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Antitrust Ruling Could Impact State Regulatory Boards

 |  By John Commins  
   June 21, 2013

A federal court found the action of a NC dental board to restrict discount teeth-whitening procedures was intended to limit competition, and a legal expert says the ruling could affect other oversight boards.

A federal appeals court ruling this month that affirmed antitrust complaints against a state dentistry board in North Carolina could have broader implications for other state regulatory boards monitoring professional activities, including those of physicians and hospitals.  

The U.S. Court of Appeals for the Fourth Circuit this month rejected the North Carolina State Board of Dental Examiners' claims that it was exempted from federal antitrust laws under the "state action" doctrine.

The dental board had been the subject of an administrative complaint by the Federal Trade Commission in 2010 for violations of the FTC Act after the board banned non-dentists operating in mall kiosks and other venues from performing discount teeth-whitening procedures. A federal district court rejected the board's initial complaint, and the appeals court this month sided with the FTC and noted that the dental examiners board was composed of dentists who stood to gain financially by restricting the practice.  

"At the end of the day, this case is about a state board run by private actors in the marketplace taking action outside of the procedures mandated by state law to expel a competitor from the market," the appeals court said in its ruling.

Jay Levine, a healthcare antitrust attorney with the Washington, D.C.–based firm of Bradley Arant Boult Cummings LLP, says the ruling has broader implications for all state regulatory boards that attempt to limit competition. 

"What the board was doing here was essentially restricting competition by sending cease-and-desist letters to purveyors of teeth-whitening services saying 'what you are doing is illegal' and thereby driving them from the market, which all inured to these dentists' competitive benefit," Levine says.  

"The essential ruling of the Fourth Circuit was affirming the FTC's complaint that because the North Carolina dental board was comprised for the most part of practicing dentists who were elected by practicing dentists , they were considered a private actor and not a governmental entity," Levine says. "Therefore they needed to meet both prongs of the Midcal test, which are a clearly articulated state policy to displace competition plus active supervision of the state over the private parties' conduct."

"If the board is not acting in a collusive manner then they may be entitled to some other protection … because Section 1 of the Sherman Act requires that there be concerted activities between two economic actors. The Fourth Circuit rejected that line of reasoning in the North Carolina dental case because it essentially said 'here you have a bunch of different actors with different economic interests engaging in conduct designed to promote their individual economic interests.' "

Levine says state oversight boards with concerns about their immunity from antitrust complaints should probably review how they are comprised and how they do business.

"From an infrastructure perspective you have to look at whether there is active state supervision over your activity," he says. "If there is active state supervision where there is a state governing body that actually reviews your decision such that your decisions can be appropriately attributed to the state, then you are going to satisfy both prongs of the Midcal test and you are going to be immune from the antitrust laws."

"But if your board doesn't have active supervision from the state, then you need to understand that your conduct may not be immune from the antitrust laws and you may have to look at how you are constituted and discuss whether you need to go back to the legislature and either have them draft legislation putting in a regime that does engage in active state supervision or possibly reformulate how your board is constituted so you are not deemed a private party."

Levine says it is also important that regulatory boards "understand what conduct you are engaging in and whether it can fairly be called anticompetitive."

"Not every activity of the board is going to restrict competition," he says. "You really only have to worry about conduct that can be said [to be] where you are foreclosing or otherwise eliminating or reducing competition. In those cases if you really want to feel comfortable about it, you need to make sure that you are not considered a private party because your board composition is made, for example, straight from the governor or is not comprised of people who are essentially practicing in the field or that there is a regime of active state supervision."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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