Are you a practicing physician who sits on a state licensing board? Is your business affected by a state board with practicing physicians on it?
If you said yes to either question, you should read on.
Actions of state agencies are normally immune from the antitrust laws. But when a state agency regulates a profession and includes practicing professionals who could be self-interested in the outcome of their decisions, it is called a “hybrid agency.”
In a hybrid agency, practicing professionals could well have the power to hurt their competitors. That may expose them to antitrust liability unless their actions are “actively supervised” by the state.
Here’s an example. The Supreme Court just heard argument in North Carolina Dental Board v. FTC. The facts are simple. North Carolina dentists voted their practicing members directly onto the state Dental Board, a state agency. The practicing dentists on the board then decided to exclude all non-dentists from the teeth-whitening market in North Carolina. In fact, they succeeded 100 percent. Needless to say, the cost of non-dentist teeth whitening services was much cheaper than dentist-provided services. Consumers lost the benefit of competition. Licensed dentists got the benefit of a whole market for themselves.
The FTC sued the Dental Board and won at both the Commission and Fourth Circuit. Both forums ruled that the dentist members of the board had an obvious conflict of interest based on their self-interest in the outcome. They held that the only way to cure the “hybrid agency” conflict was for the state to “actively supervise” their conduct. This means having self-interested competitive decisions reviewed by another, disinterested part of the state government.
The Dental Board appealed to the Supreme Court that heard oral argument in mid-October 2014. The case will be decided in the next few months.
Dozens of medical and dental groups submitted briefs supporting the Dental Board. Among the arguments that were endlessly repeated were that (1) questioning the integrity of practicing physicians or dentists on state boards would be “a grave affront to state sovereign dignity” and (2) requiring disinterested “active supervision” of hybrid boards “would massively disrupt the status quo.”
But these supporters of the Dental Board had very little to say about the impact of self-interest on the public. That’s especially interesting because, over the last 20 years, the antitrust laws have been treated like pro-consumer, public welfare statutes. In spite of this, the medical and dental industries apparently don’t see a place for “public welfare” in the ‘hybrid agency” process. In fact, at the oral argument, the lawyer for the Dental Board admitted just that. He insisted that “the states don't have to make a balance between anticompetitive benefits and public benefits.”
Those arguments didn’t seem to make much of an impression at the Supreme Court. Of course, no one can predict the outcome of a Supreme Court argument. But, based on the intense level of questioning at the oral argument, it looked like at least six out of the nine justices were not thrilled by the idea of unsupervised practitioners on a state agency making decisions that affect competition, when their objectivity was compromised by self-interest. As Justice Stephen G. Breyer said:
The object of the antitrust laws is to prevent private individuals who compete with each other in business from getting together and making agreements. That kind of interest seems present here. . . .
It doesn’t really matter whether the North Carolina Dental Board’s decision was perfectly objective or totally venal. The point was that the very existence of self-interest is enough to taint their actions with private interests that an objective state agency would not have.
If the Supreme Court upholds the Fourth Circuit, the presence of self-interest will compromise every hybrid agency unless the state has actively supervised the agency decisions.
So where does this leave a practitioner who sits on a medical or dental board?
Practical advice: 4 points
We expect the Supreme Court will take at least a couple of months before its decision, and we feel thejustices will uphold the lower court. But private lawsuits have already started. In the meantime, this advice could be prudent:
- If you are a practicing physician or dentist and you sit on a state agency, your competitive decisions could expose you to antitrust risk. This means possible injunctions and treble damage actions if you participate in a case that harms competition.
- Competitive decisions you should watch out for include decisions to exclude groups of competitors, individual competitors who may seem “disruptive” to the market and decisions about pricing or advertising.
- If you fall into this category, you should make certain that your state agency is “actively supervised” by the state. In other words, there needs to be a review of any competitive decision by another and disinterested part of the state government. NOTE: It’s not enough that a report gets sent to a state authority. You need to make sure that someone actually reviews the decision and confirms it. Otherwise, there is no antitrust immunity.
- If you’re not on a state agency, but you believe you are a victim of an anticompetitive decision by a “hybrid agency,” check to see whether that decision was taken by practicing professionals and whether there was active state supervision of the decision. If there wasn’t, then the private members of the state agency could be exposed to antitrust liability, including treble damages.