A federal district court denied the Texas Medical Board’s (the Board) motion to dismiss an antitrust suit filed by a telemedicine company (Teladoc), finding that the Board is not entitled to state action immunity because its actions are not actively supervised by the state.  Teladoc, Inc. v. Texas Medical Board, No. 1-15-cv-343 (W.D. Tex Dec. 14, 2015) (order denying motion to dismiss).  As we previously reported, the Board issued an emergency rule in January attempting to amend its telemedicine regulations to mandate a “face-to-face visit or in-person evaluation” prior to a physician issuing a prescription.  The Board then engaged in a formal rulemaking to adopt the amendment in April.  Teladoc won a preliminary injunction in May, temporarily blocking the implementation of the new rule.

Telehealth Services and the Proposed Regulation in Texas

Teladoc provides telehealth services, utilizing telecommunications technologies to provide health care services outside the traditional in-person models.  Teladoc services are typically available to individuals whose employer has contracted with the company.  The individuals then register with Teladoc, creating a personal account that includes medical history, medical records, and physician contact information.  Teladoc physicans are board certified and trained to provide treatment and diagnosis via the telephone.  Teladoc physicians can dispense medical advice and prescribe medicines based on the phone consultation with the patient and a review of the patient’s medical history.  According to Teladoc, its services “are generally available 24 hours per day, 365 days per year, for a fraction of the cost of a visit to a physician’s office, urgent care center, or hospital emergency room.”  The Board’s new rule would prohibit the issuance of a prescription without an in-person or face-to-face (via video conference) consultation.

Teladoc’s complaint against the Board alleged that the new regulation violated Section 1 of the Sherman Act and the Commerce Clause.  In its motion to dismiss, the Board argued that plaintiff’s claims are barred by the statute of limitations, that the Board is immune from antitrust liability, and that plaintiff failed to state an actionable claim under the Commerce Clause.  The district court disagreed with the Board.

State Action Immunity

Earlier this year, the Supreme Court held that the antitrust laws would apply to—and the state action exemption would not protect—activities of state agencies or boards made up of market participants, absent active state supervision of the board’s challenged conduct.  North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S.Ct. 1101 (2015).  As an initial matter here, Teladoc and the Board disagreed about which party bears the burden of establishing the applicability of state action immunity.  The Board argued that plaintiffs bear the burden of establishing that immunity does not deprive the court of jurisdiction.  Teladoc contended that the state action doctrine is an affirmative defense, thus the Board bears the burden of establishing its applicability.  The district court agreed with Teladoc, holding that it is a defense to be proved by the purported state actor.

Although the parties agreed that the doctrine requires a showing of active state supervision for the immunity to apply, they parted ways as to whether active supervision exists over the Board’s activities.  In North Carolina State Board, the Supreme Court did not decide whether state supervision existed because it had not been asserted by the board in that case.  However, as noted by the district court, the Supreme Court did state:

It suffices to note that the inquiry regarding active supervision is flexible and context-dependent. Active supervision need not entail day-to-day involvement in an agency’s operations or micromanagement of its every decision. Rather, the question is whether the State’s review mechanisms provide “realistic assurance” that a nonsovereign actor’s anticompetitive conduct “promotes state policy, rather than merely the party’s individual interests.”

The Court has identified only a few constant requirements of active supervision: The supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and the “mere potential for state supervision is not an adequate substitute for a decision by the State.” Further, the state supervisor may not itself be an active market participant. In general, however, the adequacy of supervision otherwise will depend on all the circumstances of the case.

N. Carolina State Bd., 135 S. Ct. at 1116-17 (internal citations omitted).  The Board in Texas argued that it is subject to active state supervision because its decisions are subject to judicial review.  However, the district court found that the review is limited to an inquiry into whether the Board’s decision exceeds its statutory authority.  The district court noted that the review of the validity of a rule is not the same as the evaluation of the policy underlying the rule.  The district court also found that the Board failed to point to any example of judicial review where the validity of a rule was rejected on the grounds that it did not accord with state policy, and further failed to show that the supervisor had the “power to veto or modify particular decisions to ensure they accord with state policy.”  Id.  The district court thus held that the Board failed to meet the Supreme Court’s active supervision requirement necessary for protection under the state action immunity doctrine.

Statute of Limitations and the Commerce Clause

The district court held that Teladoc properly brought its action within Texas’ two-year statute of limitations because the Board’s actions—though initiated prior to the two-year window—continued with the April 2015 amendment.

Teladoc’s Commerce Clause allegation is based on its theory that the new rule discriminates against Texas licensed physicians physically located out of the state.   The district court held that Teladoc’s allegations are sufficient at this early stage of the case, because a Commerce Clause allegation ultimately requires the court to determine “the nature of the local interest involved, and [] whether it could be promoted as well with a lesser impact on the interstate activities.”

For now, Texas physicians can continue to practice telemedicine under the prior regulations. However, they should continue to closely watch this case and any future Board actions on the issue.