Travelers Insurance Company appeals from the January 6, 1972, district court order dismissing its complaint against Blue Cross of Western Pennsylvania, which order was entered after a trial to the court, 361 F. Supp. 774. Travelers had charged Blue Cross with restraining trade, in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1970),1 and with monopolizing and attempting to monopolize, in violation of section 2 of that Act.2 To prevail, Travelers had also to establish that either Blue Cross' conduct did not come within the protective umbrella provided by the language of the McCarran-Ferguson Act, 15 U.S. C. Sec. 1011 et seq. (1970),3 or was excluded from the protection of that Act by the presence of boycott, coercion, or intimidation, see 15 U.S.C. Sec. 1013(b) (1970).4 After a lengthy non-jury trial, the district court concluded that Blue Cross' conduct was immunized by the McCarran-Ferguson Act and that, even absent such protection, the conduct did not violate the antitrust laws. See Travelers Ins. Co. v. Blue Cross of Western Penn., 361 F. Supp. 774 (W.D.Pa. 1972) (1972 Trade Cas. p 73,311, at 91,428).5 We agree with the district court on both points.

The relevant market consists of 29 counties in Western Pennsylvania. Blue Cross provides hospitalization insurance for 51% of the population of this area; and during a relevant period Blue Cross accounted for 62% of all the patient days which were covered by commercial insurance.6

Travelers objects to a standard contract which Blue Cross has with 101 hospitals in this area which prescribes the amounts and terms under which Blue Cross pays for the services rendered its subscribers. Blue Cross reimburses hospitals only for audited costs subject to a ceiling;7 and these costs do not include any portion of the general hospital expenses of capital construction, of providing free services to indigents, and of providing service to patients who default. Because of these limitations, Blue Cross pays some 14-15% less than the amounts that non-Blue Cross patients are charged.8 Consequently, Blue Cross quotes rates for hospitalization insurance correspondingly lower than the rates of private insurance companies such as Travelers.

Whether the McCarran-Ferguson Act exempts Blue Cross' arrangement with these hospitals from antitrust scrutiny depends, first, on the scope of the statutory term "business of insurance," second, on the extent of state regulation of this arrangement, and, third, on the presence or absence of boycott, coercion or intimidation.

The Supreme Court's most recent interpretation of the McCarran-Ferguson Act appears in SEC v. National Securities, Inc., 393 U.S. 453, 457-461, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969), where the Court held that a state insurance department's approval of a merger of insurance companies would not exempt the merger from the federal securities laws. The Court reasoned that regulation of the "business of insurance" meant control over the relationship between the insurance company and its policyholders; the term did not encompass regulation of the relationship between the company and its shareholders. However, although the Court fashioned this dichotomy, it did not fix the exact contours of the term "business of insurance." Rather, it indicated activities clearly covered-fixing rates, selling and advertising policies, licensing companies and agents, prescribing the types of permissible policies, etc.-and suggested the possibility of additional ones, using this language:

"Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class." 393 U.S. at 460, 89 S.Ct. at 568.

Two district court cases which predated SEC v. National Securities, Inc., nevertheless are useful for comparison with the present case. In California League of Independent Insurance Producers v. Aetna Casualty & Surety Co., 175 F. Supp. 857, 860 (N.D.Cal.1959), the "business of insurance" was held to include the size of commissions paid by companies to agents, because commissions were a vital factor in the companies' ratemaking structure. In contrast, the district court in Hill v. National Auto Glass Co., 293 F. Supp. 295 (N.D. Cal.1968), held that the McCarran-Ferguson Act would not protect Allstate, an automobile liability insurer, which allegedly secured installation jobs for selected automobile glass dealers. It can be surmised that the impact on Allstate's rates of the expense of replacing automobile glass, while it might be direct, would not be substantial.

In the present case, the district court found that the interrelationship of hospital payments and subscribers' rates was such that Blue Cross' arrangement with hospitals should be considered part of the "business of insurance." This conclusion is a sound construction of the law and is amply supported by the evidence.9

Also, the evidence supports the district court finding that the state regulates the arrangement here in question. Section 4 of the Nonprofit Hospital Plan Act, Penn.Stat.Ann., tit. 40, Sec. 1404, provides that:

"The rates charged to subscribers by nonprofit corporations, . . . all rates of payments to hospitals made by such corporations pursuant to the contracts provided for in this act, . . . and any and all contracts entered into by any such corporation with any hospital, shall at all times, be subject to the prior approval of the Insurance Department."10

One recent case suggests that the mere existence of such a scheme of regulation, even if ineffective and unenforced, is sufficient to invoke the McCarran-Ferguson Act. Ohio AFL-CIO v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971), cert. denied, 409 U.S. 917, 93 S. Ct. 215, 34 L. Ed. 2d 171 (1972). However that may be, the record here shows aggressive state regulation.11 In fact, as the district court found, the features of the contract which Travelers finds objectionable were mandated by Insurance Department guidelines designed to encourage high quality care at reasonable costs. Auditing hospital costs and establishing a ceiling were thought to help hold down rising hospital costs by forcing administrative efficiency. Blue Cross was not to contribute to the care of indigents because this responsibility belonged to the state, not to the subscribers of Blue Cross. Finally, Blue Cross was not to support hospital construction for two reasons: such construction was usually financed by the state, the federal government, or private philanthropy; and, historically, hospitals serving the same area have needlessly duplicated expensive specialized services.

By its terms the McCarran-Ferguson Act does not protect "boycott, coercion, or intimidation." Travelers has not challenged the finding of the district court that Blue Cross at no time tried to influence the relationship between hospitals and other insurance companies. Instead, Travelers asserts that Blue Cross used "coercion" to extract concessions from the hospitals. The district court held, and we agree with its conclusion, that the economic inducements which made the Blue Cross contract acceptable to hospitals12 did not amount to "coercion." Especially is that true where, as here, the hospitals negotiated jointly and the resulting contract was approved by the Insurance Department.

Even if the McCarran-Ferguson Act were inapplicable and Blue Cross was subject to antitrust scrutiny, we agree with the district court that Blue Cross could withstand such scrutiny. In arriving at this result, we have not reached the determination of whether Blue Cross possesses enough market power to have "monopoly power." Even assuming that such power exists, we have concluded that Blue Cross' arrangement with hospitals neither illegally restrains trade in violation of section 1 of the Sherman Act nor constitutes, in violation of section 2, "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-571, 86 S. Ct. 1698, 1704, 16 L. Ed. 2d 778 (1966).

Our section 1 analysis begins with the recognition that the situation here does not involve a vertical restraint which has achieved garden variety status. That is, it is not a tie-in, an exclusive dealing arrangement, etc. Consequently, as the district court indicated, it must be carefully looked at on its own facts, in order to reveal whether any restraint of trade it causes is "reasonable." See Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4-5, 78 S. Ct. 514, 2 L. Ed. 2d 545 (1958); cf. Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 62 L. Ed. 683 (1918).

In its negotiating with hospitals, Blue Cross has done no more than conduct its business as every rational enterprise does, i. e., get the best deal possible. This pressure encourages hospitals to keep their costs down; and, for its own competitive advantage, Blue Cross passes along the saving thus realized to consumers. To be sure, Blue Cross' initiative makes life harder for commercial competitors such as Travelers. The antitrust laws, however, protect competition, not competitors; and stiff competition is encouraged, not condemned. It must be pointed out that the size of its competitors does not give Blue Cross the freedom to conduct other than fair competition for business. The dependence of the community on health facilities requires that anti-competitive practices not be tolerated.

We note that one case, United States v. New York Great A. & P. Tea Co., 173 F.2d 79 (7th Cir. 1949), seems to hold that it violates the Sherman Act for a seller to force suppliers to lower their prices to him. The A. & P. case, though, is distinguishable both as to the practices involved and as to the business context of these practices. In addition to its aggressive bargaining over price, A. & P. was also found to exert pressure on suppliers either not to deal or to alter their dealings with A. & P.'s competitors. No comparable conduct was shown here. In fact, the evidence does not support the proposition that Travelers or other companies could not have achieved some price reductions.13 Moreover, A. & P. was found to have engaged on several occasions in predatory pricing-selling at retail below its wholesale cost in order to drive competing retailers out of business. This predatory conduct would have been particularly serious due to the small size of many independent grocers: once forced out of business they would be unable to re-enter the market. Here, in contrast, there was no evidence of predatory pricing. Furthermore, there is no reason to suppose that, even if commercial insurers such as Travelers were currently unable to compete with Blue Cross, they could not immediately re-enter the hospitalization insurance business if it became profitable to do so.

In regard to the Sherman Act Sec. 2 question, we agree with the district court's determination that Blue Cross achieved its present status in a permissible manner. It was first suggested in United States v. Aluminum Co. of America, 148 F.2d 416, 429-430 (2d Cir. 1945), that a monopoly may be "thrust upon" a producer "merely by virtue of his superior skill, foresight and industry," and that such a result would not be violative of section 2.14 In United States v. Grinnell Corp., quoted above, the Supreme Court reaffirmed this position. The district court found, on ample evidence, that Blue Cross owes its success to the completeness of its coverage. From the time of its organization in the late 1930s, Blue Cross has reimbursed hospitals for all covered services rendered its subscribers. Private companies, on the other hand, have, until relatively recently, provided only that their policyholders would be indemnified up to a set dollar ceiling.15 Blue Cross thus has exposed itself to considerably greater risk because of the possibility that treatment would be extensive and because of the probability that hospital costs would rise. By shouldering the risk, Blue Cross has made itself considerably more attractive to consumers. The antitrust laws were not intended to condemn such conduct.

One final contention of Travelers may be disposed of quickly. Travelers now argues that if Pennsylvania grants a competitive advantage to Blue Cross via the operation of the McCarran-Ferguson Act, Pennsylvania denies Travelers equal protection of the laws. Travelers concedes that it did not present this argument to the district court until, after the lengthy trial, Travelers submitted a list of requested findings of fact and conclusions of law. It is questionable whether such belated presentation properly raised the issue before the district court so as to make consideration here proper. See Andrews v. Chemical Carriers, Inc., 457 F.2d 636 (3d Cir. 1972). In any event, the argument has little merit. In view of our holding that, independent of the McCarran-Ferguson Act, the antitrust laws were not violated, the state of Pennsylvania has not denied Travelers equal treatment in violation of the Fourteenth Amendment. Furthermore, even if McCarran-Ferguson Act protection were necessary to Blue Cross, the facts do not support the proposition that Pennsylvania's regulation of the contract between Blue Cross and the hospitals was without rational purpose, see, e. g., James v. Strange, 407 U.S. 128, 92 S. Ct. 2027, 32 L. Ed. 2d 600 (1972).

The judgment of the District Court will be affirmed.