[Sasha Volokh] The problem of occupational boards dominated by market participants

On Friday, I wrote about an amicus brief, for me and 54 other antitrust and competition policy scholars, that I wrote in Teladoc v. Texas Medical Board, a Fifth Circuit case involving the antitrust state-action immunity doctrine. (What I didn’t mention last time was that one of the 55 was co-blogger David Hyman.)

For a summary of the argument, see Friday’s post. As I wrote on Friday, the Texas Medical Board wants to regulate telehealth providers; one such provider, Teladoc, sued the Board under federal antitrust law, arguing that the rule the Board promulgated was anticompetitive; and the Board claimed that it was immune from federal antitrust law as a state agency. Agencies composed of market participants need to be actively supervised by the state if they want to get immunity; so the question here is whether state-court administrative-law judicial review counts as “active supervision” within the meaning of the doctrine.

Today, I’ll reproduce Part I of the brief, “The Problem of Occupational Boards Dominated by Market Participants”. This gives the basic policy problem of market-participant-dominated boards and describes how federal antitrust law responds to the problem.

In recent decades, States have created many new licensing boards, often dominated by participants in the very markets that the boards regulate. Predictably, self-dealing and anticompetitive behavior run rampant: “[F]inancially interested parties cannot be trusted to restrain trade in ways that further the public interest.” Einer Richard Elhauge, The Scope of Antitrust Process, 104 Harv. L. Rev. 667, 696 (1991). Occupational licensing has been abused by incumbent market participants to exclude rivals and raise prices, through overly restrictive licensing requirements or aggressive and unjustified enforcement actions or delicensing proceedings. See generally Aaron Edlin & Rebecca Haw, Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?, 162 U. Pa. L. Rev. 1093 (2014); Alexander Volokh, The New Private-Regulation Skepticism: Due Process, Non-Delegation, and Antitrust Challenges, 37 Harv. J.L. & Pub. Pol’y 931 (2014).

“The most generally held view on the economics of occupational licensing is that it restricts the supply of labor to the occupation and thereby drives up the price of labor as well as of services rendered.” Morris M. Kleiner, Occupational Licensing, J. Econ. Persp., Fall 2000, at 189, 192. Licensing achieves this effect through several mechanisms, including: (1) establishing entry barriers, for instance requiring applicants to take certain courses and pass exams, or not recognizing out-of-state licenses, (2) restricting competition, such as by advertising bans, or (3) adopting expansive definitions of the profession they regulate, so as to acquire jurisdiction over—and ultimately oust—low-cost competitors that had previously been operating “at the fringes of their profession.” Edlin & Haw, supra, at 1112.

These effects—restricted supply and increased price—do not imply that licensing necessarily violates antitrust law. But these effects exist; and when the licensing regime is administered by self-interested market participants, there is an increased probability that these price increases are not justified by improved quality and that the restrictions are on balance anticompetitive.

The anticompetitive effects of licensing boards—price increases without necessary quality improvements—also extend to health-care markets.

First, occupational licensing restricts practitioners’ business strategies. “In many states, dentists cannot legally employ more than two hygienists each,” a restriction that artificially limits how many patients dentists may serve. “And in some states, nurse practitioners must be supervised by a physician, even though studies show that nurse practitioners and physicians provide equivalent quality of care where their practices overlap.” See id. at 1107–08 (footnotes omitted).

Second, licensing increases prices—in health-care markets as elsewhere. This has been documented in areas from dentistry to optometry. See id. at 1113–14. Thus, some consumers—especially poor ones—use fewer medical services than they otherwise would.

And