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Court Rules Against State Action Immunity for Texas Medical Board
Practical Law Legal Update w-001-0782 (Approx. 4 pages)
Court Rules Against State Action Immunity for Texas Medical Board
by Practical Law Antitrust
| Law stated as of 16 Dec 2015 • USA (National/Federal) |
In Teladoc, Inc. v. Texas Medical Board, the United States District Court for the Western District of Texas held that the Texas Medical Board's rules regulating telemedicine do not qualify for state action immunity. The court applied the Supreme Court's guidance regarding the active supervision requirement described in North Carolina State Board of Dental Examiners v. FTC.
On December 14, 2015, the United States District Court for the Western District of Texas held that state action immunity does not apply to the Texas Medical Board's regulations regarding telemedicine (Teladoc, Inc. v. Texas Medical Board, No. 1:15-cv-00343 (W.D. Tex. Dec. 14, 2015)). The court held that:
- The state action doctrine is an affirmative defense and not jurisdictional. The defendant therefore bears the burden to show that it applies.
- Active supervision requires that a state actor that is not a market participant have the power to veto or modify the specific rules being challenged. General judicial or legislative oversight is not sufficient.
Teladoc is one of the first cases to apply the Supreme Court's decision concerning the state action doctrine in North Carolina State Board of Dental Examiners v. FTC (135 S.Ct. 1101 (2015)) (NC Dental).
Background
The plaintiff, Teladoc, is a telemedicine service that provides medical care through video and phone consultations between doctors and patients (telemedicine). The Texas Medical Board (Board) is a state agency that is empowered by statute to regulate the practice of medicine in Texas.
Between 2010 and 2015, the Board adopted a series of rules restricting the practice of telemedicine in Texas, including by requiring a face-to-face examination before a doctor can prescribe drugs to a patient. Teladoc challenged the rules on antitrust and other grounds.
On a motion to dismiss, the Board argued that the telemedicine rules are immune from antitrust scrutiny under the state action doctrine. The state action doctrine confers immunity on actions or policies carried out by state agencies such as the Board if:
- The policy is actively supervised by the state.
- The policy is the result of a clearly articulated and affirmatively expressed state policy.
(Parker v. Brown, 317 U.S. 207, 350-51 (1942)).
In NC Dental, the Supreme Court addressed the application of the state action doctrine to state boards that are largely composed of participants in the market they regulate, like the Board. The Court noted that active supervision requires:
- Realistic assurance that the board's conduct promotes state policy rather than the board's individual interests.
- A state actor that is not a market participant that:
- reviews the substance of the board's conduct and not only the procedures used that led to it; and
- has the power to veto or modify the board's decisions.
Decision
The district court first held that state action immunity is an affirmative defense that must be proven by the state actor. The Board argued unsuccessfully that state action is a jurisdictional issue that the plaintiff must prove. The court noted that numerous cases have treated or described state action as a defense to be proved by the defendant.
The court further held that the Board did not meet the active supervision requirement of the state action doctrine. The Board argued that Texas actively supervises its decisions because:
- Texas law permits parties to challenge the validity or applicability of a state agency rule in state court.
- Agency rules are voidable if they do not comply with the Administrative Procedure Act's requirements.
- Any disciplinary actions the Board takes against doctors are subject to judicial review.
- The Texas state legislature oversees the Board through:
- a sunset review process; and
- required notification of proposed rule changes.
The court found that these mechanisms and provisions do not satisfy the active supervision requirement. The court noted that the presence of some state involvement or monitoring was not enough. In particular, the court relied on the guidance provided in NC Dental, noting that none of the purportedly supervisory activities that the Board relied on allowed the supervising authority to:
- Modify the Board's telemedicine rule.
- Review the substance of the telemedicine rule, rather than the procedures used to enact it.
- Consider whether the telemedicine rule was in accord with state policy.
Instead, the state judicial and legislative actors were, at most, allowed to:
- Review the Board's procedures.
- Determine whether the Board exceeded its statutory authority.
- Send the agency a statement supporting or opposing adoption of a proposed rule.
- Vote on whether to continue the Board every 12 years.
Because the Board failed to meet the active supervision prong of the state action doctrine, the court did not address the clear articulation prong.
On these and other grounds, the court denied the motion to dismiss.
For further discussion of the state action doctrine, see Practice Note, Antitrust Affirmative Defenses: Overview: State Action Doctrine and Legal Update, Supreme Court Rules that State Board of Dental Examiners Not Protected by State-action Antitrust Immunity.