November 2, 2015

Early this year, the U.S. Supreme Court ruled that the North Carolina State Board of Dental Examiners (Dental Board) violated the federal antitrust laws by preventing non-dentists from providing teeth whitening services in competition with the state’s licensed dentists in North Carolina State Board of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015). The Dental Board had contended that its activity was immune from antitrust scrutiny under the “state action” doctrine because it was an exercise of the state’s sovereign power. The Court rejected that contention and upheld the Federal Trade Commission’s determination that the Dental Board’s enforcement actions against teeth whitening competitors had illegally restrained trade and did not amount to protected “state action.” To be protected, a state licensing agency such as a board of dentistry or of medicine that is made up of active members of the professions they regulate, such as practicing physicians, must be “actively supervised” by the state.

The FTC staff recently issued guidance on what state licensing boards must do to avoid violating the antitrust laws, in response to state officials' requests following the Supreme Court's ruling.  The guidance is important information not just for the state authorities, for the boards themselves and for the professions they regulate, but also for anesthesiologists and other physicians who might serve on the boards because they may be personally liable for any illegal anticompetitive acts.

Preliminarily we note that anticompetitive conduct by states acting in a sovereign capacity is immune from antitrust liability.  Examples include laws passed by a state legislature or decisions rendered by a state supreme court.  Activities of a non-sovereign state agency such as a licensing board, however, to claim state action protection, must meet the two-part test established by the Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum Inc., 445 U.S. 97 (1980):  (1) the alleged restraint of trade must be clearly articulated and affirmatively expressed as state policy and (2) the policy must be actively supervised by the state. 

The question answered by the Supreme Court in North Carolina State Board of Dental Examiners v. FTC, and which the FTC guidance elucidated, was whether the active supervision requirement applied to state regulatory bodies comprised of market participants, i.e., competitors.  The court held that it did, but it did not define what constituted "active supervision," instead characterizing it as a "flexible and context­-dependent" inquiry.

The FTC staff in turn addressed two questions:

• When does a state regulatory board require active supervision to invoke the state action defense?  Answer: when a controlling number of board members are active participants in the market that the board regulates.  Active market participants may constitute a controlling number of board members even without being in the majority if they are able to control a decision by veto power, tradition, practice or otherwise.  Thus if a board cannot act without at least one vote from an active participant member, for example, the active participants are considered to control the board.  Habitual deference to the participant members by the non-market participants on the board may be enough to constitute active participant control of the board.
• What factors are relevant to determining whether the active supervision requirement is satisfied?  Answer: whether the supervising authority has: (a) obtained the information necessary for a proper evaluation of the action recommended by the regulatory board and has ascertained relevant facts, collected data, conducted public hearings, if applicable, investigated market conditions and reviewed documentary evidence; (b) evaluated the substantive merits of the recommended action and assessed whether the recommended action comports with the standards established by the state legislature; and (c) issued a written decision approving, modifying or disapproving the recommended action and explaining the reasons and rationale for such decision.

The answers to those two questions show that the FTC is continuing to take a strict approach to discourage what it regards as unnecessary regulation of occupations.  Many state regulatory boards are made up of market participants—think of lay medical boards imposing professional discipline on doctors, for instance, and the potential for anticompetitive behavior will be obvious.  Until now, most of these boards have operated without the kind of active supervision described in North Carolina State Board of Dental Examiners v. FTC and defined in the staff Guidance. 

It is not difficult to foresee that state medical boards could be affected in their determinations considered to have a potential anticompetitive impact such as scope of practice issues, among others.  A hypothetical physician-controlled board that adopted policy declaring interventional pain treatment to be the practice of medicine and that was sued by nursing interests alleging an antitrust violation, for example, might not be able to rely on the state action doctrine in its defense if it were not actively supervised by the state authorities.  One commentator, writing in the Journal of Nursing Regulation about the significance of the Supreme Court decision for state boards of nursing (BONs), observes that:

It will be prudent for BONs to review the composition of the boards and the means of selecting members, but a wholesale change in the composition of BONs may not be necessary.  What will be required is a careful review of how BONs act when taking potentially anticompetitive regulatory actions.  The Supreme Court's decision provides greater incentive for boards to refrain from taking controversial actions with potentially anticompetitive effects through less formal means than rule making or regulations subject to state administrative review.  It will be critical for BONs to take the necessary procedural steps to ensure that their actions are subject, where appropriate, to the requisite review and approval by other entities within state government.

Boards of Medicine, and the physicians who serve on them, should not be discouraged from their responsibility for assuring quality, competent and safe medical care.  As the FTC Guidance noted, the standard antitrust defenses certainly remain available regardless of the extent of active state supervision of their actions.  Serving to protect the public rather than to eliminate competitors always has been the proper role of state licensing boards.  

With best wishes,

Tony Mira
President and CEO