Health Highlights

January 21, 2016

The Megatrends Reshaping Healthcare: Managing Change and Maximizing Opportunity
As Out-of-Network Provider Litigation Continues, 2015 Published Opinions Offer Guidance to Insurers
New Webinar From Manatt and the Robert Wood Johnson Foundation: "Where Is the Health Insurance Exchange Market Going in 2016—and Beyond? A Deep Dive"
The Healthcare Landscape Continues to Transform: How Can You Be Ready for the Major Changes Ahead?
The Teladoc Case: Court Ruling Confirms Antitrust Vulnerabilities for State Licensing Boards

The Megatrends Reshaping Healthcare: Managing Change and Maximizing Opportunity

Authors: Jon Glaudemans, Managing Director | Alex Morin, Manager

Editor's Note: In 2013, Manatt Health identified 10 megatrends that would reinvent the healthcare marketplace across the next decade. In a new white paper, summarized below, we examine these trends today—and reveal how they are driving changes in behaviors, expectations and results. For 2016, we've also added an eleventh trend, Focus on the Whole Person. This powerful trend recognizes that leading-edge stakeholders are taking an integrated approach to medical, behavioral, public health and social influences on the health of populations and individuals. Click here to download the full white paper free. If you missed our recent webinar on "The Megatrends Reshaping Healthcare," click here to view it free on demand—and here to download a copy of the presentation.

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The American healthcare system continues its transformational journey into 2016 and beyond, with fresh evidence of the ongoing impact of the Affordable Care Act (ACA), as well as ongoing shifts in the economic and organizational models of healthcare. Providers, payers, regulators and consumers are each adjusting their strategies, policies and behaviors to an increasingly complex—and zero-sum—environment. It's Game On, where the era of collaboration is giving way to sophisticated competitive strategies to gain or maintain market share, attract and retain customers, and control as much of the healthcare dollar as possible.

The following 11 trends will continue to alter the landscape within which all healthcare stakeholders operate across the remainder of the decade and well into the future.

Megatrend 1: Consumers Take Charge

The pressure for consumers to become more active purchasers continues to grow, as they face more immediate cost-benefit decisions. Proactive purchasers demand more information delivered seamlessly through new technology-enabled forms (such as social media and smartphone apps) for ease of use and consumption. Over the next few years, we can expect to see three groups of overlapping consumers:

Plan Shoppers—who purchase insurance through the new healthcare marketplaces/employer-sponsored programs—will demand to compare plan designs and prices. They will not tolerate the current state of myriad designs that requires apples-to-oranges comparisons.
Service Shoppers will require more and more information before making purchasing decisions for healthcare services. The growth in consumer-facing shopping tools will continue to inform and engage these consumers to make smarter financial decisions.
Self-Managers will respond to the higher out-of-pocket cost environment by adopting healthier lifestyles. The market is responding to this segment with an explosion in wearable and ambient devices (Internet of Things) linked to smartphone apps that monitor health status and insurance plans that include health behavior incentives (i.e., smoking cessation and weight control).

Megatrend 2: More with Less: From Volume to Value

The accelerating pressure to reduce the rate of cost growth in our healthcare system continues to drive health system transformation. The core challenge, however, remains: how will organizations optimize limited resources funded under the old fee-for-service world and make the necessary investment to thrive in the new world of value-based incentives? Successful organizations must navigate this challenge and continue to force difficult decisions:

Accelerating adoption of value-oriented payment models. Managed care plans are becoming more adept at transforming their legacy claims systems to accommodate greater risk-sharing and value-based payment models. At the same time, providers are developing the technical and risk management capabilities necessary to manage bundled payments and other partial risk arrangements. Traditional Medicare is accelerating the volume to value shift with the recently enacted Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Part B payment schedule changes, starting in 2019. Meanwhile, the Healthcare Payment Learning and Action Network, an HHS-led public-private partnership, will keep up the pressure for "all-payer" alignment on payment models.
Integrated quality measurement. End-to-end outcomes measures will become more prevalent, linking pharmacy, primary care, inpatient care and, in some cases, non-medical care data. Measurement of the patient experience as part of integrated quality reporting will become more sophisticated—and must become less costly. At the same time, quality reporting will continue shifting from analyses of claims by individual payers to analyses of whole population data based on providers' electronic health information.
A broader definition of total cost of care. As payers and providers take on increasing responsibility for the total cost of care of populations, providers, treatment protocols, devices and drugs will be evaluated more closely on their clinical effectiveness. This will be a challenging shift, particularly for drug and device manufacturers, who have been mostly on the sidelines of integrated quality and payment model discussions.
Care teams as the new norm. Driven by primary care shortages and a need to improve access, the role of nurses, physician assistants, pharmacists, social workers, nutritionists, physical therapists and other allied health professionals will be further elevated and integrated. Patients will increasingly interact with these professionals for routine care.
Tackling the "managing the care managers" conundrum. Payers and provider systems will continue adopting more sophisticated care management models. Providers will most benefit by integrating medical and non-medical services to create one-stop, low-cost shops, while payers will take advantage of their experience using claims data to predict and manage high-cost patient populations. Both will be challenged to integrate services such as home care, skilled nursing, long-term acute care and rehabilitation as an aging, chronically ill population increases demand for these services.

Megatrend 3: Healthcare Everywhere

Experts anticipate significant increases in the demand for care delivered in outpatient, home-based and retail care settings. Patients are demanding that care be delivered close to or in home—and tools are emerging (such as wearables and health apps) that connect consumers to their healthcare no matter where they are. Three imperatives will continue to drive the healthcare everywhere trend:

Laser focus on providing the right care, in the right place, at the right time. Providers will develop more community-based services and form relationships with pharmacies and retail clinics to connect to patients when and where they can access care. Physician practices will increasingly be digitized to connect patients to their providers and medical records. Payers will redesign approval processes and payment schedules to support reimbursement for care in lower-cost settings and prevent unnecessary care.
The explosion of wearables and other self-health-improvement technologies. Informaticists will study personal health data from consumer- and medical-grade wearables seeking patterns that improve early detection of health conditions. Business models may emerge where providers are willing to compensate non-clinical partners, such as health clubs, for delivering measurable improvements in objective health indicators (i.e., weight or BMI). Programs focused on making healthy choices may include using wearables and mobile apps. Privacy issues will emerge, however, as data from consumer wearables is combined with other forms of personally identifiable data.
Greater acceptance and adoption of telehealth. Providers will continue adopting new technologies to deliver primary and specialty services across their clinical networks and rationalize access to costly specialists and services. Payers, including Medicare and Medicaid, are redesigning payment systems to accommodate reimbursement for clinically appropriate care delivered electronically.

Megatrend 4: Mega Health Systems

The pace of consolidation in healthcare remains at a fever pitch. Executives forming Integrated Delivery Systems (IDS) are now focused on the question, "How do we make our mega health system high performing?" At the same time, payers and major drug and device manufacturers also have jumped into the consolidation game. Consolidation and the battle for scale and leverage among healthcare organizations are manifesting themselves in several ways:

Creation of innovative corporate structures to facilitate system development. While full-asset mergers will continue in some markets, looser partnership models, joint ventures, clinically integrated networks, accountable care organizations and other arrangements are being developed to achieve the promise of scale without the legal and regulatory challenges that come with full mergers.
Loss of truly independent community providers. The economic and regulatory demands of the current healthcare environment threaten the survival of independent practices, community hospitals and critical access facilities. We are reaching a watershed moment for the safety net of critical access, not-for-profit healthcare in underserved and rural communities.
Challenges for regulators. Regulators are faced with the challenge of protecting consumers and guarding against conspiracy pricing and monopolistic system development, while not stymieing the integration perceived as necessary to the success of a population approach to care.
Renewed focus on systems reengineering to achieve high performance. With emerging evidence that scale and integration within health systems alone do not meaningfully bend the cost curve, clinical systems will embrace a radical restructuring of their operating models.
Tug-of-war between payers and providers. Many larger health systems are concluding they either should start their own health plans or seek through a sub-capitation agreement to wrestle control of medical management from payers. Payers, in their turn, are reinventing their business models to be customer-centric, including entering the world of direct service delivery.

Megatrend 5: The Centrality of States as Payers, Public Health Agents and Innovators

In the last few years, states have deepened their engagement in the transformation of the organization and oversight of their healthcare delivery systems. Over the next five to ten years, we expect to see accelerating manifestations of this trend:

More use of federal waivers to expand Medicaid and develop comprehensive approaches to Medicaid program transformation. As additional states decide to expand Medicaid, they will increasingly leverage Section 1115 waivers to accommodate their unique clinical, economic and political landscapes.
Continued leverage of multiple federal transformation capital opportunities to drive innovation. Through the 1115 waiver authority, Delivery System Reform Incentive Payment (DSRIP) programs continue to evolve, providing capital for investment in provider-led system redesign. ACA-related programs, such as State Innovation Model, Dual-Eligible Demonstration and CMMI Innovation Awards, also have provided states with capital to support their role in convening stakeholders around reform.
Expanded use of Medicaid's purchasing power. Medicaid agencies will leverage their purchasing power to achieve lower costs. As long as the federal government continues to invest, they will drive the development of new delivery models, such as patient-centered health homes, Accountable Care Organizations (ACOs) and a revitalized managed care system. Should the federal government stop investing, the agencies likely will revert to limiting access and cutting prices to plans and providers. Further, as more expensive therapies are introduced, states will become more aggressive in demanding price concessions and value "guarantees" from innovators.
Greater convergence of Medicaid, Medicare, Marketplaces and other private insurance. With the growth in value-based payment models and regulators' awareness that changing plan and provider behaviors demand a common set of incentives across the various payers in a market, some states will exercise their authorities to align payment strategies—and perhaps plans as well—across the Medicaid Exchanges and the privately insured Marketplace.

Megatrend 6: Value Through Data

Aggregating the data necessary to shift to new models of care and developing actionable insights from this "big data" will continue to challenge stakeholders. We see several manifestations of this trend ahead:

Continued shift from static, retrospective analyses to dynamic predictive analyses to improve decision making at the patient and sub-population levels. As the digitization of healthcare data expands, patient records will be linked to clinically established, evidence-based care protocols and treatment plans that will help providers and patients identify the best interventions for particular conditions.
More consistent use of data to improve health system performance and test emerging clinical protocols, care models and care teams. Systems will increasingly turn to their growing source of internal quality, operational, performance and financial data to drive quality, cost and operational improvements.
Increased use of patient and population data in data-driven discovery, evaluations and innovation for drugs and medical devices. Integrating and modeling clinical, molecular and demographic data sets will complement legacy investments in traditional laboratory and prospective clinical trials. In addition, the increased mining of natural retrospective and real-time "observational trials" will drive new research and development insights.
Entry of Big Tech into healthcare. Accelerating these trends will be the entry (or reentry) of major technology players into the health space, such as IBM with Watson, Apple with its HealthKit, and Microsoft and others with cloud-based solutions.

Megatrend 7: Predict, Prevent, Personalize

The concept of precision medicine continues to evolve. Its promise is transformative, linking basic, science-oriented insights to the development of individualized therapies. The market will experience several manifestations of this trend over the next few years:

Expanding impact of genomic, epigenetics and predictive diagnostics. Genomics may change the face of healthcare through personalized medicine, genetic manipulation and predictive diagnostics. As genome mapping becomes more prevalent, it will raise awareness around the importance of nutrition, lifestyle and preventive medicine—but also cause concerns around privacy and ethical issues.
Continued convergence of biomedical, health practice and health services research approaches. The future of biomedical research, as well as health services/population health research will be defined by the convergence of health sciences, health delivery, life sciences, mathematics, engineering and others, as critical research questions require transdisciplinary approaches and teams to design treatments and cures.
A balance of precision medicine with precision prevention. While an emphasis will remain on precision medicine with the goal of creating targeted therapies, a parallel focus may emerge on precision prevention, leveraging clinical and environmental data to develop interventions that prevent disease.
Increased regulatory focus on how to evaluate, cover, pay for and afford these therapies. Given the countless number of gene variations attendant to a given therapy and the diminishing applicability and utility of randomized clinical trials with such targeted interventions, product innovators, regulators and payers will struggle to find common ground on coverage, coding and reimbursement issues.

Megatrend 8: Employers Recalibrate

With the ACA's employer mandate and taxation provisions, as well as the increased eligibility of low-income workers (or their dependents) for subsidized coverage, employers face new and complex choices in meeting the total compensation (wages and benefits) expectations of their workforce. Over the next few years, we anticipate the following:

The ongoing decline and reinvention of employer-based coverage. Employers will continue to drop coverage for pre-65 retirees and shift them to the new Marketplaces. Many also will change how they provide support to current employees, shifting from a defined benefit to a defined contribution approach.
Self-insured companies seeking new opportunities to reduce healthcare costs. Large, self-insured employers with concentrations of employees in confined geographies will seek exclusive contracts with providers in regional markets and national contracts for destination services. Employers will choose among carriers to build the lowest-cost networks for their employee distributions.
Administration becomes more and more complicated. Due to the increased cost of managing multiple carriers and the increased state and federal regulation of network adequacy and benefit design, employers still purchasing health coverage for employees will struggle with greater administrative complexity.
Continued growth of employer coalitions and private exchanges. Employers will pool their purchasing power to contract on a value basis with select providers. Private exchanges will become more prominent.
Increase in self-funded health benefit plans. Given the more flexible benefit mandates, smaller employers will seek to become self-insured.

Megatrend 9: The New Aging

By 2040, 1 in 5 Americans will be 65 or older, with more than one-third living with a disability. More retirees living longer lives will strain not only our pension and retirement funding systems but require Medicare, Medicaid and other public programs to more closely integrate their medical and long-term services and supports (LTSS) financing and delivery models.

The nature of illness will continue to shift from acute episodes to chronic disease, requiring models of care that extend outside of hospitals' walls. Successful integrated delivery systems will include not only the full complement of traditional medical sites of care but will be seamlessly linked to non-medical community support systems, as well as technology in patients' homes. Over the next few years, we expect:

Increased investment in home-based diagnostic and monitoring systems. From self-care to connected care to monitoring devices, the focus will be on helping people manage chronic conditions in their homes.
Growing disconnects between the demand for and supply of caregivers. Without improved wages and training, the supply of home health workers will continue to lag demand. The need for family caregiving will increase, pressuring employers to provide more generous leave policies and policymakers to make LTSS more affordable.
Steady expansion in the supply of and demand for palliative and end-of-life care. More health and social service delivery systems will develop programs to support palliative and end-of-life needs for those with life-threatening illnesses and their families. Public and private payers are implementing new policies allowing payment for end-of-life counseling and palliative/hospice care.
Continued development of the quest for longevity. Companies are leveraging big data to identify the causes of human decline and designing technologies and medications to prevent, reverse or slow those biological processes.

Megatrend 10: Healthcare Goes Global

In a world without information boundaries, the innovative care models and pricing regimens in other countries will become a more important part of our domestic approach to the delivery and financing of healthcare. Over the next few years, we expect:

Complex market access issues. Most emerging markets have complex access issues and regulatory structures. Pharmaceutical and medical device companies will need to create clear strategies for selecting the most productive markets for their products and achieving access in those countries.
The expanding middle-income opportunity. The BRIC countries (Brazil, Russia, India and China), Mexico, Turkey and Korea have an expanding middle class willing to pay cash for specialty products, making them attractive markets for pharmaceutical and device manufacturers.
The globalization of delivery. With globalization, many American patients and payers may seek to save money on testing, diagnosis and care through medical tourism.

Megatrend 11: Focus on the Whole Person

Leading-edge healthcare stakeholders are beginning to take an integrated approach to medical, behavioral, public health and social issues. With providers and health systems increasingly accountable for the total health and cost of care for an entire population, connecting the medical, social and community-based systems of care is a critical strategy for meeting population health goals. The market will see several manifestations of this trend over the next few years:

Broader acknowledgement of the need to address the social determinants of health. Policymakers, providers and payers will come to agreement that health and healthcare are strongly tied to issues related to poverty, housing, education and other social factors.
Recognition that current funding levels for social/community services are inadequate. A debate will ensue over who is responsible and who pays.
Initial focus on integration of behavioral health as an important first step. With the passage of mental health parity at the federal level and similar legislation at the state level, healthcare payers have begun to address coverage of a range of mental health, substance abuse and alcoholism issues. The new frontier will require eliminating silos between behavioral and physical health, as well as between acute care and LTSS.
Emerging efforts to connect healthcare to community-based organizations and social services. Focus is shifting to models that link the provision of healthcare services to the broader social safety net, including housing, nutrition and employment.
All eyes will be on the early movers. Everyone will be watching the states—such as New York and Washington—that are piloting "whole person" approaches to care.

Conclusion

Successful organizations will understand and capitalize on these 11 trends. Others will not adapt rapidly enough and will litter the landscape as poor performers or worse—extinct organisms.

To make progress in meeting consumers' ever-increasing expectations on cost, quality, access and experience will require guarding one's flank; leveraging shifting alliances; and aligning on a resilient, focused strategy. Over time and not without frequent missteps, the unfolding Darwinian struggle will result in a more efficient, safe and high-quality health system that is highly attuned to consumer needs.

As Out-of-Network Provider Litigation Continues, 2015 Published Opinions Offer Guidance to Insurers

Author: Luke Punnakanta, Associate, Litigation

Litigation involving out-of-network providers, meaning providers who do not have a negotiated rate agreement with the respective payer, continues to be rampant. Certain issues arise frequently in these lawsuits over whether the payers had properly paid claims. This article discusses several published decisions from 2015 that illustrate how courts across the country are handling some of these common issues.

N. Cypress Med. Ctr. Operating Co. v. Cigna Healthcare, 781 F.3d 182 (5th Cir. 2015)

North Cypress, a hospital that is out-of-network with Cigna, brought suit alleging that Cigna underpaid for services. Under the ERISA plans at issue, members were required to pay higher co-pay and coinsurance amounts when they went to an out-of-network provider, which Cigna noted incentivized patients to choose in-network providers and lowered the cost of healthcare overall. North Cypress, however, allowed Cigna members to pay co-pay and coinsurance amounts at in-network rates if they paid either up front or within a short amount of time. North Cypress did not offer a corresponding discount on the amount it billed Cigna. Because of a plan provision that excluded coverage for services for which members were not required to pay, and the fact that members were not required to pay the full out-of network co-pay and coinsurance amount, Cigna took the position that it should pay North Cypress' claims as if North Cypress billed a lesser amount that corresponded to the lesser co-pay and coinsurance rates.

Among other causes of action, North Cypress brought an ERISA claim for the alleged underpayments. The district court dismissed the ERISA claims for lack of standing, but the U.S. Court of Appeals for the Fifth Circuit disagreed. Cigna argued that North Cypress could point to no concrete injury supporting its standing to sue because: (1) North Cypress had standing, if at all, through assignments of rights it received from the plan members, and (2) the members were never at risk of higher out-of-pocket charges because North Cypress did not later charge them amounts that Cigna refused to pay. However, the Fifth Circuit reasoned that what happened to plan members after they assigned rights was not determinative: at the time members assigned rights to North Cypress, members had the right to seek payment from Cigna under the plans, which provided certain coverage for out-of-network providers. Cigna next argued that even if North Cypress had standing to bring suit, that suit failed on its merits because Cigna was not obligated to pay more than it did under the terms of the plans. The Fifth Circuit, however, remanded that issue to the district court.

Cmty. Hosp. of the Monterey Peninsula v. Aetna Life Ins. Co., --F. Supp. 3d--, No. 5:14-CV-01518-PSG, 2015 WL 4760507 (N.D. Cal. Aug. 12, 2015)

Community Hospital, a hospital that is out-of-network with Aetna, treated an Aetna insured in its emergency room on three occasions. In each instance, Community Hospital contacted Aetna, which either authorized the treatment or verified insurance eligibility. Also in each instance, Aetna paid Community Hospital less than its full billed charges for the services. Community Hospital brought suit, alleging negligent misrepresentation, breach of implied contract, and common count services rendered, among other causes of action, based on Aetna's refusal to pay the full billed charges despite the prior authorizations.

The district court held that the negligent misrepresentation claim failed because negligent misrepresentations must relate to past or existing facts, and Aetna's authorization before the services had been rendered related to what Aetna would do in the future.

The district court held that the implied contract claim also failed. While pre-service authorization calls from a provider to an insurer may form a contract, the court noted, the "dispositive issue" in this case was whether full payment was expected under that contract. The district court noted that Aetna informed Community Hospital that the patient was an "out of network admit." The court also pointed to standard practice in the insurance industry as reason that Community Hospital could not have reasonably expected payment of its full billed charges.

The district court likewise held that the common count "services rendered" claim failed. That claim requires that the defendant requested the services, and while Aetna may have authorized the treatment, the patient requested it, the court held. Because other claims not discussed here survived, however, the district court ultimately ordered that a jury must determine whether the amount that Aetna paid on the claims was reasonable.

Centro Medico Panamericano, Ltd. v. Laborers' Welfare Fund of Health & Welfare Dep't of Const. & Gen. Laborers' Dist. Council of Chicago & Vicinity, 2015 IL App (1st) 141690

Centro Medico is a surgical center that is out of network under a Laborers' Welfare plan and hence had no negotiated rate agreement. Before treating several Laborers' Welfare members, Centro Medico called Laborers' Welfare and confirmed coverage. Laborers' Welfare then paid what it calculated to be the "usual and customary charge" for the services. Centro Medico sued for promissory estoppel, claiming that Laborers' Welfare had promised to pay a fixed percentage of Centro Medico's full billed charges.

The court held that the evidence did not support Centro Medico's claim: Centro Medico's written notes from the verification calls used the phrase "usual and customary," and Laborers' Welfare had a policy of training its representatives to explain limitations in coverage. The court likewise rejected Centro Medico's argument that even if Laborers' Welfare promised to pay only usual and customary rates, Centro Medico interpreted "usual and customary" to mean its full billed charges. The court pointed to common industry practice construing the phrase's contrary plain meaning.

Conclusion

As out-of-network provider litigation continues, insurers would be wise to review recent published opinions dealing with common issues like assignment of claims from insured to provider, pre-service authorizations, and "usual and customary" charges.

New Webinar From Manatt and the Robert Wood Johnson Foundation: "Where Is the Health Insurance Exchange Market Going in 2016—and Beyond? A Deep Dive"

Click Here to Register Free—and Join Us February 9 from 1:00 – 2:00 p.m. ET.

Now in its third year, the Health Insurance Exchange (HIE) market is beginning to mature. Certain aspects of the market are working well, while others are less successful. As consumers adapt to the Marketplace model, they are becoming more adept at evaluating their plan options and considering premiums, deductibles and coinsurance. While administration officials tout low premium options, concerns are emerging around rising coinsurance and deductibles, particularly as they affect high utilizers.

What's really happening in the HIE market—and what can you expect going forward? Which states are experiencing the highest increases in premiums and/or deductibles—and by how much? What cost variations are we seeing by metal level among plans? Learn the answers to these questions and more at a new, educational webinar from Manatt and the Robert Wood Johnson Foundation, "Where Is the Health Insurance Exchange Market Going? A Deep Dive," scheduled for Tuesday, February 9 from 1:00 – 2:00 p.m. ET. Click here to register free.

Presented for the World Health Care Congress, the webinar provides the latest analysis of Marketplace trends, based on the HIX Compare dataset—an open access database that includes benefit design data for Marketplace plans across all 50 states. During the program, we will:

Share key findings from 2016 data on premiums and benefit designs for Qualified Health Plans (QHPs) across the country.
Reveal the future of gold plan options.
Explore variations among carriers' cost-sharing strategies.
Identify the effects of high deductibles on high utilizers.
Discuss current Marketplace dynamics, as well as what's coming in 2017.

Even if you can't make the original airing on February 9 at 1:00 p.m. ET, register now, and we'll send you an on-demand link to view the session at your convenience.

Presenters:

Katherine Hempstead, PhD, Director, Robert Wood Johnson Foundation
Joel Ario, Managing Director, Manatt Health Solutions
Valerie Barton, Director, Manatt Health Solutions

The Healthcare Landscape Continues to Transform: How Can You Be Ready for the Major Changes Ahead?

Although we've come a long way in defining the specifics of our healthcare transformation since the passage of the Affordable Care Act (ACA), many critical details are still emerging in upcoming federal regulations and policy guidance. These new rules will require that all healthcare stakeholders rethink how they manage their organizations and structure their business relationships.

To help our clients navigate this volatile healthcare environment, Manatt Health has been creating a series of analyses, fully explaining new federal healthcare guidance and its implications. With so many important changes still ahead, clients have requested that we continue delivering our analyses.

To meet this demand, we will provide ongoing "Federal Healthcare Guidance Summaries" in 2016, covering all new guidance issued over the coming year. Topics include not only Exchange and commercial market regulations but also Medicare and Medicaid managed care rules. If you have interest in subscribing to the guidance summaries, please call your Manatt contact or click here to email Patricia Boozang, Senior Managing Director.

The Teladoc Case: Court Ruling Confirms Antitrust Vulnerabilities for State Licensing Boards

Authors: Lisl Dunlop, Partner, Litigation | Ashley Antler, Associate, Healthcare Industry | Shoshana Speiser, Associate, Litigation

On December 14, 2015, the United States District Court for the Western District of Texas refused to dismiss antitrust claims filed by a telemedicine provider against the state's medical board, alleging that certain board regulations were anticompetitive and imposed to protect state-licensed physicians against competition from telemedicine providers. Filed in the wake of the United States Supreme Court's 2015 decision in North Carolina State Board of Dental Examiners v. FTC, this case signals a growing trend of antitrust lawsuits challenging actions of state licensing boards. The trend has particular relevance to the healthcare industry, in which such boards are a common feature for the regulation of a range of licensed professionals.

The Teladoc Case: An Overview

Plaintiffs, Teladoc, Inc., Teladoc Physicians, P.A., and several individual physicians (jointly, Teladoc), are the largest telehealth service provider in the country. Teladoc employs board-certified physicians and utilizes telecommunication technologies to provide healthcare services without the traditional in-person office visit or hospital setting. Telehealth providers are generally available all day, every day, for a fraction of the cost of a visit to a physician's office, urgent care center or hospital emergency room.

Teladoc sued the Texas Medical Board (TMB) challenging a recently introduced TMB rule requiring a face-to-face physical examination in order to establish a physician-patient relationship. According to Teladoc, TMB's face-to-face requirement was prompted by Texas physicians' complaints about competition and effectively blocked Teladoc's business model.

TMB filed a motion to dismiss Plaintiffs' claims, relying on the so-called state action immunity defense, a defense commonly invoked by state entities as a shield to antitrust scrutiny. As we have previously reported, the Supreme Court's recent decision in North Carolina State Board of Dental Examiners made clear that state licensing boards controlled by active market participants are not immune from antitrust claims unless they are "actively supervised" by the state. TMB argued that it was actively supervised because its decisions are subject to judicial review by Texas courts, the State Office of Administrative Hearings, and the Texas Legislature.

The Court denied TMB's motion to dismiss the complaint, finding that TMB was not actively supervised by the state. Hewing closely to the Supreme Court's guidance on what is necessary for active supervision in North Carolina State Board of Dental Examiners, the Teladoc Court highlighted that the supervisor must:

Review the substance of the anticompetitive decision, not just the procedures followed to adopt it; and
Be endowed with power to veto or modify decisions that do not accord with state policy.

Because the avenues for review through the Texas courts, the State Office of Administrative Hearings and the legislature failed to meet the above criteria, the Court held that they did not meet the standards for active supervision as required by the Supreme Court in North Carolina State Board of Dental Examiners. Instead, these avenues for review merely reflected the presence of some state involvement and monitoring.

The TMB has appealed the court's decision.

Takeaways

The Teladoc case reflects a growing trend of challenges to the actions of state licensing boards that are controlled by active market participants, whether through litigation or lobbying activity through state governors' offices and the Federal Trade Commission. (For additional discussion of this trend, see our article discussing the FTC's recent guidance on active supervision of state licensing boards.) The Teladoc case demonstrates that in the wake of the Supreme Court's decision in the North Carolina State Board of Dental Examiners case:

State licensing boards controlled by individuals practicing in the regulated profession face increased vulnerability under the antitrust laws; and
Courts are responding to the Supreme Court's ruling by closely scrutinizing board rules and procedural requirements.

Until recently, state professional boards controlled by active market participants have enjoyed considerable freedom in issuing rules and regulations with limited court intervention, relying in part on the state action doctrine as a defense to antitrust scrutiny. Moving forward, in light of the Supreme Court's decision and subsequent FTC guidance, the degree to which such state licensing boards can invoke state action immunity as a shield has been brought into question. Healthcare industry participants regulated by such boards may have increased opportunities to challenge actions that have an anticompetitive impact on healthcare markets.