Last month, the U.S. Supreme Court agreed to review a lower court’s decision on the scope of the state-action doctrine, which exempts state actors from federal antitrust scrutiny. The Court will hear North Carolina Board of Dental Examiners v. Federal Trade Commission next term (fall 2014). The implications for state-level regulation of healthcare providers, including dental providers, could be significant.

The state-action doctrine provides immunity from federal antitrust liability for certain state-mandated activities. If the state acts under its legislative authority or if a private actor acts under the authority and oversight of the state, the action is exempt from antitrust liability.

In this case, the North Carolina Dental Board (the Board), which oversees the practice of dentistry in North Carolina, asserted state-action as a defense to a Federal Trade Commission (FTC) complaint regarding the Board’s efforts to stop non-dentists from offering teeth whitening services. The Board, composed almost entirely of professionals competing with non-licensed teeth whitening providers, sent cease-and-desist letters to those providers. In response, most unlicensed providers stopped offering these services.

Throughout this case, the two sides have viewed how the Board operates very differently. The FTC believes the Board, elected mainly by practicing dentists and with authority to grant dental licenses and discipline North Carolina dentists, exceeded its authority in actions against non-dentists. By exceeding the Board’s authority, the FTC views the Board’s actions as a private effort to rid North Carolina of competition, in violation of the Sherman Act. By contrast, the Board believes that it is acting as a state regulatory body to ensure patient safety.

The 4th U.S. Circuit Court of Appeals agreed with the FTC that the Board was a private actor violating antitrust law. The 4th Circuit reached this decision by pointing out that the Board was elected by the very individuals likely to benefit from reduced competition. While North Carolina’s statutes created the Board, the state did not have a role in oversight or appointment of the individual Board members. The 4th Circuit held that the Board, without the state’s oversight or appointment powers, was a private actor, selected by market participants to protect their own interests.

A short concurring opinion suggested that if North Carolina used any other mechanism to select the Board (e.g., governor appointment, even from a slate created exclusively by dentists), the 4th Circuit may have approved the Board’s actions. The concurring opinion agreed with the court’s holding that antitrust law barred the Board’s action as a private actor without proper oversight.

This case gives the Supreme Court an opportunity to decide whether these types of state boards, established by the legislature but appointed by private actors, are state or private actors. This question has particular significance in the healthcare industry since all 50 states require physicians on their medical boards and dentists on their dental boards, according to briefs filed in this case. Although not all states follow North Carolina’s appointment process for these physicians and dentists, a number of them do. A circuit split has now opened on the question of whether these professionally appointed bodies are private actors; the Court could close this split.

Further, if the Court believes such boards are private actors, the Court may provide guidance on the necessary state oversight for the state-action doctrine to apply. While all agree there was not significant state oversight of the Board in this case, other boards within North Carolina and beyond have more substantial oversight in their authorizing statute. The Court may use this as a chance to suggest to courts and state legislatures how to structure oversight to avoid antitrust scrutiny of state-authorized private actors.

In addition to the doctrinal implications, this case could have a significant impact on efforts to provide dental services through dental practice management (DPM) companies. In this fight, there is little surprise North Carolina is involved. The state Board has been very active on corporate practice of dentistry (CPOD) issues. The Board has been involved in multiple cases to stop DPM companies from owning and operating dental clinics by claiming these companies violate CPOD In addition, North Carolina created a task force to make recommendations regarding dental management agreement. (For additional details, see our article "NC Scrutiny Of Dental Practice Management Continues.") A victory for the Board would likely encourage these efforts and may spread to other states, such as Texas, that have been more active in regulatory management relationships.