Federal and state courts are expected to rule on several nationally watched antitrust health care cases during the first half of 2015. 

As we enter into the first week of the New Year, Nexsen Pruet associate Rachel Anna examines how the cases involve issues such as state action, health care provider mergers and certificate of need regulations.

Supreme Court Reviews Agency Comprised of Dental Professionals in State Action Case

The United States Supreme Court granted certiorari to resolve whether regulatory bodies comprised of market participants are considered private actors, and thus, are subject to antitrust laws unless actively supervised by the state.  On October 14, 2014, the Supreme Court heard oral arguments in North Carolina State Board of Dental Examiners v. FTC and a ruling is expected in 2015. 

In 2013, the U.S. Court of Appeals for the Fourth Circuit held that the North Carolina State Board of Dental Examiners (“Dental Board”) violated federal antitrust laws by precluding non-dentists from offering teeth-whitening services.[1]  The Dental Board argued it was exempt from antitrust laws as a state agency under the state action doctrine.  The Fourth Circuit, however, concluded that the Dental Board must be treated as a private actor and is not actively supervised by the state. 

The Dental Board is an agency created by North Carolina law to protect public health and safety by ensuring that only qualified individuals practice dentistry in North Carolina.  The Dental Board is comprised of six licensed dentists, elected by dentists; one licensed dental hygienist, elected by dental hygienists; and one consumer member, appointed by the Governor.  The Dental Board is funded by fees paid by licensed dentists and dental hygienists.  Under North Carolina law, the Dental Board can issue dental licenses, enact rules and regulations governing dentistry, investigate dental practices, and issue subpoenas. 

This dispute started when non-dentists began offering teeth whitening services at lower prices than dentists.  After receiving complaints from licensed dentists, the Dental Board issued cease-and-desist letters to non-dentist teeth whitening providers demanding that they stop “all activity constituting the practice of dentistry.”  Some letters warned that “[p]racticing dentistry without a license in North Carolina is a crime.”  Recipients of the letters stopped offering teeth-whitening services, forcing consumers to turn to licensed dentists for more expensive procedures.

The Federal Trade Commission (“FTC”) investigated and then filed a complaint against the Dental Board, alleging that its conduct unreasonably restrained trade in violation of federal antitrust laws.  In July of 2011, an Administrative Law Judge (“ALJ”) found that the Dental Board’s actions constituted an unreasonable restraint of trade.  The FTC Commission later upheld the ALJ’s decision. 

The Dental Board appealed the FTC’s decision to the Fourth Circuit on the grounds that its conduct was immune from antitrust liability under the state action doctrine.  The state action doctrine exempts entities when the challenged restraint is (1) pursuant to a clearly articulated and affirmatively expressed state policy to displace competition; and (2) actively supervised by the state itself.  “Municipality acts” pursuant to a clearly articulated state policy are exempt from the active supervision prong. 

The Fourth Circuit held that the Dental Board must be treated as a private actor for state action immunity purposes because the majority of its members were not appointed by the state, but instead, were selected by and accountable to their fellow market participants.  According to the judicial panel, the case was “about a state board run by private actors in the marketplace taking action outside of the procedures mandated by state law to expel a competitor from the market.”  The Fourth Circuit also pointed out that the Dental Board’s “cease-and-desist letters were sent without state oversight and without the required judicial authorization.” 

The Dental Board appealed the Fourth Circuit’s decision to the U.S. Supreme Court earlier this year.  This is the second time the Supreme Court has reviewed the state action doctrine in the last two years.[2] The Supreme Court’s decision could have significant implications for state professional associations and other licensure boards, including their level of regulatory oversight, composition, and appointment.

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[1] N. Carolina State Bd. of Dental Examiners v. F.T.C., 717 F.3d 359 (4th Cir. 2013), cert. granted sub nom. N. Carolina Bd. of Dental Examiners v. F.T.C., 134 S. Ct. 1491 (2014).

[2] F.T.C. v. Phoebe Putney Health Sys., Inc., 133 S. Ct. 1003 (2013).