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The Sherman Antitrust Act

The Sherman Antitrust Act prohibits “[e]very contract, combination . . ., or conspiracy in restraint of trade.” Recent Supreme Court decisions and Federal Trade Commission guidance have held state regulatory boards can be in violation of the Sherman act under certain conditions.

I.      THE STATE ACTION DOCTRINE AND NORTH CAROLINA STATE BOARD OF DENTAL EXAMINERS

States are permitted to act to regulate the conduct of private parties in a way that negatively impacts competition. However, the U.S. Supreme Court has recently stated that state regulatory boards are not necessarily granted immunity under this “state action doctrine.” In N.C. State Bd. of Dental Exam’rs, North Carolina had set up a Board of Dental Examiners to regulate the practice of dentistry in the State. The Board prohibited commercial, nondentist teeth whitening service providers from providing teeth whitening services. Where a State has delegated control over a market to non-sovereign, market participants, the action of those regulatory boards will only be immune from antitrust scrutiny if: (1) the State has articulated a clear policy to allow the anticompetitive conduct, and (2) the state provides active supervision of the anticompetitive conduct.

The U.S. Supreme Court stated that “[s]tate agencies controlled by active market participants, who possess singularly strong private interests, pose the very risk of self-dealing . . . [the active] supervision requirement was created to address.” When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest. The Court held that as the state failed to actively supervise the board, despite the requirement that the Board comply with the North Carolina Administrative Procedures Act (“APA”), the Board was in violation of the Sherman Act.

II.       THE FTC GUIDELINES ON ACTIVE SUPERVISION

Following N.C. State Bd. of Dental Exam’rs, in October 2015, the FTC put out guidance as to how its staff will review regulatory licensing boards controlled by market participants. The “Clear Articulation” prong requires “the State [to] have foreseen and implicitly endorsed the anticompetitive effects as consistent with its policy goals.” The “Active Supervision” prong requires “the State to review and approve interstitial policies made by the entity claiming [antitrust] immunity.”

1.     When is Active Supervision Required

Active supervision is required for a state licensing regulatory board when “a controlling number of decisionmakers are active market participants in the occupation the board regulates.” A member will be considered to be an “active market participant” if the person is (1) licensed by the board; or (2) provides services subject to the regulatory authority of the board. Members of a subspecialty are considered to be active participants in the market. For instance, nurse practitioners servicing on a nursing board.

It does not matter if the active market participant is not personally affected by the restraint of trade or that their active participation is temporarily suspended while they are serving on the board. The Board in N.C. State Bd. of Dental Exam’rs, were regulating nondentist service providers. Also, the method in which the person is selected to serve on the state regulatory board, whether through selection by a governor or election among members of that profession or some other method, is not determinative of the issue. It would be no defense to say that other members of the profession in the state elected board members, if that board is engaging in illegal anticompetive conduct.

Finally, a “controlling number” does not necessarily mean a majority of the board are made of active participants. If the decision is controlled by active participants (e.g., through veto power, tradition, or practice of the profession), then the board is subject to antitrust scrutiny. For instance, if a majority of the board is made up of active market participants and a majority plus one is required for board action, the board is controlled by active market participants. If, in practice, the non-profession members typically defer to those active market participants, the board is also controlled by them. If the professional members regularly meet without the non-professional members and make decisions without those non-professional members, the board is controlled by the active market participants. Whether a board is controlled by active market participants is a case-by-case, fact intensive analysis.

2.    What is Active Supervision

Active supervision requires the State to “play a substantial role in determining the specifics of the economic policy,” not merely acquiescing to the agreement among the members of the board. There must be “political accountability for anticompetitive conduct.” The reviewer of the state action must actually review the substance of the decision, not merely the procedures used, and must be able to veto or modify the decision, and must issue a written decision approving, modifying, or vetoing the board’s decision. All of this must occur before the anticompetitive action takes place.

3.    Active Supervision in Disciplinary Proceedings

If a State regulatory board controlled by active market participants makes a decision that a licensee has violated some standard and that a disciplinary action is necessary, before taking the action, the board would need to show clear articulation and active supervision of the board, which requires: (1) reviewing the evidentiary record; (2) supplementing this record if necessary, (3) conducting a new substantive review of the merits of the decision and whether it comports with the policies and standards established by the State, and (4) issuing a written decision explaining why the reviewer approves, is modifying, or disapproves of the action.
Active supervision is not satisfied if the reviewer: (1) is itself an active market participant; (2) lacks the authority to veto the board’s decision; (3) lacks authority by himself or herself to veto the decision; (4) only acts in an advisory role; (5) in practice, the reviewer only does a cursory review of the decision; or (6) an independent state agency reviews the action, but only finds that it complies with the State’s administrative procedures act without undertaking a substantive review of the decision.

III.       CONCLUSION

If you are a medical care practitioner who has been subjected to a disciplinary action from a regulatory board in which active market participants control the decision-making, then you may be able to pursue an action against the board for proceeding in an anticompetitive manner. For more information, you should contact attorneys who are familiar with the professional licensing boards and can help you pursue your rights under the law.


15 U.S.C. §1.
Huron Valley Hosp., Inc. v. City of Pontiac, 792 F.2d 563, 567 (6th Cir. 1986); see also Parker v. Brown, 317 U.S. 341 (1943).
N.C. State Bd. of Dental Exam’rs v. FTC, 135 S.Ct. 1101, 1111 (2015).
Id. at 1107.
Id. at 1108.
Id. at 1111-12.
Id. at 1114.
Id.
Id. at 1108, 1116.
FTC Staff Guidance on active Supervision of State Regulatory Boards Controlled by Market Participants (October 2015) [hereinafter “FTC Staff Guidance”].
FTC Staff Guidance at 4 (internal quotations omitted) (quoting FTC v. Phoebe Putney Health Ss., Inc., 133 S.Ct. 1003, 1013 (2013).
FTC Staff guidance at 5 (internal quotations omitted) (quoting N.C. State Bd. of Dental Exam’rs, 135 S.Ct. at 1112).
FTC Staff guidance at 7 (internal quotations omitted) (quoting N.C. State Bd. of Dental Exam’rs, 135 S.Ct. at 1114).
FTC Staff Guidance at 7.
Id.
Id.
Id.
Id. at 8.
Id.
Id. at 9.
Id. (Quoting N.C. Dental, 135 S.Ct. at 1111).
Id. at 9-10.
Id. at 10.
Id. at 12.
Id. at 13.