AMA legal brief

Tuesday, September 01, 2015 12:14 PM

Managing antitrust risks post-North Carolina Board of Dental Examiners v. FTC Supreme Court opinion

by American Medical Association

In February, the United States Supreme Court, in North Carolina State Board of Dental Examiners v Federal Trade Commission, 135 S. Ct. 1101 (2015) (hereinafter “Dental Board”), decided that the antitrust defendant Dental Board–a state agency–could not invoke state action antitrust immunity when it prohibited non-dentists from whitening teeth. The Supreme Court held that a state board on which a controlling number of decision-makers are active market participants in the occupation the board regulates must be actively supervised by the state in order to enjoy state action antitrust immunity.

This decision comes as a disappointment to the AMA and other national medical societies who in an amicus brief warned that requiring active state supervision of licensing boards as a condition for antitrust immunity would subordinate public health to antitrust considerations, discourage service on regulatory boards, and disrupt a 150 year tradition of regulating professionals. Notwithstanding these ongoing concerns and adverse outcome, the Court’s opinion is filled with advice for how state boards might comply with the active state supervision requirement.

I. Background facts of North Carolina Dental Board
The Supreme Court’s opinion recites that in the 1990s, North Carolina dentists started whitening teeth. When non-dentists began offering the same service, dentists complained to the Dental Board about their new competitors. Few complaints warned of possible harm to consumers. Most expressed a principal concern with the low prices charged by non-dentists. In response, the Dental Board, comprised largely of dentists who earned substantial fees for teeth whitening services, issued cease-and-desist letters to non-dentist teeth whitening service providers and product manufacturers. These letters had the intended result. Non-dentists ceased offering teeth whitening services in North Carolina.

In 2010, the Federal Trade Commission (FTC) filed an administrative complaint charging the Dental Board with engaging in concerted action in violation of the antitrust laws by anticompetitively excluding non-dentists from the market for teeth whitening services in North Carolina. The Dental Board defended this action on the basis that it was a state agency authorized by law to make scope of practice decisions and therefore entitled to immunity from the antitrust laws.

The FTC concluded, however, that state authorization to regulate dentistry was insufficient to immunize the Dental Board. It reasoned that because six of the Dental Board’s eight members were licensed dentists, it was a public/private hybrid that must be actively supervised by the state to claim immunity. Finding that the Dental Board was not actively supervised, the FTC further concluded that the Dental Board was not entitled to immunity.

Moving to the merits of the case, the FTC found that the Dental Board had unreasonably restrained trade in violation of antitrust law. In reaching this conclusion, the FTC rejected the Dental Board’s public safety justification because “a wealth of evidence” suggested that non-dentists provided safe teeth whitening services.

The Court of Appeals affirmed the FTC in all respects, and the Supreme Court agreed to review the case.

II. Supreme Court opinion
In its opinion, the Supreme Court observed that the similarities between agencies controlled by active market participants and private trade associations are not eliminated simply because the former are given a formal designation by the state, vested with a measure of government power, and required to follow some procedural rules.

When a state empowers a group of active market participants to decide who can participate in its market, and on what terms,” the need for supervision” says the Court, “is manifest.” Rather than delegate to entities controlled by active market participants questions such as whether teeth whitening is the practice of dentistry, active state supervision was necessary to ensure that the anticompetitive conduct of the practicing dentists on the Dental Board promoted state policy, rather than merely the participants’ individual interests. Thus, essentially the Court embraced the FTC’s position.

The Supreme Court then turned to the question of whether the Dental Board, in the case at hand, complied with the active state supervision requirement. The test, emphasized the Court, requires the state to review and approve policies made by the entity claiming immunity. The Court observed that the Dental Board relied upon cease-and-desist letters that threatened criminal liability, rather than invoking available oversight by a politically accountable official. For example, the Dental Board could have sought a court injunction or could have promulgated rules and sought their approval by a commission appointed by the state legislature. Under these circumstances, there was no evidence of any decision by the state to initiate or concur with the Dental Board’s actions against the non-dentists. Accordingly, the Court concluded that it was not entitled to immunity.

III. Looking forward

1. State Choices Among Regulatory Structures
   
   In the wake of the Supreme Court’s Dental Board opinion, a state should carefully choose among a variety of regulatory structures. It can re-constitute its medical board so that it is not composed of a controlling number of physicians and therefore likely exempt from federal antitrust law whether or not they are actively supervised by other state officials. Alternatively, a state can staff a medical board with active market participant physicians. In that event, if immunity is the goal, then there must be appropriate supervision by disinterested officials to ensure that the board’s actions indeed reflect state policy. Third, a state may give a physician-controlled board substantial discretion and opt not to provide any active supervision. If that is the state’s choice, the board would lack immunity and would therefore be prohibited from engaging in any anticompetitive agreement or conduct in violation of antitrust law.
2. Achieving Active State Supervision
   
   It is doubtful that many states will decide to protect their medical licensing board members from antitrust liability by re-comprising the boards to consist of less than a controlling number of practicing physicians. As the Supreme Court acknowledged in its Dental Board decision, there are substantial benefits to staffing licensing boards with experts in complex and technical subjects – certainly true of medical boards. But if a state decides to rely on active market participant physicians and wants them to be immune from antitrust liability, it should provide active supervision.
   1. Principles of Active State Supervision
      
      The Supreme Court opinion is laced with principles that should inform states how to immunize state medical boards. The guiding principle is that the purpose of the active state supervision test is to provide “realistic assurance that the board’s licensing decisions promote state policy, rather than merely their individual interests.” Accordingly, the test requires that financially disinterested state officials accept political responsibility for the board’s decisions. Therefore, as the Court explained, the state supervisor should have and exercise power to review and approve the substance of licensing board policies and disapprove, veto or modify those that fail to accord with state policy. Mere potential for state supervision is not an adequate substitute for a decision by the state. Whether the active state supervision requirement is met will depend on both the practical operation of the relevant legal supervisory scheme and all the circumstances of the case.
      
      Finally, the Court said, that the inquiry regarding the adequacy of supervision is flexible and context dependent. Perhaps then, not all board rules are at risk but only those that favor the interests of the active market participants – the physicians – who control the board. Clearly state supervision is required for immunizing decisions/rules that affect non-physicians, such as typical scope of practice decisions. But would it make sense to insist upon active state supervision in cases of a board disciplining an individual physician? Arguably not. (Moreover such a disciplinary decision would not generally make any difference in the marketplace and thus would ordinarily not present an undue antitrust risk.)
   2. Alternative Operational Approaches for Achieving Active State Supervision
      
      General counsel and government affairs staff interested in encouraging medical licensing board activities should determine the current status of their state boards with respect to the likelihood of meeting the Supreme Court’s active state supervision test. If they believe that the principles of active state supervision are not being met, they might consider the following operational approaches for satisfying the active state supervision test:
      • housing the regulatory board within an umbrella state agency that has supervisory authority over the licensing board.
      • limiting the board to performing primarily advisory functions, with decisions concerning the regulation of the profession assigned to independent state officials.
      • requiring that regulations adopted by the licensing board be approved by another state body to become effective or be subject to review and potential disapproval by disinterested officials, perhaps the state attorney general.
      • empowering legislative committees or other officials to review regulations, to recommend that the legislature override them, and in some cases to suspend the operation of such regulations pending the legislature’s action.
3. State Provisions for the Defense and Indemnification of Medical Board Members
   
   

   Whether a state attempts to comply with the active state supervision requirement – the contours of which will be eventually defined by the courts (a process that could take years) – or chooses to forgo state action antitrust immunity for its medical boards, all board members will be operating under great uncertainty with respect to antitrust exposure. The exposure has the potential to be significant since prevailing plaintiffs are entitled to treble damages and attorney’s fees. Moreover, the cost of defending antitrust cases can be prohibitive. Consequently, states need to act now to provide incentives and protection for physicians to serve on medical licensing boards and when serving, to use their initiative in carrying out their responsibilities to protect the public.  The Supreme Court’s Dental Board opinion is sympathetic to this concern. The opinion expressly states that states may provide for the defense and indemnification of board members in the event of litigation.

   
   

   This is the solution offered by new AMA model state legislation.  It provides for the defense (by private counsel) and indemnification of medical board members from the broadest range of claims and demands, including but not limited to intentional tort or antitrust claims. The bill also contains a provision enabling the medical licensing board to purchase and maintain insurance against any liability, including antitrust liability.

IV. Preparing for future litigation
Antitrust challenges inspired by the Supreme Court’s Dental Board decision are likely to proliferate. For example, on May 29, 2015 a federal district court in Austin, Texas found that an antitrust challenge to a Texas Medical Board telemedicine rule is likely to succeed on the merits.  The plaintiff in the case is Teladoc, the country’s largest telemedicine provider. The defendants are the Texas Medical Board and the individual board members. Teladoc’s antitrust claim is simple: 1) the defendant board engaged in joint action and 2) this joint action amounted to an unreasonable restraint of trade. Allegedly, the telemedicine rule would produce anticompetitive effects by increasing prices, reducing choice, reducing access, reducing innovation and reducing the overall supply of physician services.

The court concluded that plaintiff’s claim that anticompetitive effects would likely occur was supported by the evidence. Accordingly, the Texas Medical Board had the burden of persuading the court that the rule was justified and, on balance, was procompetitive because it enhanced quality. Unfortunately the court was unpersuaded by the board’s quality of care defense. 

The court observed that the board had presented only anecdotal evidence – affidavits from medical practitioners – detailing deficiencies in telephone-only diagnosis. No statistically reliable evidentiary studies were submitted. Thus, the court found, the board’s evidence on quality was rebutted by Teladoc’s countervailing affidavit testimony from patients.  Consequently, the court entered an injunction against the Texas Medical Board’s telemedicine rule.

The best way for medical boards to prepare for expected antitrust challenges is to attempt to comply with the active state supervision requirement. Attempts to comply, even if unsuccessful, should prove helpful in defending an antitrust challenge on the merits. For example, the process of obtaining the approval of a state legislative, judicial or executive branch entity (the state supervisor)  could encourage boards to develop an administrative record that identifies a legitimate reason for the licensing restriction (how it promotes state policy by protecting the public, ensuring quality and safety and so on). The record could further explain why the restriction is reasonably necessary and narrowly tailored to meeting the legitimate objective. If the state supervisor after reviewing this documentation of the reasonableness of the rule were to approve the board’s action as in furtherance of state regulatory policies, a board could have reasonable confidence that its decision would enjoy state action immunity. And if in antitrust litigation it were determined that the board did not enjoy that immunity, the board would be in a good place to defend the antitrust action on the merits.

Disclaimer: Nothing contained in the article is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. The article is intended for educational and informational purposes only.

©2015 American Medical Association. All rights reserved.