Telemedicine: Will Courts Collide with Regulators?
A recent case in Texas shines a bright light on the high stakes for businesses and regulators
By Julian Rivera, JD
This past May, the U.S. District Court of the Western District of Texas, in response to a lawsuit brought by Teladoc, Inc., stopped the Texas Medical Board from enforcing a new rule prohibiting physicians from using the telephone to diagnose and treat patients without first seeing patients in-person or by certain methods of video engagement. The rule in question was originally enacted by the medical board after aggressive public comment by both Teladoc and the medical board, demonstrating the significant fissure between the telemedicine company and the regulator. The Texas Medical Board is one of several states that specifically excludes the telephone from its definition of telemedicine. Illinois does not exclude telephonic communication from its definition, and as of Jan. 1, 2015, the Illinois Insurance Code now prohibits a health insurer that provides coverage for telemedicine services from requiring in-person contact between a health care provider and a patient. The Court did not block the broader Texas rules involving telemedicine via synchronous video and audio.
Teladoc, a national provider of telephone health services, claimed in federal Court that the new rule violated antitrust law by thwarting competition. At that initial stage of litigation, the board argued the new rule protected patient safety. But the Court strongly disagreed, calling the board’s evidence anecdotal, which was in sharp contrast to what the Court considered to be vast evidence of anti-competitive effects, including tens of millions of dollars in potential damages to Teladoc. The Court preliminarily ruled that Teladoc was likely to succeed in the lawsuit. In June, the medical board countered by claiming immunity and asking the Court to dismiss the lawsuit. The case is set for trial in February 2016.
In April 2015 the Texas Medical Board adopted a new rule specifically requiring a face-to-face visit either in-person or by certain methods of video engagement. Before the board asserted immunity, the U.S. District Court weighed the anti-competitive and pro-competitive justifications for the amended regulation. The Court agreed with Teladoc’s claims that the anti-competitive effect of the new rule will be “increased prices, reduced choice, reduced access, reduced innovation, and a reduced overall supply of physician services.”
Given the prohibitive effect of the new rule on providing patients with greater access to quality care, the Court concluded that the amendment would negatively impact consumers. While the medical board offered as its pro-competitive justification for the new rule that it will improve the quality of care, the Court found the board’s evidence to be anecdotal and outweighed by the evidence Teladoc put forward.
In its June motion to dismiss, the board asserted that when it adopted the new rule it was acting as sovereign with multiple layers of oversight and that sovereign oversight immunizes the board from federal antitrust law. The board’s detailed basis for its assertion of immunity has become critically important to its defense, since the district court judge made clear that without a successful claim of sovereign immunity the board is likely to lose to Teladoc.
Both the regulator and the business have a lot at stake. Despite the ongoing litigation in Texas, Teladoc’s initial public offering surged in early trading the morning of its July 1 launch, rising 60% from $19 per share to almost $31. The market’s reaction was strong even though Teladoc has made plain that requiring in-person physical examinations as a precondition for medical services will disable the company’s business model. Teladoc has also made plain that losing the lawsuit in Texas will likely destroy its business.
The implications for physician regulators are also significant. If they are not able to successfully assert sovereign immunity as state actors, many of their existing rules will be subject to similar challenges and the way they go about regulating medicine will need to fundamentally change. For regulators unaccustomed to anticompetitive lawsuits, the scope of potential risk is vast. Yet the potential risk is no less jarring than the existing risk–a federal judge may soon order that their rules negatively impact competition when the board is struggling to do what it thinks is right to protect the public in the new world of ever-expanding telemedicine opportunities.
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