Antitrust Law

January 21, 2016

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.