By Mary Otto
When the U.S. Supreme Court ruled in February that the North Carolina State Board of Dental Examiners lacked the authority to regulate teeth-whitening businesses, experts observed that the decision might have impact far beyond the world of dentistry.
Licensing boards regulate hundreds of occupations across the country, everything from medicine and law to bee-keeping and fortune telling. Often the boards are comprised of members of the profession they are regulating. And as in the North Carolina case, there are times when these regulatory bodies run afoul of federal antitrust laws intended to ensure consumer choice and greater access to services.
“The object of the antitrust laws is to prevent private individuals who compete with each other in business from getting together and making agreements,” Justice Stephen G. Breyer observed as arguments were heard on October, 2014. “That kind of interest seems present here.”
Following the decision in the North Carolina case, concerned officials in a number of states turned to the Federal Trade Commission (FTC) to learn more about how the ruling might impact their own regulatory boards. In response, the staff of the FTC’s Bureau of Competition last month issued guidance to help states weigh the implications of the decision.
Is the U.S. Supreme Court’s decision in the case of North Carolina State Board of Dental Examiners v. Federal Trade Commission causing officials in your state to re-examine the way professional boards are operating?
If not, should they be?
Reducing conflict of interest
It is common for professional boards to include members of the professions they are regulating. “That is, doctors commonly regulate doctors, beekeepers commonly regulate beekeepers, and tour guides commonly regulate tour guides.” authors of the FTC guidance said, noting that the arrangement is not automatically illegal.
However, the document added that, “in general, a state may avoid all conflict with the federal antitrust laws by creating regulatory boards that serve only in an advisory capacity, or by staffing a regulatory board exclusively with persons who have no financial interest in the occupation that is being regulated.”
When a controlling number of the board’s decision makers are active market participants in the regulated occupation, the state must actively “supervise” the board, according to the guidance.
A number of factors can constitute active supervision, courts have found. The supervisor must have the power to veto or modify the board’s decisions, and take an active role in reviewing the substance of any anti-competitive decision made by the board, according to the FTC document.
“We are not suggesting a mandatory one-size-fits-all approach to active supervision,” the authors write. “Instead, we urge each state regulatory board to consult with the Office of the Attorney General for its state for customized advice on how best to comply with antitrust laws.”
The North Carolina case turned on whether the state dental board, which was controlled by dentists, required active supervision by the state, or whether the body was exempt from antitrust laws that require such supervision.
Photo: Shazam791 via Flickr
The dental board claimed a “state action exemption,” arguing that the body was operating legally as an arm of the state when it sent out threatening cease-and-desist letters to the operators of teeth-whitening businesses in malls and spas.
But the FTC took the side of retail teeth-whitening shops, holding that the state dental board was acting in its members’ own interests when it “illegally thwarted competition by working to bar non-dentist providers of teeth-whitening goods and services from selling their products to consumers.”
The High Court agreed with the FTC. In their 6-3 decision, the justices found the North Carolina Board of Dental Examiners was not immune to antitrust laws. They concluded that the board, comprised mostly of dentists, illegally quashed competition from non-dentists who sought to open teeth-whitening shops in the state.
And in their ruling, the majority of justices found that the dentists on the board had not acted under the supervision of the state when they obstructed competition from lower-priced providers.
“Because a controlling number of the board’s decision makers are active market participants in the occupation the board regulates, the board can invoke state-action antitrust immunity only if it was subject to active supervision by the state, and here that requirement is not met,” the court concluded.
Is ‘active supervision’ the answer?
According to the new FTC guidance, North Carolina could have shown active supervision of the dental board if it had designated an executive agency to review and approve regulations recommended by the dental board. In the teeth-whitening debate, the agency would have collected testimony from interested parties, researched market data and weighed evidence on the potential health and safety risks of teeth whitening before reaching a decision about whether the dental board’s recommended action against the retail teeth whitening businesses “comports with the state’s goal to protect the health and welfare of citizens and promote competition.”
Lisa Schencker provides a concise summary of the guidance in her October 14 article for Modern Healthcare:
“The guidance describes what regulatory boards must do in order to avoid violating antitrust laws…It follows a Supreme Court ruling earlier this year in which the justices ruled that state licensing boards made up of active members of the professions they regulate, such as practicing doctors, are not immune from antitrust laws unless they are actively supervised by the state.”
Her article also included observations from experts, including a prediction from a former FTC official, Richard Feinstein, who said he expects that states making changes as a result of the ruling will be more likely to change how they supervise boards than how they configure them.
Donna Domino and Tony Edwards also covered the guidance for DrBicuspid.com. In their story, an official from the North Carolina State Board of Dental Examiners noted that the state board lacks the power to change the makeup of its members.
“The composition of the board and the method of selecting board members is completely determined and controlled by the North Carolina General Assembly,” the official, Bobby White, told them. When the state legislature meets again in April, 2016, it may consider changes to state occupational licensing boards, they said
Resources
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For a comprehensive collection of documents related to the case of North Carolina State Board of Dental Examiners v. Federal Trade Commission, see the Supreme Court’s SCOTUSBLOG website.
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On the SCOTUSBLOG site, you will also find lawyer Eric M. Fraser’s very useful analysis of the court’s opinion.
This AHCJ tip sheet, Understanding the Legal Battles Over Teeth Whitening, was written in advance of the Supreme Court hearing arguments in the North Carolina case. It includes resources related to the debate between teeth whitening shops and dental boards across the country.
