Breaking Down the Legal Challenges Surrounding State Licensure Restrictions for Telehealth Providers

Amy Cooperstein, Amy Lerman, Kyla Portnoy

Late last year, the case Shannon MacDonald, MD, et al v. Otto Sabando was filed in the U.S. District Court for the District of New Jersey. The plaintiffs claimed that New Jersey’s licensure restrictions on the use of telehealth were unconstitutional as they infringe on basic civil rights everyone has and therefore should be struck down. However, the defendants argued that the licensure of physicians is within the jurisdiction of states to decide and regulate such that New Jersey’s licensure laws do not violate the U.S. Constitution. EBG discussed the initial arguments in this lawsuit in one of our previous posts.

After the case was filed, the defendants were given an initial deadline to respond. The court granted one extension to the initial deadline to the defendants, who subsequently sent a letter to the court in March 2024. In their March 18, 2024 letter, the defendants explained that although the practice of medicine has evolved such that patients can now be treated remotely through telehealth, it is still recognized that the practice of medicine occurs where the patient is located at the time of the physician-patient encounter, and so New Jersey has the right to continue to require any provider who treats a patient in state be licensed by the state to do so. As a result, the defendants alerted the court that they anticipate seeking dismissal of plaintiff’s claims.

On March 25, 2024, the plaintiffs responded to the defendant’s letter indicating that they plan to oppose defendant’s anticipated motion to dismiss. They state that they are seeking declaratory and injunctive relief against the state requirement that licensed out-of-state physicians must obtain duplicative licenses in New Jersey before engaging in conversations via telehealth. They argue that while telehealth allows New Jersey patients to access medical experts located out of state to consult about potential treatment options unavailable in New Jersey and to follow-up after treatment has been provided, New Jersey law only makes those experts available to New Jersey patients if the patient physically travels to see the expert in person.

On April 12, 2024, the defendants filed a motion to dismiss for failure to state a claim. First, they argued that the state’s licensing requirement does not violate the dormant Commerce Clause. In assessing a dormant Commerce Clause claim, the defendants stated that courts first ask whether heightened scrutiny applies, and then if not, whether the law is invalid under the Pike balancing test. Here, defendants argued, heightened scrutiny is inapplicable because the telehealth licensing requirement is neither facially nor effectively discriminatory against out-of-state practitioners and is not motivated by economic protectionism. Next, the defendants argued that the state’s licensing requirement satisfies the Pike balancing test because it is an evenhanded regulation that applies to any practitioner who seeks to treat New Jersey patients via telehealth regardless of whether they live in the state; it effectuates a legitimate local public interest by regulating health and safety in a nondiscriminatory way; the extra burden of getting licensed in New Jersey to practice is hardly “prohibitive” or “substantial”, but rather “incidental”; and this “incidental” burden of getting licensed does not clearly exceed the telehealth-licensing requirement’s benefits.

The second argument the defendants make in their motion to dismiss is that the state’s licensing requirement does not violate the Privileges and Immunities Clause because it is neither discriminatory nor protectionist, and it is substantially related to important government interests. The licensing requirement does not facially or effectively discriminate against nonresidents, and even if it did, it would still fall outside the reach of the Privileges and Immunities Clause because it is not enacted for the protectionist purpose of burdening out-of-state citizens, but rather a directly non-protectionist purpose of ensuring the health and safety of New Jersey citizens. Further, defendants argue that the requirement is substantially related to important government interests because the money and time it takes to get licensed in New Jersey does not place a disproportionately heavy burden on non-residents, and is substantially related to the state’s strong interest in regulating the practice of medicine in its jurisdiction.

The third argument the defendants make in their motion to dismiss is that the state’s licensing requirement does not violate the First Amendment. They argue that the requirement is content neutral, so it only requires rational basis review. The licensing requirement for the practice of medicine is content neutral because it does not place any limits or conditions on what a licensed provider may say in providing care, nor does it depend on what is said between the provider and patient during any episode of care. Rather, the state only regulates the requirements for obtaining a license to practice medicine, and not what the provider can say during any provider-patient interaction. As such, the defendants argue that the state’s licensing requirement satisfies rational basis review because it has a rational connection with the applicant’s fitness or capacity to practice medicine.

Finally, the defendants argue in their motion to dismiss that the state’s licensing requirement does not violate the Fourteenth Amendment because it does not implicate a fundamental right. Though plaintiffs argue that the Fourteenth Amendment recognizes the due process right of a parent to “direct the care, custody, and control” of their child, the Third Circuit has expressly held that this right does not extend to parents’ choice of their child’s particular treatment or health-care provider. See, e.g., Sammon v. N.J. Bd. of Med. Examiners, 66 F.3d 639, 644-47 (3d Cir. 1995); Doe v. Governor of N.J., 783 F.3d 150, 156 (3d Cir. 2015).

EBG will continue to monitor future developments in the progression of the MacDonald case, as well as other developments related to licensure flexibilities for telehealth providers. This was an issue discussed during a recent hearing conducted by the House Energy and Commerce Committee, during which lawmakers spent considerable time focused on telehealth licensure challenges, with varying advice from the assembled witnesses.

For additional information about the issues discussed in this post, or if you have any other questions or concerns regarding state licensure or other regulatory requirements for provision of telemedicine services, please contact one of the authors of this post or the EBG attorney who regularly handles your legal matters.