Publications & Presentations
DRI, The Business Suit, Volume 19 Issue 4
Summer 2016
The U.S. Supreme Court narrowed the scope of antitrust immunity for state regulatory boards whose members are active market participants in the occupation regulated by the boards.  In North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015), the Court held that “if a State wants to rely on active market participants as regulators, it must provide active supervision if state-action immunity . . . is to be invoked.”  Active supervision, according to the decision, requires that the state review the substance of the board’s decision (not just the procedure) and have the opportunity to veto decisions that do not accord with state policy.  The decision has resulted in several health care and legal service providers bringing antitrust claims against state regulatory boards.  

North Carolina State Board of Dental Examiners v. FTC

The North Carolina State Board of Dental Examiners (“State Board”) is authorized by state statute to regulate the practice of dentistry and license dentists.  Six of the eight members of the State Board are practicing dentists.  In response to an increase in non-dentists offering teeth whitening, the State Board opened an investigation, issued cease-and-desist letters to numerous providers offering the service, and persuaded the state cosmetologist board to warn its members against providing the service.  Id. at 1108.

The FTC brought an administrative complaint, alleging the State Board’s efforts to exclude non-dentists from the market for teeth whitening constituted an anticompetitive and unfair method of competition under Section 5 of the Federal Trade Commission Act.  The State Board argued its efforts were immune from the antitrust laws under the state-action doctrine.  On appeal, both the Fourth Circuit and U.S. Supreme Court affirmed the FTC’s order.  Id. at 1109.

The Supreme Court explained that as a matter of federalism, “the antitrust laws confer immunity on anticompetitive conduct by the States when acting in their sovereign capacity.” Id.  The Court referred to its recent decision in FTC v. Phoebe Putney Health Systems, Inc., 133 S. Ct. 1003 (2013), which held that state-action immunity applies only if the challenged restraint is a clearly articulated and affirmatively expressed state policy, and if the policy is actively supervised by the state.  In North Carolina State Board of Dental Examiners, the Court held that state-action immunity was not always available when the state delegated its regulatory power to active market participants, who may have an incentive to pursue their own self-interest under the guise of implementing state policies.  135 S. Ct. at 1112-1113.  Active supervision sufficient to confer antitrust immunity requires that: (1) the state must review the substance of the board decisions (and not merely the procedures involved); (2) the state must have the power to veto or modify board decisions that do not accord with state policy; and (3) the mere potential for state supervision is not an adequate substitution for a decision by the state.  Id. at 1116-17.       

Recent Cases Challenging State Board Actions on Antitrust Grounds

Since the Supreme Court’s decision in February, several antitrust lawsuits have been brought challenging state board actions.  In Axcess Medical Clinic, Inc., v. Mississippi State Board of Medical Licensure, 3:15-cv-307 (S.D. Miss., filed April 24, 2015), a pain management clinic sued the Mississippi State Board of Medical Licensure for shutting down the clinic for several months on the grounds that the physician-owner was “practicing pain management without the proper qualifications.”  The complaint alleged that the Board had created “special education and certification requirements for a ‘pain management medical practice’ as arbitrarily defined by the board.”  According to the complaint, the Board’s requirements for operating a pain management practice “were not reviewed by a state supervisor with veto authority before being enacted.”

In Teladoc, Inc., v. Texas Medical Board, 1:15-cv-343 (W.D. Tex., filed April 29, 2015), a nationwide telemedicine provider sued the Texas Medical Board for blocking it from providing remote medical care to Texas patients by videoconference.  According to the complaint, the Board sought to shut down Teladoc by enforcing a new rule that would require Texas physicians to enter into physician-patient relationships through the “use of . . . physical examination,” regardless of the physician’s judgment about whether a physical examination is necessary.  Teladoc moved for a temporary restraining order and preliminary injunction to prevent enforcement of the regulation.  In a decision with possible ramifications for the evolving telemedicine field, on May 29, 2015, the district court agreed with the plaintiffs and enjoined enforcement of the rule, finding that plaintiffs had a substantial likelihood of success on the merits of their claim under the Sherman Act.  The court noted that the Board presented “only anecdotal evidence of possible public harm,” while the plaintiffs presented evidence that “consumers will face higher prices for medical care, as well as reduced access.”  Interestingly, Texas did not assert antitrust immunity on behalf of the Board in opposing the plaintiffs’ motion.  However, on June 18, 2015, Texas moved to dismiss the case on state-action immunity grounds, arguing that Board’s actions were subject to active state supervision in the form of “quasi-judicial and judicial review as well as legislative oversight.”  The motion to dismiss remains pending.

In Legalzoom.com, Inc., v. North Carolina State Bar, 1:15-cv-439 (M.D.N.C., filed June 3, 2015), a nationwide provider of prepaid legal services plans sued the North Carolina State Bar for preventing it from registering its prepaid legal service plans in North Carolina.  The complaint noted that the North Carolina State Bar had earlier filed an amicus brief in the North Carolina State Board of Dental Examiners Supreme Court case.  The State Bar’s own amicus brief argued that requiring active state supervision of regulatory boards composed of market participants would expose the organization “to antitrust claims (and, potentially, to awards of treble damages and attorney fees, as well as to criminal liability).” 

In March 2015, the North Carolina legislature began the process of enacting legislation that would require the state to actively supervise certain activities of the State Bar, “including the State Bar’s actions taken against perceived competitors it claims are engaged in the ‘unauthorized practice of law.’”  Under proposed North Carolina Senate Bill 353, before the State Bar can issue a demand to cease and desist the unauthorized practice of law, the “Attorney General shall review the substance and procedure of any decision . . . to ensure that the proposed action is consistent with State policy.”  According to the proposed legislation (which remains pending as of the date of this article), “the  purpose  of  the  review  by  the  Attorney General is to ensure that the proposed demand to cease and desist . . . would  be  entitled  to State  action immunity under the federal antitrust laws.”

Key Takeaways

  • The Supreme Court’s North Carolina State Board of Dental Examiners decision provides greater scope to challenge the exclusionary actions of state regulatory boards composed of active market participants. 
  • The board actions that appear most vulnerable to challenge are those excluding a provider or category of providers from the market, or limiting the services that a provider may offer.  Board rules regulating providers’ pricing, price advertising, or contracting with payers or employers may also be vulnerable to antitrust challenge.  In today’s health care environment, corporate practice of medicine rules and scope of practice limitations alleged to stifle innovation may also be subject to increased scrutiny.
  • To defeat a claim that a board has state-action immunity from the federal antitrust laws, a plaintiff must show that the state does actively supervise the decisions of the regulatory body to ensure its consistency with state policy.  Importantly, active supervision requires veto power by a state official who is not an active market participant.
  • Some state legislatures (e.g., North Carolina in the area of attorney regulation) are considering legislation to ensure that the state provides sufficient supervision to confer antitrust immunity on regulatory boards composed of active market participants.  According to June 17, 2015, comments by FTC Commissioner Julie Brill, the FTC itself may be planning to provide guidance to states on how to craft legislation that provides immunity to state regulatory boards.  If and when such legislation is enacted in a particular state, an aggrieved party may be unable to challenge a state board's future exclusionary action on antitrust grounds.
  • The Federal Trade Commission has repeatedly warned that it “will continue to challenge defenses based on asserted state action immunity where the state fails to provide adequate active supervision.”  E.g., FTC Staff Urges New York Legislature to Reconsider Proposed Legislation to Grant Antitrust Immunity to Certain Health Care Collaborations, June 5, 2015, available at https://www.ftc.gov/news-events/press-releases/2015/06/ftc-staff-urges-new-york-legislature-reconsider-proposed.  It is also likely that private litigants will challenge the adequacy of states’ attempts to “actively supervise” their boards.  The outcome of such challenges will be uncertain until case law develops interpreting and applying the Supreme Court’s recent decision in the North Carolina litigation.
  • Even if a state board's actions are not immune from antitrust scrutiny, a plaintiff must still show that the alleged exclusionary action violates the Sherman Act, either because it is illegal per se or because its anticompetitive harm outweighs its asserted procompetitive benefits under the antitrust Rule of Reason. As in the Teladoc case, a plaintiff will likely have the most success challenging exclusionary actions that are arbitrary or appear to be motivated by board members' self-serving desire to limit competition.
Mitchell D. Raup, shareholder and vice-chair of Polsinelli's Antitrust practice, has 30 years' experience solving the most difficult antitrust problems. He has been lead antitrust counsel on dozens of health care M&A transactions involving hospitals, physician groups, provider networks, health insurers, pharmaceuticals, dialysis clinics, and group purchasing organizations. He regularly represents businesses and witnesses in antitrust investigations by the Federal Trade Commission, the Antitrust Division of the Department of Justice, and state attorneys general, and litigates high-stakes antitrust cases, including class actions and arbitrations.

Gerald A. Niederman, shareholder in Polsinelli's Health Care practice, represents health care organizations and related nonprofit groups in Colorado and throughout the United States. His clients include hospitals, ambulatory surgical centers, medical groups, trade associations, and related enterprises on matters affecting the delivery and reimbursement of health care services throughout the industry. Gerry's broad knowledge of the federal and state health care regulatory environment and in-depth understanding of real-world business variables provide exceptional value to clients.

Herbert F. Allen, associate in Polsinelli's Antitrust practice, litigates complex antitrust and commercial ligation matters in a variety of industries including pharmaceuticals and college athletics, and has defended proposed and consummated mergers before the Federal Trade Commission and Department of Justice. His experience also includes responding to significant merger investigations (i.e., second requests) in the health care and food products industries, representing clients in state and federal investigations into alleged anticompetitive conduct, and developing antitrust compliance policies for businesses and trade associations
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