(This story was updated at 5:35 p.m. ET.)
Seeking to address questions raised by a recent U.S. Supreme Court decision, the Federal Trade Commission issued guidance Wednesday explaining how boards can regulate their own professions without violating antitrust law.
The guidance describes what regulatory boards must do in order to avoid violating antitrust laws. It follows a Supreme Court ruling earlier this year in which the justices ruled that state licensing boards made up of active members of the professions they regulate, such as practicing doctors, are not immune from antitrust laws unless they are actively supervised by the state.
The ruling raised serious questions because it's common for state regulatory boards to consist of members of the profession they regulate. The new FTC document describes what exactly active supervision by the state means, who constitutes an active member of a profession and what it means for active members of a profession to control such a board.
“In the wake of the Supreme Court's decision, we received requests for advice from state officials and others as to what constitutes antitrust compliance for state boards responsible for regulating occupations,” according to a description written by Debbie Feinstein and Geoffrey Green with the agency's Bureau of Competition.
In North Carolina Board of Dental Examiners v. Federal Trade Commission, the court held 6-3 that it was illegal for the board, composed mostly of practicing dentists, to tell nondentists working in mall kiosks to stop offering teeth-whitening services. The dental board in that case tried to claim it wasn't subject to federal antitrust laws because it was a state agency. The Supreme Court said that the board would have had to show it was actively supervised by the state in order to claim such immunity from antitrust law.
The FTC now says it considers a board member to be an active member of the profession if that person is licensed by the board or provides any service subject to the board's authority. That means, for example, that an orthodontist on a dental board would still be considered an active market participant—even when deciding cases regarding procedures performed only by dentists—because that orthodontist is licensed and regulated by the board.
Also, a board member who temporarily stops working while he or she is serving on the board is still considered an active market participant.
And active market participants on a board may be considered to control it even if they don't constitute a numerical majority of members.
For example, if a board can't make decisions without at least one vote from an active participant member, then the active participant members are considered to control the board. Or if the nonpracticing members of a board routinely defer to the preferences of the practicing members, then the practicing members are considered to control the board.
The FTC also weighs in on what is meant by the term “active supervision” of professional boards.
In the Supreme Court's majority opinion in North Carolina Board of Dental Examiners, Justice Anthony Kennedy didn't provide much explanation. He wrote that active supervision requires the state supervisor to review the substance of board decisions and have the power to veto or change the decisions to make sure they're in line with state policy. In addition, the supervisor may not be an active market participant, he said.
The FTC says it will consider whether the supervisor has discovered the relevant facts, collected data, conducted public hearings, received public comment, investigated market conditions, conducted studies and reviewed evidence. The commission will also consider whether the supervisor has issued a written decision on the board's action.
The guidance notes that a state can't claim that it's actively supervising a board just because a state official is monitoring it. That official also must be able to veto a board's actions.
Active supervision also requires more than just advice from a state attorney general or other state official to the board. Nor would it be sufficient if the agency tasked with approving or vetoing a board's recommendations, in practice, rubber-stamps all the board's decisions without a thorough review.
Richard Feinstein, a former director of the FTC's Bureau of Competition, said Wednesday he expects that if states make changes in response to the ruling and guidance, they'd be more likely to change how they supervise such boards rather than change the makeup of the boards.
“As a practical matter, it's likely to be a simpler process and perhaps a quicker process to change the way in which a board is supervised rather than how it's constituted,” said Feinstein, now a partner at Boies, Schiller and Flexner in Washington, D.C. He said focusing on supervision might be more straightforward than looking at makeup, especially since the guidance says boards don't necessarily need a majority of active participants as members to be considered controlled by those members.
He said, overall, the guidance successfully provides more clarity to state boards, which will likely find it very helpful as they decide how to respond to the Supreme Court ruling.
Robert Leibenluft, a former head of the healthcare division within the FTC's Bureau of Competition, also said the guidance will be useful to boards. He called the document unusual in that the FTC usually tries to avoid issuing such guidance, preferring to examine situations on a case-by-case basis.
“Whether that's ultimately upheld by the courts is another question, but I think it's useful to find out where the FTC is coming down on these things,” said Leibenluft, now a partner at Hogan Lovells in Washington, D.C.
The guidance may play a key role in the courts in the future, said Robert Fellmeth, a law professor at the University of San Diego and executive director at the Center for Public Interest Law. Fellmeth, who's been a critic of the FTC, said he doubts states or the boards will make changes if legal consequences are absent. He said the vast majority of boards would not now meet the active supervision requirements.
“They will keep doing it until you have four or five or six major treble damages and the credit ruination of board members, then you'll see them act,” Fellmeth said.
He said the guidelines are nonetheless “important because they will definitely influence the courts when cases are filed.”