Guardians or Gatekeepers?

Industry Capture of Dental Boards 10 Years after NC Dental

By Joshua Polk, Stephen Slivinski, and Caleb Trotter

In February 2015, the Supreme Court of the United States handed down its decision in North Carolina Board of Dental Examiners v. FTC (NC Dental). The case centered on the actions of the North Carolina licensing board for dentists. That board had sent over 40 cease-and-desist letters to individuals who were offering teeth-whitening services. Because many of these service providers were operating in shopping malls, letters were also sent to the malls’ management too.

The board insisted that teeth-whitening services could not be provided legally without a dental license from the state, thus requiring people providing teeth-whitening services to go to dental school, which can take months and cost thousands of dollars.

State law required six of the eight board seats to be held by licensed dentists and one of the eight board seats to be held by a licensed dental hygienist—professionals who also offer teeth-whitening services, who may see unlicensed providers as competitors, and who could have an interest in excluding such competitors from the dental profession.¹ N.C. Gen. Stat. Ann. § 90–22(a) (2013).

In NC Dental, the Supreme Court held that “a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates” could be in violation of federal antitrust laws.² North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S. 494 (2015). The logic was simple: if a majority of seats on a licensing board are filled with those who are already licensed and actively engaged in the profession—in other words, those who have an incentive to use their power as a board to keep out and punish competitors—then that board does not necessarily possess the federal antitrust immunity that other government entities enjoy.³ Parker v. Brown, 317 U.S. 341 (1943).

The composition of any board that is given the power by a state government to regulate an occupation is an important factor in determining whether antitrust protection is warranted. As Justice Anthony Kennedy writes in the NC Dental majority opinion, “The similarities between agencies controlled by active market participants and private trade associations are not eliminated simply because the former are given a formal designation by the State, vested with a measure of government power, and required to follow some procedural rules.”⁴ North Carolina State Board of Dental Examiners, 574 U.S. at 511.

Ten years later, almost all state dental licensing boards are in violation of the standards set by the Supreme Court in NC Dental. Dental boards are at least 60 percent dominated by “active market participants” in all 50 states.⁵ Justice Anthony Kennedy uses the term “active market participant” in his opinion, and it is defined here as a voting board member that is considered an industry practitioner—i.e., an incumbent license-holder in a field (the dental field, in this case). This definition does not include nonvoting board members. North Carolina State Board of Dental Examiners, 574 U.S. at 511. The average seat share for active market participants is around 85 percent. In other words, more than four of every five board seats are held by licensed dental professionals.

• Since the NC Dental case was decided, no state has changed its laws to decrease the control of dental boards by active market participants.
• Three states—Georgia, Michigan, and North Dakota—have increased the number of board seats held by active market participants since the NC Dental case was decided. Another state, Texas, reduced the total number of seats (via a reduction in public seats) on the board, which had the effect of increasing the dominance of active market participants.
• Eight states allow active-market-participant control of dental licensing board nominations. In those states, the law requires that the governor choose board members only from a list provided by a state or national dental association.

Occupational licensing laws are not enforced the same way as most other laws. State regulatory boards, armed with rulemaking and enforcement authority, are the entities usually responsible for administering occupational licensing laws. Boards often use this power, delegated to them by state legislatures, to impose anticompetitive burdens on the members of the professions they regulate, frequently with limited accountability.

For example, in 2020, the Texas State Board of Dental Examiners issued guidance for dental practices during the COVID-19 pandemic. Buried within this guidance was a declaration that “dentists in Texas are not authorized to practice teledentistry” because “Texas currently does not have rules that would permit teledentistry.”⁶ “Important COVID-19 Information,” Texas State Board of Dental Examiners, accessed April 11, 2020, https://tsbde.texas.gov/covid-19/. No statute or rule banned teledentistry, and no statute authorized the board to ban teledentistry; but the board interpreted its own rule about documenting the findings of tactile dental examinations to require a tactile examination at every dental visit, thereby imposing a de facto ban on remote examinations.

Pacific Legal Foundation (PLF) filed a lawsuit challenging the board’s decree, arguing that the board’s interpretation of the regulation was not reasonable or necessary.⁷ “Defending the Right to Practice Teledentistry from State-Sponsored Protectionism,” Pacific Legal Foundation, accessed October 18, 2024, https://pacificlegal.org/case/theteledentists/. PLF argued also that the board’s decree adversely affected rural Texans and Texans seeking dental assistance while offices were closed in the early days of the pandemic. Whereas banning teledentistry does not benefit patients, PLF argued, the ban does tend to benefit brick-and-mortar dental offices that no longer have to compete against teledentistry providers. After PLF filed its lawsuit, the state legislature prohibited the board from banning teledentistry in the state.⁸ “Defending the Right to Practice Teledentistry.” In most cases, however, anticompetitive behavior by boards goes unchallenged.

Political economy predicts this anticompetitive behavior: state regulatory boards are often controlled by parties that would tend to benefit financially from raising barriers to new competition.⁹ For example, in 2021, the year PLF filed its lawsuit, 9 of the 11 members of the Texas State Board of Dental Examiners were practicing members of the dental industry. Using this state-granted privilege, board members who are themselves industry incumbents can deny opportunities to prospective providers by raising barriers to entry or exercising enforcement authority to quash innovation. Restricting entry in turn reduces the supply of services, which increases costs for customers and decreases consumer choice. Some political economists argue that cartels of existing businesses and industry incumbents use regulatory authority to protect themselves against competition from new practitioners in their field, and this harms consumers.¹⁰ Morris M. Kleiner and Evgeny S. Vorotnikov, At What Cost? State and National Estimates of the Economic Costs of Occupational Licensing (Arlington, VA: Institute for Justice, 2018); Jie Chen, Chad D. Meyerhoefer, and Edward J. Timmons, “The Effects of Dental Hygienist Autonomy on Dental Care Utilization” (working paper no. 2020.011, Center for Growth and Opportunity, Logan, UT, June 2020).

Given the percentage of seats that are required by law to be filled with licensed dental service providers, all state dental boards risk antitrust liability today in light of NC Dental. Not a single dental board has less than a 67 percent majority of active market participants (see table 1).

Table 1. Percentage of Active Market Participants on Dental Licensing Boards

In practice, moreover, an average of 85 percent of dental board seats are filled by active market participants (e.g., licensed dentists or other dental service providers, such as hygienists). That’s more than four industry incumbents for every five board seats. The other seats, an average of 15 percent, are usually held by members of the public at large with no affiliation to the dental industry. In four states—Alabama, Mississippi, Tennessee, and Wyoming—the dental board has no public members and only industry incumbents. Having such a high percentage of incumbents controlling who enters the field can indicate board capture of an industry. A previously published analysis of over 1,700 state licensing boards finds that over four-fifths of boards are required to have a majority of active market participants.¹¹ Rebecca Haw Allensworth, “Foxes at the Henhouse: Occupational Licensing Boards Up Close,” California Law Review 105, no. 6 (2017): 1567–1610.

The domination of occupational licensing boards by industry incumbents existed for years before the NC Dental decision,¹² Allensworth, “Foxes at the Henhouse.” and it has persisted after the decision was handed down as well, long after state policymakers would reasonably have known that their licensing board structures might run afoul of the Supreme Court’s holding.

A comparison between today’s state laws on dental board structure and those that existed a year or two before NC Dental was decided shows that no board has reduced its required percentage of active market participants. In fact, three states have increased the number of active market participants required on their dental boards: Michigan and North Dakota both increased it by two members, and Georgia increased it by six members. Texas decreased the number of active market participants required on its dental board by one, but it also cut the total number of overall board seats from 15 to 11. This reduction was accomplished by simultaneously decreasing the public non-industry seats from five to two. Doing so resulted in an overall increase of active market participant seat share, from 67 percent to 82 percent.

Licensing boards controlled by active market participants have an incentive to restrict competition in the provision of services in their state. States have in the past 10 years done little to reduce the control of licensing boards by these industry incumbents, and in some cases they have strengthened that control. This trend not only increases the chances that a state licensing board will be subject to antitrust suits or increased scrutiny by the federal government or the courts, but it also likely reduces the supply of services (in this case, dental services), which tends to increase the cost of these services for consumers and restrict the opportunities of entrepreneurs and workers. If states want to reduce the antitrust liability of their licensing boards, they should reduce the dominance of active market participants, whether by reducing the number of seats they hold, by reducing the power the boards have, or by initiating legislative or executive oversight.