Antitrust Alert: Antitrust Immunity for State Agencies Continues to Narrow
In another court decision narrowing state action immunity, a federal district court in Texas has denied the Texas Medical Board's ("TMB") motion to dismiss an antitrust challenge to its new rules on telemedicine providers. Among other things, the TMB argued that it is immune from antitrust liability as a state agency. This case comes on the heels of two recent Supreme Court decisions in FTC v. Phoebe Putney (2013) and North Carolina State Board of Dental Examiners v. FTC (2015) that limited the scope of the state action doctrine. This case continues the trend of courts limiting antitrust immunities and exemptions.
The state action doctrine exempts state entities from federal antitrust scrutiny when there is a clearly articulated state regulatory policy and active state supervision over any private conduct seeking to benefit from immunity. The TMB claimed immunity because its decisions are subject to judicial review by courts, a state administrative body, and the legislature. The court rejected this reasoning, asserting that the state's review of the TMB's rulemaking was not sufficient to qualify for the exemption.
The plaintiff, Teladoc Physicians, provides telemedicine services. Its physicians provide health care services to patients over the Internet and telephone. Teladoc contracts with employers for a per-member subscription fee. As described on the Teladoc website and their briefs, individuals register with Teladoc online or via telephone and provide a medical history, physician information, contact information, medical records, and in some cases photographs. Customers request a medical consultation by logging into Teladoc's web portal or calling a toll-free number. The customer typically then speaks by telephone with Teladoc physicians who have specialized training in treatment and diagnosis. After the consultation, the Teladoc physician may prescribe certain medications, enter notes and findings into the patient's record, and forward the notes to the patient's primary care physician if the patient chooses.
The TMB is an agency of Texas' executive branch with 19 members, 12 of whom were physicians at the time the complaint was filed. In April 2015, the TMB adopted revisions to the Texas Administrative Code that governs the practice of medicine. Specifically, § 190.8(1)(L) ("New Rule 190.8") prohibits prescribing any "dangerous drug or controlled substance" without first establishing a "defined physician-patient relationship." The defined physician-patient relationship must include "a physical examination that must be performed by either a face-to-face visit or in-person evaluation," defined elsewhere in the statute to require that the provider and patient be in the same physical location.
In its lawsuit against the TMB, Teladoc challenged New Rule 190.8 as a violation of Section 1 of the Sherman Act. As the TMB includes physicians, competitors of physician groups whom they regulate, the board's action are subject to Section 1, which prohibits anticompetitive agreements between competitors. TMB moved to dismiss the antitrust claim, arguing that it is immune from the antitrust laws under the state action doctrine.
State Action Antitrust Immunity
To qualify for state action immunity, a defendant must show (1) there is active state supervision over the conduct for which its claims immunity and (2) there is a clearly articulated state regulatory policy. The court here found that that TMB did not satisfy the active supervision requirement and therefore did not address the second factor.
The district court followed the Supreme Court's Dental Examiners case, identifying potential indicia of active state supervision, including the state government's having the ability to review the substance of the anticompetitive decision and the power to veto or modify decisions to ensure they accord with state policy. Citing Dental Examiners, the district court also opined that the "mere potential" for state supervision is not sufficient.
The TMB argued that its rules are voidable by Texas courts and that agency disciplinary actions are subject to judicial review. Rejecting this argument, the district court found that, while Texas courts may review the substance of the rule or action, they can only determine the validity of the rule or action, but lack the power to modify agency decisions or determine whether rules are consistent with state policy. Likewise, the court rejected TMB's argument that the Texas legislature's "sunset review," which evaluates whether there is a continued public need for the state agency, qualified as active state supervision, because legislature has no authority to veto or modify rules.
This case, which follows two recent Supreme Court decisions narrowing the state action doctrine, continues the trend to apply antitrust immunities stringently. Rules enacted by government-sanctioned boards comprised of practicing professionals are likely to face increased antitrust scrutiny. Cases involving state bar associations, veterinary boards, acupuncture licensing boards, and taxicab commissions already are in the courts. Precedents in this area suggest such regulatory boards should include a significant presence of non-practicing professionals and, if that this is not possible, significant oversight mechanisms by the state.
A common theme in these lawsuits challenging state action immunity is the conflict between rules promulgated by state boards involving incumbent competitors and new forms of competition brought by technological advancements. For example, cases in other sectors involve background check regulations for ride-sharing drivers and the provision of online legal services. While the regulatory authorities typically argue that they are protecting consumers and ensuring quality, challengers argue that the incumbent firms are merely shielding themselves from new competition. This conflict is not likely to end any time soon.
The Order on the Motion to Dismiss is available here.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Kenneth W. Field
Alexis S. Gilroy
J. Bruce McDonald
+1.832.239.3822 / +1.202.879.5570
Todd P. Kelly
Michael A. Gleason and Benjamin H. Cheng, associates in the Washington Office, assisted in the preparation of this Alert.
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