The Supreme Court's 2015 decision in N.C. Board of Dental Examiners v. FTC could have a major effect on providers. This landmark decision could have significant implications for states and private entities, forcing states to review their professional licensing boards while potentially exposing both regulators and regulated entities to antitrust claims.
We spoke with Bruce Hoffman and Brian Hauser at Hunton & Williams, LLP to discuss the antitrust implications of the ruling on providers.
What should providers know about SCOTUS's N.C. Board of Dental Examiners v. FTC case?
It is important to understand some background information first. Under the doctrine of state action antitrust immunity, conduct of a state-related entity, such as a medical licensing board or health care authority, is immunized from antitrust scrutiny if it is a foreseeable result of a clearly articulated state policy to displace competition with regulation. And there's a second element that historically has applied only to private actors: A requirement that the conduct was "actively supervised" by the state.
In this case, SCOTUS expanded the application of the "active supervision" requirement to certain state-related entities. Specifically, SCOTUS held that even though the Board was a statute-established state regulatory agency, the "controlling number" of "active market participants" on the Board meant that it needed to be actively supervised by the state in order for its conduct to be shielded from antitrust liability.
Put differently, SCOTUS effectively held that the control exerted on the Board by private competitors effectively transformed the Board itself into a private entity.
What uncertainty still lingers, and what are the antitrust implications from this landmark ruling that providers should be aware of?
SCOTUS gave little guidance as to when the "active supervision" requirement applies, because SCOTUS did not define the scope of "active market participant" or what constitutes a "controlling number" of active market participants.
This uncertainty presents practical difficulties for medical boards, health care authorities, and their active market participant members.
For example, suppose a state has delegated merger approval or certificate of need power to a health care authority in an effort to provide care to low-income or sparsely populated areas that would otherwise go unserved, or to avoid the expansion of unnecessary and costly services. If hospital directors or other hospital managers serve on the authority and the state fails to actively supervise its decisions (which seems likely in most circumstances), its actions may be challenged under the antitrust laws, and its members may be exposed to significant liability.
Similarly, as shown by two recently filed cases, Axcess Medical Clinic v. Mississippi Board of Medical Licensure and Teledoc, Inc. v. Texas Medical Board, any medical board responsible for preventing the unauthorized practice of medicine or creating rules of practice, if not actively supervised by the state, is now at risk for antitrust liability if it is staffed by physicians or other members of the medical community.
Beyond the prospective antitrust risk imposed on professional regulatory boards, private actors who have relied and acted upon boards' decisions on the assumption that supervision by a state board conferred antitrust immunity may face dramatically expanded antitrust risk. To use the earlier example, suppose the health care authority approved a merger of the only two hospitals in a given market prior to this decision, and those hospitals merged under the assumption of antitrust immunity due to the board's approval. Because SCOTUS did not address the issue of previously consummated mergers (or other board-blessed anticompetitive conduct) and the board itself may not have enjoyed antitrust immunity, it may be that the merged entity could be sued for violating the antitrust laws, exposed to substantial penalties, and forced to unwind the merger.
The lack of guidance in SCOTUS's decision makes it difficult to know if active supervision is required when market participants serve on a professional regulatory agency in any capacity. However, boards can impose restrictions that may reduce the likelihood that active supervision is necessary for antitrust immunity to apply:
- The active market participants seated on the board should not constitute a numerical majority. However, the Court did not define “controlling number,” so active supervision may be required even where the active market participants on the board have less than a numerical majority.
- It may also be less risky to have retired professionals serve on the board than currently practicing members.
What are the potential costs of antitrust violations?
Antitrust violations carry severe financial penalties and large litigation costs. These costs may include:
- Lengthy investigations and litigation by federal agencies, state attorneys general, and private plaintiffs;
- Civil penalties of up to $100 million for corporations (this may be increased to twice the amount of the loss suffered or gain achieved as a result of the violation) and $1 million for individuals;
- Private lawsuits that may result in treble damages plus attorneys’ fees;
- Imprisonment for up to 10 years for particularly egregious violations (generally intentional price fixing or bid rigging); and
- Court or agency-imposed monitoring and compliance programs.
These significant penalties clearly warrant compliance with the antitrust laws, and it is critical for participants in the health care industry to remain cognizant of antitrust developments that may impact their actions.
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