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Supreme Court expands view of interstate commerce in peer review proceeding.

A challenge to activity under the federal antitrust laws must necessarily be predicated by allegation and proof that those activities are either "in [interstate] commerce" or "substantially affect interstate commerce." [1] 1980, the Supreme Court, in McLain, interpreted this interstate commerce requirement to depend on whether the challenged activity can be "shown as a matter of practical economics of have a not insubstantial effect on the interstate commerce involved." [2]

Since then, the federal circuit courts of appeal have disagreed over the interpretation of the McLain decision's definition of interstate commerce. The disagreement has centered around whether the plaintiff must be able to show whether or not the challenged activities of the defendant have a not insubstantial effect on interstate commerce, [3] or if only the defendant's general business activities must meet the McLain standard. [4]

This split among the circuits has been most obvious in cases involving antitrust challenges to the denial or suspension of a physician's hospital staff privileges. In those circuits that have only required the plaintiff to establish that the defendant's general business practices affect interstate commerce, plaintiffs have had little problem meeting that burden because of the interstate nature of hospital services. In those jurisdictions, a hospital's treatment of out-of-state patients, purchase of medical supplies from out of state, and receipts of money from out of state, including federal funds, have satisfied the requirement of affecting interstate commerce." [5] However, in the other circuits, the courts have determined that the denial or suspension of a single physician's privileges at a hospital "could not have had a more than de minimus effect on interstate commerce" [6] and have dismissed actions brought under the antitrust laws.

The recent Supreme Court case involved Simon Pinhas, MD, who, in 1987, was summarily suspended from Midway Hospital in Los Angeles, Calif, Dr. Pinhas requested relief in federal court under Section 1 of the Sherman Act, 15 U.S.C. $S 1. The district court dismissed Dr. Pinhas' suit, in particular the antitrust claims, because it found the defendants to be protected under the state action exemption to antitrust liability. The Ninth Circuit Court of Appeals reversed the district court's decision regarding state action but further considered whether Dr. Pinhas' antitrust claims could meet the interstate commerce test under McLain.

The Ninth Circuit found that Dr. Pinhas must show that "as a matter of practical ecnomomics the activities of the defendants--the peer review process in general--have a not insubstantial effect on the interstate commerce involved." [7] The defendants had argued that Dr. Pinhas must demonstrate a nexus with interstate commerce due to the absence of Dr. Pinhas' services from Midway, but this argument was rejected by the court. The court required Dr. Pinhas to prove only that peer-review proceedings have an effect on interstate commerce. [7]

The Supreme Court granted certiorari and Justice Stevens delivered the 5-4 opinion of the Court on May 28, 1991, upholding the Ninth Circuit's decision. [8] The defendants argued to the Court that Dr. Pinhas' complaint must be dismissed because there is no factual nexus between the restraint on this surgeon's practice and interstate commerce. The Court found two flaws in this argument.

First, the Court observed that Section 1 of the Sherman Act precludes agreements to restrain trade, not just the restraint itself. Therefore, a plaintiff's claim will not fail because the conspiracy to restrain trade failed to have its desired anticompetitive effect. [9] a "[plaintiff] need not allege, or prove, an actual effect on interstate commerce to support federal jurisdiction." [10] Second, the Court held that the peer review process is a gateway that controls Dr. Pinhas' access to the market for his services. "The competitive significance of [Dr. Pinhas'] exclusion from the market must be measured not just by a particularized evaluation of his own practice, but rather by a general evaluation of the impact of the restraint on other participants and potential participants in the market from which he has been excluded." [10] The Court found that Dr. Pinhas' claim that members of the peer-review committee conspired with others to abuse the peer review process, and thereby deny Dr. Pinhas access to the market for ophthalmological services provided by general hospitals in Los Angeles, had a sufficient nexus with interstate commerce to support federal jurisdiction.

Justice Scalia authored a strong dissent, which indicates that instead of clearing up the interstate commerce issue, the majority has increased the uncertainty of the issue by allowing the plaintiff to establish interstate commerce through the effects on commerce of the activity from which the plaintiff has been excluded. Scalia criticizes the majority test, which he reads as requiring only an inquiry into whether the market involved in a particular case affects interstate commerce and ignoring the effects of the conduct challenged by the plaintiff. Academic debate aside, the Pinhas decision should somewhat ease the plaintiff's burden in those circuits that previously looked askance on arguments by individual physicians that adverse staff privilege determinations raised issues cognizable under federal antitrust law.


[1] McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232, 242 (1980).

[2] Ibid. at 246.

[3] Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F. 2d 803 (1st Cir.), cert. denied, 488 U.S. 955 (1988); Sarin v. Samaritan Health Center, 813 F.2d 755 (6th Cir. 1987); Hayden v. Bracy, 744 F.2d 1388 (8th Cir. 1984).

[4] Cardio-Medical Assoc. Ltd. v. Crozer-Chester Medical Center, 721 F.2D 68 (3d Cir. 1983); Western Waste Serv. Sys. v. Universal Waste Control, 6167 F.2d 1094 (9th Cir. 1980), cert. denied, 449 U.S. 869 (1980).

[5] E.g., Miller v. Indiana Hosp., 843 F.2d 139, 144 n.5 (3d Cir.), cert. denied, 488 U.S. 870 (1988).

[6] Sarin, 813 F.2d at 758.

[7] Pinhas v. Summit Health, Ltd., 894 F.2d 1024, 1032 (9th Cir. 1989).

[8] Summit Health, Ltd. v. Pinhas, 1991 WL 84636 (May 28, 1991).

[9] Ibid. at 4.

[10] Ibid. at 5.

J. Edward Neugebauer is an attorney associated with the firm of Epstein Becker & Green, P.C. and is located in the firm's Washington D.C. office.
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Title Annotation:Summit Health Ltd. v. Pinhas
Author:Neugebauer, J. Edward
Publication:Physician Executive
Date:Jul 1, 1991
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