Antitrust Law Daily Learned professional exemption bars chiropractors’ unfair trade practices claims against health network
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Monday, June 17, 2019

Learned professional exemption bars chiropractors’ unfair trade practices claims against health network

By Nicole D. Prysby, J.D.

A health network engaged in professional services met the learned profession exemption to the North Carolina unfair trade practices law when it acted as an intermediary between chiropractors and insurers, because the alleged conduct was directly related to providing patient care.

An unfair trade practices claim brought by chiropractors against a health network was barred by the learned profession exemption to the North Carolina unfair and deceptive trade practices law. The health network negotiated with providers and insurance payors and required a chiropractor to maintain an average per-patient cost at a certain level or risk termination from the network. The chiropractors argued that the network’s practices violate the state unfair and deceptive trade practices statute, but the North Carolina Supreme Court rejected the argument, finding that the owners of the network were licensed chiropractors and the activity alleged constituted rendering of professional services under the statute, because the alleged conduct is directly related to providing patient care. Since the basis for plaintiffs’ unfair trade practices claim was that chiropractors were reducing the level of services patients received, the conduct alleged was sufficiently related to patient care to fall within the rendering of professional services under the statutory exemption. The court also rejected claims for declaratory relief and breach of fiduciary duty. In a ruling that carries no precedential value, the court affirmed the lower court’s dismissal of the plaintiffs’ antitrust claims by an equally divided vote (Sykes v. Health Network Solutions, Inc., June 14, 2019, Hudson, R.).

The state’s high court issued a decision in a second action involving essentially the same allegations and similar claims, which is discussed separately in this issue (Sykes v. Blue Cross and Blue Shield of North Carolina, June 14, 2019, Newby, P.).

Background. The plaintiffs are licensed chiropractic providers in North Carolina who alleged that defendants Health Network Solutions, Inc. (HNS) has engaged in unlawful price fixing ultimately resulting in a reduction of output of chiropractic services in North Carolina. Specifically, they alleged that HNS committed antitrust and other violations in its role as intermediary between individual chiropractors and insurance companies.

HNS contracts with chiropractors, who, as part of the HNS network, are able to provide chiropractic services "in-network" for the various insurance payors with whom HNS has separately contracted. In exchange for in-network access, members of the HNS network agree to permit HNS to negotiate with the payors the prices to be charged for in-network chiropractic services. A chiropractor must maintain an average per-patient cost at a certain level or risk termination from the network. Individual defendants are themselves licensed chiropractors who are current or former owners of HNS.

The plaintiffs fall within one of these three categories: they were removed from the HNS network because their per-patient cost was too high, left the network based on HNS’s policies, or declined to join the network because of HNS’s practices and restraints. The plaintiffs argued that because HNS is the sole path to becoming an in-network provider for the various participating insurance companies and other payors, they are being deprived of access to the large number of patients that receive health care coverage via the networks of the various payors. Thus, they contended, HNS is violating North Carolina’s antitrust statutes by fixing the prices charged by more than one-half of the licensed chiropractors in the state and by using its market power as a buyer of those services to restrict output of services, and by monopsony, a buyer-side form of monopoly,2 in which, rather than using its market power as a sole seller to increase the price of services, HNS is using its market power as a buyer of those services to restrict output of services.. They also alleged that HNS has engaged in unfair trade practices through its failure to meet the licensure and utilization review requirements set out in state insurance law.

Procedural history. The plaintiffs’ original complaint was filed on April 30, 2013, before passage of North Carolina’s Business Court Modernization Act (BCMA). A second action involving essentially the same factual allegations and similar legal claims, was filed after the effective date of the BCMA. The plaintiffs filed a motion to consolidate the two actions in the Business Court, which the Business Court never addressed. The Business Court entirely dismissed the first and second actions separately, dismissing the second action in two separate orders (Sykes v. Health Network Solutions, Inc. ; and Sykes v. Blue Cross and Blue Shield of North Carolina ). The plaintiffs appealed all of the dismissal rulings in the two actions.

Antitrust claims. The court affirmed the Business Court’s dismissal of the antitrust claims, including the derivative claim of civil conspiracy, by an equally divided vote, meaning that the Business Court’s opinion as to those claims will stand without precedential value.

Unfair trade practices. The court held that the unfair trade practices claim was barred by the learned profession exemption set out in N.C.G.S. § 75-1.1(b). The statute provides that for purposes of the unfair and deceptive trade practices statute, "commerce" does not include professional services rendered by a member of a learned profession. The court rejected the plaintiffs’ argument the exemption should not apply because, although the individual defendants are all licensed chiropractors, HNS itself is not a member of a learned profession and, in any event, HNS’s role as an intermediary between providers and insurers is a business activity that cannot be properly described as "render[ing]" professional services. The court concluded that the conduct alleged here does fall within the exemption. All individual defendants, as well as all members of HNS, are licensed chiropractors and the activity alleged constitutes rendering of professional services under the statute. The alleged conduct that was at the heart of this action is directly related to providing patient care. Since the basis for plaintiffs’ unfair trade practices claim is that chiropractors are reducing the level of services patients receive, the court concluded that the conduct alleged is sufficiently related to patient care to fall within the rendering of professional services.

Claims for declaratory judgment and breach of fiduciary duty. The court held that the insurance laws do not provide a private right of action to obtain declaratory relief. Alleged violations of the insurance laws, including the laws regulating utilization review, must be remedied through action by the Commissioner of Insurance. As for the breach of fiduciary duty claim, the court held that no fiduciary relationship existed between the parties. The court rejected the arguments that the plaintiffs had entered into a joint venture with HNS or that a fiduciary relationship was created under agency law. There was no joint venture because there was no equal sharing of profits between the parties or equal right of control regarding the venture, and no fiduciary relationship arises out of the operation of a general business relationship.

Concurring and dissenting opinion. Justice Earls would have held that the learned professional exemption did not apply to the unfair trade practices claims, because the alleged unfair and deceptive conduct in question was not the rendering of chiropractic services to patients. When a member of a learned profession engages in business negotiations or contractual arrangements, even though those activities "affect" the provision of professional services, they are not themselves professional services entitled to an exemption. Chief Justice Beasley joined in the opinion.

The case is No. 251PA18.

Attorneys: Samuel Pinero II (Oak City Law LLP) for Susan Sykes d/b/a Advanced Chiropractic and Health Center, Dawn Patrick, Troy Lynn, Lifeworks On Lake Norman, PLLC, Brent Bost and Bost Chiropractic Clinic, P.A. Jennifer K. Van Zant (Brooks, Pierce, McLendon, Humphrey & Leonard, LLP) for Health Network Solutions, Inc. f/k/a Chiropractic Network of the Carolinas, Inc., Michael Binder, Steven Binder, Robert Stroud, Jr., Larry Grosman, Matthew Schmid and Ralph Ransone.

Companies: Advanced Chiropractic and Health Center; Lifeworks On Lake Norman, PLLC; Bost Chiropractic Clinic, P.A.; Health Network Solutions, Inc. f/k/a Chiropractic Network of the Carolinas, Inc.

MainStory: TopStory Antitrust StateUnfairTradePractices NorthCarolinaNews

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