On February 25, 2015, 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, 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 result of the North Carolina State Board of Dental Examiners decision has been a number of lawsuits challenging the actions of state regulatory boards on antitrust grounds. Please read on for an analysis of these cases and what providers need to know about this changing area of law.

Recent Cases Challenging State Board Actions on Antitrust Grounds

1. 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."

2. 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." One study cited by Teladoc found that "Teladoc users had significantly lower rates of follow-up office visits, ER visits, and hospitalizations at both 7 and 30 days." 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.

3. 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 N.C. 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 the state did not actively supervise the exclusionary action 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., Letter from FTC to New York State Senator Michael H. Ranzenhofer, June 5, 2015. 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.