Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Texas Medical Board rules allegedly restrain trade in telehealth industry, (Apr 30, 2015)

By Greg Hammond, J.D.

Teladoc, Inc., one of the largest telehealth services in the United States, filed suit against the Texas Medical Board (TMB) on April 29, 2015, seeking to enjoin the TMB from enforcing rules that would restrain trade in the telehealth industry. If enforced, the rules would cause irreparable harm to Teladoc and would raise prices and reduce output for physician services (Teladoc, Inc. v. Texas Medical Board, April 29, 2015).

Telehealth services provide patients with access to licensed physicians through telecommunications technologies, often at a fraction of the cost of a visit to a physician’s office or emergency room. Teladoc asserts in its complaint that the TMB permitted the operation of telehealth in Texas for many years, but began working to “stamp out” the competitive threat to traditional office- and hospital-based physicians after telehealth and Teladoc expanded in scale.

Specifically, Teladoc asserted a number of rules that the TMB implemented or attempted to implement in order to block competition from Teladoc, including: (1) New Rule 174, requiring an in-person physical exam before any consultation with a patient using video conferencing technology, which would prevent Teladoc from offering Texas patients the option of video consultations; (2) an invalid interpretation of Rule 190.8, which was rejected by the Texas Third Court of Appeals as departing from and effectively changing the text of the rule; (3) “emergency” rulemaking, which was invalidated by a Texas state court that found no imminent peril to public health, safety or welfare; and (4) New Rule 190.8, requiring that physicians conduct an in-person physical exam before telephonic diagnosis and treatment are allowed, regardless of whether the exam is medically necessary.

Teladoc asserts that 203 of 206 written comments submitted during the TMB’s rulemaking proceeding opposed the 190.8 rule change, but that the TMB—which is not regulated by any Texas agency—approved New Rule 190.8 by a vote of 14 to 1. Further, the complaint alleges that 12 out of 14 board members are active physicians, or market participants, in the profession the TMB regulates.

If New Rule 190.8 takes effect on June 3, 2015, as planned, Teladoc asserts that patients will be detrimentally harmed by higher prices for physician services, in the form of higher out-of-pocket costs or elevated insurance premiums, in addition to the loss of choice in receiving remote treatment through telehealth services. In addition, the higher prices and reduced choices will harm public and private payors, Teladoc claims, arguing that Rule 190.8 is not reasonably necessary or narrowly tailored to any legitimate objective. Lastly, the complaint asserts that Rule 190.8, if implemented, will cause irreparable harm to Teladoc, because it will effectively be put out of business in Texas, which will consequently jeopardize its business nationwide.

Teladoc brought a claim under Section 1 of the Sherman Act, alleging that the TMB agreed to take anticompetitive actions that unreasonably restrained trade by restricting telehealth services in Texas, and a claim under the Commerce Clause of the Constitution, alleging that New Rule 190.8 effectively discriminates against out-of-state physicians by prohibiting them from competing with physicians who reside in Texas. Teladoc consequently seeks preliminary and permanent injunctive relief, prohibiting the TMB from enforcing New Rules 174 and 190.8, as well as a declaration that the two rules are invalid and unenforceable.

The case is No. 1:15-cv-343.

Attorneys: James M. Dow (Jackson Walker L.L.P.) and George S. Cary (Cleary Gottlieb Steen & Hamilton LLP) for Teladoc, Inc.

Companies: Teladoc, Inc.; Teladoc Physicians, P.A.; Texas Medical Board

News: Antitrust