When Dentists Go Too Far: North Carolina Board of Dental Examiners v. Federal Trade Commission

Antitrust litigation hasn’t disappeared, but rather changed its focus. Instead of targeting the great railroad empires of the late 19th century, today’s antitrust efforts focus on more minute industries, like dentistry.

In October, the Supreme Court heard arguments for North Carolina State Board of Dental Examiners v. Federal Trade Commission, in which the former organization sent cease-and-desist letters to non-dentists (individuals without medical licenses) who offered non-harmful (deemed so by the FDA) teeth whitening services (for example, kiosks in shopping malls) for comparatively low costs. While at first glance the Board of Dental Examiners (henceforth “NCSBDE”) seems to be simply a state agency, it is actually comprised of mostly licensed practicing dentists (six of eight of the members). The remaining two are a licensed dental hygienist and a consumer representative. These members were elected to the board by other licensed practicing dentists, not by any government entity. The cease-and-desist orders that the Board sent out were are not reviewed by anyone else. In other words, much of the NCSBDE has a financial interest in eliminating the competition posed by the non-dentists, and can easily act on it. So is the NCSBDE exempt from federal anti-trust laws? This case is not so cut and dry. North Carolina set up the Board of Dental Examiners but then set it loose, without supervision by the state. The Supreme Court asked whether that process is okay. (For more information on anti-competitive actions of the dental industry nationwide, read this superb report from the Institute for Justice.)

Like most other questions before the Supreme Court, it’s tough to answer. After the Federal Trade Commission (FTC) found the NCSBDE violated the FTC Act and the Sherman Antitrust Act, both of which tried to limit anti-competitive business tactics, the Board sued the FTC in the 4th Circuit Court Appeals, which ruled in favor of the FTC.

Teeth Whitening – who is allowed to do it?

The 4th Circuit’s decision rests squarely on the idea that the Board, comprised of private actors in the marketplace, took action outside of its state-mandated procedures. If a state agency is “operated by market participants who are elected by other market participants,” that state agency is a private actor, subject to antitrust laws. The Board has the right to refuse to issue or renew licenses, revoke or suspend licenses, or take other disciplinary measures against a licensee. Against unlicensed practice, the Board can pursue action in the North Carolina Supreme Court or can inform the District Attorney of the practice, but that action is not reserved to the Board; in fact, anyone, even a citizen, can take these actions against unlicensed dentists. The Board of course disagrees. They argue that their action of limiting non-dentists is public conduct, regulating the industry. Thus, the actions of the board are “state actions.”

State actions have a lengthy history of exemptions from anti-trust laws, starting from the 1943 Supreme Court decision Parker v. Brown, which involved raisin producers in California: the Court decided that it was alright for a majority of raisin producers in the state to limit lower and upper limits on raisin production and eliminate producers who failed to fall in that rangeWhen Potter Brown, a raisin packer, bought more raisins than allowed to fill an order, he was pushed out of the market. After suing and losing in Court, the Supreme Court decided that the Sherman Antitrust Act didn’t apply to organizations that fell under the purview of the state. Essentially, actions taken by a private business to eliminate competition in an industry are illegal, but actions taken by the government to regulate that industry, even if that means “eliminating competition” for someone, are legal (“Parker immunity”). But that distinction leaves a wide chasm.

Side note about Parker immunity: When it was first established in 1942, Parker immunity was designed to balance federal and state interests and support the institution of federalism. In this case, however, Parker immunity (if granted) would be primarily for economic concerns in this case. Citing the actual case of Parker v. Brown in a recent case that ran along similar lines, justices of both political persuasion, Kagan and Scalia, both agreed that the laws in place that were granted immunity were “outdated” and “crazy.” Parker immunity, further, was derived from an interpretation of the meaning of laws rather than the actual text, which makes changing this immunity more palatable to justices (ahem, Scalia and Thomas) who adjudicate with an originalist lens. Lastly, this form of Parker immunity is extreme federalism – it violates in a major way the Supremacy Clause by claiming that (a) state law is superior to federal law because states can protect private citizens from law enforcement, even when they break federal laws, and (b) states can violate individuals’ federal right to economic liberty.

Where this case gets a bit tricky is whether or not the Board is actually a wing of the state, since it is mostly comprised of practicing dentists. The consequence of the antitrust law is that actors who are not exempt must be supervised at all times by the government to make sure the regulations are only regulations. But that standard of supervision has weakened substantially so that even a minimal amount of supervision, not enough to limit anti-competitive behavior, would satisfy the requirement.

The Supreme Court has sought to narrow this divide in a few cases. They have ruled that municipalities, though they are not sovereign, are exempt from anti-trust laws. In the same decision, they clarified that state agencies are exempt but regulation done by a private party in a state is not. This case, North Carolina Board of Dental Examiners v. Federal Trade Commission, focuses on that last scenario. If the Board, questionably a state agency, has a clearly articulated policy, another one of the requirements to bypass the anti-trust act, must it be monitored by the state?

The Supreme Court agreed they must decide in cases like these whether the anti-competitive act was required by the State acting as sovereign (Goldfarb v. Virginia State Bar in 1975). Beginning in the 1980s, though, the Court scaled back this requirement and began ruling in favor of states’ rights. In Southern Motor Carriers Rate Conference v. United States (1985), the Court decided that Parker immunity can apply if a state authorizes an anti-competitive action, rather than requiring it. This is problematic because anti-trust law often has the intent of limiting this exact behavior. Further, this decision reduced political accountability of state officials who now could vaguely authorize anti-competitive behavior rather than concretely defending it, effectively granting full autonomy to private citizens or boards who could then decide what situations justified limiting competition.

An article in the University of Pennsylvania Law Review, cited by both parties in the case, describes professional licensing boards as state-sponsored cartels. And they’re not wrong: professional licensing boards are not limited to medical fields; nowadays, there are professional licensing boards for everything from eyebrow threaders to fortune tellers. These boards effectively raise prices, reduce supply, and eliminate competition. But while an actual cartel would violate the Sherman Act, state boards are exempt because of that first word: state.

The Board is using federalism as a defense of North Carolina’s decision. In other words, North Carolina set up a state agency and then relinquished it of monitoring and let it eliminate competition. But federalism means that the state has sovereignty and the federal government cannot supersede a state’s actions that only affect the one state.

An amicus brief in favor of the FTC, written by the Pacific Legal Foundation and the Cato Institute, argues that any regimes that limit private business, whether private or public, should should receive penalties equally.

Meanwhile, an amicus brief filed by 23 states calls for ruling in favor of the Board to protect states’ rights to determine what level of supervision is enough and to defend against the supposed creep of federal power over the states. Of course, (a) this presupposes that state governments are the supreme form of governance in America (which they’re not – Supremacy Clause) and (b) that the states and their boards act for the people or the populace, from which all American governments, state or federal, derive power. When boards act in private interest (e.g. limiting competition for economic reasons solely), they fail to act on behalf of the public and must be reined in. And until the 1980s, it was simply not enough for the state government to will an anti-competitive act.

Speaking of amicus briefs, the division of support, shown by amicus briefs, perhaps hints at the decision. While the Board found support from only industry trade groups and state governments, the FTC is backed by law professors and policy groups of all political beliefs, associations and companies that often conflict with professional licensing. This last group shows the practical consequences of ruling in favor of the Board: that the competition will be eliminated and prices will be increased for the consumer.

The Court has a spectrum of actions from which to choose, from high supervision to none at all. They can also specify which agencies do or do not require supervision, setting a more lasting precedent. In a “rational basis” test, the government could test each anti-competitive behavior to see if it is supervised by the state and follows the government’s interest. While arbitrary and very narrow (that is, the government would have to make decisions for many, many cases individually), this is perhaps the best way to move forward.

While the Court has recently been siding against licensing board (or equivalent) in cases like this but few of these cases have focused on federalism which means a prediction for this case is tough.

In oral argumentation, it became evident that the justices were troubled by the Board and by the case overall. Justice Breyer claimed that antitrust laws were passed to prevent individuals who compete with each other in business to join together and making agreements to eliminate competition. Breyer said that that sort of activity was happening in this case. Justice Alito, meanwhile, brought up the possibility that the case would have far-reaching consequences in the future, justifying a very small, narrow ruling, on a case-by-case basis. Alito also noted that a state can’t just deem a group of private individuals to be a state entity and let them off the hook with anti-competitive actions.

Justice Ginsburg seemed put off by the Board’s actions. Claiming that the Board’s actions were not authorized by state law, the Board was not justified in sending out cease-and-desist letters.

But Hashim M. Mooppan, lawyer for the Board, argued that being members of the board made the eight individuals state officials.

Justice Breyer and Ginsburg disagreed. To them, there are state boards that still require state supervision, such as those for wine merchants and truck drivers. Ginsburg specifically stated that the dental board was both a state actor and a private actor.

Justice Kennedy commented on the conflict of interest; he said that it’s not enough for a board’s interests to align with the state interests because the board is still acting in its own self-interest, not on behalf of the state. Situations like these require supervision.

The longstanding tradition of professional regulatory boards was an institution Mr. Mooppan invoked by warning judges that ruling against the board would also disrupt that tradition. Amicus briefs filed by the American Medical Association and several bar associations agreed with this argument.

Mooppan also claimed that if a state were to pick an existing private trade association and make them a state agency, that private trade association would instantly be given immunity from federal anti-trust laws, as long as the group’s members took an oath to enforce state law and keep records open. The justices were not too pleased.

Meanwhile, a victory seemed lock in place for Malcolm Stewart, representing the FTC. The justices’ questions of him seemed to be questions of how they should rule for the ITC. Should it be narrow, forcing a case-by-case decision process for the future, or broad now?

Justices Breyer and Scalia discussed neurosurgeons. Both agreed that they would want industry workers to decide who can be a neurosurgeon, that the practice was so specific and vital that bureaucrats shouldn’t get in the way because bureaucrats don’t know anything about neuroscience. While a bad teeth whitening is not as dangerous as a bad brain surgery operation, the legal arguments about setting a precedent hold water.

Justice Scalia, too, worried about the future of the legal profession. A final conclusion was that certain technical and vital professions, like neurosurgeons, should be not overseen as much by bureaucrats.

The justices asked nine more questions of the lawyer for the Board, which seems to indicate a win for the FTC is in the works.

In my opinion, the the Court should and will rule in favor of the FTC. They can decide whether other trade associations should set their own standards but, for now, the consumer will be safe from maniacal, scheming dentists.

Further Reading

Damon Root notes the case as one of three to watch in October 2014 at Reason – October 2, 2014.

Eric M. Fraser previews the oral arguments at SCOTUSblog – October 10, 2014.

George F. Will argues in favor of the FTC at the Washington Post – October 10, 2014.

Adam Liptak describes oral arguments at the New York Times – October 14, 2014.

Nina Totenberg describes oral arguments for NPR – October 14, 2014.

Daniel Fisher describes oral arguments for Forbes – October 14, 2014.

Eric M. Fraser discusses oral arguments for SCOTUSblog – October 15, 2014.

Steven J. Cernak discusses oral arguments for Canadian Competition & Regulatory Law – October 15, 2014.

Zephyr Teachout (best name ever?) discusses the case in the broader context of corporate law for The Daily Beast – October 17, 2014.

The New York Times Editorial Board calls for the Court to rule in favor of the FTC – October 17, 2014.

The Economist discusses the case – October 18, 2014.

Ilya Shapiro discusses the case at The Federalism – October 20, 2014.

Timothy Sandefur calls for the Court to rule for the FTC in Regulation from the Cato Institute – Fall 2014.

4th Circuit Opinion – Decided May 31, 2013.

Brief by the Board.

Brief by the FTC.

Amicus brief in support of the FTC by the Pacific Legal Foundation and the Cato Institute.

Oral arguments here.

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One thought on “When Dentists Go Too Far: North Carolina Board of Dental Examiners v. Federal Trade Commission

  1. Reblogged this on Disrupted Physician and commented:
    Recent strike down of anticompetitive regulation in N.C. dental case opens the door to antitrust litigation against other state Regulatory Agencies such as Medical Boards.

    The Federation of State Physician Health Programs has set up a “hidden” system of coercion and control using various methods (policy and moral entrepreneurship, changes in state medical practice acts and administrative procedure, misuse of health law, etc.) to create a system that lacks oversight and regulation. As a power unto themselves they are accountable to no one.

    Although these programs were originally funded by medical societies and staffed by volunteer doctors in order to help sick colleagues and protect the public, any system can be subverted for profit and power. Taken over by a group representing the multi-billion dollar drug and alcohol testing, assessment and treatment industry these programs have become reservoirs of bad medicine without moral compass. All manner of abuse can be hidden under a veil of benevolence. Although most are afraid to speak publicly for fear of punishment and retaliations (“swift and certain” consequences) I have herd from many many doctors in multiple states. Their stories are all the same.

    In addition to misconduct related to the non-FDA laboratory developed tests (they themselves introduced into the market using a loophole that bypasses FDA approval) there are reports of coercion into unneeded evaluation and treatment at a couple dozen or so “PHP-approved” facilities under threat of loss of licensure.

    State boards (medical, nursing, etc.) mandate evaluations at these “PHP-approved” assessment centers if the PHP feels an assessment is needed for that individual. ( reports can be done anonymously with guaranteed confidentiality given to those doing the reporting)

    An Audit of the North Carolina PHP by State Auditor Beth Woods found financial conflicts-of-interest in the predominantly out of state facilities the N.C. was referring to. She requested criteria for what qualitative indicators and quantitative measures went into the “approval” process by the PHP but the PHP was unable to produce any documentation any indicators existed! The best they could come up with was “informal” methods and “reputation.” Imagine if the FDA gave this reply if asked what criteria went into “approving” medications or medical devices in the “FDA-approval process! Making matters even worse, the Medical Director of the N.C. PHP, Dr. Warren Pendergast was serving as President of their national organization, the FSPHP at the time of the audit. No criteria exist.
    A recent class action lawsuit in Eastern Michigan found this same referral to out-of-state assessment and treatment centers such as
    Marworth, Talbott, Hazelden. Promises, and others.

    State referrals to these “PHP-approved” facilities has become a matter of public policy. Both the American Society of Addiction Medicine and the Federation of State Medical Boards have policy statements mandating only approved assessment and treatment centers be utilized and they specifically exclude “non-PHP-approved facilities.

    Therefore states are mandating evaluations at “PHP-approved” facilities yet no criteria exist for how they were chosen. This corners the market, removes choice and creates an imposed monopoly.

    The reality is no official list of “PHP-approved” facilities exists and no objective published criteria for choosing them exist. Yet almost every state Board is forcing evaluations at these facilities and excluding autonomy and choice.

    PHPs started out as “Physicians Health Programs” but are transitioning to “Professionals Health Programs” as they expand. For example in Michigan the state PHP covers all health care practitioners from Acupuncturists to Veterinarians. They have also entered non -healthcare employee assistance programs such as the aviation industry and by claiming these programs the “gold-standard” are lobbying to replace current programs such as the Department of Transportation.

    So whether you cut hair, teach, take care of patients or even drive you are at risk. Anyone with any sort of license is at risk and they don’t have to convince you of the validity and reliability of their services; they only need to convince those regulating your license and as we have seen they are very accomplished in that department. And that is why we need more state audits of PHPs and Medical Boards and the starting point is simple. Request a list of “PHP-approved” facilities and the criteria by which they were approved. What should be a simple reply will undoubtedly not be so simple.

    Like

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