The Teladoc lawsuit against the Texas Medical Board (the “TMB”) regarding a rule that would require physicians to meet with patients face-to-face prior to prescribing medication will continue to move forward following a federal judge’s denial of the TMB’s request to dismiss the lawsuit.

Effective October 2010, the TMB amended its telemedicine regulations, restricting the definition of “telemedicine” to consultations using advanced telecommunications technology that allows the provider to see and hear the patient in real time.  The amended regulations also required providers to conduct a physical examination of the patient in order to establish a proper physician-patient relationship (“New Rule 174”).  As such, Teladoc limited its services in Texas by eliminating the option of video consultation and thereby removing its services from the regulatory definition of “telemedicine.”

Earlier this year, the TMB issued an emergency rule (“New Rule 190.8”) prohibiting physicians from prescribing drugs via telehealth without first meeting with the patient in person, with limited exceptions.  Teladoc, a telehealth services provider, filed a lawsuit in federal court against the TMB alleging antitrust violations and seeking a preliminary injunction preventing enforcement of New Rule 190.8.  On May 29, 2015, the U.S. District Court for the Western District of Texas granted Teladoc’s application for an injunction preventing the TMB from implementing and enforcing the new rule pending final resolution of Teladoc’s antitrust claims.

The TMB requested the lawsuit be dismissed on three separate grounds including a bar by the applicable statute of limitations, state action immunity from the antitrust claim and for failure to state a claim under the Commerce Clause.

Statute of Limitations

Suits asserting antitrust violations under the Clayton Act are generally subject to a four year statute of limitations, though claims asserted under 42 U.S.C. § 1983 are determined by the state’s personal injury limitations period, which, in Texas, is two years.  Teladoc did not file the lawsuit until over four years after New Rule 174 took effect, so the TMB argued Teladoc’s claims against New Rule 174 are time barred. Teladoc argued that the continuing violation doctrine acts to forestall the TMB’s limitation argument, and the Court agreed.  The Court concluded that the TMB had engaged in a continuing and ongoing course of conduct aimed at interfering with Teladoc’s ability to engage in telemedicine and therefore denied the TMB’s motion to dismiss on the basis of limitations.

State Immunity

The Supreme Court has interpreted antitrust laws to confer immunity on anticompetitive conduct by the States when acting in their sovereign capacity.  Most recently, in North Carolina State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101, 1109 (2015) (“North Carolina Dental”), the Supreme Court indicated that states may impose restrictions on occupations, confer exclusive or shared rights to dominate a market or otherwise limit competition in order to achieve public objectives.  However, the Supreme Court has also made it clear that such immunity is afforded only if the challenged restraint be one clearly articulated and affirmatively expressed as state policy, and that the policy be actively supervised by the state.

In the Teladoc case, the Court concluded that the TMB could not claim state immunity because Texas lacked sufficient control over the TMB.  The TMB argued that it is subject to active state supervision because its decisions are subject to judicial and quasi-judicial review, as well as legislative review.  The Court disagreed with the TMB because such judicial review is limited to whether the state agency has exceeded its statutory authority and does not allow for the evaluation of the policy underlying the agency’s decision.  In North Carolina Dental, the Supreme Court made clear that to qualify as active supervision, “the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy.”  Ultimately, the Court determined that there were no supervisory mechanisms in place that would allow for a determination that a decision of the TMB is in accord with state policy or for a modification of any decision made by the TMB.  As such, the Court found that the TMB had failed to show the active supervision required to merit dismissal on the basis of state action immunity.

Failure to State a Claim Under the Commerce Clause

Teladoc has asserted that the new rules violate the Commerce Clause because they discriminate against physicians who are physically located out of state.  The “dormant” aspect of the Commerce Clause prohibits regulatory actions that are designed to benefit in-state commercial interests by burdening out-of-state market participants.  According to the Fifth Circuit test, a discriminatory regulation can be valid if the state can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest; a law that is not discriminatory remains valid unless the burden imposed on interstate commerce is “clearly excessive” in relation to the putative local benefits. See Allstate Ins. Co. v. Abbott, 495 F.3d 151, 160 (5th Cir. 2007).

The TMB alleged that there is nothing discriminatory about the new rules, as they apply equally to both in-state and out-of-state physicians.  Meanwhile, Teladoc alleged that the new rules are discriminatory by practical effect and design; Teladoc’s business model depends on Teladoc being able to provide telehealth in Texas without a required in-person physical exam prior to treatment; no local benefits result from the rules given that the current regulatory scheme mandates standards of care dictating when an in-person physical exam is necessary; the current standard of care permits “on-call” services to patients of other physicians without an in-person physical exam; and the challenged regulations are, in fact, harmful to the public because they result in reduced access to affordable care. The court concluded that the resolution of the Commerce Clause claim is inherently fact-intensive and that Teladoc’s allegations are sufficient at this early state of litigation to allow the claim to move forward.

A copy of the order denying the TMB’s motion to be dismissed may be found here.