Federal Trade Commission Issues Guidance on How State Licensing Boards May Avoid Antitrust Scrutiny

Written by Joanne Ceballos

Earlier this year DE Health Law reported on a decision by the U.S. Supreme Court, North Carolina State Board of Dental Examiners v. Federal Trade Commission, holding that a state professional licensing board could be liable under federal antitrust laws for engaging in anticompetitive behavior in the absence of “active supervision” of the board by the state.  In particular, the Supreme Court held that a state board on which a controlling number of decision makers are active market participants in the occupation the board regulates may invoke the “state action defense” to federal antitrust enforcement only when two requirements are satisfied: first, the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and second, the policy must be actively supervised by a state official (or state agency) that is not a participant in the market that is being regulated.  (Click here to review the previous post.)

In the wake of the Supreme Court’s decision, state officials sought guidance from the Federal Trade Commission regarding antitrust compliance for state boards regulating occupations.  In response, the FTC’s Bureau of Competition issued a 13-page document (available by clicking here) that provides an overview of antitrust considerations implicated by the activities of state licensing boards and also offers specific examples of when “active state supervision” is required and what may constitute “active state supervision” for purposes of  the “state action defense.”

The state must exercise “active supervision” over a board “on which a controlling number of decision makers are active market participants.”  According to the guidance, an “active market participant” is an individual who is licensed by the board or “provides any service subject to the regulatory authority of the board.”   Active market participants constitute a “controlling number of decision makers” if they comprise a majority of the board, or if they effectively control the board’s decisions as a matter of procedure or custom.  While the guidance cautions that whether a board is controlled by active market participants is a fact-bound inquiry, it provides several examples of scenarios when a board might be considered controlled by active market participants even when licensees comprise a minority of the board’s voting members. 

As to what may constitute “active state supervision” that satisfies the state action defense, the guidance identifies a number of factors the FTC will consider, namely whether the “supervisor” (1) has obtained the information necessary for a proper evaluation of the action recommended by the regulatory board; (2) has evaluated the substantive merits of the recommended action and assessed whether the recommended action comports with the standards established by the state legislature; and (3) has issued a written decision approving, modifying, or disapproving the recommended action, and explaining the reasons and rationale for such decision.  The guidance goes on to give examples of what might be considered satisfactory state supervision in the contexts of a board’s issuance of a regulation with potential anticompetitive effects and a board’s administration of its disciplinary process.

With the exception of the Board of Examiners of Nursing Home Administrators, the majority of members of all the boards licensing health care professionals in Delaware are required by statute to be licensees and, hence, “active market participants.”  Accordingly, the Supreme Court’s decision and the FTC’s subsequent guidance are particularly relevant to the conduct of those boards. 

Labels:  Antitrust, Licensing Board, State Action