A win for competition

May 1, 2015

The Supreme Court recently held that the North Carolina Dental Board was not insulated from federal antitrust liability under the so-called “state action” doctrine when it engaged in anticompetitive conduct to restrain non-dentists from performing teeth whitening services.

The American system of healthcare delivery, management and insurance is in a state of dynamic change and many of the most innovative developments aimed at efficiency, quality and cost savings are originating with managed care organizations (MCOs). Too often, innovation is met by what the economist Milton Friedman called “the tyranny of the status quo”-the resistance of entrenched guilds to allow productive competition. For occupants of MCO C-Suites faced with such resistance, there is good news both from the Supreme Court of the United States and the Federal Trade Commission (FTC).

Recently, the Supreme Court held that the North Carolina Dental Board was not insulated from federal antitrust liability under the so-called “state action” doctrine when it engaged in anticompetitive conduct to restrain non-dentists from performing teeth whitening services. The Court reaffirmed that state action antitrust immunity for professional board regulatory actions has two prerequisites: the actions must be conducted under “active state supervision,” and they must follow a “clearly articulated state policy” to displace competition.  

Although the North Carolina case involved a dental board’s attempt to restrict activities of non-dentists, the Court’s opinion has broader implications for how states regulate and “actively supervise” both professional boards in the healthcare sector, and also other state programs requiring active state supervision-such as certificate of public advantage regulations or other innovative “ACO”-like structures that are being sanctioned by states. This decision also illustrates how an individual or entity, subject to perceived over-regulation by a professional board, might mount a defense by scrutinizing whether the board meets the “state action” requirements to be insulated from liability for anticompetitive regulatory actions.

Shortly after the Court’s opinion was released, FTC Chairwoman Edith Ramirez issued a statement making clear that the FTC will continue to scrutinize arrangements where market participants act as regulators that are unsupervised by the state: “Today, the Supreme Court affirmed the Federal Trade Commission’s position in recognizing that a state may not give private market participants unsupervised authority to suppress competition even if they act through a formally designated ‘state agency,’” she wrote. “We are pleased with the Supreme Court’s recognition that the antitrust laws limit the ability of market incumbents to suppress competition through state professional boards.”

The FTC has continued to manifest its authority in this area with respect to other state boards, e.g., in Texas, and the limitation on anticompetitive state action enunciated by the Supreme Court is proving an effective weapon.  

Often regulatory boards act for protectionist reasons without a clearly articulated state policy to allow anticompetitive conduct. However, even where there is a clearly articulated policy (which was assumed in the North Carolina case), the board in question must be actively supervised by the state itself. The supervision rule “stems from the recognition that where a private party is engaging in anticompetitive activity, there is a real danger that he is acting to further his own interests, rather than the governmental interests of the State.”  

The North Carolina case provides a potentially useful weapon to MCOs offering innovative services that might not be well received by state boards composed of competitors looking to preserve their economic place. Novel MCOs, ACOs, and other new players in the field who might find themselves subject to over-regulation or exclusion should be poised to benefit from this statement of the law and should take heart in the potential assistance of the FTC and other federal antitrust regulators.