Court gives Teladoc some good news in its antitrust challenge to Texas Medical Board Rule

Back in April 2015, Teladoc, Inc., which provides U.S. board-certified doctors for consults via phone or online video, filed an antitrust challenge to stop a new Texas Medical Board (TMB) rule from taking effect that requires physicians to conduct an in-person patient exam prior to telephonic diagnosis and treatment, regardless of whether the exam is medically necessary. A month or so later, a Texas federal district court judge granted a motion by Teladoc for a preliminary injunction enjoining the TMB “from taking any action to implement, enact, and enforce” the challenged rule. (Background on this and other disputes involving Teladoc and TMB is available here and here.)

At that time, the court did not review the TMB rule under the Supreme Court’s decision inNorth Carolina State Board of Dental Examiners v. Federal Trade Commission, which provides that professional boards, when composed primarily of active market participants, are exempt from antitrust claims only if they are actively supervised by the state government, because “TMB declined to assert any immunity defenses” to the challenged rule. TMB has now changed its tune asserting that Teladoc’s challenge to its rule is barred by the doctrine of state action immunity. The only problem for TMB is that the court disagreed, finding that “TMB has failed to show the active supervision required to merit dismissal on the basis of state action immunity.”

Here’s why the court reached that result: The court first dispatched TMB’s claim that it is subject to active state supervision “because its decisions are subject to judicial review by the courts of Texas and the State Office of Administrative Hearings ("SOAH"), as well as review by the Texas Legislature.” As for judicial and administrative review, the court found that review is “limited to inquiring whether the decision exceeded the statutory authority granted to the agency,” a determination that a rule is invalid and not an “evaluation of the policy underlying the rule.” As such, the court found that the claimed review failed to meet the Supreme Court’s mandate that the supervisor “must review the substance of the anticompetitive decision, not merely the procedures followed to produce it [and that] the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy.”

As for TMB’s argument that “the Texas Legislature exercises sufficient oversight to constitute active supervision” based on a “sunset review” process and a provision requiring the legislature to be notified of proposed rule changes, the court found that (1) the sunset review did not include “the power to veto or modify any rule adopted by the TMB” and (2) the notification requirement lacked “any authority to veto or modify the rule.” After noting that the “mere presence of some state involvement or monitoring does not suffice,” the court had little difficulty finding that the claimed legislative review fell “well short of the active supervision required.” After finding that TMB failed to show its adoption of the challenged rule was subject to active state supervision, the court saw no reason to address the second requirement of state action immunity, a showing that the challenged rules were enacted pursuant to a clearly articulated state policy.

With TMB’s immunity defense behind it, Teladoc’s antitrust challenge can move forward. However, given that the court already concluded that Teladoc showed it would likely succeed on the merits of its antitrust claim when it granted Teladoc’s motion for a preliminary injunction, one has to wonder what’s really left to fight about, but that hasn’t stopped TMB from pressing the immunity fight in another courtroom. This time, TMB is asking the U.S. Circuit Court of Appeals Fifth Circuit to review and overturn the district court’s recent ruling. Whether TMB has better luck in that courtroom is yet to be seen.