(Story updated at 5:45 p.m. ET.)
State professional regulatory boards may seek out more state supervision or even change their membership makeup because of a U.S. Supreme Court decision Wednesday against a North Carolina dental board accused of illegally suppressing competition.
“The decision … is quite significant,” said Jeffrey Brennan, a partner in the antitrust practice at McDermott Will & Emery in Washington and a former head of the Federal Trade Commission's healthcare division. “It impacts a lot of state boards across the country.”
The court ruled Wednesday that the North Carolina dental regulatory board, composed mostly of dentists, illegally suppressed competition when it told non-dentists to stop offering teeth-whitening services.
The 6-3 decision, upholding a lower court ruling, came in the case of North Carolina Board of Dental Examiners v. Federal Trade Commission. The FTC deemed the dental board's actions an illegal suppression of competition. That ruling was upheld by the 4th U.S. Circuit Court of Appeals.
Nationwide, it's common for states to establish regulatory boards consisting of members of the profession being regulated.
The American Medical Association and the American Dental Association had filed a friend-of-the-court brief supporting the state board's position.
American Medical Association President Robert Wah said in a statement Wednesday that the AMA will work with other physician groups to seek policy changes to reinforce antitrust protections for activities conducted under state authority to protect patients.
“The AMA agrees with Justice Alito, speaking for the three dissenting justices, that today's decision 'will spawn confusion' by creating far reaching-effects on the jurisdiction of states to regulate medicine and protect patient safety,” Wah said.
Lawyers for the board had argued it should be immune from antitrust laws because it's a state agency. The FTC, however, said the board should not be immune because North Carolina didn't actively supervise the board's action.
In an opinion written by Justice Anthony Kennedy, the justices sided with the FTC, saying that North Carolina did not actively supervise the dental board, meaning it was not immune from antitrust action.
Kennedy wrote that immunity from antitrust action requires “more than a mere façade of state involvement.”
“Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern,” Kennedy wrote. “Dual allegiances are not always apparent to an actor.”
It's a decision that could spur more states to set up supervisory structures over professional regulatory boards, Brennan said. Now, states generally don't actively supervise such boards, he said.
“If states do not have an active supervision structure in place, then those decisions will be very vulnerable to challenges in light of this case,” Brennan said.
Matthew Cantor, a partner at Constantine Cannon in New York City, also said it's possible states will seek to protect their boards from antitrust litigation by heightening their supervision.
“There's often tension between medical specialists for reimbursement. Those conflicts are going to continue to arise,” Cantor said. “When those conflicts arise to the extent any of these regulatory boards take positions on what is in the best interest of patients, they're going to have to assure themselves that there is some type of supervision of their activities by the state in order to pass legal muster.”
It's also possible states might want to reconstitute the membership of such boards—removing those who are actively practicing in a field—to sidestep antitrust concerns, said the three justices.
Justice Samuel Alito wrote in the dissent that the decision “will create practical problems and is likely to have far-reaching effects on the States' regulation of professions.”
“States may find it necessary to change the composition of medical, dental and other boards, but it is not clear what sort of changes are needed to satisfy the test that the Court now adopts,” Alito wrote in the dissent in which he was joined by Justices Antonin Scalia and Clarence Thomas. “The Court faults the structure of the North Carolina Board because 'active market participants' constitute 'a controlling number of (the) decision makers,' … but this test raises many questions.”
It's the sort of consequence medical and dental industry groups had feared in the case.
The American Medical and American Dental associations had filed a brief in support of the board, in which they argued that subjecting such boards to antitrust laws could harm public health.
“The federal antitrust laws were not enacted, and should not be permitted, to subvert medical and dental decisions by duly constituted state boards regarding what they believe to be in the best interests of patients and the public,” according to the brief.
Scalia wrote in the dissent that the North Carolina board should be immune from antitrust action because it is a state agency. He also wrote that the majority's decision “diminishes our traditional respect for federalism and state sovereignty.”
Some, however, say they don't believe the opinion will necessarily have the effect of lessening physicians' involvement on regulatory boards. Deborah Gersh, co-chair of the healthcare practice group at Ropes & Gray in Chicago, said many state regulatory boards, unlike the North Carolina board, are not mostly made up of active competitors in a field.
Boards will still likely want physicians, and the expertise they bring, among their ranks despite the Supreme Court decision, Brennan said.
“I think there's a strong view across the states that having the experts in the field, be they physicians or dentists or be they in any other area outside of healthcare, are particularly well positioned to have the knowledge about the industry to make regulatory decisions,” Brennan said.
Cantor believes it's more likely that states will amp up their supervision of such boards rather than see their memberships change. He said he believes it wouldn't be too difficult for states to set up supervisory structures.
“The court was very clear in saying these procedures don't have to be overly burdensome,” Cantor said. “They don't have to report each and every day on what they're doing, but there has to be some reporting mechanism that permits the state to evaluate the actions of the board.”
In the majority opinion, Kennedy wrote that active supervision requires the supervisor to review the substance of an anticompetitive decision; the supervisor must have the power to veto or change the board's decisions to make sure they're in line with state policy; and the supervisor may not be itself an active market participant.
“The court is saying, 'Wait a minute, there's a limitation, as there is with anything, to state action immunity, and this is where we've drawn the line,'” Gersh said.
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