Dallas-based Teladoc Sues Texas Medical Board Over New Telemedicine Guidelines

Dallas-based Teladoc is taking the battle over Texas’ newly agreed upon limits on telemedicine to federal court, arguing that the state medical board is illegally limiting competition by requiring a physician, nurse practitioner, or physician assistant be physically present during patient consults.

The company filed the antitrust lawsuit Wednesday afternoon in the U.S. District Court for the Western District of Texas in Austin. It comes just one day after Teladoc filed a Form S-1 with the U.S. Securities and Exchange Commission signaling a proposed IPO.

On April 10, the Texas Medical Board passed a trio of amendments to its guidelines that required a defined “physician-patient relationship” to diagnose, treat, or prescribe drugs. And the way it defined that relationship was for at least a mid-level—nurse practitioner or physician assistant—to be physically present in the room. Mental health services were exempted. The new rules will be enacted in June.

The suit alleges that theTexas Medical Board allowed telemedicine to freely operate until 2009, as “telehealth providers, and in particular Teladoc, began to expand in scale.” It continues: “the competitive threat to traditional office- and hospital-based physicians became clear. The TMB began working to stamp out this threat to competing physicians.”

The suit then lists the way the board has attempted to limit telemedicine in Texas: Namely, in October 2010, when it tried to adopt a new rule requiring in-person physical examination before any video consult, and in June 2011, when it sent a letter to Teladoc threatening to discipline participating doctors for prescribing medicine without being in the room. That time, Teladoc sued and won after years of appeals, in which the ultimate decision forced the board to follow the proper channels to amending its rule—draft the changes, accept input from stakeholders, publish them in the Texas Register, hold a two to three week period for public comment, and then decide whether to adopt.

In April, it finally did. The rules effectively gut Teladoc’s business model: It contracts with employers and insurance plans, costs no more than $40, and connects the patient to a randomized licensed physician through a HIPAA-compliant web portal within about 10 minutes. It’s not meant to replace a primary care physician; instead, it’s meant to help when the individual cannot gain access to their doctor. Jason Gorevic, the company’s CEO, says 47 percent of its usage is on nights, weekends, and holidays. Physicians are also not allowed to prescribe controlled substances.

The lawsuit says the board’s new rules have no medical backing, presenting as evidence that the company hasn’t had a medical liability claim in more than 700,000 consultations. Its revenue has ballooned from $6.4 million in 2011 to $44 million in 2014, and alleges that the 14-member board, 12 of whom are practicing physicians, is attempting to stifle the practice to keep competition away from patients.

“Disrupting Teladoc’s business in Texas at this point in its trajectory will certainly cause injury that will therefore be exceedingly difficult to quantify,” reads the lawsuit. “Teladoc’s growth has been so dramatic that its past revenues bear little relation to its likely future success.”

In an email, a spokesman for the Texas Medical Board said it “stands by the rules as adopted but cannot comment any further due to ongoing litigation.” The board, which voted 13-1 to adopt the restrictions, has said that requiring in-person consultations will prevent misdiagnoses and incorrect prescriptions.

Meanwhile, the suit may be telemedicine’s best chance at combatting the rules. Legislation does exist that would strike the provision out of the Medical Board’s rules, but nothing has made it out of committee. For instance, Rep. Jodie Laubenberg, R-Parker, filed H.B. 3444 in an effort to put the discretion in the hands of the physician regarding whether an in-person consultation is necessary to diagnose and treat. It was referred to the Public Health committee, where it remains nearly six weeks later.

Teladoc operates in all 50 states and connects 700 board-certified, state-licensed physicians with close to 11 million patients. An estimated 2.4 million of those are in Texas. It is the largest telehealth provider in the country.

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