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Teladoc vs. the Texas Medical Board: Challenging the regulation of telemedicine

BY MARY M. BEARDEN AND LISA K. SMITH, Brown & Fortunato, P.C.

On December 14, 2015, the Texas Medical Board (TMB) lost its attempt to dismiss a suit brought by Teladoc, Inc. (Teladoc), challenging regulations adopted by the TMB that affect telemedicine providers. The current lawsuit alleges that changes adopted by the TMB on April 10, 2015, to 22 Texas Administrative Code (T.A.C.) §190.8 (Rule 190.8), violate federal antitrust laws and the Commerce Clause of the U.S. Constitution. The relevant provisions of Rule 190.8 require that a physician either conduct an in-person physical examination of a patient before telephonic diagnosis and treatment are allowed or have the patient simultaneously physically seen by another health care provider during the telephone conference.

Teladoc was founded in Texas in 2002 and is based in Dallas. Through its affiliated P.A., it has a network of approximately 700 board-certified, state-licensed physicians. Teladoc provides services in multiple states across the U.S. by contracting with employers and other organizations to make the telemedicine service available to its members.

Although the current lawsuit was filed by Teladoc in April of 2015, Teladoc’s conflict with the TMB began in 2010. In October of 2010, the TMB adopted 22 T.A.C. §174, which required an in-person physical examination before any consultation with a patient using video conferencing technology. In response, Teladoc could no longer offer video consultations in Texas and instead had to rely on telephone consultations. In June 2011, the TMB sent a letter to Teladoc interpreting the thenexisting Rule 190.8 in a manner to require a “face-to-face” exam prior to a physician issuing a prescription. Teladoc filed suit and prevailed in preventing the TMB from enforcing an interpretation that the court felt was not supported by the language of Rule 190.8. On January 16, 2015, the TMB issued an “emergency” rule mandating a face-to-face visit or in-person evaluation prior to a physician issuing a prescription. Teladoc sought and obtained a temporary injunction when the court found that there was not a legitimate reason to support the adoption of an “emergency” rule and held it invalid.

The TMB subsequently went through the normal rulemaking process and on April 10, 2015, adopted the revisions to Rule 190.8, currently at issue in Teladoc’s lawsuit. On May 29, 2015, Teladoc won an injunction to prevent the revised regulation from being implemented during the pendency of its current lawsuit. Teladoc alleges in its suit that the revised regulation is anticompetitive and violates the Sherman Act and the Commerce Clause of the U.S. Constitution.

In its motion to dismiss the lawsuit, the TMB asserted that Teladoc’s antitrust claim against the TMB is barred by the doctrine of state action immunity. A recent U.S. Supreme Court case, N. Carolina State Bd. of Dental Examiners v F.T.C., 135 S. Ct. 1101 (2015), is very relevant regarding this issue. The Supreme Court stated that States are generally permitted to impose restrictions on occupations or otherwise limit competition to achieve public objectives. However, in order to support “state action immunity” against an antitrust claim, two requirements must be satisfied: (1) the challenged restraint be clearly articulated and affirmatively expressed as state policy, and (2) the policy must be actively supervised by the state.

In the N. Carolina case, as in the current Teladoc case, the state board promulgating the regulations at issue is largely composed of individuals licensed by the board and competing in the marketplace. Of note, TMB’s board is comprised of 19 individuals, 12 of whom are licensed physicians. The revisions to Rule 190.8 at issue in Teladoc’s lawsuit were approved by the TMB board in a vote of 14 to 1 (all 12 of the physician board members voted for approval), and the lone dissenter was a non-physician board member.

On the matter of the requirement of “active state supervision” necessary to support a defense of “state action immunity,” the Supreme Court in the N. Carolina case stated that active supervision does not require day-to-day involvement in the agency’s operations or micromanagement of its every decision. Rather, the question is whether the State’s review mechanisms provide “realistic assurance” that a nonsovereign actor’s anticompetitive conduct promotes state policy, rather than merely the party’s individual interests. The Court further stated that the supervisor must review the substance of the anticompetitive decision, not merely the procedures followed to produce it; the supervisor must have the power to veto or modify particular decisions to ensure they are consistent with state policy, and the “mere potential” for state supervision is not an adequate substitute for a decision by the State.

In its motion to dismiss Teladoc’s current case, the TMB argued that it is subject to active state supervision because its decisions are subject to judicial review by the courts of Texas and the State Office of Administrative Hearings. The Texas court found that the judicial review referenced only permits a determination that a rule is invalid, so does not meet the Supreme Court’s mandate that the supervisor has the power to modify a decision to ensure that it accords with state policy. The TMB also argued that the Texas Legislature exercises sufficient oversight to constitute “active supervision.” According to the TMB, this oversight consists of the “sunset review” process and a provision requiring that the legislature be notified of proposed rule changes. The Texas court found that under these provisions there was, again, no authority for the legislature to modify any rule adopted by the TMB, so it failed to meet “active supervision” requirement.

The Texas court denied TMB’s motion to dismiss Teladoc’s current case based, in part, on TMB’s failure to establish that the doctrine of state action immunity prevents Teladoc from asserting the antitrust claims alleged. Therefore, interested persons will need to continue to monitor the progress of this case to determine whether the TMB’s efforts to require some personal examination of a patient before a physician can prescribe a drug for the patient is ultimately successful.