses based on reasonableness. See id. at 218. Courts, however, frequently engage in a balancing inquiry to determine whether a certain action can be properly characterized as price fixing. See HALL & ELLMAN, supra note 13, at 212-13 (describing weaknesses of Maricopa County holding). The Court in Maricopa County held a price fixing agreement to be illegal as a matter of law when prices charged by a physician group were set by members of the group. See id. On remand, however, the district court held that the arrangement was no longer a price-fixing agreement worthy of per se prohibition when consumers were placed on the price-setting committee. See id.

34 See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26, 29 (1984) (requiring showing of market power for per se liability to attach under Clayton Act ' 3 for tying arrangement, and finding insufficient evidence of market power); Reazin, 899 F.2d at 965-66 (applying rule of reason and market power assessment to find insurer liable for horizontal group boycott in violation of Sherman Act ' 1 when insurer terminated contract of hospital recently acquired by competitor and discouraged other health service providers from doing business with competing insurers as condition of reimbursement); Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101, 1109-11 (1st Cir. 1989) (holding insurer not liable in suit brought by HMO under Sherman Act ' 2 for setting maximum insurance reimbursement at no greater than payment by competing HMO, despite existence of market power); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc. 784 F.2d 1325, 1330, 1334-35 (7th Cir. 1986) (requiring market power for violation of Sherman Act ' 2, but finding that defendant lacked market power in medical insurance when market share was 27% of patients in Indiana); Kartell v. Blue Shield of Mass., 749 F.2d 922, 924 (1st Cir. 1984) (finding no violation by insurer of Sherman Act ' 2 for setting maximum reimbursement amount, despite 74% market share). But see Marshfield, 65 F.3d at 1415-16 (finding HMO liable for market division and price fixing in violation of Sherman Act ' 1 under per se analysis, without market power analysis).

35 William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 HARV. L. REV. 937, 937 (1981).

36 See Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust, 90 COLUM. L. REV. 1805, 1806-07 (1990) (asserting that definition of relevant product market is crucial to antitrust analysis because determination of liability rests on whether firm has power to raise price above competitive levels without losing customers to competitors operating in same market).

37 See Landes & Posner, supra note 35, at 938 (stating that first step in proving market power is defining relevant product and geographic market).

38 See FURROW ET AL., supra note 30, at 787-88 ("The concept of market power is critical to most [Sherman Act] Section 1 and all Section 2 claims.).

39 Traditional indemnity health insurance differs substantially from managed care. Indemnity plans reimburse (or indemnify) the patient for money spent to receive covered health care services up to a specified dollar threshold. See HIAA SOURCE BOOK, supra note 3, at 1-2. Coverage under traditional indemnity plans typically extends to accidents and illnesses; preventive health care is not emphasized. See id. at 2 (describing coverage under early indemnity plans as extending to common accidents and illnesses and later expanding to include extended illnesses or long hospital stays, but not including preventive health care).

40 The PPO is a form of managed care that combines elements of HMO and traditional indemnity coverage. See HIAA SOURCE BOOK, supra note 3, at 20. It offers more flexibility than an HMO by giving consumers greater freedom to choose providers, while achieving some savings by directing patients to a network of providers. See id. Under a PPO arrangement, an insurer contracts with a panel of providers who provide medical services and agree to be paid according to a negotiated rate. See id. Enrollees typically are allowed to receive care from providers who are not members of the network; however, there is a financial penalty associated with such care. See id. PPOs frequently do not exercise the same level of control over health care utilization as HMOs. See AMERICAN MANAGED CARE REVIEW ASSOCIATION, 1994-1995 MANAGED HEALTH CARE OVERVIEW 6 (1995).

41 See generally Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1411 (7th Cir. 1995) (overturning jury verdict and stating that [w]e thus do not believe that a reasonable jury . . . could find that HMOs constitute a separate market from other health care financing products), cert. denied, 116 S. Ct. 1288 (1996); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 599 (1st Cir. 1993) (upholding lower court ruling that Health care financing is the product market); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins. Co., 784 F.2d 1325, 1329 (7th Cir. 1986) (considering HMOs to be method of Health care financing and stating that the HMO Is both a method of joining physicians in a firm . . . and financing their service by selling memberships for stated monthly prices). But see Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., No. 95-1698, 1996 U.S. Dist. LEXIS 6480, at *18-*19 (E.D. Pa. May 14, 1996) (holding that relevant product market includes all members of single HMO with prescription drug benefits (citing Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 482 (1992))).

42 See U.S. Healthcare, 986 F.2d at 599 ([P]lainly, Healthsource has no monopoly or anything close to it, given the number of other providers in New Hampshire, such as insurers, staff HMOs, Blue Cross/Blue Shield and individual doctors.); cf. Marshfield, 65 F.3d at 1409 (stating that defendant HMO did not monopolize HMO services because HMOs are not a market).

43 See Joseph Gregory Sidak, Debunking Predatory Innovation, 83 COLUM. L. REV. 1121, 1121-22 (1983) (contending that legal rule governing antitrust liability in innovative industries is inherently difficult to articulate because it must balance public policies encouraging competition and innovation with those discouraging monopolistic behavior).

44 See supra notes 1-20 and accompanying text (explaining rise of HMOs as alternative health care financing product over past 25 years and describing innovative techniques employed by HMOs to effect change in price and quality of health care).

45 504 U.S. 451 (1992).

46 466 U.S. 2 (1984).

47 15 U.S.C. '' 1-7 (1994). Although the Act has been amended repeatedly since its adoption, its two primary provisions, sections 1 and 2, remain substantially intact. Compare 26 Stat. 209 (1890) (providing original language of Sherman Act), with 15 U.S.C. '' 1-2 (providing current language of Sherman Act).

48 15 U.S.C. '' 12-27.

49 See id. ' 2. Specifically, section 2 states: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony . . . . Id.

50 See id. ' 1. Specifically, section 1 states:

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. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony . . . .

Id.

51 See id. (making combined activities of individual firms in restraint of trade a felony); id. ' 2 (making monopolization of trade a felony).

52 See id. '' 13-19. Enumerated practices made illegal by the Clayton Act are: (1) price discrimination, see id. ' 13(a); (2) tying and exclusive dealing contracts, see id. ' 14; (3) acquisition of competitors, see id. ' 18; and (4) sharing of board members among competing firms, see id. ' 19.

53 See ERNEST GELLHORN & WILLIAM E. KOVACIC, ANTITRUST LAW AND ECONOMICS 29 (4th ed. 1994).

54 See 15 U.S.C. ' 15 ([A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . .).

55 See id. ' 4 (charging U.S. Attorney General with responsibility for enforcement of provisions of Sherman Act).

56 See GELLHORN & KOVACIC, supra note 53, at 29.

57 15 U.S.C. '' 41-58. Section 5 of the FTC Act, declares unlawful unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce. 15 U.S.C. ' 45. The Court conferred jurisdiction on the FTC to enforce the Sherman Act by holding that Unfair methods of competition include violations of the Sherman Act. See FTC v. Cement Inst., 333 U.S. 683 (1948).

58 See United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945) (evaluating monopoly action brought against ALCOA under Sherman Act). Judge Learned Hand observed: Many people believe that possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone. Id. at 427.

Judge Hand acknowledged conversely that [a] single producer may be the survivor out of a group of active competitors, merely by virtue of his superior skill, foresight and industry. . . . [Such a] successful competitor, having been urged to compete, must not be turned upon when he wins. Id. at 430.

59 Chief Justice Hughes wrote for the Court that [a]s a charter of freedom, the [Sherman] Act has a generality and adaptability comparable to that found to be desirable in constitutional provisions. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 359-60 (1933).

60 See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 386 (1956) (noting that judicial construction of antitrust legislation generally has been left unchanged by Congress).

61 See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593 (noting that plaintiff can prevail under same facts in antitrust action by establishing claim under any one of several rubrics).

62 See du Pont, 351 U.S. at 386-87 (declaring that there is no inconsistency between Court's standard requiring examination of particular circumstances and judicial theory making some agreements and practices invalid per se).

63 See 15 U.S.C. ' 2 (1994) (making monopolization of trade a felony).

64 See Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 481 (1992) (enumerating prerequisites to ' 2 violation).

65 The market share proxy is the traditional test employed by courts to determine whether a defendant has market power. See Jacobs, supra note 11, at 342 & n.26 (noting that market share has been used as proxy for market power since Judge Learned Hand's seminal decision in United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945)). Under the test, a court considers the percent of market share a defendant holds. See id. at 424. If the defendant holds a dominant share of the product market, the court likely will find that it has market power; if the defendant holds an insubstantial share of the market, the court likely will hold that it does not have market power. See id.

66 See HERBERT HOVENKAMP, ECONOMICS AND FEDERAL ANTITRUST LAW ' 6.5, at 168 n.2 (student ed. 1985). Compare Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc. 784 F.2d 1325, 1335 (7th Cir. 1986) (affirming lower court's finding that defendant lacked market power in medical insurance when market share was 27% of patients in Indiana, new firms could enter market easily, existing firms could expand sales quickly, and there were no barriers to entry), with Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 969-70 (10th Cir. 1990) (finding defendant had market power in medical insurance, because barrier to entry by competitors was evidenced by 62% market share of patients in Kansas).

67 See Kodak, 504 U.S. at 482-83 (describing second element of ' 2 claim as willful acquisition or maintenance of monopoly power).

68 United States v. Grinnell Corp., 384 U.S. 563, 570-71, 576 (1966) (holding firm liable for ' 2 offense when it acquired 87% of nation's centralized home protection service market through market allocation, discriminatory pricing designed to eliminate competition, and acquisition of competitors).

69 See Berkey Photo, Inc. v. Eastman Kodak, Inc., 603 F.2d 263, 274 (2d Cir. 1979) (recounting elements of ' 2 offense in claim against Kodak for monopolization of film, color print paper, and camera markets (citing Grinnell, 384 U.S. at 570-71)); see also California Computer Prods. v. IBM, 613 F.2d 727, 735 (9th Cir. 1979) (holding that there are three elements to ' 2 antitrust claim: (1) possession of monopoly power; (2) willful acquisition or maintenance of power; and (3) causally related antitrust injury).

70 See Berkey Photo, 603 F.2d at 272.

71 See id. at 272-74.

72 See California Computer Prods., 613 F.2d at 736 (recounting elements of attempted monopolization in claim against IBM for redesigning its computer products to make them incompatible with peripherals manufactured by competitors (citing Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 626 (1953)).

73 The court in California Computer Prods. added a fourth element, causal antitrust injury, to the analysis. See California Computer Prods., 613 F.2d at 736. This element, however, is not relevant to the subject of this Comment and therefore is not discussed.

74 See id. at 737 (holding direct evidence Not always necessary when claim is based on Sherman Act ' 1 violation).

75 See id. (noting that predatory or anticompetitive conduct element encompasses more than violations of ' 1).

76 See id.

77 See id.

78 See id.

79 See FURROW ET AL., supra note 30, at 786 (observing that all contracts between buyers and sellers limit availability of goods to other buyers).

80 See id.

81 The rule of reason is applied by courts in evaluating most group boycotts and tying arrangements alleged under section 1. See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593 & n.2 (1st Cir. 1993) (noting that tying typically is scrutinized under rule of reason, and that group boycotts are viewed under rule of reason unless they involve secondary boycotts). This test balances the efficiencies of concentration against the anticompetitive effects of a contract or combination. See HALL & ELLMAN, supra note 13, at 192-93 (citing Board of Trade of Chicago v. United States, 246 U.S. 231, 238-41 (1918)). Justice Brandeis first articulated the rule of reason in his oft-quoted passage in Board of Trade of Chicago:

The true test of legality is whether the restraint imposed is such as merely regulates and perhaps promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business . . . ; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable.

Id. at 238. The rule of reason today remains substantially the same, applying a multifactored analysis to alleged antitrust offenses. See FURROW ET AL., supra note 30, at 786 (noting that courts conduct broader examination of competitive factors under rule of reason and citing Board of Trade of Chicago as classic articulation of test).

82 The quick look test is a relatively recent formulation under which courts consider procompetitive justifications for allegedly anticompetitive behavior before deciding whether to apply the per se label. See FURROW ET AL., supra note 30, at 787. Similarly, courts occasionally use the quick look justification to curtail proceedings under the Rule of reason after finding convincing proof that a specific behavior unreasonably restrains trade and is devoid of any legitimate justification. See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986) (holding that concerted refusal by dentists to provide insurer with x-rays for purpose of reviewing effectiveness of treatment was so clearly without quality of care or business benefit as to warrant finding of liability without reaching question of market definition or market power); see also U.S. Healthcare, 986 F.2d at 593 n.2 (interpreting Kodak as possible example of application of quasi per se or quick look test to tying arrangement).

83 The per se label is reserved for behavior so likely to have an anticompetitive effect that no exploration of its justification is warranted. See FURROW ET AL., supra note 30, at 786. Today, the only behaviors that qualify for per se illegality are: (1) price or output fixing agreements, see U.S. Healthcare, 986 F.2d at 593 & n.2 (noting that price or output fixing agreements are per se illegal, but that group boycotts can be viewed as per se illegal only if they involve secondary boycotts); (2) market division, see Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1416-17 (7th Cir. 1995) (upholding jury verdict finding defendant liable for market division), cert. denied, 116 S. Ct. 1288 (1996); and (3) horizontal, secondary group boycotts, see U.S. Healthcare, 986 F.2d at 593 (noting that per se approach is applied properly to horizontal arrangements between providers of health care if they involve secondary boycotts).

A secondary boycott occurs when competitors refuse to do business with a third party, such as a distributor or supplier, if it serves another competitor whom they seek to harm. See Fashion Originators' Guild of Am., Inc. v. FTC, 312 U.S. 457, 461-62 (1941) (describing arrangement whereby competing designers of clothing agreed not to sell to manufacturers or retailers who dealt with producers of design occupies). The rule of reason, however, is applied appropriately to vertical arrangements among apparent competitors operating at different levels of production. See Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212 (1959) (distinguishing boycott from situations in which there is exclusive dealership arrangement or refusal of single trader to deal with another).

84 See FURROW ET AL., supra note 30, at 786. Activities proscribed by section 1 include group boycotts, tying arrangements, price fixing, and market division. See U.S. Healthcare, 986 F.2d at 593 & n.2 (evaluating appropriateness of applying rule of reason, quick look, and per se test to determine whether various activities violate Sherman Act ' 1).

85 See FURROW ET AL., supra note 30, at 787 (stating that market power is crucial to most claims under Sherman Act ' 1).

86 See id. (stating that market power is essential to all claims under Sherman Act ' 2 and that courts traditionally use market share as proxy for market power).

87 See DOJ & FTC, ENFORCEMENT POLICY, supra note 17, at 20,799 (explaining that joint enforcement guidelines were introduced to guide health care providers through time of tremendous change, and to prevent any chilling effect the problem of uncertainty . . . [might have on] activities that could lower health care costs); Holman W. Jenkins, Jr., Business World: In Pursuit of Price-Fixing, WALL ST. J., Apr. 9, 1996, at A19 (in the medical business . . . trustbusters seem to favor a world in which mighty buyers are posed against small, cloutless sellers.).

88 See Enthoven, supra note 4, at 45-46 (describing resurgent popularity in 1992 of managed competition or Avalue for money competitionCas means to lower health care costs).

89 See Ron Winslow & Leslie Scism, Aetna Agrees to Acquire U.S. Healthcare; Pact for $8.9 Billion in Cash and Stock Will Create Leader in Managed Care, WALL ST. J., Apr. 2, 1996, at A2 (reporting that acquisition will result in creation of managed health care company serving 23 million people).

90 See DOJ & FTC, ENFORCEMENT POLICY, supra note 17, at 20,799 (observing that Health care markets have continued to evolve in response to consumer demand and competition in the marketplace).

91 See id. Although the DOJ & FTC guidelines do not directly address the activities of HMOs, Statement 9 of the Enforcement Policy establishes analytical Principles Relating to Multiprovider Networks. Id. at 20,826-35. This Statement establishes principles for review of arrangements that closely resemble and deal directly with HMOs, to be used to determine compliance with antitrust laws. See id. The Statement addresses: (1) issues associated with the formation of provider networks, see id. at 20,831; and (2) market definition, see id. at 20,828.

92 See David Burda, Docs Get Their Way: Under AMA Attack, Feds Back Off Antitrust Enforcement, MODERN HEALTHCARE, Jan. 8, 1996, at 40 (reporting that DOJ and FTC gave antitrust clearance to 19 of 23 business arrangements addressed since adoption of Joint Enforcement Policy). The FTC cleared nine of 13 deals among providers it reviewed, and the DOJ cleared all 10 of the deals it reviewed. See id. at 41; see also DOJ & FTC, ENFORCEMENT POLICY, supra note 17, at 20,827-31 (stressing agencies' intent to apply rule of reason to both horizontal and vertical arrangements among health providers).

93 See Brief of Amicus Curiae, States of Wisconsin, Arizona, Arkansas, Delaware, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Mexico, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Washington and West Virginia in Support of Petition for a Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit, Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995) [hereinafter Marshfield Brief of Amicus Curiae] (urging Court to grant certiorari to Seventh Circuit and to reverse decision weakening ability of attorneys general to prosecute under antitrust laws).

94 See Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., No. 95-1698, 1996 U.S. Dist. LEXIS 6480 (E.D. Pa. May 13, 1996) (rejecting defendant U.S. Healthcare's motion for judgment as matter of law and paving way for $1.2 million jury verdict in suit against HMO for tying arrangement); Leslie Scism, U.S. Healthcare Rival Is Awarded $1.2 Million in Antitrust Verdict, WALL ST. J., May 23, 1996, at B2 (reporting verdict for plaintiff in antitrust suit brought against U.S. Healthcare for tying arrangement).

95 504 U.S. 451 (1992).

96 See Jacobs, supra note 11, at 355-62 (describing Court's movement from traditional market share measurement to new form of market power assessment).

97 Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 486 (1992), aff'g 903 F.2d 612 (9th Cir. 1990), rev'g 1989-1 Trade Cas. (CCH) & 68,402 (N.D. Cal. 1988).

98 Image Technical Serv., Inc. v. Eastman Kodak Co., 903 F.2d 612, 616 n.3 (9th Cir. 1990) (noting that defendant Kodak had market share of 23% of high-volume copier market, 20% of micrographic equipment market, and less than 2% of plain-paper copier market), aff'd, 504 U.S. 451 (1992).

99 See Jacobs, supra note 11, at 342 n.27; see also Bloch & Falk, supra note 10, at 212 (noting that, under current case law, plan serving less than 30% of consumers in given market is not likely to pose threat of gaining and exercising market power).

100 See Jacobs, supra note 11, at 342 & n.26 (noting that market share has been used as proxy for market power since Judge Learned Hand's seminal decision in United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945)). The court in Aluminum Co. of Am. held that 90% market share constitutes market power, 60% to 64% likely does not, and less than 33% market share is insufficient to constitute market power. See id. at 424; cf. William E. Kovacic, Failed Expectations: The Troubled Past and Uncertain Future of the Sherman Act as a Tool for Deconcentration, 74 IOWA L. REV. 1105, 1112-20 (1989) (describing cyclical nature of this country's efforts to use the Sherman Act to achieve its deconcentration goals . . . when . . . litigation has entered a state of lasting repose). American jurisprudence has entered three discrete periods characterized by government initiatives to deconcentrate industry in the twentieth century: (1) 1904-1920, see id. at 1112-16; (2) 1937-1956, see id. at 1116-19; and (3) 1969-1982, see id. at 1119-20. Each period followed on the heels of government permissiveness toward the growth of large firms and events that served to discredit the benefits of large concentrations of economic power. See id. at 1120.

101 Kodak, 504 U.S. at 473.

102 See id. at 459 (stating that plaintiffs brought suit, in part, for illegal tying arrangement). Finding the existence of a tying arrangement, the Court sought to determine whether the arrangement could be characterized as illegal. See id. at 464. It thus examined whether Kodak had market power, or the power to force a purchaser to do something that he would not do in a competitive market.' Id. (quoting Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14 (1984)).

103 See id. at 470-71 (observing that increased revenues from supracompetitive pricing could more than offset lost revenues from decreased sales); see also Landes & Posner, supra note 35, at 937 (defining market power as the ability of a firm or group of firms, acting jointly to raise the price above competitive level without losing so many sales so rapidly that the price increase is unprofitable and must be rescinded).

104 See Kodak, 504 U.S. at 455.

105 See id. at 457.

106 See id.

107 See id.

108 See id.

109 See id. at 458 & n.2.

110 See id. at 458.

111 See id.

112 See id.

113 See id. at 459.

114 See id. at 464 (postulating that Kodak had more than sufficient power in the parts market to force unwanted purchases of the tied market, service).

115 See id. at 459.

116 Id. at 483.

117 See id. at 473 (noting that existence of significant information and switching costs are forceful reasons for finding market power in absence of high market share).

118 See id.

119 Id. Information necessary to arrive at an accurate lifecycle price includes data on price, quality and availability of products needed to operate, upgrade, or enhance the initial equipment, as well as service and repair costs, including estimates of breakdown frequency, nature of repairs, price of service and parts, length of `down-time' and losses incurred from down-time. Id.

120 See id. at 472.

121 See id. at 476.

122 See id. at 477.

123 Id. at 476.

124 See id. at 478.

125 See Jacobs, supra note 11, at 344-45 (stating that Court in Kodak rejected market share proxy in favor of market share analysis that examines market imperfections).

126 See Image Technical Serv., Inc. v. Eastman Kodak Co., 903 F.2d 612, 616 & n.3 (9th Cir. 1990) (acknowledging Kodak's lack of market power in interbrand equipment market and noting that competition in this market might prevent Kodak from possessing power in service and parts market), aff'd, 504 U.S. 451 (1992).

127 Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 272 (2d Cir. 1979).

128 See Jacobs, supra note 11, at 344-45 (noting that this analytical paradigm . . . can make small firms . . . `powerful' in the antitrust sense).

129 466 U.S. 2 (1984).

130 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27 (1984).

131 See id. at 7 (noting that only 30% of residents of Jefferson Parish go to defendant hospital and remaining 70% go to 20 other hospitals in relevant geographic area).

132 See id. at 8 (recounting appellate court finding that prevalence of health insurance eliminates patients' incentive to compare costs); see also id. at 27-28 (evaluating competitive effect of consumer indifference to price and concluding that such indifference alone will not force consumers to make purchases they otherwise would not make).

133 See id. at 8 (reviewing appellate court finding that patients are not sufficiently informed to compare quality); see also id. at 27-28 (stating that if consumers cannot evaluate the quality of . . . services, it follows that they are indifferent to the choice of such service providers). Further, when consumers are indifferent to the choice of service providers, the policy of a defendant cannot be said to have foreclosed a choice that otherwise would have been made `on the merits.' Id. at 28.

134 See id. at 27 (noting that prevalence of insurers as third-party payors for health care has led to consumer indifference to price).

135 See id. at 27 n.44.

136 See id. at 27 (holding that mere information deficiencies making consumers indifferent to price and quality are insufficient to confer market power in absence of any apparent restraints on consumer ability to choose anesthesiologist). The Court noted that, given the lack of incentive to compare costs among hospitals and the lack of information with which to compare quality, a consumer would have to be sophisticated to know the difference between two anesthesiologists. Id. at 30 & n.49. However, there was no evidence that any patient [with the requisite sophistication] was not also able to go to a hospital that would provide him with the anesthesiologist of his choice. Id. at 30.

137 See id. at 5.

138 See id.

139 See id. at 8 (reviewing appellate court analysis under which hospital's operating rooms were designated tying product, and hospital's chosen anesthesia service was designated as tied product).

140 See id. at 23 (noting that there was sufficient demand for purchase of anesthesiological services separate from hospital services and that other hospitals allowed such services to be purchased separately). The Court found that consumers differentiate between anesthesiological services, and that such services are not fungible, but differ slightly from provider to provider. See id.

141 See id. at 25.

142 See id. at 27.

143 See id. at 26-27.

144 See id. at 27 (noting that 70% of patients residing in Jefferson Parish enter hospitals other than East Jefferson, indicating that hospital's dominance is far from overwhelming).

145 Id. at 26-29.

146 See id. at 8 & n.8 (noting that court of appeals considered impact of East Jefferson's exclusive contract on patients, but not on anesthesiologists). An important question in evaluating the competitive impact of East Jefferson's behavior as a purchaser of anesthesiology services would be the extent to which excluded anesthesiologists could find other buyers for their services. See id. The Court in Jefferson Parish found scant evidence on this issue, but ultimately concluded that the presence of numerous hospitals with open policies made it likely that a patient with a preference could go to a hospital that would provide him with the anesthesiologist of his choice. Id. at 30.

147 See id. at 7-8 & nn.7-8 (considering impact of East Jefferson's contract on patients' ability to obtain anesthesiology services of their choice from sources other than East Jefferson).

148 High supply elasticity means that there are low barriers for firms producing similar goods to increase production in response to an increase in price by a competitor. See Landes & Posner, supra note 35, at 945-51 (describing supply elasticity as function of ease with which competitors can enter market).

149 See Jefferson Parish, 466 U.S. at 8 & n.8 (noting that there are 156 anesthesiologists and 345 hospitals with operating rooms in Louisiana).

150 See Blue Cross & Blue Shield of Wis. United v. Marshfield Clinic, 65 F.3d 1406, 1410 (7th Cir. 1995) (noting that definition of market depends on substitutability on the supply side as well as on the demand side), cert. denied, 116 S. Ct. 1288 (1996). A firm can be a monopolist as a purchaser of health services when it forecloses entry into the market by competitors, thereby eliminating substitutability of supply. See id. at 1412; see also U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 598 (1st Cir. 1993) (stating that [o]ne can monopolize a product as either a seller or a buyer). A firm can be a monopolist as a buyer of health services when it controls a substantial portion of the consumers of health services. See id. This could be true of an HMO if it enrolled a substantial portion of the population in a given geographic area. See id.; see also Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1329 (7th Cir. 1986) (recognizing that some financing and insurance package[s] . . . [are] both a method of joining physicians in a firm and a method of financing their service by selling memberships for stated monthly prices).

151 See Jefferson Parish, 466 U.S. at 26 (noting that defendant hospital had only 30% market share); Image Technical Serv., Inc. v. Eastman Kodak Co., 903 F.2d 612, 616 n.3, 621 (9th Cir. 1990) (holding Kodak liable for non-competitive activities related to servicing of its copiers, although Kodak's overall share of plain-paper copier market was less than two percent), aff'd, 504 U.S. 451 (1992).

152 See Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 473 (1992) (noting that high cost of obtaining information about products is forceful reason for finding market power in absence of high market share).

153 See id. at 473 (noting that existence of significant . . . switching costs is forceful reason for finding market power, even without high market share).

154 See Jefferson Parish, 466 U.S. at 27 (noting that prevalence of insurers as third-party payors for health care reduces incentive to compare hospital costs and lack of adequate information to compare quality among hospitals allows hospitals to charge non-competitive prices). The Court held that, at least in an abstract sense, these factors, if coupled with restraints on consumer choice of provider, could give rise to antitrust liability even in the absence of substantial market share. See id.

155 See generally infra Part IV (analyzing imperfections in health care financing market).

156 See infra notes 252-59 and accompanying text (describing how exclusions on coverage of pre-existing conditions and adverse selection have reduced consumer options in purchase of health care financing products).

157 See Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1410 (7th Cir. 1995) (finding that HMOs belong to same product market as fee-for-service and PPO plans), cert. denied, 116 S. Ct. 1288 (1996); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 591 (1st Cir. 1993) (finding that HMOs belong to same product market as indemnity, PPO, Blue Cross/Blue Shield, Medicare and Medicaid plans).

158 See, e.g., Marshfield, 65 F.3d at 1410 ("The record shows, what is anyway well known, that individuals, and their employers, and medical insurers . . . regard HMOs as competitive not only with each other but also with the various types of fee-for-service providers.); U.S. Healthcare, 986 F.2d at 591 (upholding lower court ruling that HMOs exist in broadly defined health care financing market because they are viewed as interchangeable with fee-for-service arrangements, Blue Cross/Blue Shield Plans, Medicare, and Medicaid); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins. Inc., 784 F.2d 1325, 1332 (7th Cir. 1986) (noting that consumers will switch readily from one form of health care financing to another in response to price increase).

159 See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394 (1956) (calling for assessment of cross-elasticity of demand in determining relevant product market for cellophane); Landes & Posner, supra note 35, at 945 (describing elasticity of demand as function of consumer perception that goods are interchangeable). High elasticity of demand means that if an HMO raises its price, it will lose a large number of customers; low elasticity means that if an HMO raises its prices, it will lose few customers. See id.

160 See Ball Mem'l Hosp., 784 F.2d at 1330-32, 1335 (finding that defendant lacked market power in medical insurance where market share was 27% of patients in Indiana, new firms could enter market easily, existing firms could expand sales quickly, and there were no barriers to entry); see also Marshfield, 65 F.3d at 1410-11 ([T]he definition of a market depends on substitutability on the supply side as well as on the demand side.).

Both consumers and insurers view health financing products as interchangeable. See id. Thus, if the only HMO in a geographic market raises prices above the competitive level, the market will respond in two ways: (1) consumers will switch to other forms of health care financing that are competitively priced; and (2) producers will take advantage of the opportunity to gain customers by offering HMOs at a competitive price. See id.

161 High supply elasticity means that there are low barriers for firms producing similar goods to increase production in response to an increase in price by a competitor. See Landes & Posner, supra note 35, at 945-51 (describing supply elasticity as function of ease with which competitors can enter market).

162 See generally Marshfield, 65 F.3d at 1410 (7th Cir. 1995) (stating that "individuals, and their employers, and medical insurers . . . regard HMOs as competitive not only with each other but also with the various types of other health care financing products), cert. denied, 116 S. Ct. 1288 (1996); U.S. Healthcare, 986 F.2d at, 591 (noting that familiar alternatives to HMOs include fee-for-service arrangements, Blue Cross/Blue Shield plans, Medicare, and Medicaid); Ball Mem'l Hosp., 784 F.2d at 1332 (quoting lower court ruling that A`[c]onsumers are extremely price sensitive and will readily switch on the basis of price from one company or form of [health care] financing to another').

163 See Marshfield, 65 F.3d at 1413 (holding that even if HMO had 100% of HMO subscribers, its share of health care financing market was inadequate to support finding of market power); U.S. Healthcare, 986 F.2d at 597 (holding that sole supplier of HMO services had inadequate market share in health care financing market to support monopolization charge).

164 Cf. U.S. Healthcare, 986 F.2d at 598 (lamenting that [t]here is no subject in antitrust law more confusing than market definition).

165 Compare Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 956 (10th Cir.) (holding that defendant insurer possessed market power when all hospitals and approximately 90% of physicians in market were under contract with it), with Ball Mem'l Hosp., 784 F.2d at 1334, 1335, 1346 (holding that defendant insurer did not have market power when it insured 27% of patients in market). Prior to its decision in Kodak, the Supreme Court held that a hospital did not possess market power when it served 30% of the patients in its market area, and the remaining 70% of patients went elsewhere. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26-27 (1984); see also United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) (using term monopoly power synonymously with market power). Justice Reed, delivering the opinion of the Court in du Pont, observed:

If cellophane is the market that du Pont is found to dominate, it may be assumed it does have monopoly power over that market. Monopoly power is the power to control prices or exclude competition. . . . [For it] is inconceivable that price could be controlled without power over competition or vice versa.

Id. at 391-92 (footnote omitted).

166 See infra notes 252-92 and accompanying text (describing how increasing HMO enrollment, information deficiencies, adverse selection, and pre-existing condition exclusions could make poor substitutes of HMOs and other forms of health care financing).

167 See Marshfield, 65 F.3d at 1410 (listing factors physicians may consider in determining whether to associate with HMOs or other health insurance providers).

168 See infra notes 293-97 and accompanying text (discussing how physician preferences, ownership of HMOs, and exclusivity contracts could deplete supply of available physician-panelists for newly forming HMOs).

169 See THE INTERSTUDY COMPETITIVE EDGE, 5.2 REGIONAL MARKET ANALYSIS 23 (Nov. 1995) [hereinafter 1995 INTERSTUDY REGIONAL MARKET ANALYSIS] (reporting that most markets have at least one HMO with dominant market share of HMO enrollees). Nearly two-thirds of large markets, three-quarters of medium markets, and four-fifths of small markets have one dominant HMO. See id. A dominant HMO is defined as one that commands at least 33% of enrollment in the market. See id. at 20. Large markets are those with one million or more residents, medium markets have between 250,000 and one million residents, and small markets have less than 250,000 residents. See id. at 8.

170 See Marshfield, 65 F.3d at 1411 (finding HMO not liable for monopolization and defining HMO product market to include all forms of health care financing); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 597-99 (1st Cir. 1993) (finding HMO not liable for monopolization because of lack of market power within relevant product market).

171 See Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 965-66, 969 (10th Cir.) (finding that defendant possessed market power in medical insurance where barrier to entry by competitors was evidenced by 62% market share of patients in Kansas); Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101, 1109-11 (1st Cir. 1989) (holding that insurer policy of paying no more for physician services than payment by competing HMO did not violate Sherman Act ' 2, despite existence of market power, because insurer did not engage in predatory pricing); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1330, 1334, 1335, 1346 (7th Cir. 1986) (finding that defendant lacked market power in medical insurance although market share was 27% of patients in Indiana).

172 See supra notes 95-156 and accompanying text (describing how, under analysis of Kodak and Jefferson Parish, market imperfections can give rise to market power even without high market share); see also supra notes 157-68 and accompanying text (describing how health care market imperfections may cause HMO market to diverge from health care financing market under Kodak and Jefferson Parish analysis).

173 See U.S. Healthcare, Inc., 986 F.2d at 598 (acknowledging that U.S. Healthcare has at least some basis for asserting that HMOs constitute separate market from other health care service providers); see also Mary Chris Jaklevic, Court Amends Its Opinion in Marshfield Clinic Ruling, MODERN HEALTHCARE, Oct. 23, 1995, at 24 (reporting that 7th Circuit amended its original ruling in Marshfield to allow for possibility that HMOs could constitute discrete product market). The Seventh Circuit acceded to objections from the DOJ and FTC disputing the court's unqualified statements that HMOs cannot constitute a product market separate from other forms of health care financing. See id. The court qualified its position, acknowledging that the terms HMO and PPO "refer to a variety of different types of [plans], which may vary in respects crucial to antitrust liability. Marshfield, 65 F.3d at 1411. The court further emphasized that its ruling applied only to the factual record compiled by the district court. See id.

174 65 F.3d 1406 (7th Cir. 1995), cert. denied, 116 S. Ct. 1288 (1996); see also Blue Cross Granted Time to Go to Supreme Court, MILWAUKEE J. SENTINEL, Nov. 9, 1995, at Bus. 2 (reporting that 7th Circuit granted Blue Cross's request to postpone order for new trial on damages while Blue Cross petitioned Supreme Court for certiorari).

175 See David Burda, Lax Enforcement Paints Favorable Legal Outlook, MODERN HEALTHCARE, Jan. 1, 1996, at 49-50 (advising health care industry to [e]xpect more Marshfield-like antitrust litigation involving HMOs). Litigation is likely to be brought by private parties, such as insurers who are locked out of markets by dominant provider groups or by provider groups that are closed out of other markets by dominant insurers. Id. State enforcers also may elect to bring antitrust actions similar to those in Marshfield. See Marshfield Brief of Amicus Curiae, supra note 93, at 2; see also Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., No. 95-1698, 1996 U.S. Dist. LEXIS 6480, at *18-*19 (E.D. Pa. May 14, 1996) (rejecting defendant HMO's motion for judgment as matter of law and holding, under Kodak, that relevant product market was all members of single dominant HMO).

Urging the Court to grant certiorari to the 7th Circuit, attorneys general representing 26 states asserted that they were keenly disappointed that the 7th Circuit departed from Supreme Court antitrust precedent. See id. at 3. They argued further that as the primary public enforcers of the state antitrust laws, which are often required to be interpreted in conformity with federal law, they have a vital interest in maintaining antitrust law as applied to health care markets. Id. at 2-3.

176 See, e.g., William W. Price III, Will Giant HMOs Help Health Care? An Executive at Fountain Valley-Based FHP Says That There is Still Plenty of Room for Competition, and that Consumers Could Benefit, L.A. TIMES, Apr. 10, 1995, at D1 (describing HMO merger resulting in 4.4 million-member HMO); Winslow & Scism, supra note 89, at A2 (describing HMO acquisition resulting in managed health care company serving 23 million people).

177 See Marshfield, 65 F.3d at 1409, 1412 (finding that Security was not monopolist of HMO services). Under section 2 of the Sherman Act, monopolization of trade between states is a felony. See 15 U.S.C. ' 2 (1994).

178 See Marshfield, 65 F.3d at 1411 (ruling that no reasonable jury could have found that HMO constituted separate product market).

179 See id. (holding that plaintiff was unable to show that defendant had market share of 50% in product market and that 50% is below accepted benchmark for inferring monopoly power from market share). The court noted that Security did have a monopoly share of the HMO `market,' but we have held that that is not a proper market. Id. at 1413. Further, the court held that because the plaintiff did not prove monopoly power, it was unnecessary to consider the methods by which Security acquired or maintained it. See id.

180 See id. at 1410 (analyzing substitutability on the supply side as well as on the demand side in determining whether HMOs are definable as separate product market).

181 See id. ("The record shows, what is anyway well known, that individuals, and their employers, and medical insurers . . . regard HMOs as competitive not only with each other but also with the various types of fee-for-service provider.).

182 See id. at 1410, 1413 (stating that contracts between Security and its physician members did not forbid physicians from joining other HMOs). The court also noted its skepticism that Security's prohibition on Across coverage agreements between its physician members and non-members discouraged hospitals from joining HMOs that compete with Security. See id. at 1413. Such agreements enable one physician to care for another physician's patients while that physician is out of town. See id.

183 See id. at 1409 (noting that record did not disclose what percentage of total physician population 400 physicians employed by clinic comprised). The lower court record, however, disclosed that the Marshfield Clinic employed all of the physicians in the town of Marshfield, as well as several other towns. See id.

184 See id. at 1410 ("All that is needed [to create an HMO] is an array of physicians who among them provide a broad range of medical services, and the same thing is needed for a preferred-provider plan.). The court in Marshfield also noted that physicians participating in the Marshfield HMO were not under exclusive contract and could sell their services to other HMOs. See id. at 1409-10. The court concluded, therefore, that barriers to entry by new HMOs were low. See id. at 1410.

185 See id. at 1408 (noting that Marshfield Clinic was owned by its 400 physician-employees and that clinic owned Security HMO).

186 See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 592 (1st Cir. 1993) (describing HMO strategy of encouraging doctors to become shareholders in order to give them incentive to contain costs). But see Marshfield, 65 F.3d at 1411 (determining that physician members of Security derived insubstantial sums from their association with Security and Marshfield Clinic, and were not contractually restrained from competing with either entity).

187 See infra notes 252-59 and accompanying text (describing how insurance coverage exclusions for pre-existing conditions have caused widespread consumer lock-in and job-lock).

188 See infra notes 254-56 and accompanying text (describing severe limitation of coverage options placed on consumers with pre-existing conditions).

189 See Marshfield, 65 F.3d at 1411-12 (concluding that clinic's high prices and rate of return could reflect factors other than market power, such as variations in quality or in product itself). The clinic's ability to charge monopoly prices implies that Security also had such an ability. The court proclaimed, however, that there is not even a good economic theory that associates monopoly power with a high rate of return. Id.

This conclusion is contradicted by at least one study of HMO operating margins in small markets. See 1995 INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 35 (Nov. 1995) (examining effects of HMO competition on operating margins). The study found that HMOs serving small markets those with a population of less than 250,000Chave the lowest operating margins when there are at least two significant market shares. See id. at 8, 35. Security served a small market, but it held the only significant market share in that market. See Marshfield, 65 F.3d at 1409 (noting that AMarshfield is a town of only 20,000 people in a largely rural region). According to the study, if a competitor were to enter the Marshfield market, Security's rate of return likely would drop. It therefore is reasonable to assume that Security's high rate of return is a result of the absence of competition in the market, and not merely of product heterogeneity.

190 See Gellhorn & Kovacic, supra note 53, at 102-03 (describing analytical weakness known as cellophane fallacy, in which price differences merely indicate that imperfect competition has forced consumers to regard poor substitutes as interchangeable products). Commentators first detected this fallacy in United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956), the Supreme Court's seminal market definition case. The Court failed to consider whether high elasticity of demand among manufacturers of flexible wrapping materials meant only that du Pont, the exclusive manufacturer of cellophane, had already raised prices to monopolistic levels. See Gellhorn & Kovacic, supra note 53, at 102-03. The cellophane fallacy states that elasticity of demand is an accurate test of whether two products are good substitutes only if competitive prices are being charged for each. See id. The court in Marshfield assumed that HMOs and other forms of health care financing were good substitutes first, then concluded that any price difference was the result of differences in product or quality. See Marshfield, 65 F.3d at 410-12; see also United States v. Eastman Kodak Co., 63 F.3d 95, 105 (2d Cir. 1995) (describing government's contention that consumers' unwillingness to switch away from Kodak film following price increase indicates that Kodak was already pricing film at monopolistic levels).

191 See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 599 (1st Cir. 1993) (holding that issue in defining HMO product market is whether a sole supplier of HMO services . . . could raise price far enough over cost, and for a long enough period, to enjoy monopoly profits).

192 See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466 (1992) (holding that legal presumptions based on formalistic distinctions instead of market realities generally are disfavored in antitrust law). Rather than considering only market share, therefore, the Court will consider the responsiveness of sales of one product to the price changes of the other. Id. at 467 (quoting du Pont, 351 U.S. at 400).

193 See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26-29 (1984) (holding that Court will examine economic realities of market at issue).

194 See Marshfield, 65 F.3d at 1411-12 (indicating that factors must be viewed in context of circumstances surrounding market in question).

195 986 F.2d 589 (1st Cir. 1993).

196 See U.S. Healthcare, Inc., 986 F.2d at 591-93.

197 See id. at 591 (noting that Healthsource was structured as AIPA model HMO, contracting directly with independent physicians).

198 See id. at 592 (indicating that at least 400 physicians had become stockholders).

199 See id. (recounting origin and motivation behind exclusivity clause). Healthsource was planning a public offering of its stock and was aware that HMOs from nearby states were interested in moving into New Hampshire. See id. The main concern was that after Health-source went public, many of the doctor-owners would sell their stock in Healthsource and join multiple HMOs to increase their patient volume. See id. In response to this perceived threat, Healthsource offered a new contract option to its physicians, whereby they could receive a 14% increase in reimbursement if they agreed not to serve any other HMO. See id. Physicians were free under the agreement to serve patients in various non-HMO health care financing arrangements. See id. Ultimately, nearly 87% of Healthsource's physicians opted for exclusivity. See id. at 592.

200 See id.

201 See id. at 595 (concluding that application of rule of reason test was proper). The court considered reviewing the claim under the per se, quick look and rule of reason tests, but found the per se and quick look tests to be inappropriate. See id. at 593-95. It held that the per se test was not applicable to facts such as those presented in this case, but only to cases involving a secondary boycott, that is, cases in which competitors agree not to do business with suppliers that deal with competitors they wish to harm. See id. at 593 (noting that per se condemnation is not visited on every arrangement that might, as a matter of language, be called a group boycott). The court speculated further, saying: we doubt that the modern Supreme Court would use the boycott label to describe, or the rubric to condemn, a joint venture among competitors in which participation was allowed to some but not all. Id. The court thus compared the exclusivity contract to a vertical exclusivity arrangement among sellers at different levels of production, which is not strictly prohibited under antitrust law. See id. It stressed that horizontal arrangements among producers competing at the same level of production are prohibited. See id.

The court also concluded that the cases relied upon by the plaintiff were inapposite to give rise to use of the quick look test. See id. The court explained that the exclusivity clause was not so patently bad that even a brief glance at its impact, lack of business benefit and anticompetitive intent [would] suffice to condemn it. Id.

In applying the rule of reason, the court observed that [e]xclusive dealing arrangements . . . come in a variety of forms and serve a range of objectives. Id. at 595. These arrangements can serve benign purposes, such as fostering dealer loyalty or ensuring adequate supply. See id. They also can have anticompetitive consequences, however, such as foreclosure of so much of the available supply or outlet capacity that existing competitors or new entrants may be limited or excluded. Id. The propriety of an exclusive dealing arrangement thus depends on the particular circumstances of its use. The court found, therefore, that the rule of reason, which balances the procompetitive and anti-competitive effects of a defendant's conduct, was the most appropriate test under which to review U.S. Healthcare's claims. See id.; see also supra note 81 (describing rule of reason test).

202 See U.S. Healthcare, Inc., 986 F.2d at 597-98 (noting that trial judge dismissed plaintiff's claims based on his assessment that defendant lacked power within broadly defined health care financing market and that, if this market definition were incorrect, remand might be required).

203 See id. at 598 (noting that one can monopolize market as either buyer or seller).

204 See id. (affirming correctness of trial judge's analysis of defendant as seller of health services). Courts, in defining markets, must ask themselves why they are doing so. See id. In this case, U.S. Healthcare asserted that Healthsource had foreclosed the market to other HMOs by buying up the supply of doctors whose services could be sold to consumers. See id. The court rejected this approach, stating that in order to monopolize the market as a buyer of health services, Healthsource would have to close off the market such that doctors could not find other buyers for their services. See id. Because other buyers of physician services, such as fee-for-service plans like Medicare and Medicaid, were not affected by the exclusivity clause, Healthsource could not have used it to foreclose the market as a buyer of health services. See id. The appropriate perspective through which to evaluate the impact of Healthsource's exclusivity clause, therefore, was that of a seller of health care services. See id.

205 See id. at 597-98 (noting that magistrate judge defined relevant product market broadly to include all health care financing in New Hampshire).

206 See id. at 598 (noting that if foreclosure effect of exclusivity clause was greater, it might be possible to describe Healthsource as monopolist or potential monopolist). Evidence presented at trial indicated that Healthsource enrolled only about 5% of the residents of New Hampshire. See id. at 591. The magistrate judge believed this was too small a share of the health care financing market to support a monopolization or attempted monopolization charge under Sherman Act ' 2. See id. at 597. The court held that [i]f health care financing is the product, as the magistrate judge determined, plainly Healthsource has no monopoly or anything close to it. Id. at 599. The court observed, however, that the only way to cast Healthsource as a monopolist is to argue . . . that HMO services are a separate health care product. Id. at 598.

207 See id. at 599.

208 See id. (noting market definition is sometimes described as [issue] of interchangeability of products and services). The court cited the extensive discussion of Across elasticity of demand in United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394-404 (1956) in support of this observation. See U.S. Healthcare, Inc., 986 F. 2d at 599.

209 See U.S. Healthcare, 986 F.2d at 599 (accepting magistrate judge's definition of market as Health care financing market but implying that U.S. Healthcare might have offered expert testimony to demonstrate that HMOs constitute their own market). The court called U.S. Healthcare's argument that HMOs are distinct from the health care financing market a legitimate contention. Id. at 598. The issue for an expert witness would be Whether a sole supplier of HMO services . . . could raise price far enough over cost, and for a long enough period, to enjoy monopoly profits. Id. at 599.

Evidence collected in recent years by independent research groups studying HMO market behavior suggests that a sole supplier of HMO services can raise prices higher above costs than an HMO in a competitive market. See 1995 INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 31 (reporting that in small and large markets dominated by a single HMO, operating margins were higher than in markets supporting rival HMOs). These dominant HMOs, however, have not raised prices so far above cost that they could be considered to enjoy monopoly profits. See id. For example, operating margins of dominant HMOs typically exceeded the median operating margin by a very small amount. See id. at 30-31 (reporting that average HMO operating margin in large cities is 3.28%, while operating margin in large cities with one dominant HMO is 3.7%).

210 See U.S. Healthcare, 986 F.2d at 599 (noting that market definition typically is ascertained through expert testimony of economists). The court indicated that here, the issue for an economist would be whether a sole supplier of HMO services . . . could raise price far enough over cost, and for a long enough period, to enjoy monopoly profits. Id. The court's statement starkly contradicts that of the court in Marshfield, which proclaimed that there is not even a good economic theory that associates monopoly power with a high rate of return. Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995), cert. denied, 116 S. Ct. 128 (1996).

211 See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 469 (1992) ("The extent to which one market prevents exploitation of another market depends on the extent to which consumers will change their consumption of one product in response to a price change in another, that is, the `cross-elasticity of demand.').

212 See U.S. Healthcare, 986 F.2d at 593-98 (acknowledging that it might be possible to describe Healthsource as monopolist, using exclusionary clause to foster or reinforce its power). The court noted that the primary danger of the exclusivity clause was that it could "foreclose' so much of the available supply . . . that existing competitors or new entrants may be limited or excluded. Id. at 595.

213 See id. (holding that exclusivity clause had not rendered physician pool empty). The court observed that the number of primary care physicians tied to Healthsource through exclusive contractsC25%Cleft an adequate number of other physicians available to contract with competing HMOs. See id. at 596. It held further that the 30-day termination notice required by the exclusivity clause was close to a de minimus restraint. See id. A 180-day termination notice, however, could frustrate the efforts of new HMOs to enlist panel doctors. See id. Finally, the court acknowledged that Healthsource encouraged doctors to become shareholders to give them a further stake in Healthsource's success and incentive to contain costs. Id. at 592; see also Landes & Posner, supra note 35, at 950-51 (stating that supply elasticity is measured by ability of new competitors to enter market in response to price increase by potential monopolist). In a market characterized by high elasticity of supply, existing firms, such as fee-for-service insurers, will shift production to offer products similar to those of another firm, such as an HMO, that raises its prices above the competitive level. See id. Similarly, new entrants, such as U.S. Healthcare, will be attracted to markets in which a competitor, such as Healthsource, raises prices above the competitive level.

214 See U.S. Healthcare, 986 F.2d at 598 (noting that HMOs are often cheaper than other forms of health care financing, emphasize illness and prevention, and utilize cost controls).

215 See, e.g., Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951 (10th Cir. 1990); Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101 (1st Cir. 1989); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325 (7th Cir. 1986).

216 899 F.2d 951 (10th Cir. 1990).

217 See id. at 972. For the text of sections 1 and 2 of the Sherman Act, see supra notes 49 and 50.

218 See Reazin, 899 F.2d at 954.

219 See id. at 956.

220 See id. at 969 (noting that estimates of Blue Cross market share ranged from 47% to 62%).

221 See id. at 971.

222 Id. at 971-72 (noting that, although only capital and licensing were necessary to initially enter market, defendant's enormous size in relation to other insurers cuts against the argument that entry barriers were insubstantial). Other factors, such as Blue Cross' unique ability to contract directly with hospitals and the widespread perception that it operated with the endorsement of the legislature, gave added support to the court's finding of market power. See id.

223 784 F.2d 1325 (7th Cir. 1986).

224 See Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1330-31 (7th Cir. 1986).

225 See id. at 1331 (pointing out that plan called for 75% reimbursement to hospitals that are not part of PPO, and 100% to hospitals that are within PPO).

226 See id. at 1335 (examining whether defendant had market power and finding that, because other firms could provide same services at same price as defendant, there were no barriers to entry). The court found further, that in the medical insurance market, factors suggesting that market share does not imply market power exist. See id. These factors include: (1) new firms could easily enter the market; (2) existing firms could easily expand their sales; and (3) insurers needed only a license and capital to operate, and there were examples of firms that had both. See id. Finally, the court noted that nearly 1000 firms were licensed to sell health insurance in Indiana, with nearly 500 currently selling policies. See id. at 1332.

227 See id. at 1336 (stating that when there are better ways to estimate market power [than market share], the court should use them).

228 See id. at 1336-37 ([M]arket share is just a way of estimating market power.). The court opined, further, that ease of entry and the absence of barriers is a more accurate determinant of market power. Id. at 1336.

229 883 F.2d 1101 (1st Cir. 1989).

230 See Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., Inc., 883 F.2d 1101, 1113 (1st Cir. 1989) (concluding policy of paying physicians no more than they received from other health payors did not violate ' 2 of Sherman Act).

231 See id. at 1103-04 (describing structure of Ocean State and fact that it paid physicians approximately 20% less for services than did Blue Cross).

232 See id.

233 See id. at 1104.

234 See id. at 1110 (noting that Blue Cross did not dispute its monopoly power in market for health insurance).

235 See id. (stating that ' 2 does not prohibit vigorous competition by monopolies, provided that competition is not exclusionary); see also Kartell v. Blue Shield of Mass., 749 F.2d 922, 927 (1st Cir. 1984) (holding that unilateral decision by insurer to ban balance billing practice of billing patients difference between insurance company payments and actual charges did not violate Sherman Act because it was not predatory or below incremental cost).

236 See Ocean State, 883 F.2d at 1110.

237 See, e.g., Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1411 (7th Cir. 1995), cert. denied, 116 S. Ct. 1288 (1996) (finding that HMOs do not constitute separate market from other health care financing products); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 599 (1st Cir. 1993) (holding that Health care financing is the product market); Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins. Co., 784 F.2d 1325, 1329 (7th Cir. 1986) (stating that HMO is both a method of joining physicians in a firm and financing their services by selling memberships for stated monthly prices).

238 See 1995 INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 9 (stating that average combined market penetration for pure HMOs in all U.S. markets is 21.9%); see also PROSPECTIVE PAYMENT ASSESSMENT COMM'N, supra note 9, at 23 (noting that in 1988, 73% of individuals insured by private health insurance had traditional indemnity coverage, with 27% covered by HMOs and other forms of managed care). By 1993, HMOs and other forms of managed care accounted for 66% of the private health insurance market, and indemnity insurance accounted for only 33% of the market. See id. Hybrid plans, such as point of service plans, which combine gatekeeper or network functions of HMOs with partial coverage of out-of-network services, accounted for the remaining portion of the market. See id.

239 See U.S. Healthcare, 986 F.2d at 599 (noting that multitude of other providers in New Hampshire precluded finding that Healthsource possessed monopoly); cf. Marshfield, 65 F.3d at 1412 (7th Cir. 1995) (stating that defendant HMO Is not a monopolist of HMO services . . . because HMOs are not a market).

240 See Enthoven, supra note 4, at 25 (articulating flaws in structure of health care financing market). Professor Enthoven describes the imperfections of the traditional health care market, and their perverse economic consequences, as follows:

(1) Free choice of doctor by the patient, which means that the insurer has no bargaining power with the doctor; (2) free choice of prescription by the doctor, which prevents the insurer from applying quality assurance or review of appropriateness; (3) direct negotiation between doctor and patient regarding fees, which excludes the third-party payor, who would be likely to have information, bargaining power, and an incentive to negotiate to hold down fees; (4) fee-for-service payment, which allows physicians maximum control over their incomes by increasing the services provided; and (5) solo practice, because multi-specialty group practice constitutes a break in the seamless web of mutual coercion through control of referrals that the medical profession has used to enforce [its] guild system.

Id.

241 At least one court has already relied on Kodak to impute market power to an HMO. See Brokerage Concepts, Inc., No. 95-1698, 1996 U.S. Dist. LEXIS 6480, at *18-*19 (E.D. Pa. May 14, 1996) (holding, under Kodak, that relevant product market was all members of single dominant HMO); see also Alain C. Enthoven, Why Managed Care Has Failed to Contain Health Costs, HEALTH AFF., Fall 1993, at 28-29 (asserting that proliferation of HMOs and PPOs in 1980s failed to contain health costs because of various artificial market imperfections).

242 See infra notes 286-302 and accompanying text (describing how adverse selection, pre-existing condition exclusions, and exclusive provider contracts could reduce elasticity of supply and demand for HMOs, leading to divergence of HMOs from health care financing market).

There is empirical support for the conclusion that HMOs operate in an economically distinct market from other forms of health care financing. See Reed Neil Olsen, The Impact of Health Maintenance Organizations on Health and Health Care Costs, 25 APPLIED ECON. 1451, 1451 (1993) (noting that, although HMOs are cheaper than other forms of health care financing, studies have found little evidence that they contain aggregate health costs). Thus, cost containment effected by HMOs does not affect the rate of inflation of other forms of health care financing. See Enthoven, supra note 241, at 29 (asserting that competition among HMOs has not reduced growth in total national health expenditures). But cf. Christianson, supra note 14, at 155 (stating it has been hypothesized that more conservative style of medical practice fostered by HMOs will spill over to other forms of health care financing).

243 Although HMOs account for only 25% of the health care financing products in large markets, most large markets are dominated by only one HMO. See INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 1 (reporting HMO penetration of 25% in large markets and that 74.4% of large markets have one dominant HMO). HMOs account for 17.6% of the health care financing products in medium markets. See id. Most medium markets, however, have at least two significant market shares. See id. at 33. HMOs account for 12% of the health care financing products in small markets. See id. at 1. Forty-two percent of these markets, however, are served by only one HMO. See id.

244 See Jacobs, supra note 11, at 342 & n.25 (noting that market share traditionally has been used as the proxy for market power).

245 See id. at 355-62 (explaining Court's movement in Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992), from the traditional market share proxy to new form of market power assessment). This new assessment looks for explanations of the actual behavior of markets. See id. at 473.

246 See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 17 (1984) (explaining that existence of market power ordinarily is inferred from seller's possession of predominant market share). As elasticity of demand decreases, meaning fewer suitable substitute products are available, smaller firms become capable of raising prices above competitive levels without experiencing a loss in sales. See Landes & Posner, supra note 35, at 958-59 & tbl. II.

247 Elasticity of supply was the second most important determinant of market power under traditional analysis. See Landes & Posner, supra note 35, at 958, tbl. II (demonstrating that firm operating in market with high entry barriers to competitors can raise prices without losing sales only if there are few suitable substitutes available).

248 See id. (showing market share necessary for firm to have market power under variety of competitive conditions). Traditional analysis viewed demand elasticity as the most important factor in determining whether a firm could exercise market power. See id. Professors Landes and Posner observe that a firm operating in a market with highly elastic demand but inelastic supply must have larger market share in order to raise prices to a monopolistic level than a firm in a market with highly elastic supply but inelastic demand. See id.; see also supra note 158 (describing emphasis placed on elasticity of demand by courts in Marshfield, U.S. Healthcare, Inc., and Ball Mem'l Hosp.).

249 See Kodak, 504 U.S. at 466 (holding that legal presumptions based on formalistic distinctions instead of market realities generally are disfavored in antitrust law). Rather than considering only market share, the Court will consider the responsiveness of the sales of one product to price changes of the other. Id. at 467 (quoting United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 400 (1956)); see also Jefferson Parish, 466 U.S. at 26-29 (holding that Court will examine economic reality of market at issue).

250 See Kodak, 504 U.S. at 477 (holding that it is reasonable to infer Kodak possessed market power because there was evidence of high information costs, locked-in consumers and discriminatory pricing); Jefferson Parish, 466 U.S. at 27-28 (suggesting that diminished consumer incentive to compare hospital costs and lack of adequate information to compare quality among hospitals, if coupled with restraints on consumer choice of provider, could give rise to antitrust liability even in the absence of substantial market share).

251 See supra notes 151-56 and accompanying text (describing three factors identified in Kodak and Jefferson Parish that can give rise to market power in absence of significant market share); see also infra notes 252-59 and accompanying text (describing how exclusions on pre-existing conditions raise switching costs, causing consumer lock-in in health care financing market).

252 See GENERAL ACCOUNTING OFFICE, HEALTH INSURANCE PORTABILITY, REFORM COULD INSURE CONTINUED COVERAGE FOR UP TO 25 MILLION AMERICANS (Sept. 19, 1995) [hereinafter GAO REPORT] (reporting that most private health plans impose waiting periods for new enrollees and limit coverage for pre-existing conditions). Payors impose waiting periods and limitations on coverage of pre-existing conditions to protect themselves against employees who purchase coverage knowing they are already sick. See id.

253 See Health Insurance Reform Act of 1995: Hearings on S. 1028 Before the Senate Comm. on Labor and Human Resources, 104th Cong. 4 (1995) (statement of Sen. Kennedy) [hereinafter Health Insurance Reform Act Hearings] (noting that workers who switch insurance plans during a change of jobs risk losing coverage for pre-existing conditions, the very illnesses for which they are most likely to require care).

254 See id. (statement of Sen. Kennedy) (suggesting that employers currently exclude employees with pre-existing conditions from group health plans because such employees raise group health plan costs).

255 See id. (statement of Sen. Kennedy) (noting that risk of losing health coverage prevents many workers from changing jobs, a phenomenon called job lock). In 1993, 20% of Americans said they or a family member declined a new job opportunity due to fear of losing health benefits. See Health Insurance Portability: Hearings before the Subcomm. on Health of the Comm. on Ways and Means, 104th Cong., 1st Sess. 9, 10 (May 12, 1995) (statement of Paul Fronstin, Employee Benefit Research Institute) [hereinafter Health Insurance Portability Hearings]. Job lock is analogous to the consumer Lock in that led the Court in Kodak to conclude that the defendant had market power despite its lack of significant market share. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 476 (1992) (finding that consumers who would lose their large initial investment in Kodak equipment by switching brands faced high switching costs). The effects of job lock could, if pervasive enough, lead courts to conclude that an HMO has market power in the absence of significant market share.

A worker experiencing Job lock dares not change jobs for fear that a pre-existing condition will make the cost of switching health coverage cost prohibitive, if alternative coverage is available at all. See Health Insurance Portability Hearings, supra, at 12. The Court in Kodak held that consumers who were Locked in to a Kodak machine because of high switching costs would tolerate larger price increases than other consumers before they changed brands. See Kodak, 504 U.S. at 476. The same is true of workers who remain at their jobs solely to enjoy the continued availability of employer-sponsored health coverage. See Health Insurance Portability Hearings, supra, at 10.

256 See Kodak, 504 U.S. at 472 (noting that consumer Lock-in could allow Kodak to charge competitive prices in the equipment market, but supracompetitive prices in the parts and service market). Similar to the case in Kodak, an insurer is able to offer low premiums initially to win the business of customers. If an insured becomes ill, however, the insurer can raise the premium without fear that the insured will seek coverage elsewhere, because coverage for the illness will be excluded by other insurers.

257 See Health Insurance Reform Act Hearings, supra note 253, at 4 (statement of Sen. Kennedy) (stating that pre-existing conditions make many consumers completely uninsurable). Roughly 81 million Americans have conditions that could subject them to pre-existing condition exclusions. See id. (statement of Sen. Kennedy).

258 See Landes & Posner, supra note 35, at 945 (explaining that elasticity of demand depends on ability of consumers to switch to substitute goods in response to price increase); see also United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394 (1956) ([W]here there are market alternatives that buyers may readily use for their purposes . . . [market power] does not exist . . . . ).

259 See Kodak, 504 U.S. at 473 (noting that high switching cost was strong reason for finding market power in absence of high market share). Furthermore, the court observed that the heavy initial outlay for Kodak equipment made switching to a competing product very costly for Kodak customers. See id. at 477.

260 See Enthoven, supra note 241, at 38-39 (decrying product differentiation in health care financing market and calling for employer policies requiring standardized coverage contracts); Thomas L. Greaney, Managed Competition, Integrated Delivery Systems and Antitrust, 79 CORNELL L. REV. 1507, 1510 (1994) (noting that prevalence of information gaps, asymmetric information, and agency problems interferes with competitive interactions in the health care marketplace.).

261 See Enthoven, supra note 241, at 38-39 (noting health insurer practice of offering complex package makes it difficult for people to make cost comparison).

262 See Olsen, supra note 242, at 1451 (stating that lack of empirical information on HMO quality is attributable to lack of objective means for measuring health).

263 See Health Insurance Reform Act Hearings, supra note 253, at 4 (statement of Sen. Kennedy) (noting that those who have paid premiums for years can be dropped because they become ill).

264 See Enthoven, supra note 241, at 34 (noting that employer policies of paying full cost of HMO premiums puts HMOs in the same state of cost-unconscious demand as fee-for-service providers).

265 See id. (indicating that employers will pay HMO premiums that do not exceed those of traditional coverage).

266 See id.; see also Christianson, supra note 14, at 154 (stating that when employees have multiple coverage options, but are required to pay at least part of premium difference, they make price-conscious decisions).

267 See Enthoven, supra note 241, at 34 (indicating that employer contribution to employee's health plan creates inelastic demand for HMOs).

268 See Christianson, supra note 14, at 154 (examining effect of employer health premium contribution policies on rate increases).

269 See Enthoven, supra note 241, at 36-37 (noting that employer ability to pay for health insurance premiums in pre-tax dollars understates price differences among health plans).

270 26 U.S.C. ' 125 (1994) (making employer payments for health benefits excludable from employee gross income).

271 See Enthoven, supra note 241, at 36.

272 See id.

273 See id. at 37.

274 See id.

275 See id. at 38 (noting that employer policies restricting choice of HMOs artificially reduce HMO demand elasticity).

276 See id.

277 See Gellhorn & Kovacic, supra note 53, at 103 (suggesting that, in du Pont, Court failed to consider whether high cross-elasticity among manufacturers of flexible wrapping materials meant only that du Pont, exclusive manufacturer of cellophane, had already raised prices to monopolistic levels). Cross-elasticity of demand is an accurate test of whether two products are good substitutes only if competitive prices are being charged for each. See id.

278 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27-28 (1984).

279 See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956). The Court explained: In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that `part of trade or commerce,' monopolization of which may be illegal. Id.

Measurement of product substitution and elasticity of supply are common to the assessment of both market power and definition. Thus, the Court somewhat circuitously has acknowledged an interrelationship between the ability of a firm to exert power over a market and the definition of that market. See id. at 391-92 (using term monopoly power synonymously with market power). Justice Reed, delivering the opinion of the Court, observed:

If cellophane is the `market' that du Pont is found to dominate, it may be assumed it does have monopoly power over that market. Monopoly power is the power to control prices or exclude competition. . . . It is inconceivable that price could be controlled without power over competition or vice versa.

Id. at 391-92 (citations omitted).

280 See supra notes 3 & 22 (noting that HMO enrollment grew from less than two million in early 1970s to more than 46 million in 1995, an increase of 2300%).

281 See infra notes 286-302 and accompanying text (describing how increasing HMO enrollment, coupled with adverse selection and exclusions on coverage of pre-existing conditions, could cause HMO market to diverge from health care financing market).

282 See Greaney, supra note 260, at 1511 (observing that adverse selection can segment health care market between healthy, or good risk, and unhealthy, or bad risk, populations).

283 See supra notes 252-59 and accompanying text (comparing circumstances under which pre-existing condition locks consumer into his or her current health plan with consumer Lock-in under Kodak analysis).

284 See Bloch & Falk, supra note 10, at 211 (observing that widespread use of exclusivity clauses in given market could make high percentage of physicians unavailable to contract with HMOs wishing to enter market, rendering supply inelastic).

285 See supra notes 177-214 and accompanying text (describing courts' emphasis in defining markets on product interchangeability and ease with which producers of similar goods can switch production in response to price increase by competitor).

286 See, e.g., Christianson, supra note 14, at 149-50 (citing several studies that conclude that staff and group model HMOs benefit from favorable selection relative to IPA models and indemnity insurance plans); Enthoven, supra note 241, at 39-40 (exploring consequences and methods of avoiding biased risk selection); Olsen, supra note 242, at 1451 (stating that HMOs tend to enroll healthier patients with substantially lower health care costs).

287 Enthoven, supra note 241, at 40.

288 See Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986) (finding that new firms may enter health care financing market easily). The Court found that firms need only a license and capital to enter the market. Id. It found, further, that competitors of defendant already had both and could expand their sales quickly. See id.

289 See 1994 INTERSTUDY REPORT, supra note 3, at 11, fig. 5 (1994) (showing that nearly equal number of HMOs reported new group enrollment from former customers of indemnity insurers versus members of another local HMO).

290 See supra notes 3 & 22 (describing managed care enrollment trends).

291 See Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101, 1103 (1st Cir. 1989) (noting under adverse selection, younger and healthier people opt for HMOs . . . leaving older and sicker people in the fee-for-service pool).

292 See 1994 INTERSTUDY REPORT, supra note 3, at 11, fig. 5 (showing that nearly equal number of HMOs reported enrolling new groups from indemnity insurer versus another local HMO).

293 See Christianson, supra note 14, at 149 (noting that HMOs recruit physicians who practice conservative style of medicine, involving lower utilization of services); Ocean State Physicians, 883 F.2d at 1104 (noting that one-quarter of physicians on HMO panel resigned after competing insurer instituted policy of paying no more than physicians charged HMO); cf. Olsen, supra note 242, at 1451 (concluding that HMOs initially cause an increase in utilization, but over time physicians practicing in HMOs learn to practice cost-effective medicine).

294 See Bloch & Falk, supra note 10, at 217 (observing that widespread use of exclusivity clauses in given market could make high percentage of physicians unavailable to contract with HMOs wishing to enter market, thereby rendering supply inelastic).

295 See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 596 (1st Cir. 1993) (calling 25% of physicians in geographic market tied to Healthsource by exclusivity clause significant). The court noted that, although it might be proper to exclude many Available physicians in the market because they were unwilling to serve HMOs, no such showing was made by the plaintiff. See id.; see also Anita J. Slomski, Is this Group an Illegal Doctor Monopoly? Marshfield Clinic in Marshfield, Wisconsin, MEDICAL ECON., Sept. 26, 1994, at 64 (describing plaintiff's allegation that restrictive covenant preventing doctors who leave defendant clinic from practicing within 25-mile radius for three years was evidence of anticompetitive conduct).

296 See Mary Chris Jaklevic, Docs Try to Own Managed Care: Fed Up With Big For-Profit HMOs, Physicians Across the Nation Are Forming Their Own Plans, MODERN HEALTHCARE, Apr. 24, 1995, at 63 (noting that physicians who have tired of working for HMOs are increasingly forming their own competing HMOs).

297 See U.S. Healthcare, 986 F.2d at 594 (acknowledging that agreement among doctor-stockholders of HMO not to deal with any other HMO could warrant per se condemnation if bereft of joint venture efficiencies); Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 359 (1982) (holding doctor-initiated PPO liable for per se offense of price fixing under Sherman Act ' 1, where physician members of PPO, comprising 75% of all those practicing in county, set maximum reimbursement rates).

298 See GAO REPORT, supra note 252, at 4 (reporting that 59% of indemnity plans, 70% of PPOs, and 56% of point-of-service plans impose exclusions on pre-existing conditions, while HMOs typically do not have such clauses).

299 See id. One possible explanation for HMOs' coverage of pre-existing conditions is the fact that HMOs are self-selective and tend to enroll healthier patients. See supra notes 285-91 and accompanying text (noting that restrictive benefits of HMOs leads to adverse selection whereby HMOs enroll healthier individuals).

300 See GAO REPORT, supra note 252, at 4 (reporting that most indemnity and PPO plans impose exclusions on coverage of pre-existing conditions); HEALTH INSURANCE REFORM ACT HEARINGS, supra note 253, at 4 (statement of Sen. Kennedy) (stating that some of 81 million consumers with conditions that could be considered pre-existing are completely unable to obtain traditional health insurance).

301 See Christianson, supra note 14, at 160 (noting that workers may find HMOs to be unattractive option). Many individuals covered by non-HMO plans choose these plans because they offer more generous benefits without restricting choice of provider, and thus are better suited to their more frequent or serious medical needs. See id. (noting that hospital admission rates are between 10% and 40% higher in fee-for-service plans than in HMOs). These individuals frequently are older or more prone to illness and perceive HMOs as offering inadequate coverage to suit their needs. See id. at 149-50 (noting that HMOs enroll individuals with a low propensity to use their services).

302 See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394 (1956) (calling for assessment of Across-elasticity of demand in determining relevant product market); Landes & Posner, supra note 35, at 945 (concluding that high elasticity of demand implies that good substitutes exist for products sold within market, and presence of good substitutes limits any individual firm's market power).

303 See Ball Mem'l Hosp. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986) (finding defendant lacked market power where new firms could enter market easily, existing firms could expand sales quickly, and there were no barriers to entry). But see Reazin v. Blue Cross & Blue Shield of Kan., Inc. 899 F.2d 951, 971-72 (10th Cir.) (noting that several factors, including insurer's great size in comparison to other insurers, its unique ability to contract directly with hospitals, and widespread perception that it operated with imprimatur of state legislature, tended to indicate that substantial entry barriers existed to competitors).

304 See Landes & Posner, supra note 35, at 945 (stating that high elasticity of supply means that even small price increase by one firm will be met with increased output by its competitors). A firm in a market with high elasticity of supply will experience highly elastic demand customers will quickly change to substitute brands produced by its competitors in response to a price increase. See id.

Further, Professors Landes and Posner observe that when supply is highly elastic, that is, competing sellers can expand their sales in response to a price increase by another firm, market share takes on additional significance. See id. at 947. If competing firms are very small in comparison to a dominant firm that raises its prices, their ability to increase output also will be small. See id. A large firm, therefore, will lose only a small amount of sales in response to a price increase. See id. Thus, if a dominant firm has high market share and the competitive fringe has low market share, elasticity of demand will be low. See id.; see also Reazin, 899 F.2d at 971-72 (noting that insurer's great size in comparison to competing insurers tended to indicate that substantial entry barriers existed to competitors and that it possessed market power).

305 See du Pont, 351 U.S. at 394 (calling for assessment of Across-elasticity of demand in determining relevant product market). The Court explained, where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist. Id.; see also Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1410 (7th Cir. 1995) (ruling that HMOs are part of health care financing market because individuals and employers, as purchasers of health care financing, regard HMOs as interchangeable with other forms of health care financing), cert. denied, 116 S. Ct. 1288 (1996); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 591 (1st Cir. 1993) (upholding lower court ruling that HMOs exist in broadly defined health care financing market because they are viewed as interchangeable with fee-for-service arrangements, Blue Cross/Blue Shield Plans, Medicare, and Medicaid); Ball Mem'l Hosp., 784 F.2d at 1332 (noting that consumers will readily switch from one form of health care financing to another in response to a price increase).

306 See Landes & Posner, supra note 35, at 945 (concluding that high elasticity of demand implies that good substitutes exist for products sold within market, and presence of good substitutes limits any individual firm's market power).

307 See Jacobs, supra note 11, at 355-62 (stating that, in Kodak, Supreme Court rejected market share proxy in favor of analysis recognizing small firms' ability to obtain power in imperfect market).

308 See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466-67 (1992) (holding that legal presumptions based on formalistic distinctions instead of market realities generally are disfavored in antitrust law). Rather than considering only market share, therefore, the Court will consider the Responsiveness of the sales of one product to price changes of the other. Id. at 467 (quoting E.I. du Pont, 351 U.S. at 400); see also Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26-29 (1984) (holding that Court will examine economic reality of market at issue).

309 See Jefferson Parish, 466 U.S. at 27 (holding that mere information deficiencies causing consumer indifference to price and quality are insufficient to confer market power where market share of 30% evidenced absence of actual restraints on consumer choice); Image Technical Serv., Inc. v. Eastman Kodak Co., 903 F.2d 612, 617 & n.3 (9th Cir. 1990) (acknowledging that, despite market imperfections, Kodak's small market share in equipment market might prevent it from possessing power in aftermarket for parts and service), aff'd, 504 U.S. 451 (1992).

310 See supra notes 151-66 and accompanying text (describing market imperfections giving rise to antitrust liability in absence of market share under Kodak and Jefferson Parish).

311 See supra notes 183-93 and accompanying text (critiquing Seventh Circuit's analysis in Marshfield, in which court relieved HMO of antitrust liability based on its assumption that it is well known that consumers view HMOs and other forms of health coverage as interchangeable); cf. Burda, supra note 92, at 40-41 (quoting Robert Bloch, former head of Department of Justice health care antitrust unit, as commenting that DOJ Was willing to make an awful lot of assumptions regarding material issues in approving plan in which 100% of South Carolina's board certified dermatologists formed network).

312 See Kodak, 504 U.S. at 467 (noting Court's preference for resolution of antitrust claims on case-by-case basis).

313 Marshfield Brief of Amicus Curiae, supra note 93, at 9; see also Kodak, 504 U.S. at 463 (holding that market definition should be resolved by the trier of fact).

314 See Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1410 (7th Cir. 1995) ("The record shows, what is anyway well known, that individuals, and medical insurers . . . regard HMOs as competitive not only with each other, but also with [fee-for-service plans and PPOs].), cert. denied, 116 S. Ct. 1288 (1996). The court claimed to have searched the record in vain for evidence that would support the jury's finding. See id. A search of the court's opinion to determine exactly what was missing, however, yields scant evidence of an inspection of the lower court record, and more general discussion of contemporary principles of antitrust. Id.; see also Marshfield Brief of Amicus Curiae, supra note 93, at 9 & n.7 (noting that author of appeals court's Marshfield decision is on record questioning ability of juries to sort out factual issues in antitrust cases (citing RICHARD A. POSNER, ANTITRUST LAW, AN ECONOMIC PERSPECTIVE 235 (1976))).

315 See supra notes 183-93 and accompanying text (describing court's reasoning in overruling jury verdict and substituting its own intuitive view of HMO market definition).

316 See Marshfield Brief of Amicus Curiae, supra note 93, at 3-4.

317 See id. at 4-5.

318 See supra notes 183-93 and accompanying text (describing how Seventh Circuit discarded detailed factual inquiry in Marshfield and relied instead on general assumptions about consumers' perception of interchangeability among HMOs and other types of health coverage).

319 See Health Insurance Portability and Accountability Act, Pub. L. No. 104-191, 110 Stat. 1936 (1996) (to be codified in scattered sections of 18, 26, 29, and 42 U.S.C.).

320 See id. ' 701(g)(1) (forbidding exclusion of coverage for pre-existing conditions after June 30, 1997).

321 See id. at 39 (citing cost containment success of CalPERS in adopting standardized benefit package).

322 See Consumer-Oriented Disclosure Law for Health Plans Goes Into Effect, 4 Health Care Pol'y Rep. (BNA) at 18 (Jan. 1, 1996) (reporting on enactment of Arizona law requiring HMOs to provide employers with uniform information about HMO benefits). Arizona now requires HMOs to provide employers with information including: (1) the full cost of the plan, including premiums, co-pay, and deductible amounts; (2) the health care benefits to which enrollees are entitled; and (3) any limitations on coverage. See id. At least seven other states, including California, Oregon, and Texas, are considering the introduction of similar legislation. See id.

323 See Statewide Health Care Pool to Reduce Rates by 6 Percent, 21 Pens. & Benefits Rptr. (BNA) 671 (Mar. 28, 1994). California was the first state to enact legislation authorizing and funding the formation of a health alliance serving small employers. The plan, called the California Health Insurance Purchasing Cooperative (AHIPC), effected a 6.27% premium cut for small employers in its first year of operation. See id. HIPC further reduced premiums by 5% in 1995, its second year of operation. See California Insurance Plan Negotiates 5 Percent Cut for Average Premium Rate, Pens. & Benefits Rptr. (BNA), at 785 (Mar. 27, 1995).

324 See Enthoven, supra note 241, at 34-37 (describing five cost-sharing policies and their effect on appearance of HMO demand curve).

325 See id.

326 See id.

327 See id.

328 See id.

329 See 1995 INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 66 (noting that employers can transfer desires for low-cost, high-quality health care to employees by fostering price sensitivity).

330 See id. (stating that employers who offer several health plans, but contribute only fixed amount, such as premium amount of lowest cost plan, create most highly elastic demand for health care).

331 See 1994 INTERSTUDY REPORT, supra note 3, at 4 (reporting that, as HMO markets become more competitive, relative price and variation in relative price becomes smaller).

332 See Enthoven, supra note 241, at 34-37 (stating that employer payment of percentage of health plan cost is less effective than payment of fixed premium amount, but more effective than payment of full premium amount, in fostering price sensitivity); see also 1995 INTERSTUDY REGIONAL MARKET ANALYSIS, supra note 169, at 66 (reporting that employers who pay premiums regardless of cost create the most inelastic demand).