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Traditional licensing: Storm clouds ahead?

The traditional appointed-board model for regulating the professions has been a fixture of state government for well over a century. But new models of delivering services, plus a pro-competition climate at the state and federal level, may be threatening the classic regulatory structure.

The February 25 U.S. Supreme Court ruling in North Carolina Board of Dental Examiners v. Federal Trade Commission surprised many in requiring that board members who are “market participants” have clear state supervision in making decisions affecting competitors. Board members who are members of the profession being regulated can’t have state action immunity for their actions without a state supervisor, the court said.

But what exactly this means in practical terms is up in the air. In June, FTC Commissioner Julie Brill told Modern Healthcare magazine that the FTC plans to offer guidance to states on how to meet that standard.

Meanwhile, three consumer advocacy groups joined forces to alert states that the ruling calls for a re-thinking of current policies and procedures. They sent a joint letter to all 50 state attorneys general, maintaining that the states must change the way they conduct professional licensing.

The May 4 mailing, entitled “Open Letter of Inquiry and Request for Documents,” refers to the “critical practical significance” of the Supreme Court’s decision, which said boards with “market participants” lose their antitrust immunity if not actively supervised by their state.

Although the case involved the state board’s attempt to shut down non-dentist teeth-whitening operations, the decision renders unlawful what has become common regulatory practice across all 50 states, said the Center for Public Interest Law, Consumers Union, and the Citizen Advocacy Center.

Since virtually all state boards are directly controlled by members of the trade or profession they purport to regulate, the advocacy groups say state attorneys general should notify members of boards and commissions that their decisions might expose them individually to criminal and civil liability under federal antitrust law.

The groups also argue that states must now recognize the implications of this ruling and change how they regulate and license professions and trades. Either the composition of these boards must be changed to a super-majority of non-conflicted “public members,” or all actions of a board dominated by active market participants must be subject to a state supervision mechanism that “provide[s] ‘realistic assurance’ that a non-sovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’”

“State bars controlled by attorneys rarely discipline for excessive billing or intellectual dishonesty,” the groups pointed out in their letter. “Each of the many agencies within your state is empowered to carve out momentous exceptions from federal antitrust law, and those decisions in particular require a level of independence from the implicit focus of current practitioners.”

The Supreme Court ruling is already having an impact on the regulatory community. Suits alleging antitrust violations are on the rise, placing greater pressure on courts to adapt to an evolving occupational licensing climate.

Some, such as David Swankin of the Citizen Advocacy Center, praise the decision, contending that the ruling will help make boards more neutral and cognizant of the consumer. But others, such as the American Dental Association, have been highly critical; in a press release, the ADA called the Supreme Court ruling “a violation of established law.”

Dale Atkinson, an attorney who has been working in the regulatory field for 27 years, representing numerous associations of regulatory boards in occupational licensing, believes that the Supreme Court ruling needs to be met with a degree of caution.

“There’s concern about an overreaction to the opinion,” Atkinson said, “and that there may be a legislative or political knee jerk reaction that is undertaken by the politicians, which I think would be a mistake.”

Atkinson considers the letter sent out to state attorney generals by the Center for Public Interest Law, the Consumers Union, and the Citizen Advocacy Center an example of hysteria, calling the letter “rather alarming.”

The letter focuses on a lack of “active state supervision,” which in turn, allows active professionals on state licensing boards to act in a fashion that does not serve the public’s best interest,” he contends.

Atkinson ridiculed the letter’s “scare-mongering.” He contends that everyone on a licensing board is a consumer.

“That letter is somewhat saying ‘oh, all the boards are operating unlawfully’, etc. Of course that’s just not the case. Most of the boards will probably have to do nothing because they have sufficient state oversight. In my world, everybody is a consumer member that sits on the board. Some happen to bring expertise to the board as licensees. And that’s needed; that’s necessary in order to efficiently and effectively regulate a profession.”

Atkinson did concede that a few boards might have to modify policies in wake of the ruling, and that it could have a significant impact on the regulatory world of licensing. In fact, two recent legal cases were spawned by the Supreme Court ruling.

In the first case, the Texas company Teladoc sued the state medical board over new rules restricting telemedicine. Teladoc claims the board’s new rules were instigated because the board saw telemedicine emerging as a competitive threat.

Teladoc, which recently won an injunction against the rules (see story below), contends that the same lack of oversight and anti-competitive behavior the Supreme Court found in the North Carolina case is occurring with the Texas Medical Board.

The other case, out of Mississippi, concerns the owners of Axcess Medical Clinic Inc., a pain clinic that is suing the state medical board of licensure over a rule that prohibits pain clinics from being run by non-licensed physicians. The clinic, in an April 24 lawsuit, claimed that the rule is anticompetitive and caused the clinic to shut down.

The Mississippi rule, which requires that pain clinics be run by a hospital or licensed physician, was created in 2011. Since the clinic opened in 2010 before the rule was in effect, the clinic says it should be exempt from the rule.

Atkinson thinks lawsuits like these will keep coming, and it may give the impression that there is a widespread antitrust predicament in the U.S. He says that is simply not so.

Both the Teladoc and the Axcess cases contend that a medical board being made up mostly of practicing professionals inherently causes a conflict of interest. This was a point of emphasis in the February Supreme Court ruling as well.

However, the only way the make-up of a board is going to change is through new legislation, asserts Atkinson.

“We’re certainly hearing a lot that’s going on legislatively about addressing the make-up of the regulatory boards. Should that change? Can it stay the same? Who should be on those boards? What’s an active member?” One question the Supreme Court failed to address, when it asserted the North Carolina dental board lacked active state oversight, was the definition of “active oversight.”

“We’re not sure what it is. I’m not sure anybody knows what it is. We’ll have a little bit different interpretation on that.”

Atkinson notes that state oversight will differ depending on the state and their regulatory structure.

But the fact that the “vast majority” of professional boards are made up of active professionals does suggest that boards may need more transparent state supervision.

Ultimately, Atkinson has no qualms about stating his concerns over the Supreme Court ruling. But he also laments the dental board’s methodology in issuing the cease-and-desist orders to the teeth-whitening operations.

“They had alternative options for sending out cease-and-desist letters. They just chose to not follow those options, good or bad. They have the statutory authority to seek injunctive relief. That likely would have solved the problem.”

Nonetheless, the board thought its actions were justified, Atkinson says, and the Supreme Court took issue.

Atkinson stressed that he hopes the ruling doesn’t cause an abrupt overhaul of licensing boards. “It’s an important ruling, and I’m afraid there’s too much potential toward, ‘Oh we have to change the make-up of the board.’ And I’m not a subscriber to that. I think you may have to look at some of the policies and procedures undertaken by the boards, but I don’t think there’s a need to overreact or panic.”