Late last week, Texas telemedicine practitioners received a temporary reprieve from a new regulation issued by the Texas Medical Board (the “Board”) when a Texas federal court prohibited implementation of the new rule that would have prevented prescribing via telemedicine.  The regulation’s suspension stems from an antitrust claim brought by a national telehealth provider, Teladoc, Inc. (“Teladoc”), and other plaintiffs against the Board alleging that the Board’s new regulation violates Section 1 of the Sherman Act and the Commerce Clause.

The injunction is the latest blow in a lengthy battle in Texas regarding the standards for appropriate telemedicine practice and is one of the first major cases challenging the actions of a state medical board in the wake of the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission, No. 13-354, slip op. (U.S. Feb. 25, 2015).  In that case, 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. (Further discussion of the case is available in the Mintz Levin Antitrust Alert, Feb. 26, 2015, No Active State Supervision, No Antitrust Immunity for North Carolina State Dental Board”.)

Although the Board is a state agency “statutorily empowered to regulate the practice of medicine in Texas,” notably, it did not assert a state action immunity defense.  The court found the absence of a state action defense significant and somewhat unusual, stating:

Significantly, in this case, the TMB declined to assert any immunity defenses, including Parker immunity, solely as to Plaintiffs’ application for a preliminary injunction.  The normal deference afforded to a state under antitrust law is, therefore, not an issue in reviewing Plaintiff’s application for a preliminary injunction.  The Court’s opinion is properly read through that narrow, and unusual, lens.

Teladoc Inc. v. Texas Medical Board, No. 1-15-CV-343-RP (W.D. Tex. May 29, 2015) (order granting preliminary injunction).

In the wake of the Supreme Court’s North Carolina Board of Dental Examiners decision, whether the Board asserts a state action immunity defense in future proceedings will undoubtedly be closely followed and analyzed, as will any basis asserted for the defense.

As we have previously reported, the Board has attempted to impose new restrictions on the practice of issuing prescriptions based on a telemedicine encounter for some time.  The new restrictions would require that, prior to prescribing, a physician must perform a “physical examination” of the patient, either through a face-to-face visit or an in-person evaluation.  The visit or evaluation can take place through the use of a two-way, real time video conference, but only if the patient is located at an “established medical site.”

The Board first attempted to enact the change through an emergency rule in January.   A Texas state court enjoined the implementation of that emergency rule, finding that the Board could not use the emergency rule process where it had not demonstrated the existence of an emergency.  The Board subsequently engaged in a formal rulemaking, issuing a proposed rule in February (40 Tex. Reg. 993, 1018, Mar. 6, 2015) and approving a final rule in April.  The final rule (22 Tex. Admin. Code § 190.8) would have been effective on June 3, 2015.

As noted by the court, a preliminary injunction may be granted only if the moving party establishes: (1) a substantial likelihood of success on the merits; (2) a substantial threat that failure to grant the injunction will result in irreparable injury; (3) that the threatened injury out-weighs any damage that the injunction may cause the opposing party; and (4) that the injunction will not disserve the public interest.

As to the antitrust claim, the Board argued that Teladoc could not “demonstrate the requisite anticompetitive effect” and argued that injury to competition should be analyzed under a full-blown “rule of reason” analysis.  A full blown rule of reason analysis tests whether the anticompetitive effects of a challenged restraint outweigh the procompetitive benefits, where proof of anticompetitive effects is required, usually through detailed proof of market power, market shares, and other empirical evidence.  Teladoc argued for a more truncated “quick-look” analysis to assess competitive effects.  While the parties disagreed on the competitive effects standard that should be applied – “quick-look” vs. “rule of reason” – the court ultimately concluded that Teladoc’s claims would succeed under both analyses.

Substantial Likelihood of Success on the Merits

 The court found that Teladoc demonstrated a substantial likelihood of success on the merits of its antitrust claims by showing, among other things: (1) that antitrust injury would occur in the form of increased prices (noting the disparity in price between a Teladoc consultation and an average visit to a physician); and (2) the New Rule would result in fewer physicians providing health care in Texas (a state the court acknowledged suffers from a shortage of doctors).  The court found the Board’s argument that the adoption of New Rule 190.8 would lead to improved quality of care “suspect,” and insufficient to outweigh the anticompetitive effect of the New Rule.  Because Teladoc showed a likelihood of success on its antitrust claim, the court did not address the Commerce Clause claim.

Substantial Threat of Irreparable Injury

The court also concluded that Teladoc would be irreparably harmed if the New Rule were to go into effect.  The court came to this conclusion, in part, by relying on the declarations of plaintiff physicians, who asserted that the New Rule would effectively destroy their business models in Texas and supporting case law from the Seventh and First Circuits holding that the destruction of a business model may constitute irreparable injury.  The court was also persuaded by evidence that the New Rule would prevent Teladoc from providing its telephone-only service in Texas (which represented 23% of Teladoc’s revenue).  Further, relying on Fifth Circuit precedent, the court credited plaintiffs’ assertions that they face irreparable injury because they are unlikely to recover monetary damages from the defendants.

Weighing the Interests of the Parties and the Public Interest

The court collectively weighed the interests of the parties against the interest of the public, noting it was tasked with assessing whether “the threatened injury out-weighs any damage that the injunction may cause the opposing party and that the injunction will not disserve the public interest.”  The court combined these analyses, noting that the interests asserted by the Board are “in the form of protecting the public from injury.”  The court disagreed with the Board’s characterization of plaintiff’s evidence as “speculative” and found that the Board presented “only anecdotal evidence of possible public harm.”  In fact, the court gave credence to a prior ruling from a Texas state court that addressed the very issue and found “[n]o imminent peril to the public health, safety or welfare existed on January 16, 2015, or exists at the present time to justify adoption of the emergency rule.”  As such, the court concluded that the “balance of respective interests of the parties and the public weigh in favor of granting Plaintiffs’ application for a preliminary injunction.”

Conclusion

For the time being, Texas physicians using telemedicine can continue to practice under the prior regulations.  However, Texas physicians and telemedicine companies doing business in Texas should continue to watch the case and the Board’s future rules carefully.  Telemedicine practitioners in other states should also continue to monitor the actions of their states’ boards related to telemedicine and prescribing and consider an antitrust action as one potential avenue for relief from restrictions on telemedicine practice.