Lifewatch Services, Inc. v. Highmark, Inc.

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 21-1142
____________
LIFEWATCH SERVICES, INC.,
Appellant
v.
HIGHMARK, INC.; BLUE CROSS AND BLUE SHIELD ASSOCIATION;
WELLPOINT, INC.; HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY;
BLUE CROSS AND BLUE SHIELD OF SOUTH CAROLINA;
BCBSM, INC., d/b/a BLUE CROSS BLUE AND SHIELD OF MINNESOTA
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-12-cv-05146)
District Judge: Honorable Eduardo C. Robreno
____________
Argued on October 14, 2021
Before: SHWARTZ, NYGAARD and FISHER, Circuit Judges.
(Filed: November 17, 2021)
Gary M. Elden
Ian M. Hansen ARGUED
Shook Hardy & Bacon
111 South Wacker Drive, 51st Floor
Chicago, IL 60606
Counsel for Appellant
Sheryl L. Axelrod
The Axelrod Firm
1125 Walnut Street
Philadelphia, PA 19107

-- 1 of 13 --

2
Sarah J. Donnell
Daniel E. Laytin
Stacy L. Pepper
Kirkland & Ellis
300 North LaSalle Street, Suite 2400
Chicago, IL 60654
Brendan G. Stuhan
Blue Cross & Blue Shield Association
1310 G Street, N.W.
Washington, DC 20005
Justin W. Bernick
Craig A. Hoover
Catherine E. Stetson ARGUED
Hogan Lovells US
555 Thirteenth Street, N.W.
Columbia Square
Washington, DC 20004
Alexander B. Bowerman
Stephen A. Loney, Jr.
Hogan Lovells US
1735 Market Street, 23rd Floor
Philadelphia, PA 19103
Counsel for Appellees
Patrick M. Kuhlmann ARGUED
United States Department of Justice
Antitrust Division
1110 Vermont Avenue, N.W., Suite 501
Washington, DC 20005
Counsel for Amicus Curiae

-- 2 of 13 --

3
____________
OPINION*
____________
FISHER, Circuit Judge.
Appellant LifeWatch Services, Inc. is a large seller of telemetry monitors, which
are outpatient heart monitors used primarily for detecting arrhythmias. Appellee Blue
Cross Blue Shield Association licenses the Blue Cross/Blue Shield trade name to
approximately 36 separate, locally operated health insurers called Blue Plans. LifeWatch
alleges that the Association and Blue Plans have a horizontal agreement not to cover
telemetry and that this agreement violates the Sherman Act, which prohibits conspiracies
that restrain trade. The District Court dismissed LifeWatch’s complaint, holding that the
agreement between the Association and Blue Plans is exempt from federal antitrust
liability under the McCarran-Ferguson Act. LifeWatch now appeals. We will affirm.1
An insurance practice receives McCarran-Ferguson immunity from federal
antitrust liability if it (1) constitutes the “business of insurance,” (2) is “regulated by state
law,” and (3) does not “amount to a boycott, coercion, or intimidation.” Union Lab. Life
Ins. Co. v. Pireno, 458 U.S. 119, 124 (1982) (internal quotation omitted); see also 15
* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
1 The District Court had jurisdiction under 28 U.S.C. §§ 1331 (federal questions),
1337 (commerce and antitrust regulations). This Court has jurisdiction under 28 U.S.C. §
1291 (final judgments).

-- 3 of 13 --

4
U.S.C. § 1012(b). Only the first and second prongs are at issue here. Under the first
prong, a court must examine an insurance practice against three criteria to determine
whether it constitutes the business of insurance: (a) “whether the practice has the effect of
transferring or spreading a policyholder’s risk”; (b) “whether the practice is an integral
part of the policy relationship between the insurer and the insured”; and (c) “whether the
practice is limited to entities within the insurance industry.” Pireno, 458 U.S. at 129.
Under the second prong, state regulation need not mirror federal antitrust law to trigger
McCarran-Ferguson’s exemption, Travelers Ins. Co. v. Blue Cross of W. Pa., 481 F.2d
80, 83 n.10 (3d Cir. 1973); rather, “general prohibition[s] designed to guarantee certain
standards of conduct” are sufficient to show regulation by the state so long as they are not
“mere pretense.” FTC v. Nat’l Cas. Co., 357 U.S. 560, 564 (1957). Finally, “exemptions
from the antitrust laws are to be narrowly construed.” Grp. Life & Health Ins. Co. v.
Royal Drug, Co., 440 U.S. 205, 231 (1979) (citation omitted).
LifeWatch argues that the horizontal agreement between the Association and Blue
Plans not to cover telemetry, which it dubs the Uniformity Rule, fails both of McCarran-
Ferguson’s first two prongs and is therefore not immune from federal antitrust liability.
We disagree.
According to LifeWatch’s complaint, the Uniformity Rule works as follows. The
Association and Blue Plans create a model medical policy, which is made up of
directions for the Blue Plans on what claims to cover. The model medical policy is set by

-- 4 of 13 --

5
a Medical Policy Panel and voted on by each Blue Plan. The Association and Blue Plans
then “agree to require substantial conformity” by Blue Plans with the model medical
policy. J.A. 49. The Association, LifeWatch alleges, enforces the Uniformity Rule
through “audits” to ensure that each Blue Plan substantially complies with the model
medical policy. Id. The gravamen of LifeWatch’s argument is that the Blue Plans have
“repeatedly voted on the model medical policy that requires blanket denial of telemetry
coverage,” Id., and that the Uniformity Rule enforcing this decision does not constitute
the business of insurance. This argument does not pass muster when assessed against the
three “business of insurance” criteria. Pireno, 458 U.S. at 129.
First, the arrangement between the Association and Blue Plans “has the effect of
transferring or spreading a policyholder’s risk,” id., because, according to LifeWatch’s
complaint, it is an agreement “not to compete on the package of services offered.” J.A.
52. McCarran-Ferguson “was intended primarily to protect ‘intra-industry cooperation’
in the underwriting of risks.” Pireno, 458 U.S. at 133 (emphasis in original) (quoting
Royal Drug, 440 U.S. at 221). The arrangement here keeps the risk of the cost for
telemetry services with the insured when it might otherwise be borne by an insurer as
“medically necessary,” and thus transfers the policyholder’s risk. It is precisely the intra-
industry cooperation in underwriting Congress contemplated. Thus, this arrangement is
readily distinguishable from ones that the Supreme Court and we have found not to
constitute the business of insurance.

-- 5 of 13 --

6
For example, in Royal Drug the Supreme Court held that an agreement between an
insurer and participating pharmacies did not spread risk. There, the defendant insurer’s
policy promised subscribers prescription drug coverage at $2 per prescription, with the
insurer reimbursing the pharmacy for the balance. 440 U.S. at 209. To fulfill its
obligations, the insurer entered a separate “Pharmacy Agreement” with participating
pharmacies. Id. If a subscriber filled a prescription at a participating pharmacy, the
insurer covered the cost according to the terms of the policy; however, if a subscriber
filled a prescription at a non-participating pharmacy, he or she had to pay full price and
the insurer would only reimburse him or her for 75% of the amount over $2. Id. This
arrangement, the Court held, did not spread risk, but “serve[d] only to minimize the costs
[the insurer] incur[red] in fulfilling its underwriting obligations.” Id. at 213. Similarly, in
Pireno, the Court held that a defendant-insurer’s use of a peer-review committee to
determine whether a subscriber’s claim for chiropractic care was “necessary” and
“reasonabl[y]” priced under the policy did not spread risk because it was “logically and
temporally unconnected to the transfer of risk accomplished” by the policy itself. 458
U.S. at 130.
We have held that an arrangement where brokers steered clients to particular
insurers in exchange for payment was not the business of insurance because that conduct
did not affect “whether or to what extent a prospective insurance purchaser would
transfer risk to an insurer, but merely to which insurer that risk would be transferred.” In

-- 6 of 13 --

7
re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 311–13, 357 (3d Cir. 2010) (emphasis in
original).
Here, the arrangement between the Association and Blue Plans bears “on the
package of services offered” to insureds through the Blue Plans’ respective policies. J.A.
52. This is not “merely [an] arrangement[] for the purchase of goods or services,” Royal
Drug, 440 U.S. at 214, or a post-execution determination of benefits “unconnected to the
transfer of risk,” Pireno, 458 U.S. at 130, but rather an agreement as to “the type of
coverage [prospective policyholders can] obtain,” Ins. Brokerage, 618 F.3d at 357.
Accordingly, the arrangement between the Association and Blue Plans meets Pireno’s
first criterion of risk-spreading.
Second, the arrangement between the Association and Blue Plans is “an integral
part of the policy relationship” between the Blue Plans and their insureds. See Pireno,
458 U.S. at 129. It has long been established that the policy relationship between the
insurer and insured relates to the “type of policy which could be issued, its reliability,
interpretation, and enforcement.” SEC v. Nat’l Sec., Inc., 393 U.S. 453, 460 (1969). At
the outset, there is a distinction between vertical agreements—such as an agreement
between an insurer and a provider—and a horizontal agreement, such as an agreement
among insurers to engage in cooperative ratemaking and underwriting. See Restraint of
Trade, Black’s Law Dictionary (11th ed. 2019) (defining “horizontal restraint” as “[a]
restraint of trade imposed by an agreement between competitors at the same level of

-- 7 of 13 --

8
distribution”). For this reason, the arrangement in question here is far afield from the
arrangements in Royal Drug and Pireno that the Supreme Court held as not integral to the
insurer-insured relationship. The challenged relationships in those cases involved vertical
agreements with entities wholly outside the insurance industry, and in both cases the
Court reasoned that agreements with such entities were too attenuated from the insurer-
insured relationship to be integral to it. Royal Drug, 440 U.S. at 216; Pireno, 458 U.S. at
131. Here, the arrangement between the Association and Blue Plans determines the “type
of coverage” that an insured may receive. Ins. Brokerage, 618 F.3d at 357. Therefore, the
arrangement between the Association and Blue Plans satisfies Pireno’s second criterion
because it is integral to the insurer-policyholder relationship.
Third, the Association and Blue Plans are “entities within the insurance industry.”
Pireno, 458 U.S. at 129. LifeWatch concedes that the Blue Plans, which are health
insurers, are in the insurance industry, but it argues that the Association is not.
LifeWatch’s argument cannot be squared with the allegations in its complaint that, in
addition to licensing the Blue Cross/Blue Shield trade name, the Association also
“negotiat[es] . . . benefits and premiums” for “Blue Cross health insurance [for] 5.3
million federal employees,” and “establish[es] medical policies affecting subscribers and
providers.” J.A. 34–35. Moreover, the Supreme Court in Royal Drug and Pireno held that
the arrangements in those cases did not constitute the business of insurance in part
because they included entities “wholly outside the insurance industry.” Royal Drug, 440

-- 8 of 13 --

9
U.S. at 231; Pireno, 458 U.S. at 132. The test is not whether an arrangement is limited to
“insurance companies” or “insurers,” but whether it is limited to “entities within the
insurance industry.” Pireno, 458 U.S. at 129.
In short, the Association is dissimilar to the pharmacies in Royal Drug and the
peer-review committee in Pireno. As the Association and Blue Plans correctly point out,
“LifeWatch does not allege the Association is involved in any activities unrelated to Blue
Plans.” Appellee’s Br. 30. And according to LifeWatch’s complaint, the Association, in
collaboration with the Blue Plans, sets the very model medical policy at issue here. It
follows that the arrangement between the Association and Blue Plans is limited to entities
within the insurance industry under Pireno’s third criterion.
Analyzed against the three Pireno criteria, the Uniformity Rule meets the first
requirement for McCarran-Ferguson antitrust exemption: it constitutes the business of
insurance.
The second prong of McCarran-Ferguson at issue here is whether the Uniformity
Rule is “regulated by State Law.” 15 U.S.C. § 1012(b). The relevant portion of the statute
in effect during the time of the conduct alleged here provides:
No Act of Congress shall be construed to invalidate, impair, or supersede any
law enacted by any State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such business, unless such Act
specifically relates to the business of insurance: Provided, That . . . [the
federal antitrust laws] . . . shall be applicable to the business of insurance to
the extent that such business is not regulated by State Law.
15 U.S.C. § 1012(b). The first sentence deals with all federal statutes, while the second

-- 9 of 13 --

10
focuses specifically on federal antitrust laws. LifeWatch offers two interpretive theories
to argue that the District Court erred in concluding that the arrangement between the
Association and Blue Plans is regulated within the meaning of McCarran-Ferguson.
Neither theory is persuasive, even under a narrow construction of the statute.
First, LifeWatch argues that the District Court did not place proper weight on the
statutory phrase “to the extent that.” Focusing on that phrase, LifeWatch argues that “the
business of insurance is exempt only ‘to the extent that’ it is controlled, by rule or
restriction, by state law.” Appellant’s Br. 24 (emphasis in original) (footnote omitted)
(quoting 15 U.S.C. § 1012(b)). Therefore, LifeWatch argues that federal antitrust law
applies up to the point that the challenged conduct is regulated by state law. According to
LifeWatch, a court must take a practice-by-practice approach and look to whether an
individual insurance practice—like the exclusion of telemetry through the Uniformity
Rule—is regulated by the state to determine whether McCarran-Ferguson applies.
No court has embraced this interpretation of the statutory text. Indeed, the
Supreme Court rejected substantially the same argument in FTC v. National Casualty
Co., 357 U.S. 560 (1957). There, the petitioner argued that the “regulated by state law”
prong of McCarran-Ferguson was not met because “a general prohibition designed to
guarantee certain standards of conduct is too ‘inchoate’ to be ‘regulation’ until that
prohibition has been crystallized into ‘administrative elaboration of these standards and
application in individual cases.’” Id. at 564. The Supreme Court rejected this position.

-- 10 of 13 --

11
See id. at 564–65. A state’s regulatory scheme need not regulate an insurance practice in
the particular; so long as a state’s scheme is not “mere pretense,” id. at 564, an insurance
practice will not lose McCarran-Ferguson’s antitrust immunity.
Similarly, we have rejected the argument that, “to exempt conduct from the federal
antitrust laws, state regulation must parallel the Sherman Act.” Travelers Ins. Co., 481
F.2d at 83 n.10. “[H]ad Congress desired this type of regulation, it could simply have
continued the applicability to insurance companies of the Sherman Act itself.” Id. The
Fourth and Sixth Circuits have held the same. See Crawford v. Am. Title Ins. Co., 518
F.2d 217, 218 (4th Cir. 1975) (per curiam) (“[McCarran-Ferguson] renders the federal
antitrust laws inapplicable when state legislation generally proscribes, permits, or
otherwise regulates the conduct in question and authorizes enforcement through a scheme
of administrative supervision.” (citing Nat’l Cas., 357 U.S. at 564–65)); Ohio AFL-CIO
v. Ins. Rating Bd., 451 F.2d 1178, 1182 (6th Cir. 1971) (“[W]e are convinced that the
controlling test is . . . whether the state has generally authorized or permitted certain
standards of conduct.” (internal quotation omitted)).
Here, every state in which the arrangement between the Association and Blue
Plans is challenged has health insurance regulations on the books. What’s more, every
state in question specifically regulates unfair trade practices, methods of competition, or
unfair acts in the insurance industry. LifeWatch does not argue that these regulations are
pretextual—just that they do not deal specifically with horizontal agreements in the

-- 11 of 13 --

12
telemetry market. This argument is foreclosed by controlling case law. See, e.g.,
Travelers, 481 F.2d at 83 n.10. LifeWatch’s first argument on the state regulation prong
fails.
For its second interpretive theory, LifeWatch argues that the statute’s clauses have
been bifurcated when they should be read together. The sole case that LifeWatch cites in
support of this argument is Humana Inc. v. Forsyth, 525 U.S. 299 (1999). There, the
Supreme Court applied McCarran-Ferguson’s first clause to hold that, because the
Racketeer Influenced and Corrupt Organizations (RICO) Act—which is not an antitrust
law—did not “invalidate, impair, or supersede” state law on unfair trade practices, it
could be applied “in harmony with the State’s regulation.” Humana, 525 U.S. at 303.
Based on this holding, LifeWatch argues that federal antitrust law should apply to the
insurance industry so long as it does not “invalidate, impair, or supersede” state law.
This argument overplays its hand. The Court in Humana noted the differences in
language between the first and second sentences of § 1012(b), and these differences
played a key part in its decision. 525 U.S. at 309 (“Congress could have provided, as it
did with respect to the Sherman, Clayton, and Federal Trade Commission Acts . . . that
federal legislation generally, or RICO in particular, would be ‘applicable to the business
of insurance [only] to the extent that such business is not regulated by State law.’”
(second alteration in original) (quoting § 1012(b)). Thus, when a court applies the first
sentence of § 1012(b) to an insurance practice (i.e., when it is dealing with a federal law

-- 12 of 13 --

13
outside the antitrust context), it must determine whether there is a conflict between the
federal law and the law of the state in question. However, when a court applies the
second sentence of § 1012(b), the test is whether the state in which the insurance practice
is challenged has enacted non-pretextual regulations of its insurance industry. See id.
(noting the difference in language and application between McCarran-Ferguson’s first
and second clauses). LifeWatch’s second argument on the state regulation prong fails as
well.
* * *
The challenged arrangement between the Association and Blue Plans, the
Uniformity Rule, constitutes the business of insurance under the three criteria set forth in
Pireno. In addition, the arrangement is regulated by the states within the meaning of
McCarran-Ferguson because each state in which it is challenged regulates its health
insurance industry by permitting and proscribing certain conduct. Accordingly, the
challenged arrangement is accorded McCarran-Ferguson immunity from federal antitrust
liability.2
For these reasons, we will affirm.
2 The Competitive Health Insurance Reform Act of 2020 was enacted after the
District Court dismissed LifeWatch’s Third Amended Complaint. Accordingly, this
opinion does not resolve the question of whether CHIRA applies to LifeWatch’s prayer
for injunctive relief. That issue was not a part of this dispute.

-- 13 of 13 --