Because Oklahoma’s state licensure boards are dominated by industry players who compete with those they regulate, and because no politically accountable entity is authorized to overrule a licensure board’s decision, much of the state licensure system likely violates federal antitrust law and leaves Oklahoma subject to successful lawsuits, according to a state watchdog entity.

Several officials say the Legislature cannot continue to ignore that problem.

“It seems like we are sitting on a time bomb,” said state Rep. Ryan Martinez, R-Edmond.

A new report issued by the Oklahoma Legislative Office of Fiscal Transparency (LOFT) reviewed several state entities that regulate licensure in—and therefore access to—several professions.

The entities scrutinized by LOFT were the Board of Cosmetology and Barbering, Horse Racing Commission, Board of Medical Licensure and Regulation, Board of Nursing, and Board of Pharmacy.

LOFT reviewers found that Oklahoma is one of only five states in the nation to operate its occupational licensing boards under a fully autonomous governance structure, and reviewers found “limited transparency and oversight with this model.”

“It is common for Oklahoma’s licensing boards to be composed primarily of members who are active practitioners within the industry being regulated,” the LOFT report stated. “While the insight of licensed professionals is valuable and even necessary for proper regulation, it presents well-documented concerns about the impartiality of the boards, particularly whether access and competition is being unnecessarily limited. Courts have determined the sovereignty of state government exempts it from federal antitrust law, but if licensing boards are controlled by market participants they must operate under independent oversight. Currently, Oklahoma’s structure does not have independent oversight by any single entity or individual.”

Membership on many licensure boards is effectively controlled by businesses already in the market, because state law requires the governor to appoint many board members who have been endorsed by an industry group. Not only is the governor’s role in appointments limited, but LOFT noted many licensure-board appointments do not require Senate approval.

And LOFT noted that state politicians have only limited authority to intervene if a board’s actions exceed their legal authority.

That creates antitrust liability for the state of Oklahoma. In its North Carolina Board of Dental Examiners v. Federal Trade Commission ruling, the U.S. Supreme Court held that state-action antitrust immunity does not apply to a state board that restrains access to an occupation when a majority of the board’s decision-makers are active market participants and the state does not actively supervise the board.

“I do believe that Oklahoma is open to liability under the FTC v. North Carolina Dental Examiners Board (decision),” Mike Davis, program evaluator for LOFT, told lawmakers on the LOFT oversight committee. “We do have AG (attorney general) review of potentially anti-competitive board decisions, and boards are bound to follow that. Board members can be replaced. But the attorney general does not have the direct authority to overrule those decisions.”

State Rep. Jon Echols, R-Oklahoma City, noted that in Oklahoma the “majority of these boards” are “controlled by the industry” and those with power to approve licenses are often “direct competitors” to the individuals seeking licensure.

“I’m shocked we haven’t been sued yet,” Echols said.

He noted one state board is reportedly poised to consider decertification of a nursing program, which Echols said could create legal problems for the state if the nursing school closes and any licensure-board-connected competitor benefits.

LOFT said lawmakers could address the liability issue by placing all licensing boards under the direction of a single agency whose director can overrule board decisions, or by assigning an elected or appointed-and-confirmed state official with the duty to review and power to overrule board actions.

Labor Commissioner Leslie Osborn dismissed calls to reform the system, particularly the idea of putting most licensing boards under the oversight of one agency.

“I do feel like a lot of times we do look at outside studies and create answers to things that are not problems,” Osborn said.

To illustrate potential problems with LOFT’s proposed reform, Osborn suggested single-agency oversight of licensing boards could place someone with experience in regulation of dentistry with administrative oversight of nurses.

But one lawmaker said Osborn was wrong to downplay the potential legal problems facing state government under the existing licensure-and-regulatory system.

“I think we need to take some of this a little more seriously than just setting up straw men and knocking them back down,” said Senate Majority Floor Leader Greg McCortney, R-Ada.

He said the “federal antitrust part is frightening, for sure, and I think that’s something that we’ve got to figure out.”

Mike Jackson, executive director of LOFT, told lawmakers the key is to have someone in charge who can be held accountable by voters, at least indirectly, through the political process

“As long as a politically accountable individual has the ability to overturn one of those decisions by the board,” Jackson said, “that should be remedy enough to address the case law.”