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AGO 1962 No. 111 - April 11, 1962
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John J. O'Connell | 1957-1968 | Attorney General of Washington


CONSUMER PROTECTION ACT ‑- MEDICAL SERVICES OF PHYSICIANS AND SURGEONS UNDER §§ 7 AND 5‑- CONTRACT FOR PREPAID MEDICAL CARE LIMITING PURCHASER TO SERVICES OF MEMBERS OF CERTAIN MEDICAL SOCIETY AS EXEMPT UNDER § 17.

(1) Section 7 of the consumer protection act does not exempt services performed by a physician or surgeon from the other provisions of the act.

(2) The word "services" in § 5 includes medical service performed by a physician or surgeon.

(3) A contract for prepaid medical care limiting the purchaser to the services of physicians or surgeons who are members of a certain medical society is exempt from application of the act by the provisions of § 17, since such transaction is permitted under the health care services act, unless the transaction violates Article XII, § 22 of the constitution.  If such transaction constitutes a violation of the substantive provisions of the consumer protection act, and Article XII, § 22, of the constitution, then the remedies provided in said act are applicable.

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                                                                   April 11, 1962

Honorable R. R. "Bob" Greive
State Senator, 34th District
4456 California Avenue
Seattle, Washington

                                                                                                              Cite as:  AGO 61-62 No. 111

Dear Sir:

            In your letter previously acknowledged you have requested the opinion of this office concerning chapter 216, Laws of 1961.  We paraphrase your questions as follows:

            (1) Does § 7 of the consumer protection act which states: "The labor of a human being is not a commodity or article of commerce . . .," exempt services performed by a physician or surgeon from the other substantive provisions of the statute?

            (2) Does the word "services" in § 5 of the consumer protection act include medical services performed by a qualified physician or surgeon?

            (3) Does a contract for prepaid medical care, which limits the purchaser to the services only of such physicians or surgeons as are members of a certain medical society, constitute an action or transaction  [[Orig. Op. Page 2]] which is exempt from the application of the consumer protection act by the provisions of § 17 thereof?

            We answer question 1 in the negative, question 2 in the affirmative, and question 3 in the manner set forth in our analysis.

                                                                     ANALYSIS

            Question 1:  Does § 7 of the consumer protection act which states:  "The labor of a human being is not a commodity or article of commerce . . .," exempt services performed by a physician or surgeon from the other substantive provisions of this statute?

            In view of the manner in which we answer question No. 2 hereafter, we deem it sufficient to say, in answer to your first question, that in our opinion § 7 of the consumer protection act does not exclude the services performed by a physician or surgeon from the other substantive provisions of the statute.

            Question 2: Does the word "services" in § 5 of the consumer protection act include medical services performed by a qualified physician or surgeon?

            InSkrivanich v. Davis, 29 Wn. (2d) 150, 186 P. (2d) 364 (1947), our supreme court defined "services" as follows at page 161 of its opinion:

            "'In ordinary usage the term "services" has a rather broad and general meaning.  It includes generally any act performed for the benefit of another under some arrangement or agreement whereby such act was to have been performed.  The general definition of "service" as given in Webster's New International Dictionary is "performance of labor for the benefit of another"; "Act or instance of helping, or benefiting." . . .'"

            Such a broad definition of the word "services" would in our opinion include medical services performed by a physician or a surgeon.

            Question 3:  Does a contract for prepaid medical care, which limits the purchaser to the services only of such physicians or surgeons as are members of a certain medical society, constitute an action or transaction which is exempt from the application of the consumer protection act by the provisions of § 17 thereof?

            Section 17 of the consumer protection act provides:

             [[Orig. Op. Page 3]]

            "Nothing in this act shall apply to actions or transactions otherwise permitted, prohibited or regulated under laws administered by the insurance commissioner of this state, the Washington public service commission, the federal power commission or any other regulatory body or officer acting under statutory authority of this state or the United States."  (Emphasis supplied.)

            Beyond question, the business or enterprise of providing prepaid health care services is regulated by laws administered by the state insurance commissioner.  Chapter 268, Laws of 1947, as amended by chapter 197, Laws of 1961 (hereinafter referred to as the health care services act, cf. chapter 48.44 RCW).  Subsection (1) of section 1 of this act, as amended, defines "health care services" as including " . . . medical, surgical, dental, hospital and other therapeutic services . . ."  Subsection (3) of section 1, as amended, defines "health care service contractor" as meaning:

            ". . . any corporation, cooperative group or association, which corporation, cooperative group or association is sponsored by or otherwise intimately connected with a group of doctors licensed by the state of Washington or by a group of hospitals licensed by the state of Washington; or doctor licensed by the state of Washington; or group of doctors licensed by the state of Washington, who or which not otherwise being engaged in the insurance business, accepts prepayment for health care services from or for the benefit of persons or groups of persons as consideration for providing such persons with any health care services."  (Emphasis supplied.)

            Subsection (4) of § 1 of this health care services act, as amended, defines the term "participant" to mean:

            ". . . a doctor or hospital who or which has contracted in writing with a health care service contractor to accept payment from and to look solely to such contractor according to the terms of the subscriber contract for any health care services rendered to a person who has previously paid such contractor for such services."

             [[Orig. Op. Page 4]]

            Section 2 of the health care services act, as amended, reads as follows:

            "Any health care service contractor may enter into agreements with or for the benefit of persons or groups of persons which require prepayment for health care services by or for such persons in consideration of such health care service contractor providing one or more health care services to such persons and such activity shall not be subject to the laws relating to insurance if the health care services are rendered by the health care service contractor or by a participant."

            Section 3 of the health care services act, as amended, reads, in material part, as follows:

            "If any of the health care services which are promised in any such agreementare not to be performed by the health care service contractor, or by a participant, such activity shall not be subject to the laws relating to insurance, but such agreement shall contain provision for reimbursement or indemnity of the persons paying for such services which agreement shall either be underwritten by an insurance company authorized to write accident, health and disability insurance in the state or guaranteed by a surety company authorized to do business in this state, or guaranteed by a deposit of cash or securities eligible for investment by insurers pursuant to chapter 48.13 RCW, with the insurance commissioner, as hereinafter provided. . . ."  (Emphasis supplied.)

            Other sections of the health care services act require health care service contractors to register with the state insurance commissioner, and vest the insurance commissioner with certain regulatory powers.

            Reading together the provisions of §§ 1, 2, and 3, above quoted, it seems apparent that:

            (1) A "health care service contractor" may be ". . . sponsored by or otherwise intimately connected with a group of doctors licensed in the state of Washington . . ." Section 1 (3).

            (2) A "health care service contractor" may accept prepayment for health care services.  Section 1 (3).

             [[Orig. Op. Page 5]]

            (3) With regard to its method of operation, a "health care service contractor" may contract to provide health care services (including medical and surgical services) either by making available the professional services of a limited number of doctors (i.e., "participants"), § 2, or by additionally or alternatively reimbursing or indemnifying persons paying for such services performed by doctors who are not "participants," § 3.  In neither case are the activities of the health care service contractor to be subject to the state laws relating to insurance; however, where the contract provides for the indemnification or reimbursement of persons paying for services rendered by nonparticipants, the health care service contractor must have its agreement underwritten by an insurance company, or post securities in the manner prescribed by § 3.

            Thus, the health care services act, a law administered by the state insurance commissioner, seemingly permits the very action or transaction described by your third question; namely, contracting to provide prepaid medical care, by a health care service contractor sponsored by or intimately connected with a group of doctors licensed by the state of Washington (such as a medical society), and limiting the purchaser to the services only of such doctors as are "participants" in the operation.

            Consequently, it follows that the actions or transactions described in your third question, as we have paraphrased it, are exempt from application of the consumer protection act pursuant to § 17 thereof, supra.

            This is not to say, however, that a health care service contractor, together with its sponsoring group of licensed doctors, may utilize the authority granted by the health care services act to monopolize, attempt to monopolize, or conspire to monopolize the business of providing prepaid medical care.  Article XII, § 22, of our state constitution reads as follows:

            "Monopolies and trusts shall never be allowed in this state, and no incorporated company, copartnership, or association of persons in this state shall directly or indirectly combine or make any contract with any other incorporated company, foreign or domestic, through their stockholders, or the trustees or assignees of such stockholders, or with any copartnership or association of persons, or in any manner whatever for the purpose of fixing the price or limiting the production or regulating the transportation of any product or commodity.

             [[Orig. Op. Page 6]]

            The legislature shall pass laws for the enforcement of this section by adequate penalties, and in case of incorporated companies, if necessary for that purpose, may declare a forfeiture of their franchises."

            For a graphic illustration of the application of this constitutional provision to the business or enterprise of prepaid medical care, seeGroup Health Cooperative of Puget Sound, et al. v. King County Medical Society, et al., 39 Wn. (2d) 586, 237 P. (2d) 737 (1951).

            Manifestly, the consumer protection act of 1961 was enacted by the legislature pursuant to the mandate contained in the last sentence of Article XII, § 22,supra.  Sections 2 through 6 thereof prohibit various practices in restraint of trade, unfair competition, and unfair or deceptive acts or practices in trade or commerce.  Section 8 empowers the attorney general to bring an action ". . . in the name of the state against any person to restrain and prevent the doing of any act herein prohibited or declared to be unlawful."

            Section 9 affords remedies to private persons who are injured in their business or property by a violation of §§ 3, 4, 5 or 6 of the act, including recovery of ". . . the actual damages sustained by him."  This section further provides that ". . . the court may in its discretion, increase the award of damages to an amount not to exceed three times the actual damages sustained. . . ."

            Obviously, in determining the nature and extent of actions or transactions permitted by the health care services act, supra, said act must be read in the light of Article XII, § 22, of our state constitution, supra.  Our constitution constitutes a limit upon the power of, and not a grant of power to, our state legislature.  Clark v. Dwyer, 56 Wn. (2d) 425, 353 P. (2d) 941 (1960), and cases cited therein.  Therefore, the provisions of the health care services act can only be deemed to permit such actions or transactions as are not prohibited by the constitution.  Thus, if the activities of a health care service contractor, in combination with its sponsoring or affiliated group of doctors, transgresses the antimonopoly, antirestraint of trade, antiprice fixing provisions of Article XII, § 22,supra, such activities cannot be deemed to be permitted by any provision of the health care services act.  If, concurrently, any such activities should also constitute violations of the substantive provisions of the consumer protection act, then, in our opinion, the remedies provided for in said  [[Orig. Op. Page 7]] act may be availed of.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

PHILIP H. AUSTIN
Assistant Attorney General

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