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Sykes! Big News for Healthcare, Not So Much for Antitrust

Last Friday, the North Carolina Supreme Court issued its first-ever opinion discussing the learned-profession exemption under section 75-1.1.  This is big news, especially for healthcare lawyers and providers.

Most lawyers in North Carolina are familiar with section 75-1.1 of the General Statutes, which offers a broad prohibition on unfair and deceptive practices in or affecting commerce. Most lawyers also know that the law has an exemption for members of a learned profession. Some lawyers may not know, however, that the Supreme Court has never had a case calling for the application of the learned-profession exemption. The Court of Appeals has issued numerous cases on the exemption, but the Supreme Court has been silent. Until now.

In Sykes v. Health Network Solutions, the plaintiffs alleged that the defendant worked as a network intermediary, connecting chiropractors and insurers. The network benefitted the insurers by putting downward pressure on both the quantity and price of services provided by chiropractors to patients, for which the insurers offered reimbursement. A group of chiropractors filed a class action alleging that this downward pressure violated the state antitrust laws because it was price fixing as well as constituting an illegal monopsony (buyer-side dominance) and monopoly (seller-side dominance).

Because the network is made up of about half the chiropractors in the state, and essentially a buyer of chiropractic services to be sold to insurers and patients, the plaintiffs claimed that the network was using its buyer-side market power to depress the price and output of chiropractic services within the state. The network contended that the plaintiffs had failed to define a relevant antitrust market in which the network had market power.

The Supreme Court split evenly—3 to 3—on the “antitrust market” issue presented by these facts, affirming the Business Court’s dismissal without precedential value.

But a four-member majority of the Court agreed with the Business Court that the learned profession exemption barred the plaintiffs’ claims under section 75-1.1. Along the way, the Supreme Court adopted a couple principles from prior opinions at the Court of Appeals:

  • The exemption inquiry has two parts: (1) is the defendant a member of a learned profession, and, if so, (2) was the conduct in question a rendering of professional services?
  • Members of healthcare professions—chiropractors included—are members of a learned profession.

The meat of this case, however, is just how broadly the exemption should be construed at step two of the analysis. The majority believed that the conduct at the “heart” of the case was “directly related to providing patient care.” The majority noted that the defendant-network was controlling the chiropractors’ access to patients and controlling the quantity of services provided.

The dissent—penned by Justice Earls and joined by Chief Justice Beasley—agreed on the general principles but disagreed on the scope of step two. Justice Earls would have adopted a stricter test focused on whether professional judgment is being exercised: “The dividing line between what is, and what is not, the rendering of professional services should turn on whether learned professional knowledge and judgment that the ordinary person does not possess is required to provide the services at issue.” Since the allegations were that the defendant was terminating chiropractors based on a mathematical formula, the dissent found that step two was not satisfied.

That’s all fascinating, but healthcare practitioners are probably screaming: What about Hamlet?! No, not the Prince of Denmark, but the other learned-profession case currently pending before the Supreme Court. Hamlet was widely expected to the Supreme Court’s first foray into the learned-profession exemption to section 75-1.1.

Well, Hamlet does make a surprising appearance throughout Sykes. Both the majority and dissent discuss the Hamlet decision from the Court of Appeals, without expressly approving or rejecting it. Hamlet has been appealed to the Supreme Court based on a dissent. The Solicitor General has even appeared in the case as an amicus seeking a narrowing of the learned-profession exemption. The briefing in Hamlet has only recently closed, and it has not yet been set for oral argument.

Will Hamlet give us more insight into how the Supreme Court interprets the learned-profession exemption?  Keep checking back here for the answers!

–Troy

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