Texas Telemedicine Showdown

By Lane Wood and Benjamin Wallfisch

Telemedicine is a major area of innovation for tech companies and medical providers seeking to improve access to health care services.  According to its proponents, the promise of telemedicine is that it will bring health care to people who otherwise would have difficulty accessing services, such as patients in rural areas or those with mobility limitations.  Telemedicine also opens new avenues for health care professionals to provide ongoing monitoring of patients using new mobile technologies.  Beyond these advantages, telemedicine can bring more of a consumer focus to health care, with services structured around convenience and accessibility to patients.

Unsurprisingly, the explosion of interest in telemedicine has brought opportunities for a constellation of medical devices and other gadgets and gizmos to help doctors connect with patients directly.  In this environment, telemedicine startups have received lots of attention from investors: according to an Accenture study, among the top ten on-demand companies—most of which focus on delivery of people or food—two are focused on health care delivery.  That same study estimated that investment in on-demand health care companies could surge to $1 billion in 2017.  One of the leaders in this field, Texas-based Teladoc, Inc., raised more than $270 million in an IPO last year.

Meanwhile, in one of the largest potential markets for telemedicine services, a showdown has been brewing between Teladoc and the entity that regulates the practice of medicine in the state: the Texas Medical Board (“TMB”).

What is Teladoc?

Teladoc, Inc. was founded in 2002 and it currently claims to be the country’s largest provider of telehealth services.  Currently, there are approximately 15.4 million Teladoc members nationwide.  Teladoc provides access to board-certified physicians on a 24-hour basis for non-emergency treatments.  Organizations, health plans and employers typically subscribe to Teladoc’s services, which allows the organizations’ employees and members to contact Teladoc to request to speak with a physician licensed in his/her state.  According to the company, Teladoc’s medical services are generally more accessible and priced lower than conventional alternatives, such as a visit to the emergency room or an in-office physician visit.  A consultation may include advice, diagnosis and possibly a prescription for medication depending on what care is medically appropriate. 

Texas Regulations

The TMB is the state governmental entity that regulates the practice of medicine.  Since 2003, TMB regulations have prohibited doctors from prescribing prescription drugs without first establishing a “proper professional relationships” with a patient, which includes “establishing a diagnosis through the use of acceptable medical practices such as patient history, mental status examination, physical examination, and appropriate diagnostic and laboratory testing.”  22 Tex. Admin. Code § 190.8(1)(L).  TMB adopted regulations specific to telemedicine in 2004.  See 22 Tex. Admin. Code §§ 174.1, et seq. 

In 2010, TMB amended its telemedicine regulations to restrict the definition of “telemedicine” to consultations using “advanced telecommunications technology” that allows the provider to see and hear the patient in real time.  Id. § 174.2.  The amended regulations also required providers to conduct a physical examination of the patient in order to establish a “proper physician-patient relationship.”  Id. § 174.8 (“New Rule 174”). 

In response to these revised regulations, Teladoc limited its services in Texas by eliminating the option of video consultation and thereby removing its services from the regulatory definition of “telemedicine.”  In June 2011, however, TMB issued a letter to Teladoc warning that TMB regulations required a “face-to-face” examination prior to prescribing prescription drugs to patients. 

Teladoc sued the TMB in state court in 2011, arguing that the June 2011 letter amounted to an “unpublished rule,” and that TMB failed to follow the state’s Administrative Procedures Act (“APA”).  Eventually, in December 2014, Teladoc won a ruling from the state court of appeals, finding that TMB’s June 2011 letter violated the APA by failing to follow the proper rulemaking process. 

Thereafter, in early 2015, the TMB issued an emergency rule (“New Rule 190.8”) that would require an initial face-to-face interaction between patient and physician before a physician can issue a prescription.  According to TMB, these changes were designed to facilitate adoption of telemedicine while protecting the safety of patients. 

The Present Litigation

In April of last year, Teladoc filed a lawsuit in federal district court in Austin, arguing that the TMB violated federal antitrust laws in its regulation of telemedicine services in the state.  In particular, Teladoc alleged that TMB was seeking to block Teladoc—and other telemedicine providers—from competing with traditional brick-and-mortar physician practices, resulting in higher prices for patients and less access to physicians.

In its lawsuit, Teladoc argued that TMB acted contrary to the position urged by the vast majority of public commenters to its proposed regulation—203 of 206 public comments opposed New Rule 190.8. 

The TMB has argued  that there is nothing discriminatory about the new rules, as they apply equally to both in-state and out-of-state physicians.  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 granted a preliminary injunction of the rule amendment pending a trial on the amendment’s validity, and then later denied the TMB’s motion to dismiss the suit, concluding that resolution of the legal issues in the case is inherently fact-intensive and that Teladoc’s allegations are sufficient at this early stage of litigation to allow the claim to move forward.

TMB has forcefully defended its regulation in court.  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.  Although the court denied these motions, TMB has appealed some of those rulings.

The U.S. 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), the Supreme Court held that states may in certain situations impose restrictions on occupations, confer exclusive or shared rights to dominate a market or otherwise limit competition in order to achieve public objectives.  States may only do so, however, if the purported anticompetitive conduct is clearly articulated and affirmatively expressed as “state policy,” and that the policy is “actively supervised by the state.”  In order to qualify as active supervision, “the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy.”

In the Teladoc case, the court concluded that the TMB could not claim state immunity because the State of 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.  As in North Carolina Dental, the Teladoc 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.

Recent Developments

In a series of legal rulings, Teladoc has so far resisted TMB’s efforts to have the case dismissed on various procedural grounds.  TMB’s appeal of one of those issues is currently pending before the U.S. Court of Appeals for the Fifth Circuit.

Just last month, the Federal Trade Commission (“FTC”) weighed in to support Teladoc’s position in the pending Texas litigation.  In its filing, FTC argued that TMB failed to show that “any disinterested state official ever substantively reviewed” the telemedicine rules “to determine whether the rules promote a clearly articulated state policy to displace competition rather than the private interests of active market participants.”  In a joint amicus brief with the Department of Justice filed on September 9, 2016, FTC petitioned the Fifth Circuit to dismiss TMB’s appeal of the district court ruling that the TMB regulations may be challenged under federal antitrust laws. 

What This Means for Telemedicine in Texas (and Elsewhere)

In a report from the National Center for Policy Analysis, Texas ranks 51 out of 51 (including Washington D.C.) in its implementation of telemedicine.  Earlier this summer, the Texas eHealth Alliance, a consortium of telemedicine technology providers, including Cisco and AT&T, and the Texas Hospital Association collaborated with hospitals and physicians to draft legislation that would overhaul the state’s telehealth laws.  The draft legislation is aimed at amending the state’s telemedicine laws to allow for multiple methods of technology-enabled treatment methods.  The group is hoping to advance this legislation during the 85th Texas Legislature in January 2017.  If the proposed legislation does not pass during the five months of the next legislative session, it will be another 19 months before the State has another opportunity to update the telemedicine statute.

As of now, the future of telemedicine in Texas is unclear.  The TMB does not appear eager to relax its stance on the delivery of healthcare through telemedicine.  Between the pending telemedicine legislation and the litigation between the TMB and Teladoc, Texas may see telemedicine changes in 2017.

And Texas is not the only state with telemedicine policies in flux: Medicare and other payers continue to approve additional telemedicine services that qualify for reimbursement.  In 2016 legislative sessions, forty-four states introduced over 150 telehealth-related pieces of legislation addressing issues such as reimbursement, licensing, technology requirements, Medicaid and standards of healthcare delivery.  As states continue to react to the growing utilization of technology in the delivery of healthcare, lawmakers will likely continue to adopt and amend state laws and regulations with telemedicine specifically in mind.