In a case with broad implications for healthcare providers, the U.S. Supreme Court unanimously ruled last week that the Federal Trade Commission has the power to regulate not-for-profit trade associations whose guidelines for their members' behavior might be anticompetitive.
Justice David Souter wrote the opinion, saying that association members benefit economically from their membership, which makes associations subject to the FTC Act and FTC authority.
In fact, not-for-profit associations may be better positioned than for-profit associations to promote members' economic interests, Souter said (See box).
The court addressed a case in which the California Dental Association imposed advertising restrictions on its approximately 18,000 members, who represent about 75% of the licensed dentists in the state.
A number of healthcare associations watched the case closely, hoping the high court would knock the FTC out of the legal ring as a regulator or at least support the legality of the CDA's member guidelines.
The American Medical Association filed a brief supporting the CDA, as did the American Hospital Association, which also contributed to the CDA's legal defense fund.
Although the court unanimously backed the FTC's position regarding jurisdiction, it didn't rule on the agency's position that the CDA's advertising guidelines were illegal.
By a 5-4 vote, the court asked the 9th U.S. Circuit Court of Appeals in San Francisco to reconsider its October 1997 decision that the guidelines deprived consumers of the benefits of competition among CDA members.
In the 1997 opinion, the 9th Circuit affirmed the FTC's jurisdiction in the case. The CDA appealed both issues to the U.S. Supreme Court.
The majority of the justices said the 9th Circuit acted too hastily when it decided the guidelines were virtually anticompetitive on their face, as the FTC alleged. The justices said the 9th Circuit should review the guidelines and analyze their effects more thoroughly.
Debra Valentine, the FTC's general counsel, said the commission is "very happy with the part that affirms our jurisdiction and holds that professional associations representing members subject to antitrust laws can't shield themselves by forming nonprofit groups."
Valentine said the justices sent a message to the 9th Circuit that the high court needed to hear more analysis before ruling on the case's merits.
"The part that's much harder to read is they don't say a thing about the (FTC) and they don't say whether there's substantial evidence to our conclusions," she said.
Among the FTC's conclusions is that the CDA's advertising guidelines violate Section 5 of the FTC Act, which makes it illegal to restrict truthful, nondeceptive advertising.
As a condition of membership in the CDA, dentists must follow the association's Code of Ethics, which restricts advertising language about price and quality of service.
The CDA claims it is trying to protect the public from false or misleading advertisements.
The FTC sued the CDA in 1993 over the guidelines. A federal administrative law judge assigned to the FTC ruled that the agency had jurisdiction in the case and that the CDA's guidelines were anticompetitive. The CDA appealed to the 9th Circuit.
CDA Senior Counsel Raoul Renaud said the FTC's antitrust claims regarding the association's advertising guidelines are unfounded. He said the high court is telling the 9th Circuit the evidence isn't there and the FTC didn't prove its case.
"We had to pursue this case to the Supreme Court to prove our advertising guidelines were not violating antitrust laws, and we are pleased the court recognized that the FTC must now prove its case," he said.