Has the Supreme Court Opened a Door for New Challenges to State Corporate Practice of Medicine Laws?

It’s not surprising that Supreme Court watchers in the healthcare industry have focused primarily on King v. Burwell and its potential impact on the Affordable Care Act. However, the Court’s recent 6-3 decision in North Carolina Board of Dental Examiners v. Federal Trade Commission is also noteworthy for its possible effects on the way state boards or agencies license and regulate dental and medical practitioners.

The North Carolina case centers on teeth-whitening services being offered in the state by non-dentists. In response to complaints by licensed dentists, the Board of Dental Examiners issued cease-and-desist letters alleging that teeth whitening constituted the unlicensed practice of dentistry. Then, the Federal Trade Commission got involved. The FTC took the position that the Board’s actions violated federal antitrust laws and a lower court agreed. The Board appealed the ruling on the grounds of state-action immunity meaning that the Board was insulated from antitrust lawsuits by virtue of being a state agency. The Supreme Court affirmed the lower court ruling.

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Medicine Laws

Writing for the majority, Justice Kennedy concluded that “[t] he Sherman Act protects competition while also respecting federalism. It does not authorize the States to abandon markets to the unsupervised control of active market participants, whether trade associations or hybrid agencies. If a State wants to rely on active market participants as regulators, it must provide active supervision if state-action immunity … is to be invoked.”

Unlike most states (in which dental board members are appointed by the state’s Governor, North Carolina’s dental board is popularly elected by the dentists in the state.  As the American Dental Association noted after the decision, the case focused largely “on the fact that the dentist members of the North Carolina board are elected by other dentists — in accordance with state statute.” Considered “active market participants” by the Court, these dentists require active supervision by the states in which they operate. The result, according to the ADA’s general counsel J. Craig Busey, is that professional boards across the country are now left in a quandary, “with no explanation as to what level of active supervision is necessary to invoke immunity for each board.” Busey added that “boards are likely to be extremely reluctant to take actions that may subject them to legal exposure, and individual members may be justifiably concerned about possible liability.”

Medicine Laws

What will be the impact of this case on the regulation of dental and medical practice management companies by state dental and medical boards?  We’ll leave it to others to analyze the antitrust aspects of the decision. Our focus is on what the decision might mean for dental and medical groups moving forward and, in particular, Dental Support Organizations (DSOs) and Management Services Organizations (MSOs).

  • The ruling might inhibit the North Carolina Dental Board’s efforts to  further regulate dental support organizations in the state. Back in 2012, legislation was proposed in the North Carolina House of Representatives that would have given the Dental Board significant new regulatory and oversight authority over DSOs operating in the state. Commenting on the proposed legislation, the FTC expressed concerns that the bill might “deny consumers of dental services the benefits of competition spurred by the efficiencies that DSOs can offer, including the potential for lower prices, improved access to care, and greater choice.” After the Supreme Court’s recent ruling, the North Carolina Dental Board might be reluctant to initiate a third confrontation with the FTC.
  • Other states could take the Supreme Court decision as a warning with respect to new DSO and MSO regulations. North Carolina isn’t the only state that tried to increase its regulation of DSOs. In 2014, the Texas State Dental Board’s attempt to impose new fees and regulations on DSOs was met with strong resistance and was ultimately defeated. The Supreme Court’s North Carolina decision represents another weapon that DSOs and MSOs can use to defend their business models, particularly as dental boards in New Jersey, Indiana, Washington and other states consider new regulations.
  • There may be new opportunities for companies to offer teeth whitening services without state board restrictions. The North Carolina decision would seem to create new opportunities for companies other than dental practices to offer teeth whitening services, but this will vary on a state-by-state basis. A number of states have begun specifically regulating teeth whitening, and companies could face similar – and costly – court battles in those states.

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