This week, in Teladoc, Inc. v. Texas Medical Board, 1-15-CV-343 RP, the U.S. District Court for the Western District of Texas, in one of the first federal decisions interpreting North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015), denied the Texas Medical Board immunity from an antitrust claim in a narrow reading of the state-action immunity doctrine.
Teladoc involves an antitrust challenge to a Texas Medical Board rule requiring “a face-to-face visit before a physician can issue a prescription to a patient, regardless of medical necessity.” Texas law empowers the Board, which comprises active members of the medical profession, to regulate the practice of medicine in that state. Teladoc provides certain health care services over the Internet and telephone. The complaint alleges that the rule restrains telemedicine practitioners’ ability to compete and reduces patient access to affordable medical treatment.
In Dental Examiners, the Supreme Court proscribed the boundaries of state-action antitrust immunity in the context of licensing boards controlled by active members of the regulated profession. Specifically, Dental Examiners recognized although the antitrust laws generally were not intended to prevent states from imposing anticompetitive restraints in their capacity as sovereigns, a special issue arises when a state delegates its authority to agencies controlled by active market participants who have individual interests in stifling competition. Dental Examiners held in that situation, state-action immunity attaches only where: (1) the agency is subject to active state supervision; and (2) the agency’s challenged regulation is a clear expression of state policy.
Teladoc focused on the issue of active state supervision. To qualify as active supervision, however, the court held the state must (1) have the power to veto or modify particular decisions to ensure they accord with state policy; and (2) review the substance of the anticompetitive decision, not merely the procedures followed to produce it. After holding that state-action immunity constitutes an affirmative defense on which the Board carries the burden of proof, the court looked to whether the Board could establish that the state’s review mechanisms provide “realistic assurance” that the challenged rule promoted state policy, rather than merely the board members’ individual interests.
The Board asserted active state supervision existed because its decisions are subject to judicial and legislative review. The Court observed that Texas law limits judicial review of Board rulemaking to assessing whether a challenged rule is a valid exercise of the agency’s legal authority as delegated by the legislature; courts can neither evaluate the policy underlying the rule nor modify a Texas Medical Board decision. Similarly, the Texas Legislature lacks the authority to veto or modify the Texas Medical Board rules. Thus, the court found active supervision lacking and therefore state-action immunity inapplicable to the antitrust claim alleged.
Teladoc instructs that the applicability of state-action immunity for competitive restraints imposed by market participants under the guise of a state regulatory board rule will depend on the particulars of state law. Where state law leaves the final say on the substance of the rule with the board, the immunity will not attach. This represents a sizeable window of opportunity for professionals and other members of a regulated industry to pursue antitrust challenges to rules imposing restraints on their market participation.